-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bh+WWCe6yB+4hIlbhDuoWxFAJThN6X1RAbOrtZTZ1m08UQgfqX+q/5LXiR6kr9AY AFTsxhE2eYEc6Fr6z/fFLw== 0000950123-03-010889.txt : 20030929 0000950123-03-010889.hdr.sgml : 20030929 20030929153634 ACCESSION NUMBER: 0000950123-03-010889 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030929 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030929 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOORE WALLACE INC CENTRAL INDEX KEY: 0000067931 STANDARD INDUSTRIAL CLASSIFICATION: MANIFOLD BUSINESS FORMS [2761] IRS NUMBER: 980154502 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08014 FILM NUMBER: 03914878 BUSINESS ADDRESS: STREET 1: 6100 VIPOND DRIVE STREET 2: MISSISSAUGA CITY: ONTARIO STATE: A6 ZIP: L5T 2X1 BUSINESS PHONE: 905 362-3100 MAIL ADDRESS: STREET 1: 6100 VIPOND DRIVE CITY: MISSISSAUGA, ONTARIO STATE: A6 ZIP: L5T 2X1 FORMER COMPANY: FORMER CONFORMED NAME: MOORE CORPORATION LTD DATE OF NAME CHANGE: 19960820 8-K 1 y90227e8vk.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): September 29, 2003 Moore Wallace Incorporated -------------------------- (Exact name of registrant as specified in its charter) Canada 1-8014 98-0154502 ------ ------ ---------- (State or other jurisdiction of (Commission File (IRS Employer incorporation) Number) Identification No.) 6100 Vipond Drive Mississauga, Ontario, Canada L5T 2X1 ---------------------------- ------- (Address of principal executive offices) (Zip Code) (905) 362-3100 -------------------- (Registrant's telephone number, including area code) N/A -------------------- (Former name or former address, if changed since last report) ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (C) EXHIBITS.
Exhibit Number Description 23.1 Consent of PricewaterhouseCoopers LLP 23.2 Consent of Deloitte & Touche LLP 99.1 The consolidated financial statements of Moore Corporation Limited as at December 31, 2002 and 2001 and for the years ended December 31, 2002, 2001 and 2000 are attached in Exhibit 99.1. 99.2 The interim consolidated financial statements of Moore Wallace Incorporated (formerly Moore Corporation Limited) as at June 30, 2003 and for the three- and six-months ended June 30, 2003 and 2002 are attached in Exhibit 99.2.
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MOORE WALLACE INCORPORATED Date: September 29, 2003 By: /s/ Mark S. Hiltwein ------------------------------------ Name: Mark S. Hiltwein Title: Executive Vice President and Chief Financial Officer EXHIBIT INDEX
Exhibit Number Description 23.1 Consent of PricewaterhouseCoopers LLP 23.2 Consent of Deloitte & Touche LLP 99.1 Consolidated Financial Statements of Moore Corporation Limited as at December 31, 2002 and 2001 and for the Years Ended December 31, 2002, 2001 and 2000 99.2 Interim Consolidated Financial Statements of Moore Wallace Incorporated (formerly Moore Corporation Limited) as at June 30, 2003 and for the Three-and Six-Months Ended June 30, 2003 and 2002
EX-23.1 3 y90227exv23w1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements (Nos. 333-86252, 333-10630, 333-6366, 333-103180, 333-105757 and 333-105758) on Form S-8 and the Registration Statement (No. 333-82728) on Form S-3 of our reports dated February 22, 2001 relating to the consolidated financial statements of Moore Corporation Limited for the year ended December 31, 2000, which appear in this Current Report on Form 8-K dated September 29, 2003. We also consent to the reference to us under the heading "Experts" to the above Registration Statement on Form S-3. We also consent to the incorporation by reference in the Registration Statements (Nos. 333-86252, 333-10630, 333-6366, 333-103180, 333-105757 and 333-105758) on Form S-8 and the Registration Statement (No. 333-82728) on Form S-3 of Moore Corporation Limited of our report dated February 22, 2001, related to the financial statement schedule of Moore Corporation Limited, appearing in the Annual Report on Form 10-K of Moore Corporation Limited for the year ended December 31, 2002. "PricewaterhouseCoopers LLP" Chartered Accountants Toronto, Canada September 25, 2003 EX-23.2 4 y90227exv23w2.txt CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statements (Nos. 333-86252, 333-10630, 333-6366, 333-103180, 333-105757 and 333-105758) on Form S-8 and the Registration Statement (No. 333-82728) on Form S-3 of our reports dated February 12, 2003, except as to Notes 27 and 28, which are as of September 25, 2003, related to the consolidated financial statements of Moore Wallace Incorporated (formerly Moore Corporation Limited), (which audit report expresses an unqualified opinion and includes an additional paragraph regarding the audit procedures we applied to certain adjustments made to Moore Corporation Limited's 2000 financial statements for the change in accounting policy related to earnings per share, restatement of the segmented information, and the reclassifications to conform to the current year's presentation but does not express an opinion or any form of assurance on the 2000 financial statements taken as a whole) appearing in this Current Report on Form 8-K dated September 29, 2003. We also consent to the incorporation by reference in the Registration Statements (Nos. 333-86252, 333-10630, 333-6366, 333-103180, 333-105757 and 333-105758) on Form S-8 and the Registration Statement (No. 333-82728) on Form S-3 of Moore Wallace Incorporated (formerly known as Moore Corporation Limited) of our report dated February 12, 2003, related to the financial statement schedule of Moore Corporation Limited, appearing in the Annual Report on Form 10-K of Moore Corporation Limited for the year ended December 31, 2002. DELOITTE & TOUCHE LLP Toronto, Canada September 25, 2003 EX-99.1 5 y90227exv99w1.txt CONSOLIDATED FINANCIAL STATEMENTS-MOORE CORP LTD. Exhibit 99.1 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF MOORE CORPORATION LIMITED: We have audited the consolidated balance sheets of Moore Corporation Limited (the "Corporation") as at December 31, 2002 and 2001 and the consolidated statements of operations, retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and auditing standards generally accepted in the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as at December 31, 2002 and 2001 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. The financial statements for the year ended December 31, 2000, prior to the change in accounting policy for earnings per share as described in Note 2, the reclassification of segmented information in Note 20 to conform with management's process for making decisions with regard to resource allocation and performance evaluation and reclassification of various amounts to conform to the current year's presentation and disclosure of net loss and net loss per share adjusted to exclude amortization expense related to goodwill as described in Note 7, were audited by other auditors who expressed an opinion without reservation on those statements in their report dated February 22, 2001. We have audited the adjustments and reclassifications to the 2000 financial statements and, in our opinion, such adjustments and reclassifications, in all material respects, are appropriate and have been properly applied. (Signed) DELOITTE & TOUCHE LLP Toronto, Canada February 12, 2003 except as to Notes 27 and 28, which are as of September 25, 2003 F-1 COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA -- UNITED STATES OF AMERICA REPORTING DIFFERENCE In the United States of America, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there are changes in accounting principles that have a material effect on the comparability of the Corporation's financial statements, such as the changes described in Note 2 to the financial statements. Our report to the shareholders dated February 12, 2003 is expressed in accordance with Canadian reporting standards which do not require a reference to such changes in accounting principles in the auditors' report when the change is properly accounted for and adequately disclosed in the financial statements. (Signed) DELOITTE & TOUCHE LLP Toronto, Canada February 12, 2003 F-2 AUDITORS' REPORT TO THE SHAREHOLDERS OF MOORE CORPORATION LIMITED: We have audited the consolidated statements of operations, retained earnings and cash flows of Moore Corporation Limited for the year ended December 31, 2000. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Canada and the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the results of the Corporation's operations, and cash flows for the year ended December 31, 2000 in accordance with generally accepted accounting principles in Canada. /s/ PRICEWATERHOUSECOOPERS LLP -------------------------------------- PricewaterhouseCoopers LLP Chartered Accountants Toronto, Canada February 22, 2001 F-3 COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA -- U.S. REPORTING DIFFERENCE In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is a change in accounting principles that has a material effect on the comparability of the Corporation's financial statements, such as the changes for employee future benefits and accounting for income taxes described in Note 2 to the financial statements. Our report to the shareholders dated February 22, 2001 is expressed in accordance with Canadian reporting standards which do not require a reference to such changes in accounting principles in the auditors' report when the change is properly accounted for and adequately disclosed in the financial statements. /s/ PRICEWATERHOUSECOOPERS LLP -------------------------------------- PricewaterhouseCoopers LLP Chartered Accountants Toronto, Canada February 22, 2001 F-4 MOORE CORPORATION LIMITED CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, EXPRESSED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA
2002 2001 ---------- ---------- ASSETS Current Assets Cash and cash equivalents................................. $ 139,630 $ 84,855 Accounts receivable, less allowance for doubtful accounts of $19,538 (2001 -- $22,057)........................... 341,383 336,153 Inventories (Note 4)...................................... 129,889 128,421 Prepaid expenses.......................................... 17,317 13,544 Deferred income taxes (Note 18)........................... 31,912 13,566 ---------- ---------- Total Current Assets........................................ 660,131 576,539 ---------- ---------- Property, plant and equipment -- net (Note 5)............... 255,722 307,640 Investments (Note 6)........................................ 32,256 32,204 Prepaid pension cost (Note 14).............................. 221,520 215,752 Goodwill -- net (Note 7).................................... 106,254 41,857 Other intangibles -- net (Note 7).......................... 6,434 437 Deferred income taxes (Note 18)............................. 53,938 47,651 Other assets (Note 8)....................................... 103,504 114,906 ---------- ---------- Total Assets................................................ $1,439,759 $1,336,986 ========== ========== LIABILITIES Current Liabilities Bank indebtedness......................................... $ 18,158 $ 56,181 Accounts payable and accrued liabilities (Note 9)......... 486,507 486,626 Short-term debt (Note 10)................................. 2,135 18,034 Income taxes.............................................. 58,562 27,677 Deferred income taxes (Note 18)........................... 3,184 324 ---------- ---------- Total Current Liabilities................................. 568,546 588,842 ---------- ---------- Long-term debt (Note 10).................................... 187,463 111,062 Postretirement benefits (Note 15)........................... 241,344 239,664 Deferred income taxes (Note 18)............................. 9,482 13,705 Other liabilities (Note 11)................................. 43,776 51,263 Minority interest........................................... 6,652 11,200 ---------- ---------- Total Liabilities........................................... 1,057,263 1,015,736 ========== ========== SHAREHOLDERS' EQUITY Share Capital (Note 12) Authorized: Unlimited number of preference (none outstanding for 2002 and 2001) and common shares without par value Issued: 111,842,348 common shares in 2002 111,803,651 common shares in 2001.................... 403,800 397,761 Unearned restricted shares (Note 12)...................... (2,572) -- Retained earnings......................................... 114,601 51,666 Cumulative translation adjustments (Note 13).............. (133,333) (128,177) ---------- ---------- Total Shareholders' Equity.................................. 382,496 321,250 ---------- ---------- Total Liabilities and Shareholders' Equity.................. $1,439,759 $1,336,986 ========== ==========
See Notes to Consolidated Financial Statements F-5 MOORE CORPORATION LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE AND PER SHARE DATA
2002 2001 2000 ---------- ---------- ---------- Net sales................................................ $2,038,039 $2,154,574 $2,258,418 ---------- ---------- ---------- Cost of sales............................................ 1,390,007 1,552,561 1,598,525 Selling, general and administrative expenses............. 459,613 575,586 578,642 Provision for (recovery of) restructuring costs -- net... (850) 129,679 (24,033) Depreciation and amortization (includes impairment charges of $131,393 for 2001 and $36,621 for 2000)..... 86,746 239,072 151,518 ---------- ---------- ---------- 1,935,516 2,496,898 2,304,652 ---------- ---------- ---------- Income (loss) from operations............................ 102,523 (342,324) (46,234) Investment and other income (expense).................... 3,720 (10,721) (14,342) Interest expense -- net.................................. 12,145 23,758 21,016 Debt settlement and issue costs.......................... 16,746 11,617 -- ---------- ---------- ---------- Earnings (loss) before income taxes and minority interest............................................... 77,352 (388,420) (81,592) Income tax expense (recovery)............................ 2,472 (32,192) (17,377) Minority interest........................................ 1,622 1,810 2,157 ---------- ---------- ---------- Net earnings (loss)...................................... $ 73,258 $ (358,038) $ (66,372) Distribution to certain convertible debenture holders (Note 10).............................................. -- 15,345 -- ---------- ---------- ---------- Net earnings (loss) available to common shareholders..... $ 73,258 $ (373,383) $ (66,372) ========== ========== ========== Net earnings (loss) per common share: Basic.................................................. $ 0.66 $ (4.21) $ (0.75) Diluted................................................ 0.64 (4.21) (0.75) Average shares outstanding (in thousands): Basic.................................................. 111,556 88,648 88,457 Diluted................................................ 114,022 88,648 88,457
F-6 MOORE CORPORATION LIMITED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS YEARS ENDED DECEMBER 31, EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE AND PER SHARE DATA
2002 2001 2000 -------- --------- -------- Balance at beginning of the year, as previously reported.... $ 51,666 $ 431,821 $480,049 Change in accounting policy: Income taxes (Note 2)..................................... -- -- 2,443 Employee future benefits (Note 2)......................... -- -- 33,295 -------- --------- -------- Balance at beginning of the year, as restated............... 51,666 431,821 515,787 Net earnings (loss)......................................... 73,258 (358,038) (66,372) -------- --------- -------- 124,924 73,783 449,415 Repurchase of common shares (1,069,700 in 2002)............. 10,323 -- -- Subordinated convertible debentures......................... -- 17,694 -- Dividends (5c per share in 2001 and 20c per share in 2000)..................................................... -- 4,423 17,594 -------- --------- -------- Balance at end of year...................................... $114,601 $ 51,666 $431,821 ======== ========= ========
See Notes to Consolidated Financial Statements F-7 MOORE CORPORATION LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, EXPRESSED IN THOUSANDS OF U.S. DOLLARS
2002 2001 2000 --------- --------- --------- OPERATING ACTIVITIES Net earnings (loss)......................................... $ 73,258 $(358,038) $ (66,372) Items not affecting cash resources: Depreciation and amortization(a).......................... 86,746 239,072 152,546 Net (gain) loss on sale of assets......................... (8,730) 5,824 2,630 Net loss on write-off and sale of investments............. 2,801 -- 11,974 Deferred income taxes..................................... (25,996) (35,103) (13,027) Pension settlement -- net................................. -- 96,605 -- Provision for (recovery of) restructuring costs -- net.... (850) 129,679 (24,033) Debt settlement and issue cost............................ 16,746 11,617 -- Restricted share compensation............................. 1,093 -- -- Other..................................................... (10,804) 3,048 12,367 Changes in working capital other than cash resources: Accounts receivable -- net................................ (638) 44,684 69,780 Inventories............................................... 6,026 21,037 24,181 Accounts payable and accrued liabilities.................. (9,741) (19,378) (134,989) Income taxes.............................................. 32,133 (4,417) (639) Other..................................................... (3,649) 2,491 2,902 --------- --------- --------- Net cash provided by operating activities................... 158,395 137,121 37,320 --------- --------- --------- INVESTING ACTIVITIES Property, plant and equipment -- net........................ (8,941) (37,072) (39,543) Long-term receivables and other investments................. (5,028) (3,489) 527 Acquisition of businesses................................... (65,966) (14,565) (3,351) Proceeds from sale of investment and other assets........... -- 38,495 13,178 Software expenditures....................................... (10,958) (6,517) (28,795) Other....................................................... (1,615) 1,210 (842) --------- --------- --------- Net cash used by investing activities....................... (92,508) (21,938) (58,826) --------- --------- --------- FINANCING ACTIVITIES Dividends paid.............................................. -- (8,846) (17,594) Net change in short-term debt............................... (15,899) 15,325 (37,431) Proceeds from issuance of long-term debt.................... 200,000 7,963 6,003 Payments on long-term debt.................................. (140,264) (104,166) (1,776) Issuance (conversion) of convertible debentures............. -- (1,600) 58,660 Issuance (repurchase) of common shares -- net............... (7,949) -- -- Other....................................................... (8,827) (1,744) (5,753) --------- --------- --------- Net cash provided (used) by financing activities............ 27,061 (93,068) 2,109 --------- --------- --------- Effect of exchange rate on cash............................. (150) (551) 1,414 Increase (decrease) in cash resources....................... 92,798 21,564 (17,983) Cash resources at beginning of year(b)...................... 28,674 7,110 25,093 --------- --------- --------- Cash resources at end of year(b)............................ $ 121,472 $ 28,674 $ 7,110 --------- --------- --------- Supplemental disclosure of cash flow information: --------- --------- --------- Interest paid............................................... $ 13,324 $ 26,594 $ 25,288 --------- --------- --------- Income taxes paid (refunded) -- net......................... (1,041) 3,425 5,314 --------- --------- ---------
- --------------- (a) Includes depreciation of $1,028 that has been classified in cost of sales in 2000. (b) Cash resources are defined as cash and cash equivalents less bank indebtedness. See Notes to Consolidated Financial Statements F-8 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE INDICATED) 1. SUMMARY OF ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION Moore Corporation Limited is a corporation continued under the Canada Business Corporation Act. The consolidated financial statements, which are prepared in accordance with Canadian generally accepted accounting principles (GAAP), include the accounts of Moore Corporation Limited and its subsidiaries. Entities that are not controlled and over which the Corporation has significant influence are accounted for under the equity method. All other investments are accounted for on the cost basis. The Corporation does not have any transactions with unconsolidated special purpose entities or variable interest entities. All intercompany transactions have been eliminated. Comparative figures have been reclassified where appropriate to conform to the current presentation. Significant differences between Canadian and U.S. GAAP are discussed in Note 25. REVENUE RECOGNITION The Corporation typically recognizes revenue for the majority of its products upon shipment to the customer and the transfer of title. Under agreements with certain customers, custom forms may be stored by the Corporation for future delivery. In these situations, the Corporation receives a logistics and warehouse management fee for the services provided. In these cases, delivery and billing schedules are outlined with the customer and product revenue is recognized when manufacturing is complete, title transfers to the customer, the order is invoiced and there is reasonable assurance of collectability. Since the majority of products are customized, product returns are not significant, however, the Corporation accrues for the estimated amount of customer credits at the time of sale. Revenue from services is recognized as services are performed. Long-term product contract revenue is recognized based on the completed contract method or percentage of completion method. The percentage of completion method is used only for contracts that will take longer than three months to complete, and project stages are clearly defined and can be invoiced. The contract must also contain enforceable rights by both parties. Revenue related to short-term service contracts and contracts that do not meet the percentage of completion criteria is recognized when the contract is completed. TRANSLATION OF FOREIGN CURRENCIES The consolidated financial statements are expressed in United States dollars because a significant part of the Corporation's net assets and earnings are located or originate in the United States. Except for the foreign currency financial statements of subsidiaries in countries with highly inflationary economies, Canadian and other foreign currency financial statements are translated into United States dollars on the following bases: all assets and liabilities at the year-end exchange rates; income and expenses at average exchange rates during the year. Net unrealized exchange adjustments arising on translation of foreign currency financial statements are charged or credited directly to shareholders' equity and shown as cumulative translation adjustments. The foreign currency financial statements of subsidiaries in countries with highly inflationary economies are translated into United States dollars using the temporal method whereby monetary items are translated at current exchange rates, and non-monetary items are translated at historical exchange rates. In 2001, Venezuela was the only highly inflationary economy in which the Corporation operated. In 2002, Venezuela's economy was no longer considered highly inflationary, and the impact of this change in method of translation was not material to the consolidated financial statements. Exchange losses or gains are included in earnings. In 2001, a loss of $2,936 is included in investment and other income. Amounts included in investment and other income for 2002 and 2000 were not material. In 2002, the Corporation adopted the recommendations of the Canadian Institute of Chartered Accountants' F-9 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (CICA) amended Handbook Section 1650, Foreign Currency Translation. The impact of the adoption of the standard was not material. FINANCIAL INSTRUMENTS The Corporation enters into forward exchange contracts to hedge exposures resulting from foreign exchange fluctuations in the ordinary course of business. The contracts are normally for terms of less than one year and are used as hedges of foreign denominated revenue streams, costs and loans. The unrealized gains and losses on outstanding contracts are offset against the gains and losses of the hedged item. In 2002, the Corporation entered into interest rate swap agreements to hedge its exposure to fluctuations in interest rates on its Term Loan B Facility. The interest rate differential received or paid on these agreements is recognized as an adjustment to interest expense. Short-term securities are highly liquid and consist of investment grade instruments in governments, financial institutions and corporations. Unless disclosed otherwise in the notes to the consolidated financial statements, the estimated fair value of financial assets and liabilities approximates carrying value. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of highly liquid investments with a purchased maturity of three months or less. INVENTORIES Inventories of raw materials and work-in-process are valued at the lower of cost or replacement cost and inventories of finished goods at the lower of cost or net realizable value. In the United States, the cost of the principal raw material inventories and the raw material content of work-in-process and finished goods inventories is determined on the last-in, first-out basis. The cost of all other inventories is determined on the first-in, first-out basis. PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION Property, plant and equipment are stated at historical cost and are depreciated over their estimated useful lives using the straight-line method. The estimated useful lives of buildings range from 20 to 50 years and from 3 to 17 years for machinery and equipment. All costs for repairs and maintenance are expensed as incurred. Gains or losses on the disposal of property, plant and equipment are included in investment and other income, and the cost and accumulated depreciation related to these assets are removed from the accounts. The Corporation reviews property, plant and equipment for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Corporation then compares expected future undiscounted cash flows to be generated by the asset to its carrying value. If the carrying value exceeds the sum of the future undiscounted cash flows, the asset would be adjusted to its net recoverable amount and an impairment loss would be charged to operations in the period identified. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill represents the excess cost of an acquired entity over the fair value assigned to the identifiable net assets acquired. Goodwill from acquisitions that occurred prior to July 1, 2001 was amortized over its useful life on a straight-line basis, not to exceed 40 years. Goodwill from acquisitions subsequent to July 1, 2001 was not amortized. Effective January 1, 2002, all goodwill ceased to be amortized. F-10 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Identifiable intangible assets are recognized apart from goodwill and are amortized over their estimated useful lives. Goodwill and identifiable intangible assets are reviewed annually for impairment, unless events or changes in circumstances indicate that the carrying value may not be recoverable. In the absence of comparable market valuations, the Corporation compares expected future discounted cash flows to be generated by the asset or related business to its carrying value. If the carrying value exceeds the sum of the future discounted cash flows, the asset would be adjusted to its fair value and an impairment loss would be charged to operations in the period identified (see Note 7). AMORTIZATION OF DEFERRED CHARGES Deferred charges include certain costs to acquire and develop internal-use computer software, which is amortized over its estimated useful life using the straight-line method, up to a maximum of seven years. Deferred debt issue costs are amortized over the term of the related debt. PENSION AND POSTRETIREMENT PLANS The Corporation records annual amounts relating to its pension and postretirement plans based on calculations specified by GAAP, which include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases, turnover rates and health care cost trend rates. The Corporation reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. The effect of modifications is generally recorded or amortized over future periods. The Corporation believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience, market conditions and input from its actuaries. INCOME TAXES The Corporation applies the liability method of tax allocation for accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect of a change in income tax rates on deferred income tax liabilities and assets is recognized in income in the period that the change occurs. No provision has been made for taxes on undistributed earnings of subsidiaries not currently available for paying dividends as such earnings have been reinvested in the business. STOCK-BASED COMPENSATION The Corporation has stock-based compensation plans as described in Note 12. The Corporation accounts for stock options using the intrinsic value method. No compensation expense was recognized in 2002, 2001 or 2000 as the options have an exercise price equal to the fair market value at dates of grant. See Notes 12 and 25 for the pro forma effect of accounting for stock options under the fair value method for both Canadian and U.S. GAAP, respectively. In October 2002, the Corporation awarded 385,000 restricted common shares under its 2001 Long-Term Incentive Plan. Compensation expense is measured based upon the fair value on the date of issue and is recognized as the shares vest (see Note 12). F-11 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) USE OF ESTIMATES The preparation of consolidated financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. Estimates are used when accounting for items and matters including but not limited to allowance for uncollectible accounts receivable, inventory obsolescence, amortization, asset valuations, employee benefits, taxes, restructuring and other provisions and contingencies. 2. CHANGES IN ACCOUNTING POLICIES CICA SECTION 3062 GOODWILL AND OTHER INTANGIBLE ASSETS Effective January 1, 2002, the Corporation adopted the recommendations of the CICA Handbook Section 3062, Goodwill and Other Intangible Assets (see Note 7). The transitional impairment testing required by this standard had no impact on the Corporation's consolidated financial position and result of operations since the carrying amounts of goodwill and other intangible assets did not exceed their fair values. CICA SECTION 1581 BUSINESS COMBINATIONS In 2002, the Corporation adopted the recommendations of the CICA Handbook Section 1581, Business Combinations. The standard requires that all business combinations be accounted for using the purchase method of accounting. This standard had no material impact on its consolidated financial condition or results of operations. CICA SECTION 1650 FOREIGN CURRENCY TRANSLATION Effective January 1, 2002, the Corporation adopted the recommendations of the CICA to amended Handbook Section 1650, Foreign Currency Translation. The amendment eliminates the deferral and amortization of unrealized translation gains and losses on non-current monetary assets and liabilities and requires that exchange gain or loss arising on translation of a foreign currency denominated non-monetary item carried at market be included in income in the current reporting period. The adoption of this standard did not have a material impact on the Corporation's consolidated financial position or results of operations. CICA SECTION 3870 STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS Effective January 1, 2002, the Corporation adopted the recommendations of the CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payments. The recommendations establish standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. It applies to transactions, including non-reciprocal transactions, in which an enterprise grants shares of common stock, stock options, or other equity instruments, or incurs liabilities based on the price of common stock or other equity instruments. The standard encourages, but does not require, fair value measurement and recognition of equity instruments awarded to employees and cost of services received as consideration. A pro forma disclosure of net income and earnings per share using the fair value based method of accounting has been presented for the required period. CICA SECTION 3500 EARNINGS PER SHARE Effective January 1, 2001, the Corporation adopted the recommendations of the CICA Handbook Section 3500, Earnings Per Share. The standard requires the disclosure of the calculation of basic and diluted F-12 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) earnings per share and the use of the treasury stock method for calculating the dilutive impact of stock options. The impact on prior reported amounts was not material. CICA SECTION 3461 EMPLOYEE FUTURE BENEFITS Effective January 1, 2000, the Corporation adopted the recommendations of the CICA Handbook Section 3461, Employee Future Benefits. Under past Canadian standards, the Corporation recognized the cost of postretirement benefits other than pensions as an expense when paid. This standard requires that the expected costs of the employees' postretirement benefits be expensed during the years that the employees render services to the Corporation. In addition, the new standard changes the accounting for recognition of involuntary termination benefits. The standard was applied retroactively without restatement of prior year financial statements. The cumulative effect of this change, as of January 1, 2000, resulted in a $33,295 increase to opening retained earnings. CICA SECTION 3465 ACCOUNTING FOR INCOME TAXES Effective January 1, 2000, the Corporation adopted the recommendations of the CICA Handbook Section 3465, Accounting for Income Taxes. This represented a change from the deferral method of tax allocation to the liability method of tax allocation. The new standard was applied retroactively without restatement of prior year financial statements. The cumulative effect of the change as of January 1, 2000 resulted in a $2,443 increase to opening retained earnings. 3. ACQUISITIONS AND PENDING ACQUISITIONS On December 31, 2001, and January 31, 2002, the Corporation acquired certain assets relating to the Document Management Services business of IBM Canada Limited and The Nielsen Company, a commercial printer, for total consideration of $14,592 and $57,202, respectively, net of cash acquired. The allocation of the purchase prices to the assets acquired and liabilities assumed based on fair values at the dates of acquisition were as follows: Working capital, other than cash............................ $ 10,933 Property, plant and equipment............................... 9,475 Other liabilities........................................... (15,020) Goodwill and other intangibles.............................. 66,406 -------- Purchase price, net of cash received........................ $ 71,794 ========
In May 2002, the Corporation purchased the remaining minority interest in its consolidated subsidiary, Quality Color Press, Inc., for total consideration of $6,680. The cost of this acquisition exceeded the fair value of the net assets acquired by $5,437 allocated to goodwill and other intangible assets. Management has reclassified this business from the Commercial segment to the Forms and Labels segment in order to reflect the business synergies and integration plans. During August 2002, the Corporation purchased the remaining minority interest of its consolidated subsidiaries located in Central America for consideration of $2,750 ($2,000 in cash and $750 payable within the next twelve months). The carrying value of the minority interests approximated the purchase price. Pro forma disclosures for the aforementioned acquisitions have been excluded because they are not material to the Corporation's consolidated financial position or results of operations. F-13 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On January 16, 2003, the Corporation signed a definitive merger agreement with Wallace, a leading provider of printed products and print management services, to acquire all of the outstanding shares of Wallace in exchange for average consideration of $14.40 in cash and 1.05 shares of the Corporation for each outstanding share of Wallace. The purchase price is approximately $1.3 billion based on approximately 42 million Wallace shares outstanding, which includes the assumption of approximately $210 million in debt, but does not include any direct transaction costs. The estimated purchase price was derived using the closing trading price of the Corporation's common shares on the New York Stock Exchange ("NYSE") at January 16, 2003, which approximates the average closing price of Moore shares two trading days before and after January 17, 2003, the announcement date. Completion of the Wallace merger is subject to customary closing conditions that include, among others, receipt of required approval from Wallace shareholders, required regulatory approvals and closing of the required financing. The transaction, while expected to close in the first half of 2003, may not be completed if any of the closing conditions are not satisfied. Under certain terms specified in the merger agreement, the Corporation or Wallace may terminate the agreement, and as a result, either party may be required to pay a termination fee of up to $27.5 million to the other party. Upon consummation, the transaction will be recorded by allocating the cost of the assets acquired, including intangible assets and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the cost of the acquisition over the net of amounts assigned to the fair value of the assets acquired and the liabilities assumed will be recorded as goodwill. Unless otherwise indicated, the consolidated financial statements and related notes pertain to the Corporation as a stand-alone entity and do not reflect the impact of the pending business combination transaction with Wallace. 4. INVENTORIES
2002 2001 -------- -------- Raw materials............................................... $ 31,883 $ 39,452 Work-in-process............................................. 10,303 10,048 Finished goods.............................................. 84,190 75,149 Other....................................................... 3,513 3,772 -------- -------- $129,889 $128,421 ======== ========
The current cost of these inventories exceeds the last-in, first-out cost by approximately $16,239 at December 31, 2002 (2001 -- $17,152). 5. PROPERTY, PLANT AND EQUIPMENT
2002 2001 -------- ---------- Land........................................................ $ 9,952 $ 9,973 Building.................................................... 155,454 162,660 Machinery and equipment..................................... 800,448 857,452 -------- ---------- 965,854 1,030,085 Less: Accumulated depreciation.............................. 710,132 722,445 -------- ---------- $255,722 $ 307,640 ======== ==========
Depreciation expense for the year was $64,832 (2001 -- $108,436; 2000 -- $84,355). In 2001 and 2000, the Corporation wrote off assets that were permanently impaired amounting to $28,549 and $1,904, respectively, which were included in depreciation and amortization (see Note 16). F-14 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. INVESTMENTS
2002 2001 ------- ------- Equity basis................................................ $ -- $ 1,201 Cost basis.................................................. 1,700 4,200 Long-term bonds............................................. 30,556 26,803 ------- ------- $32,256 $32,204 ======= =======
In the fourth quarter of 2002, the Corporation recorded a $2,500 impairment charge against its cost basis investment for a permanent decline in market value. The fair market value of the long-term bonds at December 31, 2002, is approximately $28,200 (2001 -- $27,200). 7. GOODWILL AND OTHER INTANGIBLES On January 1, 2002, the Corporation adopted the recommendations of CICA Handbook Section 3062, Goodwill and Other Intangible Assets. Under this standard goodwill from acquisitions, subsequent to July 1, 2001 is not amortized but is subject to an annual impairment test. Effective January 1, 2002, all goodwill ceased to be amortized and is subject to an annual impairment test. Previously, goodwill from acquisitions prior to July 1, 2001 was amortized on a straight-line basis over its useful life, not to exceed 40 years, or was written down when a permanent impairment in value occurred. This standard requires reclassification of identifiable intangibles separately from previously reported goodwill. This standard also requires goodwill and identifiable intangible assets to be reviewed annually for impairment, unless events or changes in circumstances indicate their carrying values may not be recoverable. The changes in the carrying value of goodwill by operating segment for the year ended December 31, 2002, are as follows:
BALANCE AT BALANCE AT JANUARY 1, FOREIGN DECEMBER 31, GOODWILL 2002 ADDITIONS EXCHANGE 2002 - -------- ---------- --------- -------- ------------ Forms and Labels........................... $41,857 $ 3,773 $ (80) $ 45,550 Outsourcing................................ -- 11,866 (20) 11,846 Commercial................................. -- 48,858 -- 48,858 ------- ------- ----- -------- $41,857 $64,497 $(100) $106,254 ======= ======= ===== ========
The changes in other intangibles for the year ended December 31, 2002, are as follows:
BALANCE AT BALANCE AT JANUARY 1, ACCUMULATED DECEMBER 31, AMORTIZABLE OTHER INTANGIBLES 2002 ADDITIONS AMORTIZATION 2002 LIFE - ----------------- ---------- --------- ------------ ------------ ----------- Trademarks, license and agreements................ $437 $2,953 $ (463) $2,927 4-10 Years Customer intangibles........ -- 2,729 (886) 1,843 3 Years Indefinite-lived trademarks................ -- 1,664 -- 1,664 Indefinite ---- ------ ------- ------ $437 $7,346 $(1,349) $6,434 ==== ====== ======= ======
F-15 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The total intangible asset amortization expense for the year ended December 31, 2002, was $1,349, included in the depreciation and amortization expense. Amortization expense for the next five years is estimated to be: 2003........................................................ $1,303 2004........................................................ $1,303 2005........................................................ $ 692 2006........................................................ $ 240 2007........................................................ $ 228
The table below provides a reconciliation of the reported net loss for 2001 and 2000, to the pro forma net loss, which excludes previously recorded goodwill amortization, on goodwill outstanding at December 31, 2001 and 2000:
2001 2000 ---------------------------- --------------------------- LOSS PER SHARE LOSS PER SHARE ---------------- ---------------- LOSS BASIC DILUTED LOSS BASIC DILUTED --------- ------ ------- -------- ------ ------- Net loss available to common shareholders (as reported).................. $(373,383) $(4.21) $(4.21) $(66,372) $(0.75) $(0.75) Add back: Goodwill amortization -- net of tax........................ 2,265 0.03 0.03 6,628 0.07 0.07 --------- ------ ------ -------- ------ ------ Pro forma net loss........... $(371,118) $(4.18) $(4.18) $(59,744) $(0.68) $(0.68) ========= ====== ====== ======== ====== ======
In 2001 and 2000, the Corporation recorded charges of $76,808 and $20,965, respectively, included in depreciation and amortization, for permanent impairment of goodwill related to dispositions and assets held for disposition (see Note 16). The impairment resulted from a significant sales decline, customer turnover and the decision to hold certain assets for sale. 8. OTHER ASSETS
2002 2001 -------- -------- Computer software -- net of accumulated amortization........ $ 89,208 $ 89,763 Deposit and other receivables............................... 3,218 2,361 Deferred debt issue costs................................... 7,955 -- Purchase of assets.......................................... -- 14,565 Other....................................................... 3,123 8,217 -------- -------- $103,504 $114,906 ======== ========
Amortization expense related to computer software for 2002, 2001, and 2000 was $20,553, $22,936, and $26,846, respectively. In 2001 and 2000, the Corporation recorded a charge of $26,036 and $13,752, respectively, included in depreciation and amortization, for the write-off of certain computer software costs, primarily related to a component of its ERP system, which would not be deployed. F-16 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2002 2001 -------- -------- Trade accounts payable...................................... $117,770 $ 89,840 Deferred revenue............................................ 26,718 22,652 Other payables.............................................. 40,986 36,711 -------- -------- 185,474 149,203 Payroll costs............................................... 85,439 63,896 Employee benefit costs...................................... 27,787 19,037 Restructuring reserve (Note 17)............................. 81,440 126,673 Other....................................................... 106,367 127,817 -------- -------- $486,507 $486,626 ======== ========
10. DEBT
2002 2001 -------- -------- Senior guaranteed notes: Series A, 7.84%, maturing March 25, 2006.................. $ -- $ 42,750 Series B, 8.05%, maturing March 25, 2009.................. -- 57,250 Term Loan B Facility, maturing 2004 and 2006................ 179,500 -- Revolving term credit facility.............................. -- 15,000 Other debt, including capitalized leases.................... 10,098 14,096 -------- -------- Total....................................................... 189,598 129,096 Less current portion........................................ 2,135 18,034 -------- -------- Long-term debt.............................................. $187,463 $111,062 ======== ========
In August 2002, the Corporation entered into a $400.0 million secured credit facility. The facility is comprised of a five-year $125.0 million Revolving Credit Facility, a five-year $75.0 million Delayed Draw Term Loan A Facility, and a six-year $200.0 million Term Loan B Facility, all of which are subject to a number of financial and restrictive covenants that, among other things, limit additional indebtedness and the ability of the Corporation to engage in certain transactions with affiliates, create liens on assets, engage in mergers and consolidations, or dispose of assets. The financial covenants calculated on a quarterly basis include, but are not limited to, tests of leverage and fixed charges coverage. The Delayed Draw Term Loan A Facility is to be used for acquisitions and related initial working capital requirements. The facility must be drawn within 18 months of the closing in a maximum of two drawings. Proceeds from the Term Loan B Facility were used in part to refinance the existing $168.0 million revolving credit facility that expired on August 5, 2002, and to fund working capital requirements as necessary. The Term Loan B Facility bears interest at LIBOR (London Interbank Offer Rate) plus a 300 basis point spread. Three-month LIBOR at December 31, 2002, was 1.38%. For the years ended December 31, 2002 and 2001, the Corporation was in compliance with all debt covenants. During 2002, the Corporation entered into interest rate swap agreements to hedge exposure to fluctuations in interest rates on the Term Loan B Facility. These swap agreements exchange the variable interest rates (LIBOR) on this facility for fixed interest rates over the terms of the agreements. The resulting fixed interest rates will be the contracted swap rate plus the LIBOR basis spread on the Term Loan B Facility. F-17 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 2002, the notional amount of the swap agreements was $150.0 million comprised as follows: a $100.0 million, 3.78% fixed rate agreement that expires in August 2006; and a $50.0 million, 2.56% fixed rate agreement that expires in September 2004. The interest rate differential received or paid on these agreements is recognized as an adjustment to interest expense. At December 31, 2002, the fair value of these swap agreements was a $5,089 liability. On December 27, 2001, the Corporation redeemed $100.0 million of its senior guaranteed notes. On September 4, 2002, the Corporation redeemed the remaining $100.0 million of these senior guaranteed notes and incurred a net prepayment charge of $16,746. On December 28, 2001, the $70.5 million subordinated convertible debentures held by Chancery Lane/GSC Investors L.P. (the "Partnership") were converted into 21,692,311 common shares. The Corporation issued 1,650,000 additional common shares ("additional shares") as an inducement to the Partnership's Class A limited partners to convert prior to December 22, 2005, the date the Corporation could have redeemed the debentures. The right to receive the additional shares was assigned by the Partnership to its Class A limited partners. Under the terms of the partnership agreement, the Class A limited partners were entitled to all the interest paid on the subordinated convertible debentures. As part of the inducement agreement, the Corporation has agreed that if at December 31, 2003, the 20 day weighted average trading price of the common shares on the NYSE is less than $10.83, the Corporation must make a payment equal to the lesser of $9.0 million or the value of 6,000,000 of its common shares at such date. The $9.0 million payment may be reduced under certain circumstances. At the option of the Corporation, these payments may be made in common shares, subject to regulatory approval. To the extent that shares or cash is paid, it will be recorded as a charge to retained earnings. At December 31, 2002, the Corporation's 20-day weighted average trading price was less than the $10.83 measurement price. The Corporation has no indication that the 20-day weighted average share price will continue to trade below the measurement price. Certain officers of the Corporation, including the Chairman and the Chief Executive Officer, and the former Chairman, President and Chief Executive Officer, were investors in the Partnership. For financial reporting purposes, the subordinated convertible debentures had a liability component and an equity component. The liability component was classified as long-term debt, representing the present value of interest and principal payments discounted at a rate of interest applicable to a debt only instrument of comparable term and risk. The equity component at December 28, 2001, was $8,343 representing the value of the conversion option, calculated as the difference between the proceeds and liability component. Upon conversion, the Corporation allocated the consideration given to extinguish subordinated convertible debentures to the liability and equity components based on fair values on the date of conversion, which approximated their carrying values. As such, no gain or loss was recorded. The inducement payment of the additional shares issued was allocated to the equity component and, accordingly, charged to retained earnings. Professional fees of $1,600 incurred for the conversion were also charged to retained earnings. Deferred issue costs of $10,396 in 2001 relating to the subordinated convertible debentures were charged to earnings upon extinguishment. Other long-term debt, including capital leases, bears interest rates ranging from 3.4% to 14.2% and matures on various dates through 2012. Loans (excluding leases) amounting to $329 (2001 -- $4,000) are payable in currencies other than United States dollars. The net book value of assets subject to liens in 2002 is $26,563 (2001 -- $27,485). The liens are primarily mortgages against property, plant and equipment and other current assets. Payments required on long-term debt (excluding capital lease obligations) are as follows: 2003 -- $219; 2004 -- $110; no repayments required for 2005 and 2006; 2007-- $84,500; and thereafter -- $95,000. F-18 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Corporation also maintains uncommitted bank operating lines in the majority of the domestic markets in which it operates. These lines of credit are maintained to cover temporary cash shortfalls. Maximum allowable borrowings under these uncommitted facilities amounted to $40,221 at December 31, 2002 ($1,397 outstanding), and may be terminated at any time at the Corporation's option. Total availability under these facilities at December 31, 2002, was $38,824. 11. OTHER LIABILITIES
2002 2001 ------- ------- Unfunded pension obligations................................ $28,170 $27,728 Long-term supply agreement.................................. 10,820 16,934 Other....................................................... 4,786 6,601 ------- ------- $43,776 $51,263 ======= =======
During 2000, the Corporation entered into a supply agreement to sell certain paper production assets and simultaneously entered into a long-term supply agreement with the purchaser of the assets. Proceeds received were allocated to the asset sale and supply agreement based on an independent appraisal. Since the Corporation anticipates making purchases ratably over the term of the supply agreement, the proceeds related to the agreement have been deferred and are being amortized on a straight-line basis over the term of the agreement as a reduction in cost of goods sold. The price terms of the supply agreement were no more favorable than those available from other parties. Included in accounts payable and accrued liabilities at December 31, 2002, is $6,138 (2001 -- $6,918) representing the current portion of the supply agreement. 12. SHARE CAPITAL The Corporation's articles of continuance provide that its authorized share capital be divided into an unlimited number of common shares and an unlimited number of preference shares, issuable in one or more series. On February 7, 2002, the Corporation announced a program to repurchase up to $50.0 million of its shares. The program calls for shares to be purchased on the NYSE from time to time depending upon market conditions, market price of the common shares and the assessment of the cash flow needs by the Corporation's management.
CHANGES IN THE ISSUED COMMON SHARE CAPITAL SHARES ISSUED AMOUNT - ------------------------------------------ ------------- -------- Balance, December 31, 1999 and 2000......................... 88,456,940 $310,881 Conversion of subordinated convertible debentures........... 21,692,311 71,506 Inducement for convertible debentures....................... 1,650,000 15,345 Exercise of stock options................................... 4,400 29 ----------- -------- Balance, December 31, 2001.................................. 111,803,651 397,761 Exercise of stock options and other......................... 723,397 6,195 Restricted shares issued.................................... 385,000 3,665 Repurchase of common shares................................. (1,069,700) (3,821) ----------- -------- Balance, December 31, 2002.................................. 111,842,348 $403,800 =========== ========
The Corporation has a long-term incentive program under which stock options and restricted stock awards may be granted to certain key employees. At December 31, 2002, there were 583,000 common shares available for grants (2001 -- 877,500; 2000 -- 171,700). Stock options have an exercise price equal to the fair F-19 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) market value at date of grant. Options granted generally vest at 20% or 25% per year from the date of grant. Upon retirement, all options become vested. Options granted prior to 1999 are eligible for exercise for five years after the date of retirement. Options granted after 1998 are eligible for exercise for one year after the date of retirement. The options expire not more than 10 years from the date granted. On October 17, 2002, the Board of Directors of the Corporation approved the award of 385,000 restricted shares under the Corporation's 2001 Long-Term Incentive Plan. The effective grant date of the restricted shares was October 17, 2002. The restricted shares are subject to repurchase by the Corporation at no cost in the event employment is terminated other than as a result of death, retirement or disability. These repurchase rights expire with respect to 25% of the initial restricted share grant each year beginning on the first anniversary of the restricted share award. Upon issuance of the restricted shares, unearned compensation expense equal to the market value was charged to share capital. The unearned compensation of the restricted shares is disclosed as a separate component of shareholders' equity that will be recognized as compensation expense over the vesting period. Compensation expense for 2002 was $1,093. On December 11, 2000, the Board of Directors approved the creation of Series 1 Preference Shares, which are non-voting and entitle the holder to a non-cumulative preferential annual dividend of CDN $0.001 and to receive any dividend paid on a common share. In the event of liquidation, dissolution or winding-up of the Corporation, a holder of a Series 1 Preference Share is entitled to receive a preferential amount of CDN $0.001, together with all dividends declared and unpaid thereon. Thereafter, the Series 1 Preference Shares and common shares rank equally with each other on a share-for-share basis. Stock options to acquire 1,580,000 Series 1 Preference Shares were issued on December 11, 2000, and vest at 25% per annum. In April 2002, the shareholders of the Corporation approved the amendment of the options to purchase Series 1 Preference Shares to eliminate the cash-out provision and to make them exercisable for one common share per each Series 1 Preference Share option. The exercise price and the number of Series 1 Preference Share options remained unchanged. F-20 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of the Corporation's stock option activity for the three years ended December 31, 2002, is presented below:
YEARS ENDED DECEMBER 31, -------------------------------------------------------------------- 2002 2001 2000 (EXPRESSED IN CANADIAN CURRENCY) --------------------- --------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ---------- -------- ---------- -------- --------- -------- COMMON SHARES Options outstanding at beginning of year..................... 6,362,169 $15.63 6,509,686 $16.46 6,352,486 $18.73 Options granted............... 860,000 15.10 1,790,833 13.43 1,068,000 4.10 Options exercised............. (714,069) 13.24 (4,400) 7.54 -- -- Options forfeited and expired... (2,109,182) 12.47 (1,933,950) 16.40 (910,800) 17.81 ---------- ------ ---------- ------ --------- ------ Options outstanding at year-end.................... 4,398,918 $17.43 6,362,169 $15.63 6,509,686 $16.46 ---------- ------ ---------- ------ --------- ------ Options exercisable at year-end.................... 2,778,912 $20.26 2,832,715 $18.86 3,383,646 $19.84 ---------- ------ ---------- ------ --------- ------ SERIES 1 PREFERENCE SHARES Options outstanding at beginning of year..................... 1,580,000 $ 3.65 1,580,000 $ 3.65 -- $ -- Options granted............... -- -- -- -- 1,580,000 3.65 Options forfeited............. (200,000) 3.65 -- -- -- -- ---------- ------ ---------- ------ --------- ------ Options outstanding at year-end.................... 1,380,000 $ 3.65 1,580,000 $ 3.65 1,580,000 $ 3.65 ---------- ------ ---------- ------ --------- ------ Options exercisable at year-end.................... 1,290,000 $ 3.65 395,000 $ 3.65 -- -- ---------- ------ ---------- ------ --------- ------
The following tables summarize information about stock options outstanding at December 31, 2002 (in Canadian currency):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------- ------------------------------------------------ WEIGHTED NUMBER AVERAGE NUMBER OUTSTANDING AT REMAINING WEIGHTED EXERCISABLE AT WEIGHTED RANGE OF DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, AVERAGE EXERCISE PRICES 2002 LIFE (YEARS) EXERCISE PRICE 2002 EXERCISE PRICE --------------- -------------- ------------ -------------- -------------- -------------- COMMON SHARES $ 3 to 8 556,383 7.9 $ 4.40 258,608 $ 4.33 $ 9 to 15 1,766,975 8.9 14.01 444,744 12.90 $16 to 23 851,900 5.5 19.32 851,900 19.32 $24 to 30 1,223,660 3.2 26.96 1,223,660 26.96 --------- --- ------ --------- ------ 4,398,918 6.5 $17.43 2,778,912 $20.26 --------- --- ------ --------- ------ Series 1 Preference Shares --------- --- ------ --------- ------ $3.65 1,380,000 8.0 $ 3.65 1,290,000 $ 3.65 --------- --- ------ --------- ------
F-21 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The weighted average fair value per option granted in 2002 was $4.70. The estimated fair values were calculated using the Black-Scholes option pricing model and the following assumptions.
2002 ---- Risk-free interest rates.................................... 3.2% Expected lives (in years)................................... 5 Dividend yield.............................................. -- Volatility.................................................. 49%
The Corporation's 2002 net income and earnings per share on a pro forma basis using the fair value method are as follows: Net income, as reported..................................... $73,258 Fair value compensation expense, net of taxes............... 200 ------- Pro forma net income........................................ $73,058 ======= Pro forma earnings per share: Basic..................................................... $ 0.66 Diluted................................................... $ 0.64
In accordance with the transition rules of CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payments, the pro forma results include the effect of options granted during 2002. This standard does not require previous year pro forma presentation. During 2002, the Corporation issued 219,069 (2001 -- 14,636) share units as stock-based compensation for members of the Board of Directors. Share units are exercisable for either cash or common shares at the discretion of the holder. At December 31, 2002, 233,705 share units were outstanding and exercisable. For the years ended December 31, 2002 and 2001, the Corporation recorded compensation expense of $1,994 and $139 related to the issuance of these share units, respectively. 13. CUMULATIVE TRANSLATION ADJUSTMENTS
2002 2001 2000 --------- --------- --------- Balance at beginning of year...................... $(128,177) $(126,360) $(118,256) Currency translation.............................. (5,156) (2,461) (8,104) Amounts recognized on dispositions................ -- 644 -- --------- --------- --------- Balance at end of year............................ $(133,333) $(128,177) $(126,360) ========= ========= =========
14. RETIREMENT PROGRAMS DEFINED BENEFIT PENSION PLANS During 2000, the Corporation amended its United States pension plan to cease all benefit accruals effective December 31, 2000, and announced the Corporation's intention to terminate and wind-up the plan. The 2000 net pension expense includes a curtailment gain of $6,630 for this amendment. In March 2001, the Corporation partially settled this plan by purchasing approximately $600.0 million in annuities. This settlement reduced the projected benefit obligation and fair value of plan assets by $608,323 and $611,057, respectively, and resulted in a settlement loss of $109,115. Pension expense for 2002 and 2001 on the unsettled portion of the plan was calculated using a discount rate and rate of return on plan assets, which were based upon estimated market rates to settle the remaining portion of the plan. The Corporation anticipates settling the remainder of the plan upon receiving anticipated regulatory approval and expects to incur an additional F-22 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) settlement loss. Since the Corporation has no control over the timing of the regulatory approval, the amount of settlement loss cannot be determined. During 2001, the Corporation purchased annuities to settle substantially all of the obligation under the United Kingdom pension plan. This settlement reduced the projected benefit obligation and fair value of plan assets by $99,144. In some subsidiaries, where either state or funded retirement plans exist, there are certain small supplementary unfunded plans. Pensionable service prior to establishing funded contributory retirement plans in other subsidiaries, covered by former discretionary non-contributory retirement plans, was assumed as a prior service obligation. In addition, the Corporation has supplemental retirement programs for certain senior executives. These unfunded pension obligations are included in other liabilities and include the unfunded portion of this prior service obligation and the supplementary unfunded plans. All of the retirement plans are non-contributory. Retirement benefits are generally based on years of service and employees' compensation during the last years of employment. At December 31, 2002, none of the United States or International plans' assets and about 62% of the Canadian plan's assets were held in equity securities with the remaining portion of the assets being mainly fixed income securities. The components of net pension expense are as follows:
UNITED STATES CANADA INTERNATIONAL ------------------------------ --------------------------- ---------------------------- 2002 2001 2000 2002 2001 2000 2002 2001 2000 -------- -------- -------- ------- ------- ------- ------- ------- -------- PENSION EXPENSE Service cost......... $ 28 $ 20 $ 13,287 $ 2,871 $ 3,169 $ 3,076 $ -- $ 76 $ 133 Interest cost........ 14,962 23,107 52,658 5,232 5,523 5,761 358 4,382 9,277 Expected return on assets............. (22,020) (37,863) (82,523) (7,188) (7,497) (7,691) (1,204) (5,931) (10,780) Settlement loss...... -- 109,115 -- -- -- -- -- -- -- Curtailment gain..... -- 2,154 (6,630) -- -- -- -- -- -- Amortization of net loss (gain)........ 2,560 -- (128) 429 172 -- 335 (209) (208) Amortization of prior service cost....... -- -- 832 -- -- -- -- -- -- -------- -------- -------- ------- ------- ------- ------- ------- -------- Net pension expense (credit)........... $ (4,470) $ 96,533 $(22,504) $ 1,344 $ 1,367 $ 1,146 $ (511) $(1,682) $ (1,578) -------- -------- -------- ------- ------- ------- ------- ------- --------
F-23 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following provides a reconciliation of the benefit obligation, plan assets and the funded status of the pension plans as of December 31, 2002 and 2001:
UNITED STATES CANADA INTERNATIONAL -------------------- ----------------- ------------------ 2002 2001 2002 2001 2002 2001 -------- --------- ------- ------- ------- -------- FUNDED STATUS Projected benefit obligation, beginning of year............. $227,730 $ 657,678 $82,347 $82,202 $ 6,576 $100,406 Service cost.................... 28 20 2,871 3,169 -- 76 Interest cost................... 14,962 23,107 5,232 5,523 358 4,382 Actuarial loss (gain)........... 15,668 181,673 (2,764) 699 86 (511) Effect of settlement............ -- (608,323) -- -- -- (99,144) Foreign currency adjustments.... -- -- 677 (3,030) 710 1,367 Benefits paid................... (11,126) (26,425) (5,252) (6,216) (84) -- -------- --------- ------- ------- ------- -------- Projected benefit obligation, end of year................... $247,262 $ 227,730 $83,111 $82,347 $ 7,646 $ 6,576 -------- --------- ------- ------- ------- -------- Fair value of plan assets, beginning of year............. $401,882 $ 935,729 $85,283 $96,690 $22,048 $118,932 Actual return on assets......... (8,144) 103,635 (2,363) (1,959) 962 503 Foreign currency adjustments.... -- -- 750 (3,232) 2,377 1,757 Effect of settlement............ -- (611,057) -- -- -- (99,144) Benefits paid................... (11,126) (26,425) (5,252) (6,216) (84) -- -------- --------- ------- ------- ------- -------- Fair value of plan assets, end of year....................... $382,612 $ 401,882 $78,418 $85,283 $25,303 $ 22,048 -------- --------- ------- ------- ------- -------- Excess (shortfall) of plan assets over projected benefit obligation.................... $135,350 $ 174,152 $(4,693) $ 2,936 $17,657 $ 15,472 Unrecognized net loss........... 50,756 7,486 19,056 12,634 3,394 3,072 -------- --------- ------- ------- ------- -------- Prepaid pension cost............ $186,106 $ 181,638 $14,363 $15,570 $21,051 $ 18,544 -------- --------- ------- ------- ------- -------- Assumptions: Discount rates................ 6.0% 6.8% 6.5% 7.0% 5.0% 5.0% Expected return on plan assets..................... 6.0% 6.8% 8.0% 8.0% 5.0% 8.3% Rate of compensation increase................... -- -- 4.0% 4.0% -- 5.0%
DEFINED CONTRIBUTION SAVINGS PLANS Savings plans are maintained in Canada, the United States and the United Kingdom. Only the savings plan in the United Kingdom requires Corporation contributions for all employees who are eligible to participate in the retirement plans. These annual contributions consist of a retirement savings benefit contributions ranging from 1% to 3% of annual eligible compensation depending upon age. For all savings plans, if an employee contribution is made, a portion of such contribution may be eligible for a contribution match by the Corporation. For 2002, the defined contribution savings plan expense was $8,745 (2001 -- $6,913; 2000 -- $4,667). F-24 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 15. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS The Corporation provides postretirement health care and life insurance benefits to certain grandfathered United States employees and to all eligible Canadian employees. The components of net postretirement benefit cost are as follows:
2002 2001 2000 ------- ------- ------- POSTRETIREMENT BENEFIT COST Service cost............................................ $ 2,087 $ 1,638 $ 1,450 Interest cost........................................... 17,373 13,939 13,430 Amortization of net loss................................ 1,846 51 -- Amortization of prior service credit.................... (6,282) (6,282) (6,282) ------- ------- ------- Net postretirement benefit cost......................... $15,024 $ 9,346 $ 8,598 ======= ======= =======
The following provides a reconciliation of the benefit obligation and the accrued postretirement benefit cost at December 31, 2002 and 2001:
2002 2001 -------- -------- ACCRUED POSTRETIREMENT BENEFIT COST Projected postretirement benefit obligation, beginning of year...................................................... $247,464 $181,085 Service cost................................................ 2,087 1,638 Interest cost............................................... 17,373 13,939 Actuarial loss.............................................. 3,169 64,485 Foreign currency adjustment................................. 127 (468) Benefits paid............................................... (12,982) (13,215) -------- -------- Projected postretirement benefit obligation, end of year.... $257,238 $247,464 Contributions paid in December.............................. (1,012) (587) Unrecognized net (loss)..................................... (49,913) (48,526) Unrecognized prior service credit........................... 35,031 41,313 -------- -------- Accrued postretirement benefit cost......................... $241,344 $239,664 -------- -------- ASSUMPTIONS Weighted average discount rate.............................. 6.7% 7.2% Weighted average health care cost trend rate: Before age 65............................................. 11.4% 11.8% After age 65.............................................. 13.3% 13.7% The healthcare cost trend rate will gradually decline to the ultimate trend rate then remain level thereafter Weighted average ultimate health care cost trend rate....... 6.0% 6.0% Year in which ultimate health care cost trend rate will be achieved Canada.................................................... 2008 2008 United States: Before age 65.......................................... 2011 2011 After age 65........................................... 2013 2013
F-25 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2002 2001 -------- -------- The following is the effect of a 1% increase in the assumed health care cost trend rates for each future year on: Accumulated postretirement benefit obligation............. $ 12,099 $ 13,905 Aggregate of the service and interest cost components of net postretirement benefit cost........................ 910 1,182 The following is the effect of a 1% decrease in the assumed health care cost trend rates for each future year on: Accumulated postretirement benefit obligation............. $ 10,850 $ 12,244 Aggregate of the service and interest cost components of net postretirement benefit cost........................ 842 1,055
16. DISPOSITIONS AND ASSETS HELD FOR DISPOSITION
COMPANY NATURE OF BUSINESS DISPOSITION DATE - ------- ------------------ ---------------- DISPOSITIONS Colleagues Group plc Provider of direct marketing services in the March 2001 United Kingdom Phoenix Group, Inc. Provider of telemarketing customer relationship October 2001 management in the United States
In 2001, net sales of $68,251(2000 -- $132,728) and losses from operations of $47,465 (2000 -- $25,998) relating to the divested businesses, are included in the Corporation's Commercial segment results. The Phoenix Group was sold for cash proceeds of $26,009 and $2,526 was received for the Colleagues Group. The net loss of $7,540 on these dispositions was recorded in investment and other income. In the fourth quarter of 2001, based on a current valuation of a non-core business held for disposition, the Corporation wrote-off the remaining goodwill amounting to $28,528 recorded in the Commercial business segment. The valuation criteria includes in part, earnings potential, revenue and operating multiples, and other industry standards. Included in the results of the Commercial segment are net sales of $201,497 (2001 -- $191,350; 2000 -- $213,889) and operating income of $12,947 (operating losses of $21,491 in 2001, and income of $358 in 2000) for this business. 17. RESTRUCTURING AND OTHER CHARGES For the years ended December 31, 2002 and 2001, the Corporation recorded restructuring provisions as follows:
2002 2001 ------------------------------- --------------------------------- EMPLOYEE OTHER EMPLOYEE OTHER TERMINATIONS CHARGES TOTAL TERMINATIONS CHARGES TOTAL ------------ ------- ------ ------------ ------- -------- Forms and Labels........ $4,395 $ -- $4,395 $33,597 $ 9,422 $ 43,019 Outsourcing............. -- -- -- 4,138 -- 4,138 Commercial.............. -- -- -- 28,365 7,639 36,004 Corporate............... -- -- -- 10,894 48,480 59,374 ------ ----- ------ ------- ------- -------- $4,395 $ -- $4,395 $76,994 $65,541 $142,535 ====== ===== ====== ======= ======= ========
In the fourth quarter of 2002, the Corporation recorded a restructuring provision of $4,395 for workforce reduction of 154 employees, primarily related to the closure of a plant. F-26 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The 2001 restructuring plan was directed at streamlining the Corporation's processes and significantly reducing its cost structure. The restructuring provision included $76,994 for severance and other termination benefits for 3,366 employees (substantially all employees were terminated by December 31, 2002), $52,041 for lease terminations, $9,200 for facility closings, $3,600 for onerous contracts and $700 for other incremental exit costs. In the fourth quarter of 2002 and 2001, the Corporation reversed $5,245 and $12,856, respectively, of the restructuring reserve due to the favorable settlement of liabilities for obligations and future payments related to the disposition of the European and Asian forms business. The Corporation recorded a net reversal of $24,033 of restructuring charges under the 1998 restructuring plan during the fourth quarter of 2000. In 2000, the reversals resulted from facility closing costs that were lower than originally estimated and subleasing these facilities on more favorable terms than originally estimated. The reconciliation of the restructuring reserve at December 31, 2002, is as follows:
BALANCE AT BALANCE AT DECEMBER 31, PROVISION, DECEMBER 31, 2001 NET CASH PAID 2002 ------------ ---------- --------- ------------ Employee terminations................... $ 41,955 $ 4,395 $(32,031) $14,319 Other................................... 84,718 (5,245) (12,352) 67,121 -------- ------- -------- ------- $126,673 $ (850) $(44,383) $81,440 ======== ======= ======== =======
The restructuring reserves classified as "other" of $67,121 at December 31, 2002, primarily consist of the estimated remaining payments related to lease terminations and facility closing costs. Payments on these lease obligations continue until 2010. Market conditions and the Corporation's ability to sublease these properties may affect the ultimate charge related to its lease obligations. Any potential recovery or additional charge may affect amounts reported in the consolidated financial statements of future periods. The Corporation anticipates that payments associated with employee terminations will be substantially completed by the end of 2003. At December 31, 2002, the restructuring reserve includes approximately $63,769 and $13,286 related to the 2001 and 1998 restructuring plans, respectively, primarily related to lease payments. During 2002, the Corporation recorded other charges of $16,746 associated with the redemption of $100 million of senior guaranteed notes and an executive separation of $9,202, included in selling, general and administrative expenses. For the year ended December 31, 2001, the Corporation recorded other charges as follows:
SELLING, INTEREST, DEBT GENERAL AND DEPRECIATION INVESTMENT SETTLEMENT, COST OF ADMINISTRATIVE AND AND OTHER AND ISSUE SALES EXPENSE AMORTIZATION INCOME COST TOTAL ------- -------------- ------------ ---------- -------------- -------- Forms and Labels...... $ 861 $ 4,287 $ 21,873 $ -- $ -- $ 27,021 Outsourcing........... -- -- 342 -- -- 342 Commercial............ 5,685 332 89,551 4,014 -- 99,582 Corporate............. 61,209 41,212 19,627 928 11,617 134,593 ------- ------- -------- ------ ------- -------- $67,755 $45,831 $131,393 $4,942 $11,617 $261,538 ======= ======= ======== ====== ======= ========
Included in cost of sales and selling, general and administrative expenses is a charge of $11,165 for the write-off of inventory and accounts receivable relating to exiting certain non-core businesses. The Corporation also recorded a net loss of $96,605 (of which $61,209 was included in cost of sales and $35,396 in selling, general and administrative expenses) associated with the partial settlement of the U.S. pension plan, which was curtailed as of December 31, 2000, and other cash charges of $4,816 included in selling, general and F-27 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) administrative expense. A charge of $11,617 related to the partial redemption of the $100.0 million of senior guaranteed notes and the conversion of the subordinated convertible debentures is included in debt settlement cost and $1,000 for legal and other professional fees is in selling, general and administrative expense. Non-cash charges of $131,393 related to the write-down of goodwill of non-core businesses to be disposed of and asset impairments are included in depreciation and amortization. Asset impairments relate to write-offs of property, plant and equipment (see Note 5) and capitalized software (see Note 8). For the write-down of goodwill for non-core businesses to be disposed of, one non-core business was subsequently sold in 2001 and the other non-core business is being held for sale (see Note 16). A loss on disposition of non-core businesses of $4,014 and $928 for the write-down of investments were charged to investment and other income (see Note 7 and Note 16). During 2000, the Corporation recorded net other charges of $20,913, related to non-cash charges of $34,717 for write-down of a non-core asset held for disposal and the impairment of a component of the ERP asset, both included in depreciation and amortization; loss on disposal of investment in JetForm Corporation of $8,474; the write-down of a permanently impaired investment of $3,500; and $4,885 of other charges. These charges were offset by the reversal of a restructuring reserve of $24,033 and a gain on the curtailment of the Corporation's U.S. pension plan of $6,630. 18. INCOME TAXES The components of earnings (loss) before income taxes and minority interest for the three years ended December 31, 2002, 2001 and 2000, are as follows:
2002 2001 2000 ------- --------- -------- EARNINGS (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST Canada............................................... $(1,182) $ (68,232) $(40,787) United States........................................ 32,242 (331,585) (78,991) Other countries...................................... 46,292 11,397 38,186 ------- --------- -------- $77,352 $(388,420) $(81,592) ======= ========= ========
2002 2001 2000 ------------------ ------------------ ------------------ CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED ------- -------- ------- -------- ------- -------- PROVISION (RECOVERY) FOR INCOME TAXES Canada..................... $ 66 $ (160) $ 469 $ 54 $ 73 $ 364 United States.............. 25,931 (27,879) 189 (36,826) (158) (21,706) Other countries............ 3,585 266 2,933 379 5,631 (2,352) Withholding taxes.......... 663 -- 610 -- 771 -- ------- -------- ------ -------- ------ -------- $30,245 $(27,773) $4,201 $(36,393) $6,317 $(23,694) ======= ======== ====== ======== ====== ========
F-28 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes result from a number of temporary differences in the jurisdictions in which the Corporation and its subsidiaries operate. These differences and the tax effects of each are as follows:
2002 2001 2000 -------- -------- -------- DEFERRED INCOME TAXES Depreciation......................................... $ (1,940) $ (459) $ 319 Pensions............................................. 1,615 (36,493) 6,151 Unearned revenue..................................... 2,421 -- (10,847) Postretirement benefits.............................. 374 -- 1,869 Restructuring........................................ 18,566 -- 16,548 Tax benefit of loss carryforward..................... (42,350) -- (38,244) Other................................................ (6,459) 559 510 -------- -------- -------- $(27,773) $(36,393) $(23,694) ======== ======== ========
Temporary differences and tax loss carryforwards, which give rise to deferred income tax assets and liabilities are as follows:
2002 2001 --------- --------- DEFERRED INCOME TAX ASSETS Postretirement benefits..................................... $ 93,647 $ 94,092 Tax benefit of loss carryforwards........................... 142,739 154,605 Pensions.................................................... 9,235 672 Restructuring............................................... 20,062 45,736 Other....................................................... 62,162 57,648 --------- --------- 327,845 352,753 Valuation allowance......................................... (113,917) (166,695) --------- --------- $ 213,928 $ 186,058 ========= ========= DEFERRED INCOME TAX LIABILITIES Depreciation................................................ $ 36,127 $ 50,561 Pensions.................................................... 79,135 77,968 Other....................................................... 25,482 10,341 --------- --------- $ 140,744 $ 138,870 --------- --------- Net deferred income tax asset............................... $ 73,184 $ 47,188 ========= ========= Distributed as follows: Current deferred income tax asset......................... 31,912 13,566 Current deferred income tax liability..................... 3,184 324 Long-term deferred income tax asset....................... 53,938 47,651 Long-term deferred income tax liability................... 9,482 13,705 ========= =========
F-29 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The effective rates of tax for each year compared with the statutory Canadian rates were as follows:
2002 2001 2000 ----- ----- ----- EFFECTIVE TAX EXPENSE (RECOVERY) RATE Canada: Combined federal and provincial statutory rate............ 38.4% (41.6)% (43.2)% Corporate surtax.......................................... 1.1 (1.1) (1.1) Manufacturing and processing rate reduction............... (4.0) 5.4 6.0 ----- ----- ----- Expected income tax expense (recovery) rate................. 35.5 (37.3) (38.3) Tax rate differences in other jurisdictions................. (8.0) (2.2) (18.1) Losses for which a benefit (has) has not been provided -- net........................................... (27.2) 4.7 17.8 Restructuring costs......................................... (0.4) 12.2 (1.6) Impaired assets............................................. -- 6.4 -- International divestiture................................... (0.1) 5.4 -- Non-deductible goodwill amortization and write-downs........ 1.0 3.0 17.1 Other....................................................... 2.4 (0.5) 1.8 ----- ----- ----- Total consolidated effective tax expense (recovery) rate.... 3.2% (8.3)% (21.3)% ===== ===== =====
At December 31, 2002, the Corporation has tax loss carryforwards totaling $353.0 million. Of this amount, a valuation allowance has been recorded against $239.0 million. Of the $239.0 million, approximately $106.0 million expires between 2003 and 2012 and $133.0 million has no expiration. In addition, the Corporation has recorded a valuation allowance against approximately $55.0 million of temporary differences that are available for utilization in future years. The 2002 difference between the statutory rate and the effective rate relates to lower tax rates in non-U.S. jurisdictions offset by the inability to recognize the tax benefit from certain foreign operating losses, combined with a partial reduction in the deferred tax valuation allowance (which is based on estimates of future taxable income), the resolution of an income tax refund, partially offset by required tax reserves. In 2001, the effective income tax benefit resulted from the partial recognition of operating losses. The valuation allowance at December 31, 2002, relates to net operating losses generated in the United States, Canada, Latin America and Europe (which have limited carry-forward periods), and future deductible expense. The decrease (increase) in the valuation allowance of approximately $53.0 million and $(103.0) million for 2002 and 2001, respectively, primarily relates to amounts recorded against deferred tax assets in the United States. The Corporation has reduced the valuation allowance for a portion of its deferred tax assets to the extent that it believes based on the weight of available evidence, it is more likely than not that those assets will be realized. F-30 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 19. EARNINGS PER SHARE
2002 2001 2000 -------- --------- -------- Net earnings (loss) available to common shareholders...................................... $ 73,258 $(373,383) $(66,372) Weighted average number of common shares outstanding: Basic............................................. 111,556 88,648 88,457 Dilutive options(a)............................... 2,219 -- -- Contingent shares (see Note 10)................... 247 -- -- -------- --------- -------- Diluted........................................... 114,022 88,648 88,457 -------- --------- -------- Earnings (loss) per share Basic..................... $ 0.66 $ (4.21) $ (0.75) Diluted........................................... $ 0.64 $ (4.21) $ (0.75)
- --------------- (a) For 2001 and 2000, the diluted options are excluded as their effect would be anti-dilutive. 20. SEGMENTED INFORMATION The Corporation operates in the printing industry with three distinct operating segments based on the way management assesses information on a regular basis for decision-making purposes. The three segments are Forms and Labels, Outsourcing and Commercial. These segments market print and print related products and services to a geographically diverse customer base. As a result of acquiring the remaining interest in Quality Color Press, Inc. (see Note 3), management has reclassified this business from the Commercial segment to the Forms and Labels segment in order to reflect the business synergies and integration plans. FORMS AND LABELS In this segment, the Corporation derives its revenues from operations in the United States, Canada and Latin America. This segment designs and manufactures business forms, labels and related products, systems and services which include: - Custom continuous forms, cut sheets and multipart forms - Print services - Self mailers - Electronic forms and services - Integrated form-label application - Proprietary label products - Pressure sensitive labels - Security documents - Logistics, warehouse and inventory management OUTSOURCING In this segment, the Corporation derives revenues from its Business Communications Services ("BCS") operations in the United States and Canada by offering outsourcing services for electronic printing, imaging, processing and distribution. BCS also manages custom, high-volume mailing applications. Products include: - Bill and service notifications - Insurance policies F-31 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) - Special notices - Telecommunication cards - Investment, banking, credit card, tax and year-end financial statements - Licenses COMMERCIAL In this segment, the Corporation derives its revenues from operations in the United States and Europe mainly by producing highly personalized communications and database driven publications including: - Creation and production of personalized mail - Database management and segmentation services - Direct marketing program development - Response analysis services - Digital color printing - Annual reports - Corporate image and product brochures - Catalogs - Market inserts - Promotional materials Other products within the Commercial segment include: - Variable-imaged bar codes - Printers, applicators and software products and solutions - Post processing equipment F-32 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OPERATING SEGMENTS YEARS ENDED DECEMBER 31, EXPRESSED IN THOUSANDS OF U.S. DOLLARS
FORMS AND LABELS OUTSOURCING COMMERCIAL CONSOLIDATED ---------------- ----------- ---------- ------------ 2002 Total revenue.............................. $1,129,483 $317,848 $606,917 $2,054,248 Intersegment revenue....................... (3,636) (1,749) (10,824) (16,209) ---------- -------- -------- ---------- Sale to customers outside the enterprise... 1,125,847 316,099 596,093 2,038,039 ---------- -------- -------- ---------- Segment operating income................... 132,736 61,374 50,562 244,672 ---------- -------- -------- ---------- Non-operating expenses..................... (142,149) ---------- Income from operations..................... 102,523 ---------- Segment assets............................. 581,660 114,514 324,533 1,020,707 Corporate assets including investments..... 419,052 ---------- Total assets............................... 1,439,759 ---------- Capital asset depreciation and amortization............................. 56,811 14,969 14,966 86,746 ---------- -------- -------- ---------- Capital expenditures....................... 20,256 4,416 7,273 31,945 ---------- -------- -------- ---------- 2001 (RECLASSIFIED) Total revenue.............................. $1,198,173 $341,485 $636,343 $2,176,001 Intersegment revenue....................... (3,704) (2,006) (15,717) (21,427) ---------- -------- -------- ---------- Sale to customers outside the enterprise... 1,194,469 339,479 620,626 2,154,574 ---------- -------- -------- ---------- Segment operating income (loss)............ 43,445 49,508 (90,904) 2,049 ---------- -------- -------- ---------- Non-operating expenses..................... (344,373) ---------- Loss from operations....................... (342,324) ---------- Segment assets............................. 645,178 117,243 261,486 1,023,907 Corporate assets including investments..... 313,079 ---------- Total assets............................... 1,336,986 ---------- Capital asset depreciation and amortization............................. 111,875 19,383 107,814 239,072 ---------- -------- -------- ---------- Capital expenditures....................... 18,902 16,124 10,376 45,402 ---------- -------- -------- ---------- 2000 (RECLASSIFIED) Total revenue.............................. $1,246,800 $297,851 $730,896 $2,275,547 Intersegment revenue....................... (690) (1,082) (15,357) (17,129) ---------- -------- -------- ---------- Sale to customers outside the enterprise... 1,246,110 296,769 715,539 2,258,418 ---------- -------- -------- ---------- Segment operating income (loss)............ 72,105 43,126 (10,706) 104,525 ---------- -------- -------- ---------- Non-operating expenses..................... (150,759) ---------- Loss from operations....................... (46,234) ----------
F-33 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FORMS AND LABELS OUTSOURCING COMMERCIAL CONSOLIDATED ---------------- ----------- ---------- ------------ Segment assets............................. 856,457 109,847 428,692 1,394,996 Corporate assets including investments..... 348,591 ---------- Total assets............................... 1,743,587 ---------- Capital asset depreciation and amortization............................. 84,264 19,276 47,978 151,518 ---------- -------- -------- ---------- Capital expenditures....................... 61,677 10,651 32,253 104,581 ---------- -------- -------- ----------
GEOGRAPHIC INFORMATION YEARS ENDED DECEMBER 31, EXPRESSED IN THOUSANDS OF U.S. DOLLARS
UNITED CANADA STATES INTERNATIONAL CONSOLIDATED -------- ---------- ------------- ------------ 2002 Sale to customers outside the enterprise...... $208,192 $1,607,418 $222,429 $2,038,039 Capital assets, goodwill and intangibles...... 51,491 369,544 36,583 457,618 2001 Sale to customers outside the enterprise...... $199,628 $1,689,954 $264,992 $2,154,574 Capital assets, goodwill and intangibles...... 39,091 356,675 43,931 439,697 2000 Sale to customers outside the enterprise...... $222,311 $1,685,680 $350,427 $2,258,418 Capital assets, goodwill and intangibles...... 49,736 540,649 77,243 667,628
21. LEASE COMMITMENTS At December 31, 2002, lease commitments require future payments as follows: 2003........................................................ $35,069 2004........................................................ $28,073 2005........................................................ $21,238 2006........................................................ $16,185 2007........................................................ $12,564 2008 and thereafter......................................... $36,669
Rent expense amounted to $52,137 in 2002 (2001 -- $56,499; 2000 -- $69,897). 22. CONTINGENCIES At December 31, 2002, certain lawsuits and other claims were pending against the Corporation. While the outcome of these matters is subject to future resolution, management's evaluation and analysis of such matters indicates that, individually and in the aggregate, the probable ultimate resolution of such matters will not have a material effect on the Corporation's consolidated financial statements. The Corporation is subject to laws and regulations relating to the protection of the environment. The Corporation provides for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. Such accruals are adjusted as new information develops or circumstances change and are not discounted. While it is not possible to quantify with certainty the potential F-34 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Corporation's subsidiaries may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect upon the results of operations or consolidated financial condition of the Corporation. The Corporation has been identified as a Potentially Responsible Party ("PRP") at the Dover, New Hampshire Municipal Landfill, a United States Environmental Protection Agency Superfund Site. The Corporation has been participating with a group of approximately 26 other PRP's to fund the study of and implement remedial activities at the site. Remediation at the site has been on-going and is anticipated to continue for at least several years. The total cost of the remedial activity was estimated to be approximately $26,000. The Corporation's share is not expected to exceed $1,500. The Corporation believes that the reserves are sufficient based on the present facts and recent tests performed at this site. As described in Note 3, the Corporation may be required to pay a termination fee of up to $27.5 million if the Corporation terminates its merger agreement with Wallace. 23. FINANCIAL INSTRUMENTS At December 31, 2002, the aggregate amount of forward exchange contracts used as hedges was approximately $13,600 (2001 -- $13,700). Gains and losses from these contracts, for all years presented, were not significant. The notional amount of interest rate swaps at December 31, 2002, use to hedge exposure to fluctuations in interest rates on the Term Loan B Facility was $150.0 million (see Note 10). The Corporation may be exposed to losses if the counterparties to the above contracts fail to perform. The Corporation manages this risk by dealing only with financially sound counterparties and by establishing dollar and term limits for each counterparty. The Corporation does not use derivative financial instruments for trading or speculative purposes. 24. CASH FLOW DISCLOSURE For the year ended December 31, 2001, the following non-cash transactions are required to be disclosed for both Canadian and U.S. GAAP as follows: Subordinated convertible debentures......................... $71,506 Inducement to certain debenture holders..................... 15,345
25. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The continued registration of the common shares of the Corporation with the Securities and Exchange Commission ("SEC") and listing of the shares on the NYSE require compliance with the integrated disclosure rules of the SEC. The accounting policies in Note 1 and accounting principles generally accepted in Canada are consistent in all material aspects with United States generally accepted accounting principles (U.S. GAAP) with the following exceptions. PENSIONS AND POSTRETIREMENT BENEFITS With the adoption of CICA Handbook Section 3461, Employee Future Benefits, effective January 1, 2000, there is no longer any difference in the method of accounting for these costs. However, the transitional rules for implementing the new Canadian standard continue to result in U.S. GAAP reporting differences. F-35 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Under CICA Handbook Section 3461, all past net gains (losses), net assets and prior service costs were recognized as of the date of adoption. Under U.S. GAAP, net gains (losses), net assets and prior service costs which occurred before January 1, 2000 are recognized over the appropriate amortization period. STATEMENT OF CASH FLOWS For Canadian GAAP the Statements of Cash Flows discloses the net change in cash resources, which is defined as cash and cash equivalents less bank indebtedness. U.S. GAAP requires the disclosure of cash and cash equivalents. Under U.S. GAAP, net cash provided by (used in) financing activities for 2002, 2001, and 2000 would be $(10,962), $(66,315), and $18,451, respectively. Cash and cash equivalents are the same for both Canadian and U.S. GAAP. INCOME TAXES The liability method of accounting for income taxes is used for both Canadian and U.S. GAAP. However, under U.S. GAAP, temporary differences are tax effected at enacted rates, whereas under Canadian GAAP, temporary differences are tax effected using substantively enacted rates and laws that will be in effect when the differences are expected to reverse (see Note 18). ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES U.S. GAAP requires net unrealized gains (losses) on available-for-sale securities to be reported as a separate component of shareholders' equity until realized, whereas under Canadian GAAP such investments are carried at cost with no effect on net income or shareholders' equity. Under both Canadian and U.S. GAAP, impairments deemed to be other than temporary would be charged to earnings. STOCK COMPENSATION The adoption of CICA Handbook, Section 3870, Stock-Based Compensation and Other Stock-Based Payments, reduced most prospective differences in accounting for these costs between Canadian GAAP and U.S. GAAP. The pro forma disclosures of net income and earnings per share under the fair value method of accounting for stock options will continue to differ as CICA Handbook Section 3870 is applicable for awards granted on or after January 1, 2002. For both Canadian and U.S. GAAP the Corporation uses the intrinsic value method of accounting for stock options. Prior to CICA Handbook Section 3870, recognition of compensation expense was not required for the Corporation's Series 1 Preference Share options, whereas under U.S. GAAP, the expense is measured at the fair value of the Preference Share options, less the amount the employee is required to pay, and is accrued over the vesting period. In April 2002, the shareholders of the Corporation approved the amendment of the options to purchase Series 1 Preference Shares (the "Preference Shares") to eliminate the cash-out provision and to make them exercisable for one common share per each Preference Share option. The exercise price and the number of Preference Share options remained unchanged. This amendment effectively made these options common share equivalents for diluted earnings per share computations. The transition rules for CICA Handbook Section 3870 required that these common share equivalents be considered outstanding as of the beginning of the year, whereas for U.S. GAAP purposes, these Preference Share options were not considered common share equivalents until amended. The difference in the weighted average common shares between Canadian and U.S. GAAP relates solely to the amendment of the Preference Share options. Additionally, no compensation expense or pro forma compensation expense is required to be recognized in the current and future periods under Canadian GAAP pursuant to CICA Handbook Section 3870, whereas under U.S. GAAP, unearned compensation cost will be recognized over the remaining vesting period (through December 11, 2004) based on the intrinsic value of the option on the date of approval. Pro forma fair value F-36 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) compensation expense will also be recorded under U.S. GAAP for the Preference Shares commencing on the amendment date. Compensation expense under U.S. GAAP for 2002 and 2001, was $11,839 and $2,700, respectively. In accordance with the transition rules for CICA Handbook Section 3870, no compensation expense was recorded for the Preference Shares for Canadian GAAP. COMPREHENSIVE INCOME Statement of Financial Accounting Standards ("SFAS") No. 130 requires disclosure of comprehensive income and its components. Comprehensive income is the change in equity of the Corporation from transactions and other events other than those resulting from transactions with owners, and is comprised of net income and other comprehensive income. The components of other comprehensive income for the Corporation are unrealized foreign currency translation adjustments, change in fair value of derivatives and unrealized gains (losses) on available-for-sale securities. Under Canadian GAAP, there is no standard for reporting comprehensive income. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES For U.S. GAAP purposes the Corporation's interest rate swaps are designated as cash flow hedges and changes in their fair value are recorded in other comprehensive income. Under Canadian GAAP, there is no standard requiring the recognition of the fair value of derivatives through comprehensive income. FOREIGN CURRENCY TRANSLATION Under U.S. GAAP, foreign currency translation gains or losses are only recognized on the sale or substantial liquidation of a foreign subsidiary. Under Canadian GAAP, a foreign currency gain or loss due to a partial liquidation is recognized in income. BUSINESS PROCESS REENGINEERING Under U.S. GAAP, business process reengineering activities are expensed as incurred. Prior to October 28, 1998, Canadian GAAP permitted these costs to be capitalized or expensed. Subsequent to October 28, 1998, Canadian GAAP requires expensing these costs. Prior to October 28, 1998, the Corporation capitalized business process reengineering costs and classified them as computer software. In 2000, certain deployment and training costs related to the implementation of the Corporation's ERP system were expensed for U.S. GAAP purposes and capitalized for Canadian GAAP purposes. In those years, such expenses exceeded the amortization differential since the ERP system was not placed in service until 2000. In 2002 and 2001, the U.S. GAAP reconciling item for computer software relates solely to the amortization differential of the capitalized amounts. CONVERTIBLE DEBENTURES Canadian GAAP requires that a portion of the subordinated convertible debentures be classified as equity. The difference between the carrying amount of the debenture and contractual liability is amortized to earnings. U.S. GAAP requires classification of subordinated convertible debentures as a liability. Under U.S. GAAP, when convertible debt is converted to equity securities pursuant to an inducement offer, the debtor is required to recognize in earnings, the fair value of all securities and other consideration transferred in excess of the fair value of the securities issuable in accordance with the original conversion terms. Under Canadian GAAP, the fair value of the securities issued is charged to retained earnings. Also under Canadian GAAP, certain other contingent consideration is not recognized until paid. F-37 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Under U.S. GAAP, when convertible debt is converted to equity securities, unamortized deferred debt issuance costs are charged to share capital. Under Canadian GAAP, these costs are charged to earnings. The components of "Debt conversion costs" included in the U.S. GAAP reconciliation for 2001 are as follows: 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 represents the fair market value of 1,650,000 of the Corporation's common shares and is based upon the closing price of these shares on the NYSE on December 28, 2001, the date the shares were issued. For Canadian GAAP purposes, the fair value of the inducement shares was charged to equity and additionally shown on the statement of operations as a reduction to the amount available to common shareholders in the calculation of earnings per share. For U.S. GAAP purposes, the fair value of the inducement shares was recognized as an increase to share capital and recognized as a charge to earnings for the period. The deferred debt issuance costs represent the unamortized balance of the deferred issuance costs related to the convertible debentures at conversion. For Canadian GAAP purposes, these costs were recognized in earnings for the period, whereas for U.S. GAAP purposes, these costs were recorded as a component of share capital. The contingent consideration represents the right granted with the inducement shares for the holder to potentially receive additional consideration in the future based on the 20-day weighted average share price of the Corporation's stock at December 31, 2002 and 2003 (see Note 10). For Canadian GAAP purposes, to the extent that any stock or cash is paid, it will be recorded as a charge to retained earnings. For U.S. GAAP purposes, the fair value of this contingent consideration is recognized in earnings and recorded at fair market value in subsequent reporting periods. The fair value of the consideration was based upon an independent third party valuation using an option pricing valuation model that includes, but is not limited to the following factors: the Corporation's stock price volatility; cost of borrowings; and certain equity valuation multiples. SETTLEMENTS OF PENSION PLANS Under U.S. GAAP, a gain or loss arising upon the settlement of a pension plan is only recognized once responsibility for the pension obligation has been relieved. Under Canadian GAAP, prior to January 1, 2000, an intention to settle or curtail a pension plan that was expected to result in a loss, required recognition once the amount was likely and could be reasonably estimated. F-38 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following tables provide a reconciliation of net earnings (loss) as reported under Canadian GAAP to net earnings (loss) under U.S. GAAP.
2002 2001 2000 -------- --------- -------- Net earnings (loss) as reported..................... $ 73,258 $(358,038) $(66,372) U.S. GAAP ADJUSTMENTS: Pension expense................................... 4,199 144,917 18,263 Postretirement benefits........................... 17,290 17,275 18,833 Computer software................................. 6,764 17,287 (2,300) Interest expense.................................. -- 258 -- Debt conversion costs............................. 832 (6,949) -- Stock-based compensation.......................... (11,839) (2,700) -- Income taxes...................................... (6,726) (82,014) (13,728) -------- --------- -------- Net earnings (loss) under U.S. GAAP................. $ 83,778 $(269,964) $(45,304) Earnings (loss) per share: Basic............................................. $ 0.75 $ (3.05) $ (0.51) Diluted........................................... $ 0.74 $ (3.05) $ (0.51) Average shares (in thousands): Basic............................................. 111,556 88,648 88,457 Diluted........................................... 113,298 88,648 88,457 -------- --------- --------
COMPREHENSIVE INCOME (LOSS) 2002 2001 2000 - --------------------------- ------- --------- -------- Net earnings (loss).................................. $83,778 $(269,964) $(45,304) ------- --------- -------- Other comprehensive income (loss), net of tax: Currency translation adjustments................... (5,156) (1,817) (8,104) Change in fair value of derivatives................ (3,104) -- -- Reclassification adjustment for losses included in income.......................................... -- (798) 11,092 Unrealized losses on available-for-sale securities...................................... -- -- (6,041) ------- --------- -------- Total comprehensive income (loss).................... $75,518 $(272,579) $(48,357) ======= ========= ========
For U.S. GAAP purposes, the costs related to the early extinguishment of debt are classified as an extraordinary item. On September 4, 2002, the Corporation redeemed $100.0 million of the senior guaranteed notes at a redemption price that includes a net prepayment charge of $16,746 or $10,215 net of taxes. Net earnings before extraordinary items for 2002 is $93,993. Basic and diluted earnings per share before extraordinary items for 2002 are $0.84 and $0.83, respectively. Gains and (losses) on the disposal of property, plant and equipment for 2002, 2001 and 2000 were $8,730, $(792) and $(2,630), respectively. For U.S. GAAP purposes these amounts are recorded in income from operations. Interest expense is net of investment income of $1,843, $2,895 and $4,545 for 2002, 2001 and 2000, respectively. F-39 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) BALANCE SHEET ITEMS
2002 2001 ----------------------- ----------------------- AS AT DECEMBER 31, AS REPORTED U.S. GAAP AS REPORTED U.S. GAAP - ------------------ ----------- --------- ----------- --------- Net pension asset...................... $(193,350) $(129,193) $(188,024) $(119,668) Computer software -- net............... (89,208) (63,672) (89,763) (57,463) Fair value of derivatives-liability.... -- 5,089 -- -- Postretirement benefits................ 241,344 366,077 239,664 381,687 Deferred income taxes-net.............. (73,184) (156,239) (47,188) (134,982) Accounts payable and accrued liabilities.......................... 486,507 481,676 486,626 485,325 Accumulated other comprehensive income............................... (133,333) (101,253) (128,177) (92,993) Share capital.......................... 403,800 405,337 397,761 384,759 Retained earnings (deficit)............ 114,601 (50,645) 51,666 (124,100)
The weighted average fair value per option granted in 2002, 2001 and 2000 was $9.26, $3.91 and $0.67, respectively. The estimated fair values were calculated using the Black-Scholes option pricing model and the following assumptions.
2002 2001 2000 ---- ---- ---- Risk-free interest rates.................................... 4.1% 4.5% 5.5% Expected lives (in years)................................... 5 5 6 Dividend yield.............................................. -- -- 7.6% Volatility.................................................. 48.1% 46.0% 39.0%
The Corporation's U.S. GAAP net income and earnings per share on a pro forma basis using the fair value method are as follows:
2002 2001 2000 -------- --------- -------- Net income (loss)................................... $ 83,778 $(269,964) $(45,304) Pro forma adjustments, net of tax: Stock compensation recorded....................... 7,222 -- -- Fair value compensation expense................... (11,305) (1,949) (1,746) -------- --------- -------- Pro forma net income (loss)......................... $ 79,695 $(271,913) $(47,050) ======== ========= ======== Income (loss) per share Basic............................................. $ 0.71 $ (3.07) $ (0.53) Diluted........................................... $ 0.70 $ (3.07) $ (0.53) ======== ========= ========
26. PENDING ACCOUNTING STANDARDS In May 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145"). Among other things, under the provision of SFAS 145, gains and losses from the early extinguishment of debt are no longer classified as an extraordinary item, net of income taxes, but are included in the determination of pretax earnings. The effective date for SFAS 145 is for fiscal years beginning after May 15, 2002, with early application encouraged. Upon adoption, all gains and losses from the extinguishment of debt previously reported as an extraordinary item shall be reclassified to pretax earnings. It is anticipated that the adoption of SFAS 145 will have no impact on the financial position or results of operations of the Corporation. F-40 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). This statement addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force ("EITF") has set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The principal difference between SFAS 146 and EITF 94-3 is that SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred versus the EITF 94-3 where a liability was recognized on the date an entity committed to an exit plan. SFAS 146 is effective for exit and disposal activities that are initiated after December 31, 2002. In January 2003, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure" ("SFAS 148"). The Statement provides alternative methods of transitioning to the fair value based method of accounting for stock-based employee compensation. Also, this Statement amends the previous disclosure requirements to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." This interpretation expands the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees and requires the guarantor to recognize a liability for the fair value of an obligation assumed under a guarantee. In general, FIN 45 applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability, or equity security of the guaranteed party. Certain guarantee contracts are excluded from both the disclosure and recognition requirements of this interpretation. Other guarantees are subject to the disclosure requirements of FIN 45 but not to the recognition provisions and include, among others, a guarantee accounted for as a derivative instrument under SFAS 133. The disclosure requirements of FIN 45 are effective for the Corporation as of December 31, 2002, and require disclosure of the nature of the guarantee, the maximum potential amount of future payments that the guarantor could be required to make under the guarantee, and the current amount of the liability, if any, for the guarantor's obligations under the guarantee. The recognition requirements of FIN 45 are to be applied prospectively to guarantees issued or modified after December 31, 2002. Significant guarantees that have been entered into by the Corporation are disclosed in Note 10. The Corporation does not expect the requirements of FIN 45 to have a material impact on results of operations, financial position or liquidity. In 2002, the CICA Handbook Sections 3063, Impairment of Long Lived Assets, and 3475, Disposal of Long Lived Assets and Discontinued Operations, were issued to harmonize with SFAS No. 144. The standards will require an impairment loss to be recognized when the carrying amount of an asset held for use exceeds the sum of undiscounted cash flows. The impairment loss would be measured as the amount by which the carrying amount exceeds the fair value of the asset. An asset held for sale is to be measured at the lower of carrying cost or fair value less cost to sell. In addition, this guidance broadens the concept of a discontinued operations and eliminates the ability to accrue operating losses expected between the measurement date and the disposal date. CICA Section 3063 is effective for fiscal years beginning on or after April 1, 2003, and CICA Section 3475 applies to disposal activities initiated by an enterprise's commitment to a plan on or after May 1, 2003. The sections will be applied prospectively with early adoption encouraged. In 2002, the Accounting Standards Board of the CICA issued Accounting Guidelines No. 13 that increases the documentation, designation and effectiveness criteria to achieve hedge accounting. The guideline requires the discontinuance of hedge accounting for hedging relationships established that do not meet the conditions at the date it is first applied. It does not change the method of accounting for derivatives in hedging F-41 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) relationships, but requires fair value accounting for derivatives that do not qualify for hedge accounting. The new guideline is applicable for fiscal years commencing July 1, 2003. The Corporation is evaluating the impact this standard might have on its results of operations and financial position. 27. SUBSEQUENT EVENT On May 15, 2003, the Corporation acquired all the outstanding shares of Wallace in exchange for consideration of $14.40 in cash and 1.05 shares of the Corporation for each outstanding share of Wallace. The aggregate consideration to the Wallace shareholders was $1.1 billion and was comprised of a cash payment of $609.7 million and 44,458,825 common shares of the Corporation with a fair value of $471.7 million. The fair value of the Corporation's shares was based upon the actual number of shares issued to the Wallace shareholders using the average closing trading price of the Corporation's common shares on the New York Stock Exchange ("NYSE") during a five-day trading period beginning two days prior to the announcement of the merger agreement on January 17, 2003. The total purchase price of $1.3 billion also included $218.2 million for the settlement of Wallace debt and other liabilities, and direct acquisition costs to date of $19 million. The transaction was recorded by allocating the cost of the assets acquired, including intangible assets and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the cost of the Acquisition over the net of amounts assigned to the fair value of the assets acquired and the liabilities assumed was recorded as goodwill. Based on the Corporation's preliminary independent valuation, which is subject to further refinement, the purchase price was allocated as follows: Accounts receivable......................................... $ 238,321 Inventory................................................... 137,562 Customer backlog............................................ 3,790 Other current assets........................................ 13,350 Property, plant and equipment -- net........................ 390,536 Long-term and other assets.................................. 38,583 Capitalized software........................................ 45,400 Amortizable intangible assets............................... 60,824 Intangible assets with indefinite lives..................... 92,310 Goodwill.................................................... 675,163 Accounts payable and accrued liabilities.................... (158,178) Short-term and long-term debt............................... (16,189) Postretirement benefits and pension......................... (52,484) Deferred taxes -- net....................................... (131,306) Other long-term liabilities................................. (19,031) ---------- Total purchase price -- net of cash acquired.............. $1,318,651 ==========
In March 2003, the Corporation entered into an $850.0 million senior secured credit facility (the "New Facility") in connection with the Acquisition. The New Facility consists of a seven-year $500.0 million B Term Loan, which was funded into escrow until the consummation of the Acquisition on May 15, 2003, and a five-year $350.0 million Revolving Credit Facility. The loans under the New Facility bear interest based on a variable index (LIBOR), plus an applicable margin. The New Facility replaced the Corporation's $400.0 million senior secured credit facility. The Corporation subsequently entered into an agreement with the lender of its New Facility in August 2003 to amend the New Facility to reduce the applicable margin. F-42 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Concurrently, in March 2003, the Corporation issued $403.0 million of 7 7/8 % senior unsecured notes (the "Senior Notes") due 2011 at a $2.8 million discount to the principal amount. Interest on the Senior Notes is payable semiannually on January 15 and July 15 of each year, commencing on July 15, 2003. The Corporation, at its option, may redeem up to 40% of the Senior Notes prior to January 15, 2006, at a predetermined redemption price with the proceeds of certain equity offerings. In addition, subsequent to January 15, 2007, the Senior Notes may be redeemed at predetermined redemption prices. On or prior to January 15, 2007, the Corporation may also redeem the Senior Notes upon a change of control, at a price equal to 100% of the principal plus an applicable premium. 28. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION Moore North America Finance Inc ("Finance Inc.") a wholly-owned subsidiary of the Corporation (the "Parent") is the issuer of the Senior Notes. The Parent and certain of the Corporation's wholly owned subsidiaries ("Guarantor Subsidiaries") have guaranteed Finance Inc.'s obligation under the Senior Notes. The Guarantees are joint and several, full, complete and unconditional. Other wholly owned subsidiaries of the Corporation ("Non-guarantor Subsidiaries") have not guaranteed the obligation under the Senior Notes. The following supplemental condensed consolidating financial data illustrates, in separate columns, the composition of the Parent, Finance Inc., Guarantor Subsidiaries, Non-guarantor Subsidiaries, eliminations, and the consolidated total. Investments in subsidiaries are accounted for by the equity method for purposes of the supplemental condensed consolidating financial data. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. The financial data may not necessarily be indicative of the results of operations or financial position had the subsidiaries been operated as independent entities. F-43 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 2002:
NON- FINANCE GUARANTOR GUARANTOR PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- -------- ------------ ------------ ------------ ------------ ASSETS Current Assets Cash and cash equivalents........... $ 29,127 $ 101 $ 100,338 $ 10,064 $ -- $ 139,630 Accounts receivable -- net.......... 33,131 -- 271,219 37,033 -- 341,383 Intercompany receivables............ -- 2,222 60,496 4,571 (67,289) -- Inventories......................... 21,121 -- 99,384 9,384 -- 129,889 Prepaid expenses.................... 949 -- 15,604 764 -- 17,317 Deferred income taxes............... 549 -- 29,066 2,297 -- 31,912 --------- -------- ---------- -------- ----------- ---------- Total Current Assets.................. 84,877 2,323 576,107 64,113 (67,289) 660,131 --------- -------- ---------- -------- ----------- ---------- Property, plant and equipment --net... 28,503 -- 199,457 27,762 -- 255,722 Investments........................... -- -- 1,784 30,472 -- 32,256 Investment in subsidiaries............ 374,237 -- 47,917 230 (422,384) -- Prepaid pension cost.................. 14,363 -- 188,605 18,552 -- 221,520 Goodwill.............................. 17,956 -- 88,298 -- -- 106,254 Other intangibles -- net.............. 3,354 -- 3,080 -- -- 6,434 Intercompany loan receivable.......... 1,188 5,082 5,223 32,264 (43,757) -- Deferred income taxes................. (202) -- 54,129 11 -- 53,938 Other assets.......................... 1,756 -- 98,456 3,292 -- 103,504 --------- -------- ---------- -------- ----------- ---------- Total Assets.......................... $ 526,032 $ 7,405 $1,263,056 $176,696 $ (533,430) $1,439,759 ========= ======== ========== ======== =========== ========== LIABILITIES Current Liabilities Bank indebtedness................... $ 12 $ -- $ 17,673 $ 473 $ -- $ 18,158 Accounts payable and accrued liabilities....................... 42,959 1,002 380,567 61,979 -- 486,507 Intercompany payables............... 54,939 3,817 -- 8,533 (67,289) -- Short-term debt..................... 401 -- 1,414 320 -- 2,135 Income taxes........................ 14,469 (31) 43,073 1,051 -- 58,562 Deferred income taxes............... 1,219 -- -- 1,965 -- 3,184 --------- -------- ---------- -------- ----------- ---------- Total Current Liabilities............. 113,999 4,788 442,727 74,321 (67,289) 568,546 --------- -------- ---------- -------- ----------- ---------- Intercompany loans payable............ 6,479 -- 30,976 6,302 (43,757) -- Long-term debt........................ 1,090 -- 183,146 3,227 -- 187,463 Postretirement benefits............... 10,869 -- 230,475 -- -- 241,344 Deferred income taxes................. 3,378 -- 5,834 270 -- 9,482 Other liabilities..................... 7,721 -- 32,619 3,436 -- 43,776 Minority interest..................... -- -- -- 6,652 -- 6,652 --------- -------- ---------- -------- ----------- ---------- Total Liabilities..................... 143,536 4,788 925,777 94,208 (111,046) 1,057,263 --------- -------- ---------- -------- ----------- ---------- SHAREHOLDERS' EQUITY Share Capital....................... 403,800 20,000 1,607,533 204,042 (1,831,575) 403,800 Unearned restricted shares.......... (2,572) -- -- -- -- (2,572) Retained earnings................... 114,601 (17,383) (1,292,916) (77,715) 1,388,014 114,601 Cumulative translation adjustments....................... (133,333) -- 22,662 (43,839) 21,177 (133,333) --------- -------- ---------- -------- ----------- ---------- Total Shareholders' Equity............ 382,496 2,617 337,279 82,488 (422,384) 382,496 --------- -------- ---------- -------- ----------- ---------- Total Liabilities and Shareholders' Equity.............................. $ 526,032 $ 7,405 $1,263,056 $176,696 $ (533,430) $1,439,759 ========= ======== ========== ======== =========== ========== Shareholders' Equity as reported...... $ 382,496 $ 2,617 $ 337,279 $ 82,488 $ (422,384) $ 382,496 --------- -------- ---------- -------- ----------- ---------- U.S. GAAP Adjustments: Net pension asset................... (5,536) -- (58,621) -- -- (64,157) Computer software -- net............ -- -- (25,536) -- -- (25,536) Fair value of derivatives........... -- -- (5,089) -- -- (5,089) Postretirement benefits............. (2,575) -- (122,158) -- -- (124,733) Deferred income taxes -- net........ 3,590 -- 81,647 (2,182) -- 83,055 Accounts payable and accrued liabilities....................... (1,169) -- -- 6,000 -- 4,831 Equity investments.................. (125,939) -- 3,818 -- 122,121 -- --------- -------- ---------- -------- ----------- ---------- (131,629) -- (125,939) 3,818 122,121 (131,629) --------- -------- ---------- -------- ----------- ---------- Shareholders' Equity under U.S. GAAP................................ $ 250,867 $ 2,617 $ 211,340 $ 86,306 $ (300,263) $ 250,867 ========= ======== ========== ======== =========== ==========
F-44 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 2001:
NON- FINANCE GUARANTOR GUARANTOR PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- -------- ------------ ------------ ------------ ------------ ASSETS Current Assets Cash and cash equivalents.......... $ 15,257 $ 100 $ 59,058 $ 10,440 $ -- $ 84,855 Accounts receivable -- net......... 32,930 -- 265,073 38,150 -- 336,153 Intercompany receivables........... 47,414 5,769 151,343 5,500 (210,026) -- Inventories........................ 22,664 -- 96,296 9,461 -- 128,421 Prepaid expenses................... 884 -- 11,760 900 -- 13,544 Deferred income taxes.............. 248 -- 12,885 433 -- 13,566 --------- -------- ----------- -------- ----------- ---------- Total Current Assets................. 119,397 5,869 596,415 64,884 (210,026) 576,539 --------- -------- ----------- -------- ----------- ---------- Property, plant and equipment -- net................... 34,067 -- 241,756 31,817 -- 307,640 Investments.......................... 2,129 -- 3,400 26,675 -- 32,204 Investment in subsidiaries........... 292,016 -- 58,868 230 (351,114) -- Prepaid pension cost................. 15,571 -- 184,858 15,323 -- 215,752 Goodwill............................. 2,417 -- 39,440 -- -- 41,857 Other intangibles -- net............. -- -- 437 -- -- 437 Intercompany loan receivable......... 9,509 219,246 54,054 32,384 (315,193) -- Deferred income taxes................ 6,592 -- 40,916 143 -- 47,651 Other assets......................... 17,669 363 93,403 3,471 -- 114,906 --------- -------- ----------- -------- ----------- ---------- Total Assets......................... $ 499,367 $225,478 $ 1,313,547 $174,927 $ (876,333) $1,336,986 ========= ======== =========== ======== =========== ========== LIABILITIES Current Liabilities Bank indebtedness.................. $ 2,337 $ -- $ 53,281 $ 563 $ -- $ 56,181 Accounts payable and accrued liabilities...................... 46,578 3,151 369,518 67,379 -- 486,626 Intercompany payables.............. 37,455 103,817 54,391 14,363 (210,026) -- Short-term debt.................... 1,125 -- 16,316 593 -- 18,034 Income taxes....................... 14,043 (31) 12,292 1,373 -- 27,677 Deferred income taxes.............. -- -- -- 324 -- 324 --------- -------- ----------- -------- ----------- ---------- Total Current Liabilities............ 101,538 106,937 505,798 84,595 (210,026) 588,842 --------- -------- ----------- -------- ----------- ---------- Intercompany loans payable........... 56,476 -- 253,718 4,999 (315,193) -- Long-term debt....................... 2,012 100,000 5,180 3,870 -- 111,062 Postretirement benefits.............. 8,968 -- 230,696 -- -- 239,664 Deferred income taxes................ -- -- 13,438 267 -- 13,705 Other liabilities.................... 9,123 -- 37,445 4,695 -- 51,263 Minority interest.................... -- -- -- 11,200 -- 11,200 --------- -------- ----------- -------- ----------- ---------- Total Liabilities.................... 178,117 206,937 1,046,275 109,626 (525,219) 1,015,736 SHAREHOLDERS' EQUITY Share Capital...................... 397,761 20,000 1,524,222 206,682 (1,750,904) 397,761 Retained earnings.................. 51,666 (1,459) (1,326,240) (98,098) 1,425,797 51,666 Cumulative translation adjustments...................... (128,177) -- 69,290 (43,283) (26,007) (128,177) --------- -------- ----------- -------- ----------- ---------- Total Shareholders' Equity........... 321,250 18,541 267,272 65,301 (351,114) 321,250 --------- -------- ----------- -------- ----------- ---------- Total Liabilities and Shareholders' Equity............................. $ 499,367 $225,478 $ 1,313,547 $174,927 $ (876,333) $1,336,986 ========= ======== =========== ======== =========== ========== Shareholders' Equity as reported..... $ 321,250 $ 18,541 $ 267,272 $ 65,301 $ (351,114) $ 321,250 --------- -------- ----------- -------- ----------- ---------- U.S. GAAP Adjustments: Net pension asset.................. (5,705) -- (62,651) -- -- (68,356) Computer software -- net........... -- -- (32,300) -- -- (32,300) Postretirement benefits............ (2,817) -- (139,206) -- -- (142,023) Deferred income taxes -- net....... 4,809 -- 85,167 (2,182) -- 87,794 Accounts payable and accrued liabilities...................... (4,699) -- -- 6,000 -- 1,301 Equity investments................. (145,172) -- 3,818 -- 141,354 -- --------- -------- ----------- -------- ----------- ---------- (153,584) -- (145,172) 3,818 141,354 (153,584) --------- -------- ----------- -------- ----------- ---------- Shareholders' Equity under U.S. GAAP............................... $ 167,666 $ 18,541 $ 122,100 $ 69,119 $ (209,760) $ 167,666 ========= ======== =========== ======== =========== ==========
F-45 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2002:
NON- FINANCE GUARANTOR GUARANTOR PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- -------- ------------ ------------ ------------ ------------ Net sales................ $211,949 $ -- $1,704,551 $131,108 $ (9,569) $2,038,039 -------- -------- ---------- -------- -------- ---------- Cost of sales............ 154,921 -- 1,164,101 80,554 (9,569) 1,390,007 Selling, general and administrative expenses............... 45,360 -- 382,414 31,839 -- 459,613 Restructuring provision -- net....... (2,029) -- 4,881 (3,702) -- (850) Depreciation and amortization........... 10,082 -- 72,409 4,255 -- 86,746 -------- -------- ---------- -------- -------- ---------- Total operating expenses............... 208,334 -- 1,623,805 112,946 (9,569) 1,935,516 -------- -------- ---------- -------- -------- ---------- Income from operations... 3,615 -- 80,746 18,162 -- 102,523 -------- -------- ---------- -------- -------- ---------- Equity earnings (loss) of subsidiaries........... 48,734 -- (10,951) -- (37,783) -- Investment and other income (expense)....... 20,570 -- (21,409) 4,559 -- 3,720 Interest expense -- net......... (342) (822) 14,262 (953) -- 12,145 Debt settlement and issue costs.................. -- 16,746 -- -- -- 16,746 -------- -------- ---------- -------- -------- ---------- Earnings (loss) before income taxes and minority interest...... 73,261 (15,924) 34,124 23,674 (37,783) 77,352 Income tax expense....... 3 -- 800 1,669 -- 2,472 Minority interest........ -- -- -- 1,622 -- 1,622 -------- -------- ---------- -------- -------- ---------- Net earnings (loss)...... $ 73,258 $(15,924) $ 33,324 $ 20,383 $(37,783) $ 73,258 -------- -------- ---------- -------- -------- ---------- U.S. GAAP Adjustments: Pension expense........ 169 -- 4,030 -- -- 4,199 Postretirement benefits............ 190 -- 17,100 -- -- 17,290 Computer software...... -- -- 6,764 -- -- 6,764 Debt conversion costs............... 832 -- -- -- -- 832 Stock-based compensation........ (11,839) -- -- -- -- (11,839) Income taxes........... 4,153 -- (10,879) -- -- (6,726) Equity earnings........ 17,015 -- -- -- (17,015) -- -------- -------- ---------- -------- -------- ---------- 10,520 -- 17,015 -- (17,015) 10,520 -------- -------- ---------- -------- -------- ---------- Net earnings (loss) under U.S. GAAP.............. $ 83,778 $(15,924) $ 50,339 $ 20,383 $(54,798) $ 83,778 ======== ======== ========== ======== ======== ==========
F-46 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2001:
NON- FINANCE GUARANTOR GUARANTOR PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------- ------------ ------------ ------------ ------------ Net sales................ $ 204,116 $ -- $1,768,550 $214,908 $(33,000) $2,154,574 --------- ------- ---------- -------- -------- ---------- Cost of sales............ 148,659 -- 1,295,470 141,432 (33,000) 1,552,561 Selling, general and administrative expenses............... 76,247 957 444,031 54,351 -- 575,586 Restructuring provision -- net....... 10,680 -- 107,676 11,323 -- 129,679 Depreciation and amortization........... 11,389 -- 163,750 63,933 -- 239,072 --------- ------- ---------- -------- -------- ---------- Total operating expenses............... 246,975 957 2,010,927 271,039 (33,000) 2,496,898 --------- ------- ---------- -------- -------- ---------- Loss from operations..... (42,859) (957) (242,377) (56,131) -- (342,324) --------- ------- ---------- -------- -------- ---------- Equity earnings (loss) of subsidiaries........... (295,364) -- (2,915) -- 298,279 -- Investment and other income (expense)....... (2,165) -- (8,693) 137 -- (10,721) Interest expense -- net......... 6,720 (1,591) 21,498 (2,869) -- 23,758 Debt settlement and issue costs.................. 10,396 1,000 221 -- -- 11,617 --------- ------- ---------- -------- -------- ---------- Earnings (loss) before income taxes and minority interest...... (357,504) (366) (275,704) (53,125) 298,279 (388,420) Income tax expense (benefit).............. 534 -- (34,887) 2,161 -- (32,192) Minority interest........ -- -- -- 1,810 -- 1,810 --------- ------- ---------- -------- -------- ---------- Net loss................. $(358,038) $ (366) $ (240,817) $(57,096) $298,279 $ (358,038) --------- ------- ---------- -------- -------- ---------- U.S. GAAP Adjustments: Pension expense........ (239) -- 173,408 (28,252) -- 144,917 Postretirement benefits............ 208 -- 17,067 -- -- 17,275 Computer software...... -- -- 17,287 -- -- 17,287 Interest expense....... 258 -- -- -- -- 258 Debt conversion costs............... (6,949) -- -- -- -- (6,949) Stock-based compensation........ (2,700) -- -- -- -- (2,700) Income taxes........... 3,901 -- (85,915) -- -- (82,014) Equity earnings........ 93,595 -- (28,252) -- (65,343) -- --------- ------- ---------- -------- -------- ---------- 88,074 -- 93,595 (28,252) (65,343) 88,074 --------- ------- ---------- -------- -------- ---------- Net loss under U.S. GAAP................... $(269,964) $ (366) $ (147,222) $(85,348) $232,936 $ (269,964) ========= ======= ========== ======== ======== ==========
F-47 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2000:
NON- FINANCE GUARANTOR GUARANTOR PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------- ------------ ------------ ------------ ------------ Net sales.................. $226,919 $ -- $1,802,629 $285,958 $(57,088) $2,258,418 -------- ----- ---------- -------- -------- ---------- Cost of sales.............. 179,520 -- 1,279,672 196,421 (57,088) 1,598,525 Selling, general and administrative expenses................. 67,991 -- 429,874 80,777 -- 578,642 Restructuring provision - net...................... (728) -- (9,635) (13,670) -- (24,033) Depreciation and amortization............. 13,371 -- 105,531 32,616 -- 151,518 -------- ----- ---------- -------- -------- ---------- Total operating expenses... 260,154 -- 1,805,442 296,144 (57,088) 2,304,652 -------- ----- ---------- -------- -------- ---------- Loss from operations....... (33,235) -- (2,813) (10,186) -- (46,234) -------- ----- ---------- -------- -------- ---------- Equity earnings (loss) of subsidiaries............. (25,189) -- (19,458) -- 44,647 -- Investment and other income (expense)................ (9,875) -- (4,825) 358 -- (14,342) Interest expense -- net.... (2,672) 678 34,576 (11,566) -- 21,016 -------- ----- ---------- -------- -------- ---------- Earnings (loss) before income taxes and minority interest................. (65,627) (678) (61,672) 1,738 44,647 (81,592) Income tax expense (benefit)................ 745 -- (18,336) 214 -- (17,377) Minority interest.......... -- -- -- 2,157 -- 2,157 -------- ----- ---------- -------- -------- ---------- Net loss................... $(66,372) $(678) $ (43,336) $ (633) $ 44,647 $ (66,372) -------- ----- ---------- -------- -------- ---------- U.S. GAAP Adjustments: Pension expense.......... 3,956 -- 14,307 -- -- 18,263 Postretirement benefits.............. 230 -- 18,603 -- -- 18,833 Computer software........ -- -- (2,300) -- -- (2,300) Income taxes............. (1,651) -- (12,077) -- -- (13,728) Equity earnings.......... 18,533 -- -- -- (18,533) -- -------- ----- ---------- -------- -------- ---------- 21,068 -- 18,533 -- (18,533) 21,068 -------- ----- ---------- -------- -------- ---------- Net loss under U.S. GAAP... $(45,304) $(678) $ (24,803) $ (633) $ 26,114 $ (45,304) ======== ===== ========== ======== ======== ==========
F-48 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2002:
NON- FINANCE GUARANTOR GUARANTOR PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- --------- ------------ ------------ ------------ ------------ OPERATING ACTIVITIES Net earnings (loss)................. $ 73,258 $ (15,924) $ 33,324 $ 20,383 $(37,783) $ 73,258 Adjustments to reconcile net earnings (loss)to cash provided (used) by operating activities: Equity (earnings) loss of subsidiaries.................... (48,734) -- 10,951 -- 37,783 -- Depreciation and amortization..... 10,082 -- 72,409 4,255 -- 86,746 Net (gain) loss on sale of investment and other assets..... 60 -- (7,293) (1,497) -- (8,730) Deferred income taxes............. 11,090 -- (36,998) (88) -- (25,996) Debt settlement costs............. -- 16,746 -- -- -- 16,746 Other............................. (1,907) 364 (5,140) (1,077) -- (7,760) Changes in operating assets and liabilities: Accounts receivable -- net........ 71 -- (2,235) 1,526 -- (638) Inventories....................... 1,752 -- 3,895 379 -- 6,026 Accounts payable and accrued liabilities..................... (3,917) (2,150) 2,869 (6,543) -- (9,741) Income taxes...................... 314 -- 32,137 (318) -- 32,133 Other............................. 189 -- (3,965) 127 -- (3,649) -------- --------- -------- -------- -------- --------- Net cash provided (used) by operating activities.............. 42,258 (964) 99,954 17,147 -- 158,395 -------- --------- -------- -------- -------- --------- INVESTING ACTIVITIES Property, plant and equipment -- net.................. (893) -- (7,802) (246) -- (8,941) Long-term receivables and other investments....................... 429 -- (1,402) (4,055) -- (5,028) Acquisition of businesses........... (8,764) -- (57,202) -- -- (65,966) Software expenditures............... -- -- (10,958) -- -- (10,958) Other............................... -- -- (1,615) -- -- (1,615) -------- --------- -------- -------- -------- --------- Net cash used by investing activities........................ (9,228) -- (78,979) (4,301) -- (92,508) -------- --------- -------- -------- -------- --------- FINANCING ACTIVITIES Net change in short-term debt....... (724) -- (14,902) (273) -- (15,899) Issuance of long-term debt.......... -- -- 200,000 -- -- 200,000 Payments on long-term debt.......... (1,641) (116,746) (21,877) -- -- (140,264) Issuance (repurchase) of common shares -- net..................... (7,949) -- -- -- -- (7,949) Intercompany activity............... (6,279) 117,711 (99,432) (12,000) -- -- Other............................... -- -- (8,108) (719) -- (8,827) -------- --------- -------- -------- -------- --------- Net cash provided (used) by financing activities.............. (16,593) 965 55,681 (12,992) -- 27,061 -------- --------- -------- -------- -------- --------- Effect of exchange rate on cash resources......................... (242) -- 232 (140) -- (150) -------- --------- -------- -------- -------- --------- Increase (decrease) in cash resources......................... 16,195 1 76,888 (286) -- 92,798 Cash resources at beginning of year.............................. 12,920 100 5,777 9,877 -- 28,674 -------- --------- -------- -------- -------- --------- Cash resources at end of year....... $ 29,115 $ 101 $ 82,665 $ 9,591 $ -- $ 121,472 ======== ========= ======== ======== ======== =========
F-49 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2001:
NON- FINANCE GUARANTOR GUARANTOR PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- --------- ------------ ------------ ------------ ------------ OPERATING ACTIVITIES Net earnings (loss)................ $(358,038) $ (366) $(240,817) $(57,096) $ 298,279 $(358,038) Adjustments to reconcile net earnings (loss) to cash provided (used) by operating activities: Equity (earnings) loss of subsidiaries................... 295,364 -- 2,915 -- (298,279) -- Depreciation and amortization.... 11,389 -- 163,750 63,933 -- 239,072 Net (gain) loss on sale of investment and other assets.... (79) -- (1,533) 7,436 -- 5,824 Deferred income taxes............ (13,729) -- (21,511) 137 -- (35,103) Pension settlement -- net........ -- -- 96,605 -- -- 96,605 Provision for restructuring costs.......................... 10,680 -- 107,676 11,323 -- 129,679 Debt settlement and issue costs.......................... 10,396 1,000 221 -- -- 11,617 Other............................ 7,903 373 (8,131) 2,903 -- 3,048 Changes in operating assets and liabilities: Accounts receivable -- net....... 3,554 -- 49,804 (8,674) -- 44,684 Inventories...................... 7,014 -- 14,203 (180) -- 21,037 Accounts payable and accrued liabilities.................... (6,614) (1,122) (5,297) (6,345) -- (19,378) Income taxes..................... 885 -- (4,129) (1,173) -- (4,417) Other............................ 6,850 (155) (1,902) (2,302) -- 2,491 --------- --------- --------- -------- --------- --------- Net cash provided (used) by operating activities............. (24,425) (270) 151,854 9,962 -- 137,121 --------- --------- --------- -------- --------- --------- INVESTING ACTIVITIES Property, plant and equipment -- net................. (3,320) -- (20,451) (13,301) -- (37,072) Long-term receivables and other investments...................... 484 -- 138 (4,111) -- (3,489) Acquisition of businesses.......... (14,565) -- -- -- -- (14,565) Proceeds from sale of investments and other assets................. -- -- 38,495 -- -- 38,495 Software expenditures.............. -- -- (6,151) (366) -- (6,517) Other.............................. 5,095 -- (22,249) 18,364 -- 1,210 --------- --------- --------- -------- --------- --------- Net cash provided (used) by investing activities............. (12,306) -- (10,218) 586 -- (21,938) --------- --------- --------- -------- --------- --------- FINANCING ACTIVITIES Dividends.......................... (8,846) -- -- -- -- (8,846) Net change in short-term debt...... (437) -- 16,272 (510) -- 15,325 Issuance of long-term debt......... 364 -- 7,476 123 -- 7,963 Payments on long-term debt......... (1,082) (100,000) (3,084) -- -- (104,166) Intercompany activity.............. 60,158 100,667 (153,981) (6,844) -- -- Other.............................. (2,320) -- 669 (1,693) -- (3,344) --------- --------- --------- -------- --------- --------- Net cash provided (used) by financing activities............. 47,837 667 (132,648) (8,924) -- (93,068) --------- --------- --------- -------- --------- --------- Effect of exchange rate on cash resources........................ (439) -- (65) (47) -- (551) --------- --------- --------- -------- --------- --------- Increase (decrease) in cash resources........................ 10,667 397 8,923 1,577 -- 21,564 Cash resources at beginning of year............................. 2,253 (297) (3,146) 8,300 -- 7,110 --------- --------- --------- -------- --------- --------- Cash resources at end of year...... $ 12,920 $ 100 $ 5,777 $ 9,877 $ -- $ 28,674 ========= ========= ========= ======== ========= =========
F-50 MOORE CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2000:
NON- FINANCE GUARANTOR GUARANTOR PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------- ------------ ------------ ------------ ------------ OPERATING ACTIVITIES Net loss.............................. $(66,372) $ (678) $ (43,336) $ (633) $ 44,647 $ (66,372) Adjustments to reconcile net loss to cash provided (used) by operating activities: Equity (earnings) loss of subsidiaries...................... 25,189 -- 19,458 -- (44,647) -- Depreciation and amortization....... 13,371 -- 106,959 32,216 -- 152,546 Net (gain) loss on sale of assets... 1,553 -- 1,176 (99) -- 2,630 Net loss on write-off and sale of investments....................... 8,474 -- 3,500 -- -- 11,974 Deferred income taxes............... (3,615) -- (10,228) 816 -- (13,027) Recovery of restructuring costs..... (728) -- (9,635) (13,670) -- (24,033) Other............................... 8,719 373 3,063 212 -- 12,367 Changes in operating assets and liabilities: Accounts receivable -- net.......... 207 -- 66,389 3,184 -- 69,780 Inventories......................... 12,090 -- 13,299 (1,208) -- 24,181 Accounts payable and accrued liabilities....................... (21,366) 165 (100,678) (13,110) -- (134,989) Income taxes........................ (567) 240 814 (1,126) -- (639) Other............................... (39,610) (426) 84,988 (42,050) -- 2,902 -------- ------- --------- -------- -------- --------- Net cash provided (used) by operating activities.......................... (62,655) (326) 135,769 (35,468) -- 37,320 -------- ------- --------- -------- -------- --------- INVESTING ACTIVITIES Property, plant and equipment -- net.................... (6,083) -- (19,544) (13,916) -- (39,543) Long-term receivables and other investments......................... (818) -- 1,269 76 -- 527 Acquisition of businesses............. (3,008) -- (343) -- -- (3,351) Proceeds from sale of investments and other assets........................ -- -- -- 13,178 -- 13,178 Software expenditures................. -- -- (28,689) (106) -- (28,795) Other................................. 135 -- 3,155 (4,132) -- (842) -------- ------- --------- -------- -------- --------- Net cash used by investing activities.......................... (9,774) -- (44,152) (4,900) -- (58,826) -------- ------- --------- -------- -------- --------- FINANCING ACTIVITIES Dividends............................. (17,594) -- -- -- -- (17,594) Net change in short-term debt......... 132 -- (37,022) (541) -- (37,431) Issuance of long-term debt............ 58,678 -- 2,599 3,386 -- 64,663 Payments on long-term debt............ (1,755) -- (20) (1) -- (1,776) Intercompany activity................. 30,257 -- (76,681) 46,424 -- -- Other................................. (7,140) -- 8,578 (7,191) -- (5,753) -------- ------- --------- -------- -------- --------- Net cash provided (used) by financing activities.......................... 62,578 -- (102,546) 42,077 -- 2,109 -------- ------- --------- -------- -------- --------- Effect of exchange rate on cash resources........................... 666 -- 728 20 -- 1,414 -------- ------- --------- -------- -------- --------- Increase (decrease) in cash resources........................... (9,185) (326) (10,201) 1,729 (17,983) Cash resources at beginning of year... 11,438 29 7,055 6,571 -- 25,093 -------- ------- --------- -------- -------- --------- Cash resources at end of year......... $ 2,253 $ (297) $ (3,146) $ 8,300 $ -- $ 7,110 ======== ======= ========= ======== ======== =========
F-51 EX-99.2 6 y90227exv99w2.txt CONSOLIDATED FINANCIAL STATEMENTS-MOORE WALLACE . . . Exhibit 99.2 MOORE WALLACE INCORPORATED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF U.S. DOLLARS)
JUNE 30, DECEMBER 31, 2003 2002 ----------- ------------ (UNAUDITED) ASSETS Current Assets Cash and cash equivalents................................. $ 65,932 $ 139,630 Accounts receivable, less allowance for doubtful accounts of $18,982 (2002 -- $19,538)........................... 578,826 341,383 Inventories (Note 2)...................................... 231,466 129,889 Prepaid expenses.......................................... 25,888 17,317 Deferred income taxes..................................... 24,748 31,912 ---------- ---------- Total Current Assets........................................ 926,860 660,131 ---------- ---------- Property, plant and equipment -- net........................ 632,970 255,722 Investments................................................. 27,722 32,256 Prepaid pension cost........................................ 224,591 221,520 Goodwill (Note 4)........................................... 784,321 106,254 Other intangibles -- net (Note 4)........................... 158,334 6,434 Deferred income taxes....................................... 3,339 53,938 Other assets................................................ 194,146 103,504 ---------- ---------- Total Assets................................................ $2,952,283 $1,439,759 ---------- ---------- LIABILITIES Current Liabilities Bank indebtedness......................................... $ 31,279 $ 18,158 Accounts payable and accrued liabilities.................. 584,114 486,507 Short-term debt........................................... 19,533 2,135 Income taxes.............................................. 51,186 58,562 Deferred income taxes..................................... 2,102 3,184 ---------- ---------- Total Current Liabilities................................... 688,214 568,546 ---------- ---------- Long-term debt (Note 5)..................................... 933,269 187,463 Postretirement benefits..................................... 260,515 241,344 Deferred income taxes....................................... 38,531 9,482 Other liabilities........................................... 102,140 43,776 Minority interest........................................... 4,397 6,652 ---------- ---------- Total Liabilities........................................... 2,027,066 1,057,263 ---------- ---------- SHAREHOLDERS' EQUITY Share Capital Authorized: Unlimited number of preference (none outstanding for 2003 and 2002) and common shares without par value Issued: 157,923,523 common shares in 2003.................... 111,842,348 common shares in 2002.................... 885,990 403,800 Unearned restricted shares................................ (2,882) (2,572) Retained earnings......................................... 162,652 114,601 Cumulative translation adjustments........................ (120,543) (133,333) ---------- ---------- Total Shareholders' Equity.................................. 925,217 382,496 ---------- ---------- Total Liabilities and Shareholders' Equity.................. $2,952,283 $1,439,759 ========== ==========
See Notes to Consolidated Financial Statements F-1 MOORE WALLACE INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- ------------------------- 2003 2002 2003 2002 -------- -------- ---------- ---------- Net sales.................................. $650,071 $499,791 $1,161,216 $1,029,292 -------- -------- ---------- ---------- Cost of sales.............................. 485,639 341,764 831,091 702,772 Selling, general and administrative expenses................................. 121,613 112,869 230,271 237,347 Restructuring provision -- net............. 1,697 -- 1,697 -- Depreciation and amortization (includes impairment charge of $2,132 for 2003).... 32,590 22,507 53,765 44,662 -------- -------- ---------- ---------- Total operating expenses................... 641,539 477,140 1,116,824 984,781 -------- -------- ---------- ---------- Income from operations..................... 8,532 22,651 44,392 44,511 Investment and other income (expense)...... (6,166) 849 (5,327) (646) Interest expense -- net.................... 27,377 2,741 33,876 5,352 -------- -------- ---------- ---------- Earnings (loss) before income taxes and minority interest........................ (25,011) 20,759 5,189 38,513 Income tax expense (benefit)............... (44,284) 5,486 (43,444) 10,280 Minority interest.......................... 380 27 582 494 -------- -------- ---------- ---------- Net earnings............................... $ 18,893 $ 15,246 $ 48,051 $ 27,739 ======== ======== ========== ========== Net earnings per common share: Basic.................................... $ 0.14 $ 0.14 $ 0.39 $ 0.25 Diluted.................................. $ 0.14 $ 0.13 $ 0.38 $ 0.24 Average shares outstanding (in thousands): Basic.................................... 136,049 111,481 124,163 111,664 Diluted.................................. 136,686 114,169 124,957 114,217
See Notes to Consolidated Financial Statements F-2 MOORE WALLACE INCORPORATED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED)
2003 2002 -------- -------- Balance at beginning of period.............................. $114,601 $ 51,666 Net earnings................................................ 48,051 27,739 Repurchase of common shares (1,069,700 shares in 2002)...... -- (10,323) -------- -------- Balance at end of period.................................... $162,652 $ 69,082 ======== ========
See Notes to Consolidated Financial Statements F-3 MOORE WALLACE INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- --------------------- 2003 2002 2003 2002 --------- -------- ---------- -------- OPERATING ACTIVITIES Net earnings............................................ $ 18,893 $ 15,246 $ 48,051 $ 27,739 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation and amortization......................... 32,590 22,507 53,765 44,662 (Gain) loss on sale of investment and other assets -- net....................................... 1,307 (1,847) (529) (2,379) Acquisition related charges: Inventory and backlog............................... 38,590 -- 38,590 -- Derivative charges.................................. 4,950 -- 4,950 -- Write-off of deferred debt issue costs.............. 7,493 -- 7,493 -- Deferred income taxes................................. (45,722) (25,483) (45,575) (21,360) Restructuring provision -- net........................ 1,697 -- 1,697 -- Restricted share compensation......................... 340 -- 517 -- Other................................................. 1,277 (2,136) 2,794 (927) Changes in operating assets and liabilities: Accounts receivable -- net............................ 11,537 35,918 12,301 17,031 Inventories........................................... 7,672 5,166 2,104 3,389 Prepaid expenses...................................... 20,189 1,262 (1,238) (4,345) Accounts payable and accrued liabilities.............. (22,626) (3,499) (62,570) (19,874) Income taxes.......................................... (98) 30,155 (4,558) 31,233 Other................................................. (3,018) (4,954) (5,116) (1,699) --------- -------- ---------- -------- Net cash provided by operating activities............... 75,071 72,335 52,676 73,470 --------- -------- ---------- -------- INVESTING ACTIVITIES Decrease in restricted cash and cash equivalents........ 900,175 -- -- -- Property, plant and equipment -- net.................... (12,063) (2,428) (19,646) (4,511) Long-term receivables and other investments............. (26,419) (1,249) (26,596) (2,724) Acquisition of businesses -- net of cash acquired....... (846,943) (6,764) (846,943) (63,966) Proceeds from sale of investment and other assets....... 26,470 -- 31,417 -- Software expenditures................................... (2,218) (4,359) (3,127) (4,880) Other................................................... (321) (43) (434) 53 --------- -------- ---------- -------- Net cash provided by (used in) investing activities..... 38,681 (14,843) (865,329) (76,028) --------- -------- ---------- -------- FINANCING ACTIVITIES Net change in short-term debt........................... 16,891 (29,877) 17,398 29,983 Proceeds from issuance of long-term debt................ 110,105 -- 1,010,280 -- Payments on long-term debt.............................. (279,912) (728) (280,327) (1,336) Debt issue costs........................................ (20,140) -- (30,516) -- Issuance (repurchase) of common shares -- net........... 456 (7,895) 9,655 (8,331) Other................................................... (686) (468) (1,382) (785) --------- -------- ---------- -------- Net cash (used in) provided by financing activities..... (173,286) (38,968) 725,108 19,531 --------- -------- ---------- -------- Effect of exchange rate on cash resources............... (402) 136 726 1,355 Net (decrease) increase in cash resources............... (59,936) 18,660 (86,819) 18,328 Cash resources at beginning of period (a)............... 94,589 28,342 121,472 28,674 --------- -------- ---------- -------- Cash resources at end of period (a)..................... $ 34,653 $ 47,002 $ 34,653 $ 47,002 --------- -------- ---------- -------- Supplemental disclosure of cash flow information: Interest paid (refund) -- net....................... $ (11,743)(b) $ 691 $ 5,940 $ 5,036 Income taxes paid -- net............................ 5,020 790 6,327 2,439 Non-cash activity: Shares issued for acquisition of business........... 471,708 -- 471,708 --
- --------------- (a) Cash resources are defined as cash and cash equivalents less bank indebtedness. (b) Includes refund of prepaid interest of $15,956 related to the $403 million senior unsecured notes. See Notes to Consolidated Financial Statements F-4 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA) 1. BASIS OF PRESENTATION The accompanying consolidated interim financial statements have been prepared by Moore Wallace Incorporated (the "Corporation"), formerly Moore Corporation Limited ("Moore"), in accordance with the recommendations of the Canadian Institute of Chartered Accountants (CICA) Handbook Section 1751 -- Interim Financial Statements. As permitted by these standards, these interim financial statements do not include all information required by Canadian generally accepted accounting principles (GAAP) to be included in annual financial statements. However, the Corporation considers that the disclosures made are adequate for a fair presentation. Comparative figures have been reclassified where appropriate to conform to the current presentation. Net sales and net earnings for any interim period are not necessarily indicative of results that may be expected for the entire year. On May 15, 2003, the Corporation acquired all the outstanding shares of Wallace Computer Services, Inc. ("Wallace"), a leading provider of printed products and print management services (see Note 3). The Corporation's results of operations for the three and six months ended June 30, 2003 include the results of Wallace from May 15, 2003. The allocation of the purchase price is preliminary and subject to change, based upon the determination and receipt of additional information, including the finalization of the fair value of real and personal property acquired and the recognition of certain liabilities in connection with an acquisition. The consolidated financial statements of the Corporation have been prepared in conformity with Canadian GAAP, and include estimates and assumptions of management that affect the amounts reported in the consolidated financial statements. Actual results could differ from these estimates. These consolidated interim financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in both Moore's and Wallace's latest Annual Report on Form 10-K filed on February 13, 2003 and October 23, 2002, respectively. 2. INVENTORIES
JUNE 30, DECEMBER 31, 2003 2002 -------- ------------ Raw materials............................................... $ 64,187 $ 31,883 Work-in-process............................................. 24,272 10,303 Finished goods.............................................. 139,479 84,190 Other....................................................... 3,528 3,513 -------- -------- $231,466 $129,889 ======== ========
3. ACQUISITION On May 15, 2003, the Corporation acquired all the outstanding shares of Wallace, a leading provider of printed products and print management services, in exchange for consideration of $14.40 in cash and 1.05 shares of the Corporation for each outstanding share of Wallace. Management believes the acquisition of Wallace (the "Acquisition") will enhance the Corporation's combined competitive position within the industry and establish the Corporation as a leading provider of integrated print management services across multiple industries. Management also believes the Acquisition will enable the Corporation to improve profitability, achieve significant cost synergies, leverage complementary products and services and augment cross-selling opportunities across a more diverse platform. The aggregate consideration to the Wallace shareholders was $1.1 billion and is comprised of a cash payment of $609.7 million and 44,458,825 common shares of the Corporation with a fair value of $471.7 million. The fair value of the Corporation's shares is based upon the actual number of shares issued to the Wallace shareholders using the average closing trading F-5 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) price of the Corporation's common shares on the New York Stock Exchange ("NYSE") during a five-day trading period beginning two days prior to the announcement of the merger agreement on January 17, 2003. The total purchase price of $1.3 billion also includes $218.2 million for the settlement of Wallace debt and other liabilities, and direct acquisition costs to date of $19 million. The transaction was recorded by allocating the cost of the assets acquired, including intangible assets and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the cost of the Acquisition over the net of amounts assigned to the fair value of the assets acquired and the liabilities assumed is recorded as goodwill. Based on the Corporation's preliminary independent valuation, which is subject to further refinement, the purchase price is allocated as follows: Accounts receivable......................................... $ 238,321 Inventory................................................... 137,562 Customer backlog............................................ 3,790 Other current assets........................................ 13,350 Property, plant and equipment -- net........................ 390,536 Long-term and other assets.................................. 38,583 Capitalized software........................................ 45,400 Amortizable intangible assets............................... 60,824 Intangible assets with indefinite lives..................... 92,310 Goodwill.................................................... 675,163 Accounts payable and accrued liabilities.................... (158,178) Short-term and long-term debt............................... (16,189) Postretirement benefits and pension......................... (52,484) Deferred taxes -- net....................................... (131,306) Other long-term liabilities................................. (19,031) ---------- Total purchase price -- net of cash acquired................ $1,318,651 ==========
INTANGIBLE ASSETS Of the total purchase price, approximately $156.9 million has been allocated to intangible assets including customer backlog, trade names, customer relationships, patents and covenants not to compete. Trade names of $92.3 million are not subject to amortization as the useful lives are considered indefinite. Trade names are subject to impairment testing annually or when a significant change in circumstances occurs that may require testing during an interim period. The remaining intangible assets are also subject to impairment testing, however, the fair values are amortized over their respective remaining useful lives ranging from 2-12 years. PRO FORMA RESULTS The following unaudited pro forma financial information presents the combined results of operations of the Corporation and Wallace as if the Acquisition had occurred as of the beginning of the periods presented. The historical results for the three and six months ended June 30, 2003 include the results of Wallace from May 15, 2003 (the acquisition date). The pro forma results for the three and six months ended June 30, 2003 combine the results of the Corporation for the three and six months ended June 30, 2003, respectively, and the historical results of Wallace from April 1, 2003 through May 15, 2003 and January 1, 2003 through May 15, 2003, respectively. Due to the different historical fiscal period-ends for Moore and Wallace, the pro forma results for the three and six months ended June 30, 2002 combine the historical results of Moore for the three and six months ended June 30, 2002 and the historical quarterly results of Wallace for the three and six F-6 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) months ended April 30, 2002. The unaudited pro forma financial information is not intended to represent or be indicative of the Corporation's consolidated results of operations or financial condition that would have been reported had the acquisition been completed as of the beginning of the years presented and should not be taken as indicative of the Corporation's future consolidated results of operations or financial condition.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ----------------------- 2003 2002 2003 2002 -------- -------- ---------- ---------- Net sales............................... $827,874 $868,989 $1,702,224 $1,795,595 Net income (loss)....................... 49,059 20,175 59,014 (6,931) Net income (loss) per share: Basic................................. 0.31 0.13 0.38 (0.04) Diluted............................... 0.31 0.13 0.37 (0.04)
The three and six month periods in both 2003 and 2002 includes adjustments of $0.7 million and $1.4 million, respectively, net of tax, for the amortization of purchased intangibles. The unaudited pro forma financial information also includes the following non-recurring charges: acquisition related charges of $55.3 million and $38.6 million for the three and six months ended June 30, 2003 and 2002, respectively, and restructuring charges of $1.7 million for the three and six months end June 30, 2003 and $5.4 million and $35.6 million for the three and six months ended June 30, 2002, respectively. 4. GOODWILL AND OTHER INTANGIBLES
BALANCE AT FOREIGN BALANCE AT GOODWILL DECEMBER 31, 2002 ADDITIONS EXCHANGE JUNE 30, 2003 - -------- ----------------- --------- -------- ------------- Forms and Labels.................... $ 45,550 $348,947 $1,016 $395,513 Outsourcing......................... 11,846 -- 1,888 13,734 Commercial.......................... 48,858 326,216 -- 375,074 -------- -------- ------ -------- $106,254 $675,163 $2,904 $784,321 ======== ======== ====== ========
The allocation of goodwill from the Acquisition between the segments is preliminary and based upon management's best estimate at June 30, 2003. The allocation is subject to further refinement upon finalization of the independent valuation. Other intangibles at June 30, 2003, include:
ACCUMULATED GROSS ADDITIONS AMORTIZATION AND CARRYING AMOUNT DURING THE FOREIGN BALANCE AT AMORTIZABLE JANUARY 1, 2003 YEAR EXCHANGE JUNE 30, 2003 LIFE --------------- ---------- ---------------- ------------- ----------- Trademarks, licenses and agreements..... $3,390 $ 20,824 $(1,323) $ 22,891 4-10 Years Customer relationship intangibles........ 2,729 40,000 (1,531) 41,198 2-12 Years Indefinite-lived trade names........ 1,664 92,310 271 94,245 ------ -------- ------- -------- $7,783 $153,134 $(2,583) $158,334 ====== ======== ======= ========
F-7 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The total intangible asset amortization expense for the three and six months ended June 30, 2003, was $1.4 million and $1.8 million, respectively. Amortization expense for the next five years is estimated to be:
2004........................................................ $10,025 2005........................................................ $ 7,064 2006........................................................ $ 5,202 2007........................................................ $ 5,190 2008........................................................ $ 5,190
5. DEBT In March 2003, the Corporation entered into an $850 million senior secured credit facility (the "New Facility") in connection with the Acquisition. The New Facility consists of a seven-year $500 million B Term Loan, which was funded into escrow until the consummation of the Acquisition on May 15, 2003, and a five-year $350 million Revolving Credit Facility, each of which is subject to a number of restrictive and financial covenants that, in part, limit additional indebtedness and the ability of the Corporation to engage in certain transactions with affiliates, create liens on assets, engage in mergers and consolidations, or dispose of assets. The financial covenants are calculated quarterly and include, in part, tests of leverage and interest coverage. The loans under the New Facility bear interest based on a variable index (LIBOR), plus an applicable margin. Three-month LIBOR at June 30, 2003, was 1.1%. The New Facility replaced the Corporation's $400 million senior secured credit facility (the "Existing Facility"). At June 30, 2003 $510 million is outstanding under the New Facility. Concurrently, in March 2003, the Corporation issued $403 million of 7 7/8% senior unsecured notes (the "Senior Notes") due 2011 at a $2.8 million discount to the principal amount. Interest on the Senior Notes is payable semiannually on January 15 and July 15 of each year, commencing on July 15, 2003. The proceeds from the Senior Notes along with $16 million in prepaid interest through September 15, 2003 were held in escrow until the consummation of the Acquisition. The indenture governing the Senior Notes contains certain restrictive covenants that, among other things, limit additional indebtedness and the Corporation's ability to engage in certain transactions with affiliates, create liens on assets, engage in mergers and consolidations, or dispose of assets. The Corporation, at its option, may redeem up to 40% of the Senior Notes prior to January 15, 2006, at a predetermined redemption price with the proceeds of certain equity offerings. In addition, subsequent to January 15, 2007, the Senior Notes may be redeemed at predetermined redemption prices. On or prior to January 15, 2007, the Corporation may also redeem the Senior Notes upon a change of control, at a price equal to 100% of the principal plus an applicable premium. In August 2002, the Corporation entered into the Existing Facility, which is comprised of a five-year $125 million Revolving Credit Facility, a five-year $75 million Delayed Draw Term Loan A Facility, and a six-year $200 million Term Loan B Facility. The Existing Facility was replaced with the proceeds from the New Facility upon the consummation of the Acquisition. At December 31, 2002 $179.5 million was outstanding under this facility. For the three and six months ended June 30, 2003, interest expense includes the following acquisition related items: pre-acquisition interest expense of $7.5 million and $10.7 million, respectively; the write-off of deferred financing fees of $7.5 million; interest income of $1.3 million on aforementioned proceeds held in escrow; and $4 million of bridge financing fees. As a result of replacing the Existing Facility, the Corporation recorded a charge of $5.2 million during the quarter for the fair value on $150 million notional amount fixed rate interest rate swaps that were designated as cash flow hedges of the variable interest on the Existing Facility. The $5.2 million liability resulting from this charge will be ratably reduced and recorded as income over the remaining term of the swaps. These swap agreements, which have a weighted average rate of 2.29%, exchange the variable interest rates (LIBOR) for F-8 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) fixed interest rates over the terms of the agreements. During the quarter, the Corporation designated these swaps as cash flow hedges of the interest rate risk attributable to the forecasted variable interest payments. Also during the quarter, the Corporation entered into an additional $250 million notional amount fixed rate interest rate swaps that are designated as cash flow hedges of the interest rate risk attributable to the forecasted variable interest payments on the New Facility. These swaps, which become effective and interest will begin accruing on October 7, 2003, exchange the LIBOR interest on the New Facility to fixed rate over the term of the swaps. At June 30, 2003, the notional amount of all fixed rate swaps outstanding was $400 million and their fair market value was a $6.9 million liability. During the quarter, the Corporation also entered into $250 million notional amount interest rate swaps that exchange the interest on the 7 7/8% fixed rate Senior Notes to floating rate six-month LIBOR plus a basis point spread. The swaps are designated as a fair value hedge against $250 million of principal on the Senior Notes and mature January 2011. At June 30, 2003, the fair market value of these floating rate swaps was a $2.7 million liability. The interest rate differential received or paid on both the cash flow and fair value hedges is recognized as an adjustment to interest expense. The Corporation has approximately $42 million in outstanding letters of credit at June 30, 2003. 6. RESTRUCTURING AND OTHER CHARGES During the second quarter of 2003, in connection with the Acquisition, management approved and initiated plans to restructure the operations of both Wallace and Moore ("restructuring plans") to eliminate certain duplicative functions, to close certain facilities and to dispose of redundant software systems, underutilized assets and real estate holdings in order to reduce the combined cost structure of the organization. As a result, the Corporation accrued approximately $2.5 million of costs to exit certain Wallace activities, such as severance, costs of vacating redundant facilities (leased or owned) and other costs associated with exiting these activities. These costs are recognized as a liability assumed in the purchase business combination and are included in the allocation of the cost to acquire Wallace and are included in goodwill (see Note 3). The Corporation accrued approximately $3.3 million of similar restructuring costs in connection with exiting certain Moore activities. These changes were partially offset by the reversal of a portion of its 2001 restructuring reserves ($1.6 million) as a result of favorable settlements in 2003, as compared to estimates and assumptions used by management at the time the charges were recorded. These costs have been included as a charge to the results of operations for the three and six months ended June 30, 2003. The restructuring charges recorded are based on the aforementioned restructuring plans that have been committed to by management and are in part based upon management's best estimates of future events. Changes to the estimates could require adjustments to the restructuring liabilities. Adjustments to the Wallace restructuring liability will be recorded through goodwill and adjustments to other restructuring liabilities would be reflected in the results of operations. RESTRUCTURING COSTS CAPITALIZED AS A COST OF ACQUISITION At June 30, 2003, the $2.5 million in costs that were accrued in connection with restructuring Wallace, and recognized as a liability assumed in the purchase business combination and included in the allocation of the cost to acquire Wallace, relate to workforce reductions of 146 employees for the plant closures and elimination of certain duplicative corporate administrative functions. F-9 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The reconciliation of the restructuring reserve as of June 30, 2003, capitalized as part of the acquisition is as follows:
DECEMBER 31, CASH JUNE 30, 2002 ADDITIONS PAID 2003 ------------ --------- ---- -------- Employee terminations.......................... $-- $2,480 $544 $1,936 Other.......................................... -- -- -- -- -- ------ ---- ------ $-- $2,480 $544 $1,936 == ====== ==== ======
For the three months ended June 30, 2003, the Corporation recorded the following restructuring provisions:
EMPLOYEE OTHER TERMINATIONS CHARGES TOTAL ------------ ------- ------ Forms and Labels........................................ $1,042 $10 $1,052 Outsourcing............................................. -- -- -- Commercial.............................................. -- -- -- Corporate............................................... 2,254 -- 2,254 ------ --- ------ $3,296 $10 $3,306 ====== === ======
For the three months ended June 30, 2003, the Corporation recorded a restructuring provision of $3.3 million for workforce reductions of 41 employees, primarily related to the closure of a plant and the elimination of duplicative corporate administrative functions resulting from the Acquisition. The Corporation reversed $1.6 million of restructuring reserve related to its 2001 program due to favorable settlements of liabilities for obligations and future payments primarily related to the European operations within the Commercial segment. There was no restructuring provision recorded for the three and six months ended June 30, 2002. The reconciliation of the restructuring reserve as of June 30, 2003 is as follows:
BALANCE AT BALANCE AT DECEMBER 31, RESTRUCTURING CASH JUNE 30, 2002 PROVISION -- NET PAID 2003 ------------ ---------------- -------- ---------- Employee terminations................ $14,319 $ 2,959 $ (4,498) $12,780 Other................................ 67,121 (1,262) (6,583) 59,276 ------- ------- -------- ------- $81,440 $ 1,697 $(11,081) $72,056 ======= ======= ======== =======
The restructuring reserves classified as "other", primarily consist of the estimated remaining payments related to lease terminations and facility closing costs. Payments on these lease obligations are scheduled to continue until 2010. Market conditions and the Corporation's ability to sublease these properties may affect the ultimate charge related to its lease obligations. Any potential recovery or additional charge may affect amounts reported in the consolidated financial statements of future periods. The Corporation anticipates that payments associated with employee terminations will be substantially completed by the end of 2003. For the three months ended June 30, 2003, the Corporation recorded a charge of $2.1 million, in the Forms and Labels segment for asset impairments associated with the disposal of redundant enterprise software systems as a result of the Acquisition. F-10 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. INCOME TAXES The difference between the statutory rate and the effective rate relates to lower tax rates in non-U.S. jurisdictions combined with a reduction of the deferred tax valuation allowance, which is based on management's best estimate of the amount of deferred tax assets that will more likely than not be realized. The 2003 rate was also affected by a loss generated in the U.S. as a result of expenses incurred from the Acquisition. For the three and six months ended June 30, 2003 the valuation allowance was reduced $34.2 million and $40.4 million, respectively. For the three and six months ended June 30, 2002, the valuation allowance was reduced by $36.1 million. 8. ASSETS HELD FOR DISPOSITION In the fourth quarter of 2001, the Corporation classified a non-core business as an asset held for disposition and the carrying value was adjusted to its net recoverable amount. Included in the results of the Commercial segment for the three and six months ended June 30, 2003 are net sales of $51.2 million and $100.9 million, respectively, relating to this business. For the three and six months ended June 30, 2003 income from operations relating to this business was $2.9 million and $6.1 million, respectively. For the three months ended June 30, 2002 net sales and income from operations relating to this business were $49.5 million and $3.4 million, respectively. Net sales relating to this business for the six months ended June 30, 2002 were $99.6 million and income from operations relating to this business was $6.2 million. 9. RECONCILIATION TO U.S. GAAP The following summarizes the significant accounting differences between Canadian generally accepted accounting principles ("Canadian GAAP") and U.S. generally accepted accounting principles ("U.S. GAAP") that result in the differences disclosed in the U.S. GAAP reconciliation. PENSIONS AND POSTRETIREMENT BENEFITS The adoption of CICA Handbook, Section 3461 -- Employee Future Benefits, on January 1, 2000, eliminated any material difference in the method of accounting for these costs. However, the transition rules for the implementation of this Canadian standard continue to result in a U.S. GAAP reporting difference. Under CICA Handbook Section 3461, all past net gains (losses), net assets and prior service costs were recognized as of the date of adoption. Under U.S. GAAP, net gains (losses), net assets and prior service costs which occurred before January 1, 2000 are recognized over the appropriate amortization period. STATEMENT OF CASH FLOWS For Canadian GAAP the Statements of Cash Flows disclose the net change in cash resources, which is defined as cash and cash equivalents less bank indebtedness. U.S. GAAP requires the disclosure of the net change in cash and cash equivalents. Under U.S. GAAP, net cash provided by financing activities for the six months ended June 30, 2003 is $738.2 million. Net cash used by financing activities for the six months ended June 30, 2002 was $1.5 million. Cash and cash equivalents are the same for both Canadian GAAP and U.S. GAAP. INCOME TAXES The liability method of accounting for income taxes is used for both Canadian GAAP and U.S. GAAP. However, under U.S. GAAP, temporary differences are tax effected at enacted rates, whereas under Canadian GAAP, temporary differences are tax effected using substantively enacted rates and laws that will be in effect when the differences are expected to reverse. For all periods presented, the tax rates used are the same for both Canadian GAAP and U.S. GAAP. F-11 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STOCK COMPENSATION The adoption of CICA Handbook, Section 3870 -- Stock-Based Compensation and Other Stock-Based Payments, reduced most prospective differences in accounting for these costs between Canadian GAAP and U.S. GAAP. The pro forma disclosures of net income and earnings per share under the fair value method of accounting for stock options will continue to differ as CICA Handbook Section 3870 is applicable for awards granted on or after January 1, 2002. For both Canadian and U.S. GAAP the Corporation uses the intrinsic value method for accounting for stock options. Prior to CICA Handbook Section 3870, recognition of compensation expense was not required for the Corporation's Series 1 Preference Share options, whereas under U.S. GAAP, the expense is measured at the fair value of the Preference Share options, less the amount the employee is required to pay, and is accrued over the vesting period. In April 2002, the shareholders of the Corporation approved the amendment of the options to purchase Series 1 Preference Shares ("Preference Shares") to eliminate the cash-out provision and to make them exercisable for one common share per each Preference Share option. The exercise price and the number of Preference Share options remained unchanged. This amendment effectively made these options common share equivalents for diluted earnings per share computations. The transition rules for CICA Handbook Section 3870 required that these common share equivalents be considered outstanding as of the beginning of the year, whereas for U.S. GAAP purposes, these Preference Share options were not considered common share equivalents until amended. The difference in the diluted weighted average common shares between Canadian and U.S. GAAP relates solely to the Preference Share options. Additionally, no compensation expense or pro forma compensation expense is required to be recognized in the current and future periods under Canadian GAAP pursuant to CICA Handbook Section 3870, whereas under U.S. GAAP, unearned compensation cost will be recognized over the remaining vesting period (through December 11, 2004) based on the intrinsic value of the options on the date of approval. Pro forma fair value compensation expense will also be recorded under U.S. GAAP for the Preference Shares commencing on the amendment date. In accordance with the transition rules for CICA Handbook Section 3870, no compensation expense was recorded for the Preference Shares for Canadian GAAP. COMPREHENSIVE INCOME U.S. GAAP requires disclosure of comprehensive income and its components. Comprehensive income is the change in equity of the Corporation from transactions and other events other than those resulting from transactions with owners, and is comprised of net income and other comprehensive income. The components of other comprehensive income for the Corporation are unrealized foreign currency translation adjustments and the change in fair value of derivatives. Under Canadian GAAP, there is no standard for reporting comprehensive income. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES For U.S. GAAP purposes the changes in the fair value of the Corporation's interest rate swaps that are designated as cash flow hedges are recorded in other comprehensive income. For U.S. GAAP purposes the changes in their fair value Corporation's interest rate swaps that are designated as fair value hedges are recorded as an adjustment to the Senior Notes. Under Canadian GAAP, there is no standard requiring the recognition of the fair value of derivatives either through comprehensive income or the hedged item. FOREIGN CURRENCY TRANSLATION Under U.S. GAAP, foreign currency translation gains or losses are only recognized on the sale or substantial liquidation of a foreign subsidiary. Under Canadian GAAP, a foreign currency gain or loss due to a partial liquidation is recognized in income. F-12 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) BUSINESS PROCESS REENGINEERING Under U.S. GAAP, business process reengineering activities are expensed as incurred. Prior to October 28, 1998, Canadian GAAP permitted these costs to be capitalized or expensed. Subsequent to October 28, 1998, Canadian GAAP requires the cost of business process reengineering activities to be expensed as incurred. Prior to October 28, 1998, the Corporation capitalized business process reengineering costs and classified them as computer software. CONVERTIBLE DEBENTURES The debt conversion costs relate to the December 28, 2001 induced conversion of the Corporation's subordinated convertible debentures and more specifically represent 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 share at December 31, 2002 and 2003. For Canadian GAAP purposes, to the extent that any shares or cash is paid, it will be recorded as a charge to retained earnings. For U.S. GAAP purposes, the fair value of this contingent consideration is recognized in earnings and recorded at fair market value. The fair value of the consideration is 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 share price volatility; cost of borrowings; and certain equity valuation multiples. CHANGES IN ACCOUNTING POLICIES In the first quarter of 2003, the Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of Financial Accounting Standards Board ("FASB") Statement No. 13, and Technical Corrections" ("SFAS 145"). Among other things, under the provision of SFAS 145, gains and losses from the early extinguishment of debt are no longer classified as an extraordinary item, net of income taxes, but are included in the determination of pretax earnings. The effective date for SFAS 145 is for fiscal years beginning after May 15, 2002, with early application encouraged. Upon adoption, all gains and losses from the extinguishment of debt previously reported as an extraordinary item shall be reclassified to pretax earnings. The adoption of SFAS 145 had no impact on the financial position or results of operations of the Corporation for the six months ended June 30, 2003. In the first quarter of 2003, the Corporation adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). This statement addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force ("EITF") has set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The principal difference between SFAS 146 and EITF 94-3 is that SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred versus the EITF 94-3 where a liability was recognized on the date an entity committed to an exit plan. SFAS 146 is effective for exit and disposal activities that are initiated after December 31, 2002. In Canada, the Emerging Issues Committee ("EIC") issued EIC-134, "Accounting for Severance and Termination Benefits" and EIC-135, "Accounting for Costs Associated with Exit and Disposal Activities (Including Costs Incurred in a Restructuring)" in March 2003, which harmonize Canadian GAAP with SFAS 146. In April 2003, FASB issued SFAS No. 149, "Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). In particular, it clarifies under what circumstances a contract with an initial net investment meets the F-13 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) characteristic of a derivative, clarifies when a derivative contains a financing component, amends the definition of an underlying, and amends certain other existing pronouncements. SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Corporation does not expect that the adoption of SFAS 149 will have a material impact on the results of operation or financial conditions. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of this Statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements. The remaining provisions of this Statement are consistent with the proposal to revise that definition to encompass certain obligations that a reporting entity can or must settle by issuing its own equity shares, depending on the nature of the relationship established between the holder and the issuer. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Corporation does not expect the adoption of SFAS 150 to have a material impact on its results of operations results or financial condition. The following tables provide a reconciliation of net earnings as reported under Canadian GAAP to net earnings under U.S. GAAP:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Net earnings as reported................... $ 18,893 $ 15,246 $ 48,051 $ 27,739 U.S. GAAP Adjustments: Pension expense.......................... 1,014 20 2,025 38 Postretirement benefits.................. 4,332 4,325 8,660 8,647 Computer software........................ 1,694 1,691 3,398 3,382 Debt conversion costs.................... 704 (114) 1,070 1,151 Stock-based compensation expense......... (79) (1,547) (444) (4,143) Income taxes............................. (2,988) (1,187) (5,736) (3,539) -------- -------- -------- -------- Net earnings under U.S. GAAP............... $ 23,570 $ 18,434 $ 57,024 $ 33,275 -------- -------- -------- -------- Earnings per share: Basic.................................... $ 0.17 $ 0.17 $ 0.46 $ 0.30 Diluted.................................. $ 0.17 $ 0.16 $ 0.46 $ 0.29 Average shares (in thousands): Basic.................................... 136,049 111,481 124,163 111,664 Diluted.................................. 136,651 113,926 124,910 113,468
F-14 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Comprehensive income: Net earnings............................... $ 23,570 $ 18,434 $ 57,024 $ 33,275 Other comprehensive income (loss) -- net of tax: Currency translation adjustments......... 8,001 (1,685) 12,790 (3,890) Fair value adjustment on derivatives..... 2,144 -- 1,868 -- -------- -------- -------- -------- Total comprehensive income................. $ 33,715 $ 16,749 $ 71,682 $ 29,385 ======== ======== ======== ========
Net gains on the disposal of property, plant and equipment for the six months ended June 30, 2003 and 2002 were $1.1 million and $2.4 million, respectively. For U.S. GAAP purposes these amounts are recorded in income from operations. Interest expense is net of investment income of $1 million and $0.8 million for the six months ended June 30, 2003 and 2002, respectively.
JUNE 30, 2003 DECEMBER 31, 2002 ----------------------- ----------------------- BALANCE SHEET ITEMS: AS REPORTED U.S. GAAP AS REPORTED U.S. GAAP - -------------------- ----------- --------- ----------- --------- Net pension asset...................... $(183,348) $(121,216) $(193,350) $(129,193) Computer software -- net............... (123,442) (101,304) (89,208) (63,672) Fair value of derivatives -- liability............. 4,950 9,614 -- 5,089 Postretirement benefits................ 260,515 376,588 241,344 366,077 Deferred taxes -- net.................. 12,546 (63,578) (73,184) (156,239) Accounts payable and accrued liabilities.......................... 584,114 578,213 486,507 481,676 Long-term debt......................... 933,269 930,631 187,463 187,463 Accumulated other comprehensive income............................... (120,543) (86,595) (133,333) (101,253) Share capital.......................... 885,990 887,971 403,800 405,337 Retained earnings (deficit)............ 162,652 6,379 114,601 (50,645)
The Corporation's U.S. GAAP net earnings and earnings per share on a pro forma basis, if compensation expense for employee stock options were determined using the fair value method are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ----------------- 2003 2002 2003 2002 -------- -------- ------- ------- Net earnings................................... $23,570 $18,434 $57,024 $33,275 Pro forma adjustments -- net of tax: Stock compensation recorded.................. 99 2,527 322 2,527 Fair value compensation expense.............. (608) (3,424) (1,183) (3,883) ------- ------- ------- ------- Pro forma net earnings......................... $23,061 $17,537 $56,163 $31,919 ======= ======= ======= ======= Earnings per share Basic........................................ $ 0.17 $ 0.16 $ 0.45 $ 0.29 Diluted...................................... $ 0.17 $ 0.15 $ 0.45 $ 0.28 ======= ======= ======= =======
F-15 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. SEGMENT INFORMATION The Corporation operates in the printing industry with three distinct operating segments based on the way management assesses information on a regular basis for decision-making purposes. The three segments are Forms and Labels, Outsourcing and Commercial. These segments market print and print related products and services to a geographically diverse customer base. Management has aggregated divisions within the reportable segments due to strong similarities in the economic characteristics, nature of products and services, production processes, class of customer and distribution methods used. Wallace historically operated in two business segments, Forms and Labels and Integrated Graphics. The principal products within the Forms and Labels segment include paper-based forms, electronic data processing and packaging labels and a standard line of office products. The principal products within the Integrated Graphics segment include commercial print and direct mail. The Corporation has classified the Wallace historical Forms and Labels operations within the Forms and Labels segment and the historical Integrated Graphics operations within the Commercial segment in the table below. Prior periods have not been restated to reflect the acquisition. As a result of acquiring the remaining interest in Quality Color Press, Inc. in May 2002, management has reclassified this business from the Commercial segment to the Forms and Labels segment in order to reflect the business synergies and integration plans.
THREE MONTHS ENDED FORMS AND JUNE 30, 2003 LABELS OUTSOURCING COMMERCIAL CORPORATE CONSOLIDATED - ------------------ --------- ----------- ---------- --------- ------------ Total revenue................ $351,702 $76,361 $229,875 $ -- $657,938 Intersegment revenue......... (1,213) (12) (6,642) -- (7,867) -------- ------- -------- -------- -------- Sales to customers outside the enterprise............. 350,489 76,349 223,233 -- 650,071 Income (loss) from operations................. 10,772 12,685 8,110 (23,035) 8,532 Depreciation and amortization............... 13,228 3,409 7,515 8,438 32,590 Capital expenditures......... 3,845 6,987 5,231 3,379 19,442
SIX MONTHS ENDED FORMS AND JUNE 30, 2003 LABELS OUTSOURCING COMMERCIAL CORPORATE CONSOLIDATED - ---------------- ---------- ----------- ---------- --------- ------------ Total revenue.............. $ 620,005 $173,766 $ 379,846 $ -- $1,173,617 Intersegment revenue....... (2,687) (13) (9,701) -- (12,401) ---------- -------- ---------- -------- ---------- Sales to customers outside the enterprise........... 617,318 173,753 370,145 -- 1,161,216 Income (loss) from operations............... 41,234 38,876 21,298 (57,016) 44,392 Total assets............... 1,213,151 126,419 1,015,380 597,333 2,952,283 Depreciation and amortization............. 21,987 6,587 11,271 13,920 53,765 Capital expenditures....... 6,490 11,611 6,583 4,872 29,556
F-16 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE MONTHS ENDED FORMS AND JUNE 30, 2002 (RECLASSIFIED) LABELS OUTSOURCING COMMERCIAL CORPORATE CONSOLIDATED - ---------------------------- --------- ----------- ---------- --------- ------------ Total revenue................ $286,252 $71,151 $145,957 $ -- $503,360 Intersegment revenue......... (744) (15) (2,810) -- (3,569) -------- ------- -------- -------- -------- Sales to customers outside the enterprise............. 285,508 71,136 143,147 -- 499,791 Income (loss) from operations................. 31,884 8,822 10,785 (28,840) 22,651 Depreciation and amortization............... 8,980 3,839 4,064 5,624 22,507 Capital expenditures......... 911 961 2,293 5,670 9,835
SIX MONTHS ENDED FORMS AND JUNE 30, 2002 (RECLASSIFIED) LABELS OUTSOURCING COMMERCIAL CORPORATE CONSOLIDATED - ---------------------------- --------- ----------- ---------- --------- ------------ Total revenue................ $574,755 $167,291 $293,764 $ -- $1,035,810 Intersegment revenue......... (1,689) (27) (4,802) -- (6,518) -------- -------- -------- -------- ---------- Sales to customers outside the enterprise............. 573,066 167,264 288,962 -- 1,029,292 Income (loss) from operations................. 62,278 29,535 22,746 (70,048) 44,511 Total assets................. 608,351 106,787 333,943 338,781 1,387,862 Depreciation and amortization............... 17,826 7,824 7,792 11,220 44,662 Capital expenditures......... 1,925 1,857 3,129 6,302 13,213
11. CONTINGENCIES At June 30, 2003, certain lawsuits and other claims and assessments were pending against the Corporation. While the outcome of these matters is subject to future resolution, management's evaluation and analysis of such matters indicate 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. The Corporation has been identified as a Potentially Responsible Party ("PRP") at the Dover, New Hampshire Municipal Landfill, a United States Environmental Protection Agency Superfund Site. The Corporation has been participating with a group of approximately 26 other PRP's to fund the study of and implement remedial activities at the site. Remediation at the site has been on-going and is anticipated to continue for at least several years. The total cost of the remedial activity was estimated to be approximately $26 million. The Corporation's share is not expected to exceed $1.5 million. The Corporation believes that its reserves are sufficient based on the present facts and recent tests performed at this site. F-17 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. EARNINGS PER SHARE
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Net earnings............................... $ 18,893 $ 15,246 $ 48,051 $ 27,739 -------- -------- -------- -------- Weighted average number of common shares outstanding: Basic.................................... 136,049 111,481 124,163 111,664 Dilutive options and awards.............. 637 2,688 794 2,553 -------- -------- -------- -------- Diluted.................................. 136,686 114,169 124,957 114,217 -------- -------- -------- -------- Earnings per share Basic.................................... $ 0.14 $ 0.14 $ 0.39 $ 0.25 Diluted.................................. $ 0.14 $ 0.13 $ 0.38 $ 0.24 ======== ======== ======== ========
13. SUBSEQUENT EVENTS On August 5, 2003, the Corporation entered into an agreement with the lender of its New Facility to amend the New Facility to reduce the basis point spread. Management expects this reduction to result in annualized pretax cash interest savings of approximately $2.5 million. 14. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION Moore North America Finance Inc ("Finance Inc.") a wholly-owned subsidiary of the Corporation (the "Parent") is the issuer of the Senior Notes. The Parent and certain of the Corporation's wholly owned subsidiaries ("Guarantor Subsidiaries") have guaranteed Finance Inc.'s obligation under the Senior Notes. The guarantees are joint and several, full, complete and unconditional. Other wholly owned subsidiaries of the Corporation ("Non-guarantor Subsidiaries") have not guaranteed the obligation under the Senior Notes. The following supplemental condensed consolidating financial data illustrates, in separate columns, the composition of the Parent, Finance Inc., Guarantor Subsidiaries, Non-guarantor Subsidiaries, eliminations, and the consolidated total. Investments in subsidiaries are accounted for by the equity method for purposes of the supplemental condensed consolidating financial data. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. The financial data may not necessarily be indicative of the results of operations or financial position had the subsidiaries been operated as independent entities. F-18 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Supplemental Consolidating Balance Sheet at June 30, 2003 (unaudited):
NON- FINANCE GUARANTOR GUARANTOR PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- -------- ------------ ------------ ------------ ------------ ASSETS Current Assets Cash and cash equivalents.......... $ 7,027 $ 1 $ 43,582 $ 15,322 $ -- $ 65,932 Accounts receivable -- net......... 42,168 -- 506,367 30,291 -- 578,826 Intercompany receivables........... 150,403 3,228 11,979 4,528 (170,138) -- Inventories........................ 21,330 -- 200,089 10,047 -- 231,466 Prepaid expenses................... 1,598 -- 22,614 1,676 -- 25,888 Deferred income taxes.............. 639 -- 23,496 613 -- 24,748 ---------- -------- ----------- -------- ----------- ---------- Total Current Assets................. 223,165 3,229 808,127 62,477 (170,138) 926,860 ---------- -------- ----------- -------- ----------- ---------- Property, plant and equipment -- net................... 33,393 -- 575,918 23,659 -- 632,970 Investments.......................... -- -- 586 27,136 -- 27,722 Investment in subsidiaries........... 889,334 -- 59,354 230 (948,918) -- Prepaid pension cost................. 15,515 -- 190,864 18,212 -- 224,591 Goodwill............................. 20,859 -- 763,462 -- -- 784,321 Other intangibles -- net............. 3,531 -- 154,803 -- -- 158,334 Intercompany loan receivable......... 1,041 435,932 31,090 3,227 (471,290) -- Deferred income taxes................ (236) -- 2,177 1,398 -- 3,339 Other assets......................... 1,304 10,626 181,831 385 -- 194,146 ---------- -------- ----------- -------- ----------- ---------- Total Assets......................... $1,187,906 $449,787 $ 2,768,212 $136,724 $(1,590,346) $2,952,283 ========== ======== =========== ======== =========== ========== LIABILITIES Current Liabilities Bank indebtedness.................. $ 10,134 $ -- $ 20,990 $ 155 $ -- $ 31,279 Accounts payable and accrued liabilities...................... 179,350 10,511 348,517 45,736 -- 584,114 Intercompany payables.............. 1,065 4,685 156,863 7,525 (170,138) -- Short-term debt.................... 869 -- 18,483 181 -- 19,533 Income taxes....................... 16,769 (31) 33,600 848 -- 51,186 Deferred income taxes.............. 1,421 -- 291 390 -- 2,102 ---------- -------- ----------- -------- ----------- ---------- Total Current Liabilities............ 209,608 15,165 578,744 54,835 (170,138) 688,214 ---------- -------- ----------- -------- ----------- ---------- Intercompany loans payable........... 26,271 -- 437,887 7,132 (471,290) -- Long-term debt....................... 708 400,280 528,742 3,539 -- 933,269 Postretirement benefits.............. 12,922 -- 247,593 -- -- 260,515 Deferred income taxes................ 3,937 -- 33,928 666 -- 38,531 Other liabilities.................... 9,243 -- 90,175 2,722 -- 102,140 Minority interest.................... -- -- -- 4,397 -- 4,397 ---------- -------- ----------- -------- ----------- ---------- Total Liabilities.................... 262,689 415,445 1,917,069 73,291 (641,428) 2,027,066 ---------- -------- ----------- -------- ----------- ---------- SHAREHOLDERS' EQUITY Share capital...................... 885,990 60,000 2,079,341 173,662 (2,313,003) 885,990 Unearned restricted shares......... (2,882) -- -- -- -- (2,882) Retained earnings.................. 162,652 (25,658) (1,252,925) (64,325) 1,342,908 162,652 Cumulative translation adjustments...................... (120,543) -- 24,727 (45,904) 21,177 (120,543) ---------- -------- ----------- -------- ----------- ---------- Total Shareholders' Equity........... 925,217 34,342 851,143 63,433 (948,918) 925,217 ---------- -------- ----------- -------- ----------- ---------- Total Liabilities and Shareholders' Equity............................. $1,187,906 $449,787 $ 2,768,212 $136,724 $(1,590,346) $2,952,283 ========== ======== =========== ======== =========== ========== Shareholders' Equity as reported..... $ 925,217 $ 34,342 $ 851,143 $ 63,433 $ (948,918) $ 925,217 ---------- -------- ----------- -------- ----------- ---------- U.S. GAAP Adjustments: Net pension asset.................. (5,455) -- (56,677) -- -- (62,132) Computer software -- net........... -- -- (22,138) -- -- (22,138) Fair value of derivatives.......... -- -- (4,664) -- -- (4,664) Postretirement benefits............ (2,472) -- (113,601) -- -- (116,073) Deferred income taxes -- net....... 3,110 -- 75,196 (2,182) -- 76,124 Accounts payable and accrued liabilities...................... (99) -- -- 6,000 -- 5,901 Long-term debt..................... 2,638 2,638 Equity investments................. (115,428) -- 3,818 -- 111,610 -- ---------- -------- ----------- -------- ----------- ---------- (120,344) -- (115,428) 3,818 111,610 (120,344) ---------- -------- ----------- -------- ----------- ---------- Shareholders' Equity under U.S. GAAP............................... $ 804,873 $ 34,342 $ 735,715 $ 67,251 $ (837,308) $ 804,873 ========== ======== =========== ======== =========== ==========
F-19 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Supplemental Consolidating Balance Sheet at December 31, 2002:
NON- FINANCE GUARANTOR GUARANTOR PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- -------- ------------ ------------ ------------ ------------ ASSETS Current Assets Cash and cash equivalents............ $ 29,127 $ 101 $ 100,338 $ 10,064 $ -- $ 139,630 Accounts receivable -- net........... 33,131 -- 271,219 37,033 -- 341,383 Intercompany receivables............. -- 2,222 60,496 4,571 (67,289) -- Inventories.......................... 21,121 -- 99,384 9,384 -- 129,889 Prepaid expenses..................... 949 -- 15,604 764 -- 17,317 Deferred income taxes................ 549 -- 29,066 2,297 -- 31,912 --------- -------- ----------- -------- ----------- ---------- Total Current Assets................... 84,877 2,323 576,107 64,113 (67,289) 660,131 --------- -------- ----------- -------- ----------- ---------- Property, plant and equipment -- net... 28,503 -- 199,457 27,762 -- 255,722 Investments............................ -- -- 1,784 30,472 -- 32,256 Investment in subsidiaries............. 374,237 -- 47,917 230 (422,384) -- Prepaid pension cost................... 14,363 -- 188,605 18,552 -- 221,520 Goodwill............................... 17,956 -- 88,298 -- -- 106,254 Other intangibles -- net............... 3,354 -- 3,080 -- -- 6,434 Intercompany loan receivable........... 1,188 5,082 5,223 32,264 (43,757) -- Deferred income taxes.................. (202) -- 54,129 11 -- 53,938 Other assets........................... 1,756 -- 98,456 3,292 -- 103,504 --------- -------- ----------- -------- ----------- ---------- Total Assets........................... $ 526,032 $ 7,405 $ 1,263,056 $176,696 $ (533,430) $1,439,759 ========= ======== =========== ======== =========== ========== LIABILITIES Current Liabilities Bank indebtedness.................... $ 12 $ -- $ 17,673 $ 473 $ -- $ 18,158 Accounts payable and accrued liabilities........................ 42,959 1,002 380,567 61,979 -- 486,507 Intercompany payables................ 54,939 3,817 -- 8,533 (67,289) -- Short-term debt...................... 401 -- 1,414 320 -- 2,135 Income taxes......................... 14,469 (31) 43,073 1,051 -- 58,562 Deferred income taxes................ 1,219 -- -- 1,965 -- 3,184 --------- -------- ----------- -------- ----------- ---------- Total Current Liabilities.............. 113,999 4,788 442,727 74,321 (67,289) 568,546 --------- -------- ----------- -------- ----------- ---------- Intercompany loans payable............. 6,479 -- 30,976 6,302 (43,757) -- Long-term debt......................... 1,090 -- 183,146 3,227 -- 187,463 Postretirement benefits................ 10,869 -- 230,475 -- -- 241,344 Deferred income taxes.................. 3,378 -- 5,834 270 -- 9,482 Other liabilities...................... 7,721 -- 32,619 3,436 -- 43,776 Minority interest...................... -- -- -- 6,652 -- 6,652 --------- -------- ----------- -------- ----------- ---------- Total Liabilities...................... 143,536 4,788 925,777 94,208 (111,046) 1,057,263 --------- -------- ----------- -------- ----------- ---------- SHAREHOLDERS' EQUITY Share capital........................ 403,800 20,000 1,607,533 204,042 (1,831,575) 403,800 Unearned restricted shares........... (2,572) -- -- -- -- (2,572) Retained earnings.................... 114,601 (17,383) (1,292,916) (77,715) 1,388,014 114,601 Cumulative translation adjustments... (133,333) -- 22,662 (43,839) 21,177 (133,333) --------- -------- ----------- -------- ----------- ---------- Total Shareholders' Equity............. 382,496 2,617 337,279 82,488 (422,384) 382,496 --------- -------- ----------- -------- ----------- ---------- Total Liabilities and Shareholders' Equity............................... $ 526,032 $ 7,405 $ 1,263,056 $176,696 $ (533,430) $1,439,759 ========= ======== =========== ======== =========== ========== Shareholders' Equity as reported....... $ 382,496 $ 2,617 $ 337,279 $ 82,488 $ (422,384) $ 382,496 --------- -------- ----------- -------- ----------- ---------- U.S. GAAP Adjustments: Net pension asset.................... (5,536) -- (58,621) -- -- (64,157) Computer software -- net............. -- -- (25,536) -- -- (25,536) Fair value of derivatives............ -- -- (5,089) -- -- (5,089) Postretirement benefits.............. (2,575) -- (122,158) -- -- (124,733) Deferred income taxes -- net......... 3,590 -- 81,647 (2,182) -- 83,055 Accounts payable and accrued liabilities........................ (1,169) -- -- 6,000 -- 4,831 Equity investments................... (125,939) -- 3,818 -- 122,121 -- --------- -------- ----------- -------- ----------- ---------- (131,629) -- (125,939) 3,818 122,121 (131,629) --------- -------- ----------- -------- ----------- ---------- Shareholders' Equity under U.S. GAAP... $ 250,867 $ 2,617 $ 211,340 $ 86,306 $ (300,263) $ 250,867 ========= ======== =========== ======== =========== ==========
F-20 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Supplemental Consolidating Statement of Operations Six Months Ended June 30, 2003:
NON- FINANCE GUARANTOR GUARANTOR PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------- ------------ ------------ ------------ ------------ Net sales.................... $111,664 $ -- $986,056 $67,960 $ (4,464) $1,161,216 -------- ------- -------- ------- -------- ---------- Cost of sales................ 80,538 -- 711,432 43,585 (4,464) 831,091 Selling, general and administrative expenses.... 20,554 -- 192,582 17,135 -- 230,271 Restructuring provision -- net........... 670 -- 1,166 (139) -- 1,697 Depreciation and amortization............... 5,021 -- 46,848 1,896 -- 53,765 -------- ------- -------- ------- -------- ---------- Total operating expenses..... 106,783 -- 952,028 62,477 (4,464) 1,116,824 -------- ------- -------- ------- -------- ---------- Income from operations....... 4,881 -- 34,028 5,483 -- 44,392 -------- ------- -------- ------- -------- ---------- Equity earnings (loss) of subsidiaries............... 51,761 -- (6,655) -- (45,106) -- Investment and other income (expense).................. (8,605) -- (5,053) 8,331 -- (5,327) Interest expense -- net...... (159) 8,275 25,803 (43) -- 33,876 -------- ------- -------- ------- -------- ---------- Earnings (loss) before income taxes and minority interest................... 48,196 (8,275) (3,483) 13,857 (45,106) 5,189 Income tax expense (benefit).................. 145 -- (43,474) (115) -- (43,444) Minority interest............ -- -- -- 582 -- 582 -------- ------- -------- ------- -------- ---------- Net earnings................. $ 48,051 $(8,275) $ 39,991 $13,390 $(45,106) $ 48,051 -------- ------- -------- ------- -------- ---------- U.S. GAAP Adjustments: Pension expense............ 81 -- 1,944 -- -- 2,025 Postretirement benefits.... 103 -- 8,557 -- -- 8,660 Computer software.......... -- -- 3,398 -- -- 3,398 Debt conversion costs...... 1,070 -- -- -- -- 1,070 Stock-based compensation... (444) -- -- -- -- (444) Income taxes............... (316) -- (5,420) -- -- (5,736) Equity earnings............ 8,479 -- -- -- (8,479) -- -------- ------- -------- ------- -------- ---------- 8,973 -- 8,479 -- (8,479) 8,973 -------- ------- -------- ------- -------- ---------- Net earnings (loss) under U.S. GAAP.................. $ 57,024 $(8,275) $ 48,470 $13,390 $(53,585) $ 57,024 ======== ======= ======== ======= ======== ==========
F-21 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Supplemental Consolidating Statement of Operations Six Months Ended June 30, 2002 (unaudited):
NON- FINANCE GUARANTOR GUARANTOR PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------- ------------ ------------ ------------ ------------ Net sales..................... $111,525 $ -- $859,619 $64,943 $ (6,795) $1,029,292 -------- ----- -------- ------- -------- ---------- Cost of sales................. 80,339 -- 588,338 40,890 (6,795) 702,772 Selling, general and administrative expenses..... 30,478 -- 190,521 16,348 -- 237,347 Depreciation and amortization................ 5,278 -- 37,050 2,334 -- 44,662 -------- ----- -------- ------- -------- ---------- Total operating expenses...... 116,095 -- 815,909 59,572 (6,795) 984,781 -------- ----- -------- ------- -------- ---------- Income from operations........ (4,570) -- 43,710 5,371 -- 44,511 -------- ----- -------- ------- -------- ---------- Equity earnings (loss) of subsidiaries................ 32,108 -- 3,424 -- (35,532) -- Investment and other income (expense)................... 195 -- (716) (125) -- (646) Interest expense -- net....... (119) (528) 6,541 (542) -- 5,352 -------- ----- -------- ------- -------- ---------- Earnings (loss) before income taxes and minority interest.................... 27,852 528 39,877 5,788 (35,532) 38,513 Income tax expense (benefit)................... 113 -- 8,952 1,215 -- 10,280 Minority interest............. -- -- -- 494 -- 494 -------- ----- -------- ------- -------- ---------- Net earnings.................. $ 27,739 $ 528 $ 30,925 $ 4,079 $(35,532) $ 27,739 -------- ----- -------- ------- -------- ---------- U.S. GAAP Adjustments: Pension expense............. 65 -- (27) -- -- 38 Postretirement benefits..... 97 -- 8,550 -- -- 8,647 Computer software........... -- -- 3,382 -- -- 3,382 Debt conversion costs....... 1,151 -- -- -- -- 1,151 Stock-based compensation.... (4,143) -- -- -- -- (4,143) Income taxes................ 1,104 -- (4,643) -- -- (3,539) Equity earnings............. 7,262 -- -- -- (7,262) -- -------- ----- -------- ------- -------- ---------- 5,536 -- 7,262 -- (7,262) 5,536 -------- ----- -------- ------- -------- ---------- Net earnings (loss) under U.S. GAAP........................ $ 33,275 $ 528 $ 38,187 $ 4,079 $(42,794) $ 33,275 ======== ===== ======== ======= ======== ==========
F-22 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Supplemental Consolidating Statement of Cash Flows Six Months Ended June 30, 2003 (unaudited):
NON- FINANCE GUARANTOR GUARANTOR PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- --------- ------------ ------------ ------------ ------------ OPERATING ACTIVITIES Net earnings (loss)................... $ 48,051 $ (8,275) $ 39,991 $ 13,390 $(45,106) $ 48,051 Adjustments to reconcile net earnings (loss) to cash provided (used) by operating activities: Equity (earnings) loss of subsidiaries...................... (51,761) -- 6,655 -- 45,106 -- Depreciation and amortization....... 5,021 -- 46,848 1,896 -- 53,765 Acquisition related charges: Inventory and backlog............. -- -- 38,590 -- -- 38,590 Derivative charges................ -- -- 4,950 -- -- 4,950 Write-off deferred debt issue costs........................... -- -- 7,493 -- -- 7,493 Deferred income taxes............... 705 -- (45,398) (882) -- (45,575) Provision for restructuring costs... 670 -- 1,166 (139) -- 1,697 Other............................... 1,326 385 162 909 -- 2,782 Changes in operating assets and liabilities: Accounts receivable -- net.......... (3,100) -- 7,114 8,287 -- 12,301 Inventories......................... 3,133 -- (510) (519) -- 2,104 Accounts payable and accrued liabilities....................... 121,212 9,510 (189,324) (3,968) -- (62,570) Income taxes........................ (86) -- (4,280) (192) -- (4,558) Other............................... (697) (138) (3,858) (1,661) -- (6,354) --------- --------- --------- -------- -------- ---------- Net cash provided (used) by operating activities.......................... 124,474 1,482 (90,401) 17,121 -- 52,676 --------- --------- --------- -------- -------- ---------- INVESTING ACTIVITIES Property, plant and equipment -- net.................... (3,893) -- (14,071) (1,682) -- (19,646) Long-term receivables and other investments......................... 5 -- 524 (27,125) -- (26,596) Acquisition of businesses............. -- -- (846,943) -- -- (846,943) Proceeds from sale of investments and other assets........................ 1,500 -- -- 29,917 -- 31,417 Software expenditures................. -- -- (3,127) -- -- (3,127) Other................................. -- (245) (2,537) 2,348 -- (434) --------- --------- --------- -------- -------- ---------- Net cash provided (used) by investing activities.......................... (2,388) (245) (866,154) 3,458 -- (865,329) --------- --------- --------- -------- -------- ---------- FINANCING ACTIVITIES Net change in short-term debt......... 468 -- 17,069 (139) -- 17,398 Issuance of long-term debt............ -- 400,280 610,000 -- -- 1,010,280 Payments on long-term debt............ (133) -- (280,194) -- -- (280,327) Debt issue costs...................... -- (10,767) (19,749) -- -- (30,516) Issuance (repurchase) of common shares -- net....................... 9,655 -- -- -- -- 9,655 Intercompany activity -- net.......... (165,172) (390,850) 570,603 (14,581) -- -- Other................................. -- -- (900) (482) -- (1,382) --------- --------- --------- -------- -------- ---------- Net cash provided (used) by financing activities.......................... (155,182) (1,337) 896,829 (15,202) -- 725,108 --------- --------- --------- -------- -------- ---------- Effect of exchange rate on cash resources........................... 874 -- (347) 199 -- 726 --------- --------- --------- -------- -------- ---------- Increase (decrease) in cash resources........................... (32,222) (100) (60,073) 5,576 -- (86,819) Cash resources at beginning of period.............................. 29,115 101 82,665 9,591 -- 121,472 --------- --------- --------- -------- -------- ---------- Cash resources at end of period....... $ (3,107) $ 1 $ 22,592 $ 15,167 $ -- $ 34,653 ========= ========= ========= ======== ======== ==========
F-23 MOORE WALLACE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Supplemental Consolidating Statement of Cash Flows Six Months Ended June 30, 2002 (unaudited):
NON- FINANCE GUARANTOR GUARANTOR PARENT INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------- ------------ ------------ ------------ ------------ OPERATING ACTIVITIES Net earnings (loss)...................... $ 27,739 $ 528 $ 30,925 $ 4,079 $(35,532) $ 27,739 Adjustments to reconcile net earnings (loss) to cash provided (used) by operating activities: (Gain) loss on sale of investments and other assets......................... (46) -- (1,614) (719) -- (2,379) Equity (earnings) loss of subsidiaries......................... (32,108) -- (3,424) -- 35,532 -- Depreciation and amortization.......... 5,278 -- 37,050 2,334 -- 44,662 Deferred income taxes.................. 12,092 -- (34,087) 635 -- (21,360) Other.................................. 417 274 (3,021) 1,403 -- (927) Changes in operating assets and liabilities: Accounts receivable -- net............. (7,420) -- 16,372 8,079 -- 17,031 Inventories............................ 2,575 -- 1,334 (520) -- 3,389 Accounts payable and accrued liabilities.......................... 1,044 -- (16,820) (4,098) -- (19,874) Income taxes........................... 708 -- 30,981 (456) -- 31,233 Other.................................. (742) (802) (5,136) 636 -- (6,044) -------- ----- -------- ------- -------- -------- Net cash provided by operating activities............................. 9,537 -- 52,560 11,373 -- 73,470 -------- ----- -------- ------- -------- -------- INVESTING ACTIVITIES Long-term receivables and other investments............................ 678 -- (1,412) (1,990) -- (2,724) Property, plant and equipment -- net..... (1,276) -- (2,928) (307) -- (4,511) Acquisition of businesses................ (6,764) -- (57,202) -- -- (63,966) Software expenditures.................... -- -- (4,810) (70) -- (4,880) Other.................................... (51) -- 108 (4) -- 53 -------- ----- -------- ------- -------- -------- Net cash used by investing activities.... (7,413) -- (66,244) (2,371) -- (76,028) -------- ----- -------- ------- -------- -------- FINANCING ACTIVITIES Net change in short-term debt............ 79 -- 30,047 (143) -- 29,983 Payments on long-term debt............... (658) -- (678) -- -- (1,336) Issuance (repurchase) of common shares -- net.................................... (8,331) -- -- -- -- (8,331) Intercompany activity -- net............. 9,103 -- (2,491) (6,612) -- -- Other.................................... -- -- -- (785) -- (785) -------- ----- -------- ------- -------- -------- Net cash provided (used) by financing activities............................. 193 -- 26,878 (7,540) -- 19,531 -------- ----- -------- ------- -------- -------- Effect of exchange rate on cash resources.............................. 769 -- 622 (36) -- 1,355 -------- ----- -------- ------- -------- -------- Increase in cash resources............... 3,086 -- 13,816 1,426 -- 18,328 Cash resources at beginning of period.... 12,920 100 5,777 9,877 -- 28,674 -------- ----- -------- ------- -------- -------- Cash resources at end of period.......... $ 16,006 $ 100 $ 19,593 $11,303 $ -- $ 47,002 ======== ===== ======== ======= ======== ========
F-24 -----END PRIVACY-ENHANCED MESSAGE-----