-----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, WvSeiE8bM/0Rq/XOB1Ml9TKsxYBeBnMiatyUWxnzDS+nmnJkr1TpAZSzDBNAW7SM qp6CAbguAoBzK6Woff/LnA== 0000950136-02-000914.txt : 20020415 0000950136-02-000914.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950136-02-000914 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOORE CORPORATION LTD CENTRAL INDEX KEY: 0000067931 STANDARD INDUSTRIAL CLASSIFICATION: MANIFOLD BUSINESS FORMS [2761] IRS NUMBER: 980154502 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08014 FILM NUMBER: 02595026 BUSINESS ADDRESS: STREET 1: 40 KING STREET WEST STREET 2: SUITE 3501 CITY: TORONTO ONTARIO CANA STATE: A6 BUSINESS PHONE: 4163642600 MAIL ADDRESS: STREET 1: 40 KING STREET WEST SUITE 3501 CITY: TORONTO ONTARIO 10-K405 1 file001.txt FORM 10-K405 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001. Commission file number 1-8014. MOORE CORPORATION LIMITED (Exact name of registrant as specified in its charter) ONTARIO, CANADA 98-0154502 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) ONE CANTERBURY GREEN, STAMFORD, CT 06901 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 406-3700 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS Common Shares NAME OF EACH EXCHANGE ON WHICH REGISTERED: New York Stock Exchange The Toronto Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference, in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting common shares without par value held by non-affiliates of the registrant as computed by reference to the closing price on the New York Stock Exchange on March 26, 2002 was $192,456,630. The number of common shares outstanding as of March 26, 2002 was $111,920,573. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Management Information Circular and Proxy Statement, dated March 13, 2002, filed with the Commission pursuant to Regulation 14A, are incorporated by reference into Part III. ================================================================================ MOORE CORPORATION LIMITED ANNUAL REPORT OF FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001 TABLE OF CONTENTS
PAGE ---- PART I Item 1: Business ................................................................. 1 Item 2: Properties ............................................................... 7 Item 3: Legal Proceedings ........................................................ 8 Item 4: Submission of Matters to a Vote of Security Holders ...................... 8 Executive Officers of the Registrant ..................................... 9 PART II Item 5: Market for Registrant's Common Shares and Related Shareholder Matters ................................................................ 12 Item 6: Selected Financial Data .................................................. 13 Item 7: Management's Discussion and Analysis of Results of Operations and Financial Condition .................................................... 14 Item 7A: Quantitative and Qualitative Disclosures About Market Risk ............... 22 Item 8: Financial Statements and Supplementary Data .............................. 23 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................................................... 52 PART III Item 10: Directors and Executive Officers of the Registrant ....................... 53 Item 11: Executive Compensation ................................................... 53 Item 12: Security Ownership of Management ......................................... 53 Item 13: Certain Relationships and Related Transactions ........................... 53 PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K .......... 54 Signatures ....................................................................... 55
Unless otherwise indicated, all dollar amounts in this Annual Report on Form 10-K are expressed in United States currency and all references to "Moore" or the "Corporation" in this Annual Report on Form 10-K refer to Moore Corporation Limited and its subsidiaries. PART I ITEM 1. BUSINESS A) GENERAL DEVELOPMENT OF BUSINESS Moore Corporation Limited, a corporation incorporated under the Business Corporations Act (Ontario), was established in 1882. Moore is an international leader in the management and distribution of print and digital information. Moore operates in three complementary business segments: Forms and Labels, Outsourcing and Commercial. The Forms and Labels business designs, manufactures and sells paper based and electronic business forms and labels and provides electronic print management solutions. The Outsourcing business provides high-quality, high-volume variably imaged print and mail, electronic statement and database management services. The Commercial business produces high-quality, multi-color personalized business communications and provides direct marketing services, including project, database and list management services. In 2001, Moore had net sales of $2,154 million and had approximately 11,500 employees worldwide. Moore has its registered office at 40 King Street West, Suite 3501, Toronto, Ontario, Canada M5H 3Y2 and its executive offices are located at One Canterbury Green, Stamford, Connecticut 06901. The Moore internet address is www.moore.com. In late 2000, a new management team was hired by Moore. This new management team developed a six point action plan for 2001. This plan consisted of: (i) hiring the best managers and employees available in the market and holding them accountable for business performance in their area of responsibility; (ii) developing a detailed action plan to eliminate at least $100 million from the cost structure; (iii) selling non-core operations to allow Moore to focus on growing its print-related assets; (iv) leveraging corporate purchasing and partnering with suppliers to further reduce costs and improve efficiencies; (v) developing a cross-selling program to drive sales growth in the three core print related businesses; and (vi) acquiring complementary print-related assets to expand the print offerings Moore is able to provide to its customers. As part of this six point plan, in 2001 Moore reduced costs by streamlining operations, controlling budgets and expenses, consolidating facilities, negotiating more competitive pricing and terms with suppliers and launching productivity initiatives. In addition, in 2001 Moore sold non-core assets or assets that were not aligned with its business strategy, including: o Colleagues, the United Kingdom-based advertising agency as well as an investment in an on-line real estate listing company (both in the first quarter); o various joint venture interests in Europe and Latin America (in the second and third quarters); and o Phoenix, a Detroit-based telemarketing customer relationship management business (in the third quarter). The last component of the plan began in December with the acquisition of Document Management Services, the print and mail operation of IBM Canada Ltd., to supplement the 1 Canadian Outsourcing business and create synergy opportunities within our Canadian Outsourcing operations. In addition, in January 2002, Moore acquired The Nielsen Company. Nielsen is a commercial printer with operations in Kentucky and North Carolina. Nielsen specializes in high-quality multicolor printing of collateral marketing material, consumer product and financial services marketing pieces, and various products, such as annual reports. As a result of these and many related activities, including terminating unprofitable customer contracts, streamlining operations, consolidating facilities and reducing headcount, the Corporation incurred $391 million of pre-tax restructuring and other non-recurring charges during 2001 across all of its principal operating segments. The Corporation is anticipating that further improvements will be made to its cost structure in 2002 and beyond. These improvements will come from a variety of initiatives most of which are already underway, including, global purchasing initiatives, "right-sizing" of the manufacturing facilities, waste reduction, manufacturing productivity improvements, decreasing sales and manufacturing errors, energy management, decreased spending on information technology and the elimination of an additional 1,000 positions as a result of systems improvements and the centralization of functions. B) FINANCIAL INFORMATION ABOUT SEGMENTS In December 2000, the Corporation changed its executive management and the Board of Directors and established a new strategic initiative that resulted in the establishment of a new operating platform during the third quarter of 2001. This realignment was made in order to segregate non-print related businesses and align core businesses to take advantage of synergies and capitalize on core competencies. The new segmentation reflects management's current structure with regard to management's process for making decisions as it relates to resource allocation and performance evaluation. During 2000, the Corporation operated in four reportable segments as follows: Moore North America, Customer Communication Services (United States), Latin America and Europe. Prior year information has been reclassified to conform to the current year presentation (see Note 19). OPERATING SEGMENTS
IN THOUSANDS OF U.S. DOLLARS FORMS AND LABELS OUTSOURCING COMMERCIAL CONSOLIDATED ------------- ------------- ------------ ------------- 2001 Total revenue ........................... $1,167,721 $341,485 $ 666,795 $2,176,001 Intersegment revenue .................... (2,422) (2,006) (16,999) (21,427) Sales to customer outside the enterprise ............................. 1,165,299 339,479 649,796 2,154,574 Segment operating income (loss) ......... 42,743 49,508 (90,202) 2,049 Nonoperating expenses ................... (344,373) ---------- Loss from operations .................... (342,324) Segment assets .......................... 624,532 117,243 282,132 1,023,907 Corporate assets including investments ............................ 313,079 ---------- Total assets ............................ 1,336,986 Capital asset depreciation and amortization ........................... 110,037 19,383 109,652 239,072 Capital expenditures .................... 12,942 16,124 9,819 38,885 2000 (RESTATED) Total revenue ........................... $1,225,622 $297,851 $ 752,764 $2,276,237 Intersegment revenue .................... -- (1,082) (16,737) (17,819) Sales to customer outside the enterprise ............................. 1,225,622 296,769 736,027 2,258,418 Segment operating income (loss).......... 71,917 43,126 (10,518) 104,525 Nonoperating expenses ................... (150,759) ---------- Loss from operations .................... (46,234) Segment assets .......................... 840,653 109,847 444,496 1,394,996 Corporate assets including investments ............................ 348,591 ---------- Total assets ............................ 1,743,587 Capital asset depreciation and amortization ........................... 83,407 19,276 48,835 151,518 Capital expenditures .................... 37,143 10,651 27,992 75,786
2
IN THOUSANDS OF U.S. DOLLARS FORMS AND LABELS OUTSOURCING COMMERCIAL CONSOLIDATED ------------- ------------- ------------ ------------- 1999 (RESTATED) Total revenue ........................... $1,404,739 $281,152 $ 755,081 $2,440,972 Intersegment revenue .................... -- (735) (15,121) (15,856) Sales to customer outside the enterprise ............................. 1,404,739 280,417 739,960 2,425,116 Segment operating income (loss) ......... 195,691 47,732 52,836 296,259 Nonoperating expenses ................... (154,578) ---------- Income from operations .................. 141,681 Segment assets .......................... 937,907 109,717 481,822 1,529,446 Corporate assets including investments ............................ 100,847 ---------- Total assets ............................ 1,630,293 Capital asset depreciation and amortization ........................... 50,522 19,789 31,024 101,335 Capital expenditures .................... 62,898 18,449 19,490 100,837
C) NARRATIVE DESCRIPTION OF BUSINESS Moore operates in three complementary business segments: Forms and Labels, Outsourcing and Commercial. FORMS AND LABELS The Forms and Labels segment sells, composes, manufactures, warehouses and delivers a wide range of printed and electronic communication products. Examples of the Forms and Labels product line are: o express "overnight" package labels; o tax forms; o "pressure seal" payroll checks; o linerless labels; o security documents, such as vehicle titles, certificates, and checks; o airport luggage labels; and o digital documents printed "on-demand." The Forms and Labels segment also provides value-added services to its customers. These customers range from "Fortune 500" companies to small and mid-sized companies and operate in very different industries and businesses. The Forms and Labels segment offers these diverse customers a wide range of services. Examples of these services include: o warehousing and distribution capabilities; o print-on-demand (just-in-time printing); o print management services; and o print fulfillment and packaging services (kitting). Forms and Labels is a single-source supplier of a customized, "one-stop shopping" solution to meet customer's print and digital communication needs through a multi-site, state-of-the-art print, distribution, and warehousing network specifically designed to provide customized products and services. 3 OUTSOURCING Moore Business Communication Services ("BCS"), the Corporation's Outsourcing business, is a leader in the document outsourcing industry, providing high-quality customized transaction-based communications solutions for financial services, telecommunications and insurance companies in North America. BCS provides fully-integrated solutions that allow customers to reach their customers using multiple communication methods, including print, mail, email, fax, CD-ROM, Internet and wireless solutions. BCS delivers critical high-value communication documents, including daily confirmations, periodic account statements, checks, invoices, insurance policies, prepaid telephone cards, enrollment kits, privacy mailings, and year-end tax reporting statements to over 700 customers throughout North America. In December 2001, Moore acquired Document Management Services, the print and mail operation of IBM Canada Ltd. This acquisition expanded the Outsourcing production platform and added several major corporations to the existing base of customers under contract. The suite of outsourcing products and services is supported by industry-focused project managers, programmers, designers and marketing specialists who manage customer projects from conception through execution. This total project management approach is designed to enable customers to change direction as quickly as their customer and marketplace demands dictate. COMMERCIAL The Commercial segment provides commercial print services (glossy annual reports and brochures), targeted direct mail services, prints highly specialized technical publications and delivers single source supply chain execution solutions. This segment serves the printing, delivery and warehouse management needs of a highly diversified customer base. RMS. Moore Response Marketing Services (RMS) is a leading international provider of integrated direct marketing programs. RMS helps its customers grow their businesses through highly customized, data-driven direct mail communications. Proprietary equipment allows the Corporation to produce over a billion pieces of secure, highly personalized mail every year. COMMERCIAL PRINT. In January 2002, the Corporation announced the acquisition of The Nielsen Company ("Nielsen"), a commercial printer. Nielsen's product line includes annual reports, brochures, catalogs, pharmaceutical inserts, as well as marketing and promotional material. PEAK TECHNOLOGIES, INC. Peak Technologies, Inc. ("Peak") is an international systems integrator of automatic identification and data collection (AIDC) equipment and systems. Peak's systems integration specialists and technicians provide wireless network solutions, enterprise resource planning integration, enterprise printing, bar code scanning, and terminal and software technologies. Peak delivers a complete turnkey solution including software, hardware, consulting, project management, training, installation, testing, service and support. TECHNICAL PUBLICATIONS. The Publications and Directory Group provides print products and digital services for customers who produce data-intensive publications such as business-to-business catalogs, parts/price lists, phone directories, and professional/reference/trade books. COMPETITION Moore competes on the basis of product quality, service and price, leveraging its strong customer relationships and its ability to provide customers with low cost "one-stop shopping" for all their print 4 communications needs. Moore views cross-selling as a key component of its competitive strategy. In the fourth quarter of 2001, Moore launched a strategic corporate accounts and cross-selling initiative to drive incremental revenue and profit growth within the current customer base. This "one-stop shopping" strategy offers the array of products, services and solutions that exists within Moore to the top corporate accounts. In connection with this strategy, Moore has implemented a cross-sell infrastructure, which provides the sales organization with the resources to leverage a "one voice, multiple solutions" sales philosophy across the entire organization. The "one-stop shopping" offering includes an extensive array of products and services, including: o forms and labels management, o commercial print, o publications, o warehousing and distribution services, o systems integration, o business communications outsource management, o response marketing services, o corporate identity programs and o e-commerce solutions. The environment in each business segment in which Moore operates is highly competitive. Customers are focused on cost reduction, vendor reduction and improved total cost of ownership for print communications programs. Moore encounters competition from both larger and smaller companies that offer the same or similar products and services. While Moore has a large number of competitors in each business segment, the markets in which each of its business segments operates are highly fragmented and the majority of its competitors compete with Moore in only one business segment. There are approximately 35,000 companies that provide printing services in North America. According to "Printing Impressions" an industry trade publication, in 2001, 11 of these companies had revenues over $1 billion, 66 had revenues of between $100 million and $1 billion, 287 had revenues of between $15 million and $100 million and 34,636 had revenues under $15 million. RAW MATERIAL The primary raw materials required in the Corporation's operations are paper and ink. The price of paper and ink represents a significant portion of its cost of sales. Increases in price or a lack of availability of these raw materials could have a material adverse effect on Moore's financial condition and results of operations. While Moore generally passes on increases and decreases in the cost of paper and ink to its customers, these adjustments take place only at certain times during the year. Moore has reduced the number of paper and ink vendors to two in order to leverage its purchasing power and has negotiated long-term supply contracts that provide favorable price, terms, quality and service. The Corporation has not experienced any difficulties in obtaining supplies of any raw material in any recent period and it believes that the long-term supply contracts it has entered into for paper will enable it to receive adequate supplies in the event of a tight paper market, however, there can be no assurance that it will not be adversely affected by a tight paper market. INTELLECTUAL PROPERTY Moore holds a significant number of patents in the United States and throughout the world, and has a large number of patent applications in process for its four key technologies. In the Forms and Labels segment, the Corporation believes that its pressure seal-related patents, linerless label-related patents and its radio frequency identification-related patents are material to the segment. The Corporation believes that its Midax variable imaging-related patents are material to its Outsourcing segment as 5 well as to the direct mail business of the Commercial segment. The duration of the Corporation's patents ranges from between 17 and 20 years. No material patents will expire within the next five years. Moore also holds a large number of trademarks in the United States and throughout the world. The Moore (Registered Trademark) and Moore Logo (Registered Trademark) trademarks are material to each of the business segments. There are not any other trademarks that are material to any of the business segments. BACKLOG At December 31, 2001, the backlog of firm customer orders to be handled in the next 120 days was approximately $103 million. The backlog was $129 million at December 31, 2000. EMPLOYEES At December 31, 2001, the Corporation employed approximately 11,500 employees compared to approximately 16,000 at December 31, 2000. Of these, approximately 1,200 are covered by collective bargaining agreements with eight unions (four in Canada, one in Mexico, one in Venezuela and two in Brazil). These agreements expire in 2002, 2003 and 2005. There have been no significant interruptions or curtailments of the Corporation's operations in recent years due to labor disputes. ENVIRONMENTAL REGULATIONS The Corporation is subject to laws and regulations relating to the protection of the environment. The Corporation maintains reserves for expenses associated with the environmental remediation obligations when such amounts are probable and can be reasonably estimated. Such accruals are adjusted as new information develops or circumstances change and are not discounted. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Corporation's subsidiaries may undertake in the future, in the opinion of management, compliance with present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect upon the results of operations or consolidated financial condition of the Corporation. See also, Item 3. "Legal Proceedings" below. CAUTIONARY STATEMENT This Annual Report on Form 10-K and portions of the documents incorporated herein by reference contain statements relating to the future results of Moore (including certain "anticipated", "believed", "expected", and "estimated results") and Moore's outlook (including statements as to acquisitions being accretive, continued improvement in Moore's cost structure and achievement of revenue growth from the cross-selling initiative) that are "forward-looking statements" as defined in the U.S. Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements. All forward-looking statements speak only as of the date hereof, are based on current expectations and involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements. Factors that could cause such material differences include, without limitation, the following: o dependence on key management personnel, o the effect of competition, o the effects of paper and other raw material price fluctuations and shortages of supply, o successful execution of cross-selling, cost containment and other key strategies, o the successful negotiation, execution and integration of acquisitions, o the ability to renegotiate or terminate unprofitable contracts, 6 o the ability to divest non-core businesses, o the rate of migration from paper-based forms to digital formats, o future growth rates in Moore's core businesses, o the impact of currency fluctuations in the countries in which Moore operates, o general economic and other factors beyond Moore's control and o other risks and uncertainties detailed from time to time in the Corporation's filings with United States and Canadian securities authorities. D) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS. GEOGRAPHIC INFORMATION
IN THOUSANDS OF U.S. DOLLARS CANADA UNITED STATES INTERNATIONAL CONSOLIDATED ----------- --------------- --------------- ------------- 2001 Sales to customers outside the enterprise ......................... $199,628 $1,689,954 $264,992 $2,154,574 Capital assets and goodwill ......... 36,484 270,475 42,975 349,934 2000 Sales to customers outside the enterprise ......................... $222,311 $1,685,680 $350,427 $2,258,418 Capital assets and goodwill ......... 47,110 415,763 76,756 539,629 1999 Sales to customers outside the enterprise ......................... $218,870 $1,831,503 374,743 $2,425,116 Capital assets and goodwill ......... 42,321 473,886 99,471 615,678
ITEM 2. PROPERTIES As of December 31, 2001, Moore owned or leased facilities for manufacturing, distribution and sales offices in 46 states and 19 foreign countries. Moore believes that its facilities are suitable and adequate for its business. Moore continually evaluates its facilities to ensure they are consistent with its needs and business strategy. A summary of material locations (over 35,000 square feet) that are owned by Moore and its subsidiaries is set forth below. Moore does not have any mortgages on the facilities that it owns. FORMS AND LABELS Angola, Indiana; Brea, California; Carol Stream, Illinois; Elkridge, Maryland; Grand Island, New York; Greenwood, South Carolina; Iowa City, Iowa; Jerome, Indiana; Lewisburg, Pennsylvania; Manchester, New Hampshire; Monroe, Wisconsin; Nacogdoches, Texas; Portland, Oregon; Quakertown, Pennsylvania; Temecula, California; Visalia, California; Fergus, Ontario; Mississauga, Ontario; Oshawa, Ontario; Trenton, Ontario; Cowansville, Quebec; Winnipeg, Manitoba; Recife (Abreu Lima), Brazil; Blumenau, Brazil; Santa Rita, Brazil; Gravatai, Brazil; Osasco, Brazil; Tlalnepantia, Mexico; Mexico City, Mexico; Maracay, Venezuela; Guayana, Venezuela; San Salvador, El Salvador; and Heredia, Costa Rica. OUTSOURCING Logan, Utah; Mundelein, Illinois; Thurmont, Maryland; and Mississauga, Ontario; COMMERCIAL Albany, New York; DePere, Wisconsin; Green Bay, Wisconsin; and Erembodegem, Belgium. 7 A summary of material locations (over 35,000 square feet) that are leased by Moore and its subsidiaries are set forth below: FORMS AND LABELS Austell, Georgia; Bridgewater, Massachusetts; Cranbury, New Jersey; Earth City, Missouri; Lenexa, Kansas; Lewisville, Texas; Manchester, New Hampshire; Orlando, Florida; Perrysburg, Ohio; St. Laurent, Quebec; and San Salvador, El Salvador. OUTSOURCING Windsor, Connecticut; and Mississauga, Ontario. COMMERCIAL Columbia, Maryland; Lincolnshire, Illinois; San Diego, California; and Cosne, France In addition, the Corporation has three leased corporate office facilities in Stamford, Connecticut and Bannockburn and Libertyville, Illinois that are material facilities. ITEM 3. LEGAL PROCEEDINGS In the normal course of business, Moore is involved in various lawsuits, claims and administrative proceedings. While the outcome of these matters is subject to future resolution, management's evaluation and analysis of such matters indicates that, individually and in the aggregate, the probable ultimate resolution of such matters will not have a material effect on Moore's financial condition and results of operations. Moore has been identified as a Potentially Responsible Party ("PRP") at the Dover, New Hampshire Municipal Landfill, a United States Environmental Protection Agency Superfund Site. Moore has been participating with a group of approximately 26 other PRP's to fund the study of and implement remedial activities at the site. Remediation at the site has been on-going and is anticipated to continue for at least several years. The total cost of the remedial activity is estimated to be approximately $26.0 million. Moore's share is not expected to exceed $1.5 million. The Corporation believes its reserves are sufficient based on the present facts and recent tests performed at this site and will continue to monitor this exposure. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the shareholders of the Corporation during the fourth quarter of 2001. 8 EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITIONS HELD DURING LAST FIVE YEARS - ------------------ ----- ----------------------------------------------------------------------- Mark A. Angelson 51 Non-Executive Chairman of the Board since November 2001; from December 1999 through January 2002, Mr. Angelson served as the Deputy Chairman of Chancery Lane Capital LLC (a private equity investment firm); and from March 1996 until March 2001, Mr. Angelson served in various executive capacities at Big Flower Holdings Inc., including as Deputy Chairman. Robert G. Burton 63 President and Chief Executive Officer of the Corporation since December 2000; from May 1991 to November l999, Mr. Burton was Chairman, President and Chief Executive Officer of World Color Press, Inc.; following World Color Press, Inc. and preceding Moore, Mr. Burton was Chairman, President and Chief Executive Officer of Walter Industries, Inc. Dean E. Cherry 41 President, Commercial and Subsidiary Operations since October 2001 and Executive Vice President, International and Subsidiary operations from January 2001 to October 2001; from August 1998 to January 2001, Mr. Cherry served as an industry consultant, private investor and director for several industry related companies; from June 1997 to August 1998, Mr. Cherry was the Executive Vice President, Investor Relations and Corporate Communications of World Color Press, Inc.; and from January 1995 to June 1997, Mr. Cherry was the Executive Vice President Operations of World Color Press, Inc. Mark S. Hiltwein 38 Executive Vice President and Chief Financial Officer since February 2002 and Senior Vice President and Controller from December 2000 to February 2002; from July 2000 to November 2000, Mr. Hiltwein was Senior Vice President, Controller of Walter Industries, Inc.; from November 1997 to July 2000, Mr. Hiltwein was the Chief Financial Officer of L.P. Thebault; and prior November 1997, Mr. Hiltwien was the Director, Finance of L.P. Thebault. Robert B. Lewis 38 President, Business Communications Services since February 2002 and Executive Vice President and Chief Financial Officer from December 2000 to February 2002; from April 2000 to November 2000, Mr. Lewis was Executive Vice President, Chief Financial Officer of Walter Industries, Inc.; from November 1997 to November l999, Mr. Lewis was the Executive Vice President, Chief Financial Officer of World Color Press, Inc.; and from November 1996 to November 1997, Mr. Lewis was the Senior Vice President Controller of World Color Press, Inc.
9
NAME AGE POSITIONS HELD DURING LAST FIVE YEARS - ------------------------ ----- ------------------------------------------------------------------- James E. Lillie 40 Executive Vice President, Operations since December 2000; from April 2000 to October 2000, Mr. Lillie was Executive Vice President, Operations of Walter Industries, Inc.; from July 1998 until November 1999, Mr. Lillie was the Executive Vice President, Operations and Investor Relations of World Color Press, Inc.; from January 1998 to July 1998, Mr. Lillie was the Executive Vice President Operations of World Color Press, Inc.; and from May 1996 to April 1998, Mr. Lillie was the Senior Vice President Human Resources of World Color Press, Inc. Thomas W. Oliva 44 President, Forms and Labels since January 2001; from 1999 to December 2000, Mr. Oliva was the President of Gravure Catalog and Magazine Group of Quebecor World Color; from 1998 to 1999, Mr. Oliva served as the President of the Catalog and Magazine Group at World Color Press and was President of World Color's National Sales Group from 1997 to 1998. Thomas J. Quinlan, III 39 Executive Vice President and Treasurer since December 2000; from April 2000 to September 2000, Mr. Quinlan was Executive Vice President, Treasurer of Walter Industries, Inc.; from July 1998 to November l999, Mr. Quinlan was the Senior Vice President, Treasurer of World Color Press, Inc.; from July 1997 to July 1998, Mr. Quinlan was the Vice President, Treasurer of World Color Press, Inc.; and from February 1994 to July 1997, he was the Assistant Treasurer of World Color Press, Inc. Paul C. Dilworth 39 Senior Vice President, Purchasing and Logistics since March 2001; from January 1999 to March 2001, Mr. Dilworth was the Vice President, Group Controller for the Direct Mail Group at Quebecor World Color; and from January 1997 to November 1999, Mr. Dilworth was the Group Controller for the Direct Mail Group at Quebecor World Color. Jennifer O. Estabrook 41 Senior Vice President, General Counsel and Assistant Secretary since November 2001 and Associate General Counsel and Assistant Secretary from June 2001 to November 2001; from October 2000 to May 2001, Ms. Estabrook was the Vice President, General Counsel and Secretary of CTI Technology, Inc.; from July 2000 to October 2000, Ms. Estabrook was the Acting Vice President, General Counsel and Secretary of The Stanley Works; and from December 1996 to June 2000 she was the Assistant General Counsel and Assistant Secretary of The Stanley Works. Richard T. Sansone 35 Vice President and Controller since February 2002 and Assistant Controller from May 2001 to February 2002; prior to joining Moore, Mr. Sansone spent 8 years at PricewaterhouseCoopers LLP most recently as Senior Audit Manager.
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NAME AGE POSITIONS HELD DURING LAST FIVE YEARS - ------------- ----- ----------------------------------------------------------------- Robert Sell 51 Senior Vice President and Chief Information Officer from February 2001; from 1998 through 2000 Mr. Sell was the Vice President, CIO of Brunswick Corporation; and from 1996 to 1997 Mr. Sell was the Vice President, Information Technology of Coors Brewing Company.
11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS There were 10,186 shareholders of record at December 31, 2001. The following table sets forth the high and low prices of the common shares of the Corporation on the Toronto and New York stock exchanges.
THE TORONTO STOCK NEW YORK STOCK EXCHANGE EXCHANGE (C$) (US$) ----------------------- ----------------------- HIGH LOW HIGH LOW - ---------------------------------------------------------------- 2001 4th quarter 15.30 10.88 9.50 6.90 3rd quarter 12.95 8.00 8.30 5.25 2nd quarter 9.25 5.67 5.95 3.67 1st quarter 7.70 4.55 5.19 3.06 2000 4th quarter 5.10 3.50 3.31 2.31 3rd quarter 5.15 3.35 3.43 2.31 2nd quarter 6.85 3.25 4.81 2.19 1st quarter 9.90 4.56 6.75 3.12 - ---------------------------------------------------------------
RECENT SALES OF UNREGISTERED SECURITIES On December 21, 2000, the Corporation issued $70.5 million aggregate principal amount of 8.70% subordinated convertible debentures due June 30, 2009 to Chancery Lane/GSC Investors L.P. In December 2001, the Corporation reached an agreement with Chancery Lane/GSC Investors L.P. for the conversion of the subordinated convertible debenture. Under the terms of the debenture, the debenture was convertible by Chancery Lane/GSC Investors L.P. at any time, but the Corporation did not have the right to redeem the debenture prior to December 22, 2005. On December 28, 2001, the debenture was converted into 21,692,311 common shares at the conversion price per share of $3.25 in accordance with its terms. As an inducement to obtain the conversion, the Corporation issued an additional 1,650,000 common shares (the "additional shares") to Greenwich Street Capital Partners II, L.P. and certain of its affiliates (collectively, "GSC Partners"), which under the terms of the agreement governing Chancery Lane/GSC Investors L.P., were entitled to all of the interest paid on the debenture and any redemption premium. Neither the debenture, the shares underlying the debenture nor the additional shares were registered under the Securities Act of 1933 when issued in reliance on the private placement exemption set forth in Section 4(2) of the Securities Act of 1933. The Corporation has filed a registration statement on Form S-3 under the Securities Act of 1933 relating to certain of the shares issued on conversion of the debenture in connection with a demand registration right exercised by GSC Partners. 12 ITEM 6. SELECTED FINANCIAL DATA FIVE-YEAR SUMMARY Years ended December 31, Expressed in thousands of U.S. dollars, except share and per share date
2001 2000 - --------------------------------------------------------------------------------------------- INCOME STATISTICS Net sales $2,154,574 $2,258,418 - --------------------------------------------------------------------------------------------- Income (loss) from operations (342,324) (46,234) Per dollar of sales (15.9)(Cents) (2.0)(Cents) - --------------------------------------------------------------------------------------------- Income tax expense (recovery) (32,192) (17,377) Percentage of pre-tax earnings 8.3(Cents) 21.3% - --------------------------------------------------------------------------------------------- Net earnings (loss) (358,038) (66,372) Per dollar of sales (16.6)(Cents) (2.9)(Cents) Per common share $ (4.21) $ (0.75) - --------------------------------------------------------------------------------------------- Dividends 4,423 17,594 Per common share 5.0(Cents) 20.0(Cents) Earnings retained in (losses and dividends funded by) the business (380,155) (83,966) - --------------------------------------------------------------------------------------------- BALANCE SHEET AND OTHER STATISTICS Current assets $ 576,539 $ 690,888 Current liabilities 588,842 468,247 - --------------------------------------------------------------------------------------------- Working capital (12,303) 222,641 Ratio of current assets to current liabilities 1:1 1.5:1 - --------------------------------------------------------------------------------------------- Property, plant and equipment (net) 307,640 409,099 - --------------------------------------------------------------------------------------------- Long-term debt 111,062 272,465 Ratio of long-term debt to equity 0.3:1 0.4:1 - --------------------------------------------------------------------------------------------- Shareholders' equity 321,250 624,685 Per common share $ 2.87 $ 7.06 - --------------------------------------------------------------------------------------------- Total assets 1,336,986 1,743,587 ============================================================================================= Average shares outstanding (in thousands) 88,648 88,457 Number of shareholders of record at year-end 10,186 4,455 Number of employees 12,340 16,166 - --------------------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------- INCOME STATISTICS Net sales $2,425,116 $2,717,702 $ 2,631,014 - -------------------------------------------------------------------------------------------------------------- Income (loss) from operations 141,681 (630,500) 49,411 Per dollar of sales 5.8(Cents) (23.2)(Cents) 1.9(Cents) - -------------------------------------------------------------------------------------------------------------- Income tax expense (recovery) 35,286 (94,330) 49,171 Percentage of pre-tax earnings 27.4% 14.7% 47.2% - -------------------------------------------------------------------------------------------------------------- Net earnings (loss) 92,599 (547,866) 55,099 Per dollar of sales 3.8(Cents) (20.2)(Cents) 2.1(Cents) Per common share $ 1.05 $ (6.19) $ 0.59 - -------------------------------------------------------------------------------------------------------------- Dividends 17,692 34,057 85,830 Per common share 20.0(Cents) 38.5(Cents) 94.0(Cents) Earnings retained in (losses and dividends funded by) the business 74,907 (581,923) (30,731) - -------------------------------------------------------------------------------------------------------------- BALANCE SHEET AND OTHER STATISTICS Current assets $ 750,860 $ 894,343 $ 965,078 Current liabilities 622,464 941,034 790,454 - -------------------------------------------------------------------------------------------------------------- Working capital 128,396 (46,691) 174,624 Ratio of current assets to current liabilities 1.2:1 1:1 1.2:1 - -------------------------------------------------------------------------------------------------------------- Property, plant and equipment (net) 458,808 466,198 635,770 - -------------------------------------------------------------------------------------------------------------- Long-term debt 201,686 4,841 49,109 Ratio of long-term debt to equity 0.3:1 0:1 0:1 - -------------------------------------------------------------------------------------------------------------- Shareholders' equity 672,674 610,145 1,185,612 Per common share $ 7.60 $ 6.90 $ 13.40 - -------------------------------------------------------------------------------------------------------------- Total assets 1,630,293 1,726,135 2,174,572 ============================================================================================================== Average shares outstanding (in thousands) 88,457 88,456 93,200 Number of shareholders of record at year-end 5,074 5,506 6,482 Number of employees 15,812 17,135 20,084 - --------------------------------------------------------------------------------------------------------------
13 SELECTED FINANCIAL DATA REQUIRED BY AND ADJUSTED FOR U.S. GAAP YEARS ENDED DECEMBER 31, Expressed in thousands of U.S. dollars, except share and per share data
2001 2000 1999 - ------------------------------------------------------------------------------------------------ INCOME STATISTICS Income (loss) from operations $ (162,845) $ (11,438) $ 91,578 Net earnings (loss) $ (269,964) $ (45,304) $ 72,884 Income tax expenses (recovery) $ 49,822 $ (3,649) $ 4,898 Percentage of pre-tax earnings 22.8% 7.8% 6.2% Per common share, basic and diluted $ (3.05) $ (0.51) $ 0.82 Earnings retained in (losses and dividends funded by) the business $ (274,387) $ (62,898) $ 55,192 - ------------------------------------------------------------------------------------------------ BALANCE SHEET AND OTHER STATISTICS Current assets $ 576,539 $ 690,888 Current liabilities $ 587,541 $ 462,247 - -------------------------------------------------------------------------------- Working capital $ (11,002) $ 228,641 Ratio of current assets to current liabilities 1:1 1.5:1 - -------------------------------------------------------------------------------- Long-term debt $ 111,062 $ 280,808 Ratio of long-term debt to equity 0.7:1 0.8:1 - -------------------------------------------------------------------------------- Shareholders' equity $ 167,666 $ 369,992 Per common share $ 1.50 $ 4.18 - -------------------------------------------------------------------------------- Total assets $1,291,719 $ 1,542,888 ================================================================================
QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Expressed in thousands of U.S. dollars, except share and per share data
2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- FOURTH THIRD SECOND FIRST Fourth Third Second First QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------------------------------------------------------- Net sales $ 537,249 $ 510,603 $ 532,526 $ 574,196 $ 580,655 $550,493 $ 550,406 $576,864 Cost of sales 373,008 349,864 368,757 460,932 410,828 384,817 393,362 409,518 Income (loss) from operations (59,716) (1,773) (51,521) (229,314) (30,117) 8,390 (15,293) (9,214) Net earnings (loss) (84,041) (12,171) (60,366) (201,460) (35,483) (7,910) (14,094) (8,885) Per common share $ (1.11) $ (0.14) $ (0.68) $ (2.28) $ (0.40) $ (0.09) $ (0.16) $ (0.10) - --------------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) based on United States generally accepted accounting principle (Note 24) $ (116,781) $ (8,335) $ (53,211) $ (91,637) $ (29,919) $ (1,681) $ (7,606) $ (6,098) Per common share - basic $ (1.32) $ (0.09) $ (0.60) $ (1.04) $ (0.34) $ (0.02) $ (0.08) $ (0.07) Per common share - diluted $ (1.32) $ (0.09) $ (0.60) $ (1.04) $ (0.34) $ (0.02) $ (0.08) $ (0.07) - ---------------------------------------------------------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIS SECTION PROVIDES A REVIEW OF THE FINANCIAL PERFORMANCE OF MOORE CORPORATION LIMITED DURING THE THREE YEARS ENDED DECEMBER 31, 2001. THE ANALYSIS IS BASED ON THE CONSOLIDATED FINANCIAL STATEMENTS THAT ARE PRESENTED IN ITEM 8 BELOW, PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) IN CANADA. DIFFERENCES FROM GAAP IN THE UNITED STATES ARE DISCLOSED IN NOTE 24. WHERE APPROPRIATE, COMPARATIVE FIGURES HAVE BEEN RECLASSIFIED TO CONFORM TO THE CURRENT PRESENTATION IN THE CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS. RESULTS OF OPERATIONS The Corporation operates in the printing industry with three distinct business segments based on the way management assesses information on a regular basis for decision-making purposes. The three 14 segments are Forms and Labels, Outsourcing and Commercial. These segments market print and print related products and services to a geographically diverse customer base. The following discussion includes the results of operations on a consolidated and operating segment basis. The financial statements are presented in accordance with accounting principles generally accepted in Canada. The following discussion is also supplemented by a discussion of operating income of each of the business segments before deductions for restructuring and other non-recurring charges, including the impairment of long-lived assets and pension settlement. This supplemental discussion of operating results before these charges should be read in conjunction with the Corporation's audited consolidated financial statements included herein. CONSOLIDATED 2001 COMPARED TO 2000 Net sales decreased by $103.8 million, a decrease of 4.6%, primarily resulting from the divestitures of the Colleagues (the Corporation's European advertising agency) and Phoenix business units, the decision to exit certain unprofitable accounts, the devaluation of certain foreign currencies and weak demand in non-core businesses due to the challenging economic environment. Cost of goods sold increased as a percent of sales for 2001 to 72.1% versus 70.8% in 2000. The increase is primarily attributable to competitive pricing pressures, $6.6 million of non-cash write-offs of obsolete inventory related to abandoned product lines and a $61.2 million cost of sales charge related to the partial settlement of the U.S. pension plan associated with plant production employees. Selling, general and administrative costs as a percent of sales for 2001 were 26.7% versus 25.6% in 2000. Several one-time items have significantly affected this category, primarily charges related to the partial settlement of the U.S. pension plan related to non-plant production employees of $35.4 million, accounts receivable write-offs of $4.6 million and professional fees associated with the partial redemption of the senior guaranteed notes of $1.0 million. The Corporation anticipates improvement in these costs as each segment continues to address cost structure and improve business processes. Depreciation and amortization increased by $87.6 million, or 57.8%, due to the write-down of goodwill of non-core businesses of $76.8 million, as well as impairment of certain assets no longer in use. Loss from operations increased $296.1 million to a loss of $342.3 million as a result of the $391.2 million in restructuring and other non-recurring charges. The Corporation projects a pre-tax savings from these restructuring actions to be approximately $100 million annually. These charges were partially offset by improved operating results in the Forms and Labels and Outsourcing businesses, of $71.2 million. Interest expense for the year ended December 31, 2001, increased $1.1 million or 4.3% over the same prior year period, primarily due to an increase in debt resulting from the issuance of $70.5 million subordinated convertible debentures in December 2000, partially offset by lower borrowings under the Corporation's bank credit facility. Included in the loss before taxes and minority interest, is a non-cash charge of $10.4 million, which represents accelerated amortization of the deferred issuance costs on the $70.5 million subordinated convertible debentures which were converted during the fourth quarter of 2001. The decrease in the 2001 effective tax recovery rate from 2000 was primarily attributable to the inability to currently recognize future income tax benefits on certain current operating losses and the write-down of goodwill relating to non-core businesses. Net loss available to common shareholders for the year ended December 31, 2001, increased by $306.9 million to $373.3 million or $(4.21) per diluted share, primarily due to the Corporation's restructuring actions. Included in the loss available to common shareholders was approximately $15.5 million, which primarily represents the fair value at December 28, 2001 of the 1,650,000 shares given to the Class A limited partners of the partnership that owned the $70.5 million subordinated convertible debentures as inducement for early conversion. 15 2000 COMPARED TO 1999 Net sales in 2000 of $2,258.4 million decreased by $166.7 million, or 6.9% compared to 1999 net sales of $2,425.1 million. The sales decline was primarily due to divestitures, net volume decreases, and the impact of currency devaluation partly offset by the full consolidation of the operations of Quality Color Press. The volume decrease was the result of an increasingly competitive, technologically evolving environment, in a flat market. Cost of sales was 70.8% of consolidated net sales in 2000 compared to 68.7% in 1999. Included in cost of sales was $21.2 million and $23.2 million of research and development costs for 2000 and 1999, respectively. Selling, general and administrative costs in 2000 decreased to $578.6 million from $585.3 million in 1999. The ratio of selling, general and administrative costs to sales in 2000 increased to 25.6% compared to 24.1% in 1999. A net restructuring reversal of $24.0 million was recorded in 2000 compared to a reversal of $68.4 million in 1999, due to provisions no longer required. Depreciation and amortization of $151.5 million in 2000 increased by $50.2 million versus 1999. This increase was primarily due to the partial write-down of $20.9 million of goodwill relating to a European subsidiary, the commencement in 2000 of amortization of the ERP asset amounting to $26.8 million, and the write-off of a component of the ERP asset of $13.8 million. Loss from operations in 2000 was $46.2 million compared to operating income in 1999 of $141.7 million. The decline was primarily attributed to Forms and Labels operating income in 2000 of $71.9 million compared to operating income in 1999 of $195.7 million. The 2000 effective tax rate of 21.3% represents a recovery of income taxes compared to the 1999 provision for income taxes of 27.4%. The net loss for 2000 was $66.4 million, a loss per share of $0.75 compared with 1999 net income of $92.6 million and $1.05 earnings per share for the reasons discussed above. RESTRUCTURING AND OTHER NON-RECURRING CHARGES The following table summarizes restructuring and other non-recurring charges recorded by the Corporation for the year ended December 31, 2001.
IN MILLIONS OF U.S. DOLLARS - ----------------------------------------------------------- Workforce reduction $ 77.0 Lease terminations and other facility costs 65.5 Reserve reversal (12.8) Assets and goodwill impairment 131.4 Pension settlement, net 96.6 Debt conversion and extinguishment 12.6 Inventory write-off 6.6 Asset dispositions and investments, net 4.9 Accounts receivable write-off 4.6 Other, primarily legal costs 4.8 - ----------------------------------------------------------- $ 391.2 ===========================================================
For the year ended December 31, 2001, the Corporation recorded pre-tax restructuring and other non-recurring charges of $391.2 million (see Note 16 to Consolidated Financial Statements). These charges include a net restructuring provision of $129.7 million primarily related to workforce reductions and lease terminations; non-cash charges of $131.4 million that are included in depreciation and amortization related to the write-down of goodwill of non-core businesses and asset impairments; non-cash charges for inventory and accounts receivable, relating to exiting certain non-core businesses, of 16 $11.2 million included in cost of sales and selling, general and administrative costs; loss on disposal of non-core assets that were included in investment and other income of $4.9 million; other non-recurring charges of $12.6 million related to the early redemption of $100 million of private placement notes and the conversion of the $70.5 million subordinated convertible debentures; and other non-recurring cash charges of $4.8 million, included in selling, general and administrative costs; partially offset by a $12.8 million reversal of restructuring reserves related to the 1998 restructuring program that are no longer required due to favorable settlements. The Corporation also recorded a net charge of $96.6 million in 2001 associated with the partial settlement of the U.S. pension plan, which was curtailed as of December 31, 2000. In March 2001, the Corporation purchased approximately $600 million of annuity contracts settling approximately 70% of the outstanding obligation. The balances of the annuity contracts are expected to be purchased during the first six months of 2002, resulting in an anticipated pre-tax loss of approximately $15 million. Also, included in the 2001 restructuring charge is $48.0 million related to lease termination costs associated with the Corporation's obligation for its office facility in Bannockburn, Illinois. This charge is based upon management's estimates and assumptions at the time the charge was recorded. Actual results could vary based upon market conditions and the Corporation's ability to sublease the aforementioned property. Any potential recovery or additional charge may affect amounts reported in the consolidated financial statements of future periods. For the year ended December 31, 2000, the Corporation recorded a pre-tax non-recurring charge of $20.9 million related to the reversal of restructuring and other provisions no longer needed of $31.0 million, a gain on the curtailment of its U.S. pension plan of $6.6 million, and other non-recurring costs of $11.8 million. These benefits were partially offset by non-cash charges of $34.7 million that are included in depreciation and amortization related to the write-down of a non-core asset held for disposal, the impairment of a component of the Enterprise Resource Planning Software System ("ERP") and a loss on disposal of the investment in JetForm Corporation of $8.5 million and the write-down of a permanently impaired investment of $3.5 million. The following table and management discussion summarizes the operating results of the Corporation's business segments and corporate overhead expenses excluding the impact of restructuring and other non-recurring charges previously discussed.
FOR THE YEARS ENDED DECEMBER 31, NET SALES OPERATING INCOME IN MILLIONS OF U.S. DOLLARS 2001 2000 1999 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ Forms and Labels $ 1,165.3 $ 1,225.7 $ 1,404.7 $ 109.5 $ 50.2 $ 145.3 Outsourcing 339.5 296.8 280.4 54.3 40.0 41.6 Commercial 649.8 735.9 740.0 31.4 6.6 48.3 Corporate -- -- -- ( 162.9) (134.1) (144.5) - ------------------------------------------------------------------------------------------------------------------------------ Total $ 2,154.6 $ 2,258.4 $ 2,425.1 $ 32.3 $ (37.3) $ 90.7 ==============================================================================================================================
FORMS AND LABELS 2001 COMPARED TO 2000 Net sales decreased $60.4 million, or 4.9%, due to foreign currency devaluation of $28.5 million and lower volumes at the Canadian Forms and Labels business as a result of the Corporation's decision to exit certain unprofitable customer accounts. Net sales declined in North America by $37.6 million, or 3.6%, due to the decision to exit certain unprofitable accounts and lower volumes. In Latin America, sales declined by $22.8 million, or 12.6%, primarily due to the devaluation of the Brazilian real. Operating income increased $59.3 million, or 118.1%, primarily due to the Corporation's decision to streamline its Forms and Labels operations including the elimination of non-customer critical positions in support of the goal to significantly reduce costs. Cost of goods sold as a percent of sales improved during 17 2001 to 67.3% from 69.2% in 2000, due to waste reduction programs, reduced headcount, the initial impact of purchasing synergies and exiting of certain lower margin customer contracts. Selling, general and administrative expenses decreased $40.0 million or 14.9%, also as an immediate result of the cost containment efforts initiated during 2001. 2000 COMPARED TO 1999 Net sales decreased $179.0 million, or 12.7%, due to the decision to exit low margin customer accounts, and the drop in volume from financial sector customers, as well as the impact of increased Year 2000 purchases by customers in 1999. In 2000, net sales for Latin America increased by $20.3 million, or 12.6%. The increase in net sales was derived primarily from higher volumes in Brazil. Operating income decreased by $95.1 million, or 65.5%, compared to 1999. The fixed cost element of the businesses in the United States remained relatively consistent despite significantly reduced volumes. In Canada, a shift in product mix to outsourced product contributed to lower margins. Earnings were also affected by the investments required to launch various digital and Internet strategies for the forms business, and the continued incremental costs related to maintaining redundant computer systems as the Corporation implemented an ERP system. Latin America contributed about $9.5 million to operating income in 2000, a $6.4 million or 209% increase from 1999. The increase is the result of higher sales volume and cost containment on selling, general and administrative expenses. OUTSOURCING 2001 COMPARED TO 2000 Net sales increased $42.7 million, or 14.4%, due to strong volume growth of 11.3% resulting from increased service offerings and the benefits achieved from a sharper focus on leveraging core capabilities with existing customers. Operating income increased by $14.3 million, or 35.8%, due to increased revenues, improved gross margins and cost savings achieved through workforce reductions. Selling, general and administrative costs remained almost flat despite incremental costs associated with increased sales volume due to cost reduction initiatives implemented throughout the year. 2000 COMPARED TO 1999 Net sales increased by $16.4 million, or 5.8%, compared to 1999, primarily due to new product and service offerings. Despite the revenue increase in 2000, operating income was slightly affected by the investments required to create new product line ventures and to reposition existing product and service offerings. During 2000, operating income decreased by $1.6 million or 3.8%, to $40.0 million. COMMERCIAL 2001 COMPARED TO 2000 Net sales declined by $86.1 million, or 11.7%, primarily due to a $55.6 million decline in revenues as a result of the divestiture of Colleagues, a $21.7 million revenue decline in non-core businesses and $8.8 million decline in revenues related to the disposition of Phoenix. Commercial contributed $31.4 million to consolidated operating income in 2001, a 375.8% increase due to aggressive cost containment, which included a $33.4 million or 20.6% decrease in selling, general and administrative expenses. 2000 COMPARED TO 1999 Net sales decreased by $4.1 million, due to the loss of sweepstakes mailing volumes in Response Marketing Services ("RMS") following the enactment of the Deceptive Mail Prevention and Enforcement Act in effect since April 2000. The RMS unit was able to obtain other monthly mail programs, which 18 partially offset the loss of the sweepstakes business. The Phoenix group achieved volume growth by obtaining new customer business and expanding services and solutions to existing customer base. Also, during 2000, the operating results of Quality Color Press were fully consolidated, adding $20.5 million of net sales. These increases were offset by a $41.1 million decrease in European subsidiaries due to the loss of some major accounts. Operating income decreased $41.7 million, or 86.3%, to $6.6 million in 2000. This is due to incremental costs associated with maintaining redundant information systems, pricing pressures in the RMS business and in Europe, and severance and termination costs incurred to downsize the infrastructure. CORPORATE 2001 COMPARED TO 2000 The increase in corporate expense is primarily due to the reduction of pension income resulting from the pension settlement and additional retirement savings plan contributions, offset by a reduction in corporate overhead. 2000 COMPARED TO 1999 The decrease in corporate expense is due to reversal of provisions for incentive plans that were no longer needed and reduction of overhead. LIQUIDITY AND CAPITAL RESOURCES In addition to its cash generated from operations, the Corporation has a $168 million committed revolving term facility that matures on August 5, 2002 and is subject to a number of financial covenants that are calculated on a quarterly basis including, but not limited to, tests of net worth, leverage and interest coverage. At December 31, 2001, $15 million was drawn down under the facility versus nil at December 31, 2000. The Corporation is currently negotiating a new credit facility, and expects to enter into a new facility by the end of the second quarter of 2002; however, the Corporation cannot give any assurance that it will be able to obtain a new credit facility. The Corporation also maintains uncommitted bank operating lines in the majority of the domestic markets in which it operates. These lines of credit are maintained to cover temporary cash shortfalls. These uncommitted facilities amount to available credit of $43.2 million at December 31, 2001, which may be terminated at any time at the Corporation's option. The Corporation has $17.3 million in outstanding letters of credit at December 31, 2001. Total availability at December 31, 2001 was approximately $196 million. In addition, the Corporation expects to receive within the next six to twelve months approximately $150 million before taxes, fees and transfers to other employee benefit plans from the termination of the U.S. pension plan. An additional source of liquidity at December 31, 2001 was the Corporation's short-term investments in the amount of $64 million, which primarily consist of certificate and term deposits, treasury bills and bank notes. These investments are with financial institutions of sound credit rating and are highly liquid as the majority mature within one to seven days and are classified as "Cash and cash equivalents". 19 The following table represents contractual obligations of the Corporation at December 31, 2001:
PAYMENTS DUE BY PERIOD 2--3 4--5 5 YEARS IN THOUSANDS OF U.S. DOLLARS TOTAL 1 YEAR YEARS YEARS THEREAFTER - ------------------------------------------------------------------------------------------------------------------- Long-term debt $102,694 $ 1,325 $ 996 $43,123 $57,250 Short-term debt 16,307 16,307 -- -- -- Capital lease obligations 10,095 1,727 3,667 4,701 -- Operating leases 129,590 31,108 40,768 22,946 34,768 Workforce reductions 41,955 38,439 3,516 -- -- Facility closing and other restructuring related costs 9,330 4,319 3,500 1,511 -- - ------------------------------------------------------------------------------------------------------------------- Total Contractual Cash Obligations $309,971 $93,225 $52,447 $72,281 $92,018 ===================================================================================================================
The senior guaranteed notes and revolving term credit facility agreements include certain debt covenants calculated on a quarterly basis including, but not limited to, tests of net worth, leverage and interest coverage. For the years ended December 31, 2001 and 2000, the Corporation was in compliance with all debt covenants. The Corporation believes it has sufficient liquidity to complete the planned restructuring activities and effectively manage the financial needs of its businesses into the foreseeable future. Net cash resources (cash and short-term securities less bank indebtedness) of $28.7 million at December 31, 2001 represents a $21.6 million increase, or 303.3%, as compared to $7.1 million at December 31, 2000. Net cash provided from operating activities was $136.3 million for 2001 compared to $34.7 million in 2000. The change was primarily due to significant improvements in working capital resulting from improved cash collections, overall inventory and accounts payable management and better operating results in the Corporation's core businesses. Net cash usage by investing activities for 2001 was $21.1 million, a decline of $35.1 million, primarily due to proceeds from the sale of investments and other assets, the reduction of capital spending, partially offset by the acquisition of a business in the Outsourcing segment of $14.6 million. Net cash used in financing activities was $93.1 million, an increase of $95.2 million, primarily due to the $100 million redemption of the Corporation's senior guaranteed notes in December of 2001. Dividends paid decreased by $8.8 million as the Board of Directors approved the suspension of future dividends on its outstanding common shares during the second quarter of 2001. The Corporation recorded non-cash transactions associated with the conversion of its $70.5 million subordinated convertible debentures held by Chancery Lane/GSC Investors, L.P., and the related inducement. See Note 23 of the accompanying notes to the consolidated financial statements. Certain officers of the Corporation and members of the Board of Directors were investors in Chancery Lane/GSC Investors, L.P. COST INITIATIVE The Corporation continuously evaluates ways to reduce its cost structure, and improve the productivity of its operations. Future cost reduction initiatives may include the reorganization of operations or the consolidation of manufacturing facilities. Implementing such initiatives may result in future charges, which may be substantial. CONVERSION TO THE EUROPEAN MONETARY UNION ("EURO") Certain of the Corporation's subsidiaries conduct business in some of the countries that have adopted the Euro as their currency. The conversion to the Euro is not expected to have a material effect on the Corporation's results of operations, cash flows or financial condition. 20 YEAR 2000 The Corporation established a plan to address the impact of Year 2000 on its information technology systems and processes, including those involved in providing services to its customers, and treated the Year 2000 issue as a business priority. The cost for the entire Year 2000 program was forecasted at $42 million, which was funded through normal operations. Expenditures totaled $42.7 million with $17.4 million charged to 1999 earnings and $25.3 million charged to 1998 earnings. RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET IMPLEMENTED Management's discussion and analysis of the impact of Canadian and United States accounting standards issued, but not yet implemented, is contained in Note 25 to the consolidated financial statements. CRITICAL ACCOUNTING POLICIES The Corporation's significant accounting policies are more fully described in Note 1 to the consolidated financial statements. Certain accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgements are based on historical experience, terms of existing contracts, observance of trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The Corporation's significant accounting policies include: REVENUE RECOGNITION The Corporation typically recognizes revenue for the majority of its products upon shipment to the customer and the transfer of title. Services revenue is recognized as the services are provided. Under contracts with certain customers, custom forms may be stored by the Corporation for future delivery. In these situations, the Corporation receives a logistics and warehouse management fee for the services it provides. In these cases, delivery and billing schedules are outlined in the contracts and product revenue is recognized when manufacturing is complete, title transfers to the customer, the order is invoiced and there is reasonable assurance as to collectability. Since the majority of products are customized, product returns are not significant; however, the Corporation accrues for the estimated amount of customer credits at the time of sale. ACCOUNTS RECEIVABLE The Corporation maintains an allowance for doubtful accounts, which is reviewed at least quarterly for estimated losses resulting from the inability of its customers to make required payments for its product and services. Additional allowances may be necessary in the future if the ability of its customers to pay deteriorates. PENSION Pension assets and liabilities are determined on an actuarial basis and are affected by the estimated market value of plan assets; estimates of the expected return on plan assets and discount rates. Actual changes in the fair market value of plan assets and differences between the actual return on plan assets and the expected return on plan assets will affect the amount of pension expense ultimately recognized. Postretirement benefits other than pension liability are also determined on an actuarial basis and are affected by assumptions including the discount rate and expected trends in health care costs. Changes in the discount rate and differences between actual and expected health care cost will affect the recorded amount of postretirement benefits expense. TAXES The Corporation has recorded a valuation allowance to reduce its deferred tax assets based on an evaluation of the amount of deferred tax assets that management believes are more likely than not to be 21 ultimately realized in the foreseeable future. An adjustment to income could be required in the future if the Corporation determines it would be able to realize additional deferred tax assets in excess of the net recorded amount or it would not be able to realize all or part of its net deferred tax assets. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK DISCLOSURE The risks inherent in the Corporation's market risk sensitive instruments and positions is summarized as: the potential loss arising from adverse changes in interest rates, credit worthiness, foreign currency exchange rates and certain commodity prices. INTEREST RATES The Corporation is exposed to interest rate risk arising from fluctuations in interest rates on its borrowings under its credit facilities. This exposure at year-end was nominal, as floating rate debt was less than 15% of total debt outstanding. The Corporation is also exposed to price risk in respect of its fixed rate debt instruments. See Note 9 of the accompanying notes to the consolidated financial statements. CREDIT RISK The Corporation is exposed to credit risk on accounts receivable balances. This risk is limited due to the Corporation's large, diverse customer base, dispersed over various geographic regions and industrial sectors. The Corporation maintains provisions for potential credit losses, and any such losses to date have been within the Corporation's expectations. FOREIGN CURRENCY The Corporation is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent revenues and expenses are not in the local currency of the operating unit, the Corporation enters into foreign currency forward contracts to hedge the currency risk. As of December 31, 2001, the aggregate amount of outstanding forward contracts was $13.7 million. Notional gains and losses from these foreign currency contracts were not significant at December 31, 2001. The Corporation does not use derivative financial instruments for trading or speculative purposes. The Corporation assessed market risk based on changes in interest rates and foreign currency rates utilizing a sensitivity analysis that measures the potential loss in earnings, fair values and cash flows based on a 10% hypothetical change in prevailing interest and foreign currency rates. Using this sensitivity analysis, the Corporation is determined such changes would not have a material effect on earnings, fair values and cash flows. COMMODITIES The primary raw materials used by the Corporation are paper and ink. The cost of paper and ink represents a significant portion of costs of sales. Increases in price or a lack of availability of supply of these raw materials could have a material adverse effect on the financial condition and results of operations. The Corporation uses its significant purchasing volume to negotiate long-term supply contracts that give favorable prices, terms, quality and service. While the Corporation believes that these long-term contracts will enable the Corporation to receive adequate supplies of paper in the event of a tight paper supply, there can be no assurance in this regard. To reduce price risk caused by market fluctuations, the Corporation has incorporated price adjustment clauses in certain sales contracts. The Corporation does not think it is practicable to measure the impact of a hypothetical 10% change in the price of paper and other raw materials on its earnings and cash flows. Such a change would not have a significant effect on the Corporation since these costs are generally passed through to its customers. 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS
DECEMBER 31, IN THOUSANDS OF U.S. DOLLARS 2001 2000 - -------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 84,855 $ 36,538 Accounts receivable, less allowance for doubtful accounts of $22,057 (2000 -- $15,274) 336,153 407,304 Inventories (Note 3) 128,421 154,484 Prepaid expenses 13,544 22,683 Deferred income taxes (Note 17) 13,566 69,879 - -------------------------------------------------------------------------------------------------- Total Current Assets 576,539 690,888 ================================================================================================== Property, plant and equipment -- net (Note 4) 307,640 409,099 Investments (Note 5) 32,204 33,650 Prepaid pension cost (Note 13) 215,752 312,180 Goodwill -- net (Note 6) 42,294 130,530 Deferred income taxes (Note 17) 47,651 8,949 Other assets (Note 7) 114,906 158,291 - -------------------------------------------------------------------------------------------------- Total Assets $1,336,986 $1,743,587 ================================================================================================== LIABILITIES Current Liabilities Bank indebtedness $ 56,181 $ 29,428 Accounts payable and accrued liabilities (Note 8) 486,626 400,057 Short-term debt (Note 9) 18,034 2,709 Dividends payable -- 4,423 Income taxes 27,677 31,168 Deferred income taxes (Note 17) 324 462 - -------------------------------------------------------------------------------------------------- Total Current Liabilities 588,842 468,247 ================================================================================================== Long-term debt (Note 9) 111,062 272,465 Postretirement benefits (Note 14) 239,664 243,374 Deferred income taxes (Note 17) 13,705 66,282 Other liabilities (Note 10) 51,263 57,289 Minority interest 11,200 11,245 - -------------------------------------------------------------------------------------------------- Total Liabilities 1,015,736 1,118,902 - -------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Share capital (Note 11) 397,761 310,881 Authorized: Unlimited number of preference (none outstanding for 2001 and 2000) and common shares without par value Issued: 111,803,651 common shares -- 2001 88,456,940 common shares -- 2000 Equity portion of subordinated convertible debentures -- 8,343 Retained earnings 51,666 431,821 Cumulative translation adjustments (Note 12) (128,177) (126,360) - -------------------------------------------------------------------------------------------------- Total Shareholders' Equity 321,250 624,685 ================================================================================================== Total Liabilities and Shareholders' Equity $1,336,986 $1,743,587 ==================================================================================================
See Notes to Consolidated Financial Statements 23 CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------- Net sales $2,154,574 $2,258,418 $2,425,116 - --------------------------------------------------------------------------------------------------------------- Cost of sales 1,552,561 1,598,525 1,665,194 Selling, general and administrative expenses 575,586 578,642 585,316 Provision for (recovery of) restructuring costs -- net 129,679 (24,033) (68,410) Depreciation and amortization, includes impairment charges of $131,393 (2000 -- $36,621 and 1999 -- $676) 239,072 151,518 101,335 - --------------------------------------------------------------------------------------------------------------- 2,496,898 2,304,652 2,283,435 - --------------------------------------------------------------------------------------------------------------- Income (loss) from operations (342,324) (46,234) 141,681 Investment and other income (expense) (9,047) (9,797) 11,113 Interest expense 26,653 25,561 24,184 Debt settlement expense 10,396 -- -- - --------------------------------------------------------------------------------------------------------------- Earnings (loss) before taxes and minority interests (388,420) (81,592) 128,610 Income tax expense (recovery) (32,192) (17,377) 35,286 Minority interest 1,810 2,157 725 - --------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ (358,038) $ (66,372) $ 92,599 Distribution to certain convertible debenture holders (Note 9) 15,345 -- -- - --------------------------------------------------------------------------------------------------------------- Net earnings (loss) available to common shareholders $ (373,383) $ (66,372) $ 92,599 Net earnings (loss) per common share: Basic $ (4.21) $ (0.75) $ 1.05 Diluted (4.21) (0.75) 1.04 Average shares outstanding (in thousands): Basic 88,648 88,457 88,457 Diluted 88,648 88,457 88,763 ===============================================================================================================
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, IN THOUSANDS OF U.S. DOLLARS 2001 2000 1999 - --------------------------------------------------------------------------------------------- Balance at beginning of the year, as reported $ 431,821 $ 480,049 $405,142 Change in accounting policy: Income taxes -- 2,443 -- Employee future benefits -- 33,295 -- - --------------------------------------------------------------------------------------------- Balance at beginning of the year, as restated 431,821 515,787 405,142 Net earnings (loss) (358,038) (66,372) 92,599 - --------------------------------------------------------------------------------------------- 73,783 449,415 497,741 Subordinated convertible debentures 17,694 -- -- Dividends 5(Cents) per share (20(Cents) in 2000 and 1999) 4,423 17,594 17,692 - --------------------------------------------------------------------------------------------- Balance at end of year $ 51,666 $ 431,821 $480,049 =============================================================================================
See Notes to Consolidated Financial Statements 24 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, IN THOUSANDS OF U.S. DOLLARS 2001 2000 1999 - ----------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net earnings (loss) $ (358,038) $ (66,372) $ 92,599 Items not affecting cash resources: Depreciation and amortization (a) 239,072 152,546 102,943 Net loss on sale of other assets 5,032 -- -- Net loss on write-off and sale of investments -- 11,974 -- Gain on sale of business -- -- (7,269) Deferred income taxes (36,487) (22,267) 16,552 Pension settlement -- net 96,605 -- -- Restructuring provision, net of cash paid 81,756 (29,028) (68,410) Convertible debt issue costs 10,396 -- -- Other 4,269 12,367 (12,987) Changes in working capital other than cash resources: Accounts receivable -- net 44,684 69,780 2,003 Inventories 21,037 24,181 (2,016) Accounts payable and accrued liabilities 28,545 (129,994) (45,549) Income taxes (3,033) 8,601 9,772 Other 2,491 2,902 (2,521) - ----------------------------------------------------------------------------------------------------- Net cash provided by operating activities 136,329 34,690 85,117 - ----------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Property, plant and equipment -- net (36,280) (36,913) (84,436) Long-term receivables (3,489) 527 (1,538) Acquisition of businesses (14,565) (3,351) (8,077) Proceeds from sale of investment and other assets 38,495 13,178 18,143 Software expenditures (6,517) (28,795) (57,035) Deferred charges 751 (2,891) (2,134) Other 459 2,049 (11,494) - ----------------------------------------------------------------------------------------------------- Net cash used by investing activities (21,146) (56,196) (146,571) - ----------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Dividends paid (8,846) (17,594) (17,692) Net change in short-term debt 15,325 (37,431) (216,257) Proceeds from issuance of long-term debt 7,963 6,003 200,985 Payments on long-term debt (104,166) (1,776) (4,100) Issuance (conversion) of subordinated convertible debentures (1,600) 58,660 -- Other (1,744) (5,753) (5,313) - ----------------------------------------------------------------------------------------------------- Net cash (used) provided by financing activities (93,068) 2,109 (42,377) - ----------------------------------------------------------------------------------------------------- Effect of exchange rate on cash (551) 1,414 (2,047) Increase (decrease) in cash resources 21,564 (17,983) (105,878) Cash and cash equivalents at beginning of year (b) 7,110 25,093 130,971 Cash and cash equivalents at end of year (b) $ 28,674 $ 7,110 $ 25,093 - ----------------------------------------------------------------------------------------------------- Supplemental disclosure of cash flows information Interest paid $ 26,594 $ 25,288 $ 20,169 - ----------------------------------------------------------------------------------------------------- Income taxes paid (refunded) 3,425 5,314 (29,426) - -----------------------------------------------------------------------------------------------------
(a) Includes depreciation that has been classified in cost of sales. (b) Cash and cash equivalents are defined as cash and short-term securities less bank indebtedness. See Notes to Consolidated Financial Statements 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, In thousands of U.S. dollars, except share and per share data 1. SUMMARY OF ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION Moore Corporation Limited is incorporated under the laws of the Province of Ontario. The consolidated financial statements, which are prepared in accordance with Canadian generally accepted accounting principles, include the accounts of Moore Corporation Limited and its subsidiaries. Entities that are not controlled and which the Corporation has significant influence over are accounted for under the equity method. All other investments are accounted for on the cost basis. All intercompany transactions have been eliminated. Comparative figures have been reclassified where appropriate to conform to the current presentation. Significant differences between United States and Canadian GAAP are discussed in Note 24. REVENUE RECOGNITION The Corporation typically recognizes revenue for the majority of its products upon shipment to the customer and the transfer of title. Services revenue is recognized as the services are provided. Under contracts with certain customers, custom forms may be stored by the Corporation for future delivery. In these situations, the Corporation receives a logistics and warehouse management fee for the services they provide. In these cases, delivery and billing schedules are outlined in the contracts and product revenue is recognized when manufacturing is complete, title transfers to the customer, the order is invoiced and there is reasonable assurance as to collectability. Since the majority of products are customized, product returns are not significant; however, the Corporation accrues for the estimated amount of customer credits at the time of sale. TRANSLATION OF FOREIGN CURRENCIES The consolidated financial statements are expressed in United States dollars because a significant part of the net assets and earnings are located or originate in the United States. Except for the foreign currency financial statements of subsidiaries in countries with highly inflationary economies, Canadian and other foreign currency financial statements have been translated into United States dollars on the following bases: all assets and liabilities at the year-end exchange rates; income and expenses at average exchange rates during the year. Net unrealized exchange adjustments arising on translation of foreign currency financial statements are charged or credited directly to shareholders' equity and shown as cumulative translation adjustments. Realized exchange losses or gains are included in earnings. In 2001 a loss of $2,936 is included in investment and other income. Amounts included in investment and other income for 2000 and 1999 were not material. The foreign currency financial statements of subsidiaries in countries with highly inflationary economies are translated into United States dollars using the temporal method whereby monetary items are translated at current rates of exchange, and non-monetary items are translated at historical rates of exchange. The only highly inflationary economy in which the Corporation operates is Venezuela. FINANCIAL INSTRUMENTS The Corporation enters into forward exchange contracts to manage exposures resulting from foreign exchange fluctuations in the ordinary course of business. The contracts are normally for terms of less than one year and are used as hedges of foreign denominated revenue streams, costs and loans. The unrealized gains and losses on outstanding contracts are offset against the gains and losses of the hedged item. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Short-term securities consist of investment grade, highly liquid instruments of highly rated governments, financial institutions and corporations. Unless disclosed otherwise in the notes to the consolidated financial statements, the estimated fair value of financial assets and liabilities approximates carrying value. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of highly liquid investments with a purchased maturity of three months or less. INVENTORIES Inventories of raw materials and work-in-process are valued at the lower of cost and replacement cost and inventories of finished goods at the lower of cost and net realizable value. In the United States, the cost of the principal raw material inventories and the raw material content of work-in-process and finished goods inventories is determined on the last-in, first-out basis. The cost of all other inventories is determined on the first-in, first-out basis. PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION Property, plant and equipment are stated at historical cost. Depreciation is provided on a basis that will amortize the cost of depreciable assets over their estimated useful lives using the straight-line method. All costs for repairs and maintenance are expensed as incurred. The estimated useful lives of buildings range from 20 to 50 years and of machinery and equipment from 3 to 17 years. Gains or losses on the disposal of property, plant and equipment are included in investment and other income, and the cost and accumulated depreciation related to these assets are removed from the accounts. GOODWILL AND LONG-LIVED ASSETS The estimated useful life of goodwill arising from acquisitions is determined based on the particular circumstances of each investment. Goodwill, existing prior to July 1, 2001, is amortized on a straight-line basis over its estimated useful life, not to exceed 40 years. On a regular basis, the Corporation reviews the valuation and amortization of goodwill and long-lived assets. Whenever events or changes in circumstances indicate the carrying value of goodwill and long-lived assets may not be recoverable, the Corporation compares expected future undiscounted cash flows to be generated by the asset or related business to the carrying value. If the carrying value exceeds the sum of the future undiscounted cash flows, the asset would be adjusted to its net recoverable amount and an impairment loss would be charged to operations in the period identified. (See Note 25 "Pending Accounting Standards.") AMORTIZATION OF DEFERRED CHARGES Deferred charges include certain costs to acquire and develop internal-use computer software, which is amortized over its estimated useful life using the straight-line method, up to a maximum of seven years. Deferred debt issue costs are amortized over the term of the related debt using the effective interest rate method. INCOME TAXES The Corporation applies the liability method of tax allocation for accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on differences between the 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. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) No provision has been made for taxes on undistributed earnings of subsidiaries not currently available for paying dividends as such earnings have been reinvested in the business. STOCK-BASED COMPENSATION The Corporation has stock-based compensation plans as described in Note 11. The Corporation accounts for stock options using the intrinsic value method. No compensation expense in 2001 or 2000 is recognized as the options have an exercise price equal to the fair market value at dates of grant. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. Estimates are used when accounting for items and matters including but not limited to allowance for uncollectible accounts receivable, inventory obsolescence, amortization, asset valuations, employee benefits, taxes, restructuring and other provisions and contingencies. 2. CHANGES IN ACCOUNTING POLICIES CICA SECTION 3500 EARNINGS PER SHARE Effective January 1, 2001, the Corporation adopted the recommendations of the Canadian Institute of Chartered Accountants' (CICA) Handbook Section 3500, Earnings Per Share. The standard requires the disclosure of the calculation of basic and diluted earnings per share and the use of the treasury stock method for calculating the dilutive impact of stock options. The impact on prior reported amounts was not material. CICA SECTION 3461 EMPLOYEE FUTURE BENEFITS Effective January 1, 2000, the Corporation adopted the recommendations of the Canadian Institute of Chartered Accountants' (CICA) Handbook Section 3461, Employee Future Benefits. Under past Canadian standards, the Corporation recognized the cost of postretirement benefits other than pensions as an expense when paid. The new standard requires that the expected costs of the employees' postretirement benefits be expensed during the years that the employees render services to the Corporation. In addition, the new standard changes the accounting for recognition of involuntary termination benefits. For accrual purposes, the new standard requires that benefit arrangements be communicated to employees in sufficient detail to enable them to determine the type and the amount of benefits they will receive when their employment is terminated. The new standard was applied retroactively without restatement of prior year financial statements. Opening retained earnings at January 1, 2000 has been increased by $64,000 for the portion of this new standard that relates to the recognition of involuntary termination benefits. The cumulative effect of this change, as of January 1, 2000, resulted in the following increases: - ------------------------------------------------------------------------------ Assets $231,946 Liabilities 198,651 - ------------------------------------------------------------------------------ Opening retained earnings $ 33,295 ============================================================================== CICA SECTION 3465 ACCOUNTING FOR INCOME TAXES Effective January 1, 2000, the Corporation adopted the new recommendations of the CICA with respect to accounting for income taxes. This represented a change from the deferral method of tax allocation to the liability method of tax allocation. 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The new standard was applied retroactively without restatement of prior year financial statements. The cumulative effect of the change as of January 1, 2000 resulted in the following increases: - -------------------------------------------------------------------------------- Current deferred tax assets $ 7,704 Long-term deferred tax assets 62,138 Current deferred tax liabilities 672 Long-term deferred tax liabilities 66,727 - -------------------------------------------------------------------------------- Opening retained earnings $ 2,443 ================================================================================ 3. INVENTORIES 2001 2000 - -------------------------------------------------------------------------------- Raw materials $ 39,452 $ 43,010 Work-in-process 10,048 14,612 Finished goods 75,149 93,441 Other 3,772 3,421 - -------------------------------------------------------------------------------- $128,421 $154,484 ================================================================================ The current cost of these inventories exceeds the last-in, first-out cost by approximately $17,152 at December 31, 2001 (2000 -- $16,593). 4. PROPERTY, PLANT AND EQUIPMENT 2001 2000 - -------------------------------------------------------------------------------- Land $ 9,973 $ 13,521 Building 162,660 185,518 Machinery and equipment 857,452 932,879 - -------------------------------------------------------------------------------- 1,030,085 1,131,918 Less: Accumulated depreciation 722,445 722,819 - -------------------------------------------------------------------------------- $ 307,640 $ 409,099 ================================================================================ Depreciation expense for the year was $108,436 (2000 -- $84,355; 1999 -- $88,154). During 2001, the Corporation wrote off assets that were permanently impaired amounting to $28,549, compared to $1,904 in 2000, which were included in depreciation and amortization (see Note 16). 5. INVESTMENTS 2001 2000 - -------------------------------------------------------------------------------- Investments: Equity basis $ 1,201 $ 2,412 Cost basis 4,200 -- Long-term bonds 26,803 22,256 Other investments -- 8,982 - -------------------------------------------------------------------------------- $32,204 $33,650 ================================================================================ In 2000, the Corporation made a decision to sell its investment in JetForm Corporation Inc. ("JetForm"), and concurrently took an impairment charge on its investment in JetForm and subsequently divested its entire holdings of 2.4 million shares, resulting in a loss of $8,474. The 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Corporation also made the decision to sell its Vista Information Systems, Inc. ("Vista") investment, and concurrently recorded a $3,500 charge for impairment against its investment in common shares and secured convertible notes receivable of Vista based on a decline in the fair value of the underlying securities. 6. GOODWILL 2001 2000 - -------------------------------------------------------------------------------- Goodwill $412,281 $411,821 Less: Accumulated amortization 369,987 281,291 - -------------------------------------------------------------------------------- $ 42,294 $130,530 ================================================================================ During 2001 and 2000, the Corporation recorded charges of $76,808 and $20,965, respectively, included in depreciation and amortization, for permanent impairment of goodwill related to dispositions and assets held for disposition (see Note 15). The impairment resulted from a significant sales decline, customer turnover and the decision to hold certain assets for sale. 7. OTHER ASSETS 2001 2000 - -------------------------------------------------------------------------------- Computer software -- net $ 89,763 $127,999 Deposit and other receivables 2,361 3,801 Deferred debt issue costs -- 11,848 Purchase of assets 14,565 -- Other 8,217 14,643 - -------------------------------------------------------------------------------- $114,906 $158,291 ================================================================================ In 2001 and 2000, the Corporation recorded charges of $26,036 and $13,752, respectively, included in depreciation and amortization, for the write-off of certain computer software costs, primarily related to a component of its ERP system, which will not be deployed. Further decisions may be made in the future to change other deployment plans or processes, which could result in additional impairments in the carrying value of the ERP asset. 8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 2001 2000 - -------------------------------------------------------------------------------- Trade accounts payable $ 89,840 $115,030 Other payables 59,363 73,073 - -------------------------------------------------------------------------------- 149,203 188,103 - -------------------------------------------------------------------------------- Payroll costs 63,896 38,323 Employee benefit costs 19,037 20,863 Restructuring liabilities 126,673 45,961 Other 127,817 106,807 - -------------------------------------------------------------------------------- $486,626 $400,057 ================================================================================ 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. DEBT
2001 2000 - --------------------------------------------------------------------------------------------- Senior guaranteed notes: Series A, 7.84%, maturing March 25, 2006 $ 42,750 $ 85,500 Series B, 8.05%, maturing March 25, 2009 57,250 114,500 Subordinated convertible debentures, 8.7%, maturing June 30, 2009 -- 62,157 Revolving term credit facility 15,000 -- Other debt, including capitalized leases 14,096 13,017 - --------------------------------------------------------------------------------------------- 129,096 275,174 Current portion of debt 18,034 2,709 - --------------------------------------------------------------------------------------------- Long-term debt $111,062 $272,465 =============================================================================================
On December 27, 2001, the Corporation redeemed $100,000 of the senior guaranteed notes. The remaining senior notes bear interest payable semi-annually, and have an estimated fair value of $87,600. On August 5, 1999, the Corporation entered into a $168,000 committed revolving term facility with a group of nine banks. The facility matures on August 5, 2002 and bears interest at a variable rate based on the utilization and the leverage ratio of the Corporation. The weighted average interest rate during 2001 was 6.7% (2000 -- 7.9%). The Corporation is negotiating to replace this credit facility and believes it has the ability to successfully renegotiate a credit facility by the end of the second quarter of 2002. The Corporation believes that it has the necessary liquidity available to fund all of the Corporation's current financial operations. On December 28, 2001, the $70.5 million subordinated convertible debentures held by Chancery Lane/GSC Investors L.P. (the "Partnership") were converted into 21,692,311 common shares. The Corporation issued 1,650,000 additional common shares ("additional shares") as an inducement to the Partnership's Class A limited partners to convert prior to December 22, 2005, the date the Corporation could have redeemed the debentures. The right to receive the additional shares was assigned by the Partnership to its Class A limited partners. Under the terms of the partnership agreement, the Class A limited partners were entitled to all the interest paid on the subordinated convertible debentures. As part of the inducement agreement, the Corporation has also agreed to make a payment in cash if the 20 day weighted average trading price of the common shares on the New York Stock Exchange ("NYSE") at December 31, 2002 is less than $8.00. The amount payable, if any, would be the difference between $14,000 and the market value at December 31, 2002 of the additional shares issued, provided the maximum amount payable by the Corporation shall not exceed the value of 3,000,000 of its common shares at such date. In addition, if at December 31, 2003 the 20 day weighted average trading price of the common shares on the NYSE is less than $10.83, the Corporation must make a payment equal to the lesser of $9,000 and the value of 6,000,000 of its common shares at such date. The $9,000 payment may be reduced under certain circumstances. At the option of the Corporation, these payments may be made in common shares, subject to regulatory approval. To the extent that stock or cash is paid, it will be recorded as a charge to retained earnings. Certain officers of the Corporation, including the President and Chief Executive Officer and members of the Board of Directors were investors in the Partnership. For financial reporting purposes, the subordinated convertible debentures had a liability component and an equity component. The liability component was classified as long-term debt, representing the present value of interest and principal payments discounted at a rate of interest applicable to a debt only instrument of comparable term and risk. The equity component at December 28, 2001 was $8,343 representing the value of the conversion option, calculated as the difference between the proceeds and liability component. Upon conversion, the Corporation allocated the consideration given to extinguish the subordinated convertible debentures to the liability and equity components based on fair values on the date of conversion, which approximated 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) their carrying value. As such, no gain or loss was recorded. The inducement payment of the additional shares issued was allocated to the equity component and, accordingly, charged to retained earnings. Professional fees of $1,600 incurred for the conversion were also charged to retained earnings. Deferred issue costs of $10,396 (previously included in other assets) relating to the subordinated convertible debentures were charged to earnings upon extinguishment. Other long-term debt, including capital leases of $12,789 (2000 -- $2,549), bears interest at rates ranging from 3.1% to 14.2% and matures on various dates through 2011. The weighted average interest rate on other long-term debt is 9.5% (2000 -- 7.0%). Loans to subsidiaries amounting to $4,000 (2000 -- $8,580), are payable in currencies other than United States dollars. The senior guaranteed notes and revolving term credit facility agreements include certain debt covenants calculated on a quarterly basis including, but not limited to, tests of net worth, leverage and interest coverage. For the years ended December 31, 2001 and 2000, the Corporation was in compliance with all debt covenants. The Corporation had $17,300 in outstanding letters of credit at December 31, 2001. The net book value of assets subject to liens approximates $27,485 (2000 - -- $23,200). The liens are primarily mortgages against property, plant and equipment and other current assets. Payments required on long-term debt (excluding capital lease obligations) are as follows: 2002 -- $1,325; 2003 -- $850; 2004 -- $146; 2005 -- $373, and 2006 -- $42,750, and thereafter -- $57,250. 10. OTHER LIABILITIES 2001 2000 - -------------------------------------------------------------------------------- Unfunded pension obligations $ 27,728 $25,820 Long-term supply agreement 16,934 24,028 Other 6,601 7,441 - -------------------------------------------------------------------------------- $ 51,263 $57,289 ================================================================================ During 2000, the Corporation entered into a long-term supply agreement with a vendor for the purchase of certain materials. Proceeds received on the agreement have been deferred and are being amortized over a period of five years (the term of the agreement). Included in accounts payable and accrued liabilities at December 31, 2001 is $6,918 (2000 -- $7,200) representing the current portion of the supply agreement. 11. SHARE CAPITAL The Corporation's articles of incorporation provide that its authorized share capital be divided into an unlimited number of common shares and an unlimited number of preference shares, issuable in one or more series. CHANGES IN THE ISSUED COMMON SHARE CAPITAL SHARES ISSUED AMOUNT - -------------------------------------------------------------------------------- Balance, December 31, 1998, 1999 and 2000 88,456,940 $310,881 Conversion of subordinated convertible debentures 21,692,311 71,506 Inducement for convertible debentures 1,650,000 15,345 Exercise of stock options 4,400 29 - -------------------------------------------------------------------------------- Balance, December 31, 2001 111,803,651 $397,761 ================================================================================ The Corporation has a long-term incentive program under which stock options and restricted stock awards may be granted to certain key employees. At December 31, 2001, there were 877,500 common shares available for grants (2000 - -- 171,700; 1999 -- 880,400). Stock options have an exercise price equal to 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) the fair market value at dates of grant. Options granted generally vest at 20% or 25% per year from the date of grant. Upon retirement, all options become vested. Options granted prior to 1999 are eligible for exercise for five years after the date of retirement. Options granted after 1998 are eligible for exercise for one year after the date of retirement. The options expire not more than 10 years from the date granted. There are no restricted stock awards outstanding. In 1999 the Corporation incurred a charge of $3,056 related to certain senior executive long-term incentive plans. For 2001 and 2000, no expense was required under these plans. In 1999, the Corporation also recorded a charge of $3,095 related to certain stock based compensation awards. For 2001 and 2000, no expense was required under these plans. On December 11, 2000, the Board of Directors approved the creation of Series 1 Preference Shares. Each Series 1 Preference Share will be non-voting and will entitle the holder to a non-cumulative preferential annual dividend of CDN $0.001 and to receive any dividend paid on a common share. In the event of liquidation, dissolution or winding-up of the Corporation, a holder of a Series 1 Preference Share will be entitled to receive a preferential amount of CDN $0.001, together with all dividends declared and unpaid thereon. Thereafter, the Series 1 Preference Shares and common shares rank equally with each other on a share-for-share basis. Stock options to acquire 1,580,000 Series 1 Preference Shares were issued on December 11, 2000 and vest at 25% per annum. A summary of the Corporation's stock option activity for the three years ended December 31, 2001 is presented below (in Canadian currency):
AT DECEMBER 31, 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE - --------------------------------------------------------------------------------------------------------------------- COMMON SHARES Options outstanding at beginning of year 6,509,686 $ 16.46 6,352,486 $ 18.73 5,281,686 $ 27.88 Options granted 1,790,833 13.43 1,068,000 4.10 1,789,500 11.47 Options forfeited (1,933,950) 16.40 (910,800) 17.81 (364,700) 22.53 Options exercised (4,400) 7.54 -- -- -- -- Options cancelled -- -- -- -- (241,800) 25.41 Options expired -- -- -- -- (112,200) 34.88 - --------------------------------------------------------------------------------------------------------------------- Options outstanding at year-end 6,362,169 $ 15.63 6,509,686 $ 16.46 6,352,486 $ 18.73 - --------------------------------------------------------------------------------------------------------------------- Options exercisable at year-end 2,832,715 $ 18.86 3,383,646 $ 19.84 1,600,093 $ 23.82 - --------------------------------------------------------------------------------------------------------------------- SERIES 1 PREFERENCE SHARES Options outstanding at beginning of year 1,580,000 $ 3.65 -- $ -- -- $ -- - --------------------------------------------------------------------------------------------------------------------- Options granted -- -- 1,580,000 3.65 -- $ -- - --------------------------------------------------------------------------------------------------------------------- Options outstanding at year-end 1,580,000 $ 3.65 1,580,000 $ 3.65 -- $ -- - --------------------------------------------------------------------------------------------------------------------- Options exercisable at year-end 395,000 $ 3.65 -- $ -- -- $ -- - ---------------------------------------------------------------------------------------------------------------------
33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following tables summarize information about stock options outstanding at December 31, 2001 (in Canadian currency):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------------------------------- ------------------------------------------ NUMBER WEIGHTED-AVERAGE RNAGE OF OUTSTANDING AT REMAINING CONTRACTUAL WEIGHTED-AVERAGE NUMBER EXERCISABLE AT WEIGHTED-AVERAGE EXERCISE PRICES DECEMBER 31, 2001 LIFE (YEARS) EXERCISE PRICE DECEMBER 31, 2001 EXERCISE PRICE - --------------------------------------------------------------------------------------------------------------------------------- COMMON SHARES $3 to 8 913,233 8.9 $ 4.26 186,225 $ 3.90 $9 to 15 2,668,856 9.0 13.40 605,555 12.53 $16 to 23 1,779,700 6.3 18.63 1,148,675 18.68 $24 to 30 1,000,380 4.5 26.65 892,260 26.50 - --------------------------------------------------------------------------------------------------------------------------------- 6,362,169 7.5 $ 15.63 2,832,715 $ 18.86 - --------------------------------------------------------------------------------------------------------------------------------- SERIES 1 PREFERENCE SHARES $3.65 1,580,000 9.0 $ 3.65 395,000 $ 3.65 =================================================================================================================================
12. CUMULATIVE TRANSLATION ADJUSTMENTS
2001 2000 1999 - --------------------------------------------------------------------------------------------------------- Balance at beginning of year $ (126,360) $ (118,256) $ (105,878) Currency translation (2,461) (8,104) (12,378) Amounts recognized on sale or liquidation of foreign operations 644 -- -- - --------------------------------------------------------------------------------------------------------- Balance at end of year $ (128,177) $ (126,360) $ (118,256) =========================================================================================================
34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. RETIREMENT PROGRAMS DEFINED BENEFIT PENSION PLANS In 2000, the Corporation changed its measurement date from December 31 to November 30. The effect of this change was not significant. The following data is based upon reports from independent consulting actuaries as at November 30 for 2001 and 2000, and December 31 for 1999:
UNITED STATES CANADA - ------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- FUNDED STATUS Actuarial present value of: Projected benefit obligation at beginning of year $ 657,678 $ 685,753 636,409 $ 82,202 $ 79,889 $ 68,085 Service cost 20 13,287 11,965 3,169 3,076 2,331 Interest cost 23,107 52,658 50,343 5,523 5,761 5,644 Amendments -- 16,000 1,765 -- -- -- Actuarial loss (gain) 181,673 (35,740) 1,169 699 2,467 780 Effect of curtailment -- (30,011) -- -- -- -- Effect of settlement (608,323) -- -- -- -- -- Foreign currency adjustments -- -- -- (3,030) (3,474) 4,215 Benefits paid (26,425) (44,269) (39,915) (6,216) (5,517) (5,270) - ------------------------------------------------------------------------------------------------------------------------- Projected benefit obligation at end of year $ 227,730 $ 657,678 $ 661,736 $ 82,347 $ 82,202 $ 75,785 - ------------------------------------------------------------------------------------------------------------------------- Plan assets at fair value at beginning of year $ 935,729 $ 936,450 $ 845,898 $ 96,690 $ 99,316 $ 95,325 Actual return on assets 103,635 43,548 127,142 (1,959) 7,006 5,085 Foreign currency adjustments -- -- -- (3,232) (4,115) 5,755 Effect of settlement (611,057) -- -- -- -- -- Benefits paid (26,425) (44,269) (39,915) (6,216) (5,517) (5,270) - ------------------------------------------------------------------------------------------------------------------------- Plan assets at fair value at end of year $ 401,882 $ 935,729 $ 933,125 $ 85,283 $ 96,690 $ 100,895 - ------------------------------------------------------------------------------------------------------------------------- Excess of plan assets over projected benefit obligation $ 174,152 $ 278,051 $ 271,389 $ 2,936 $ 14,488 $ 25,110 Unrecognized net (gain) loss 7,486 119 (252,692) 12,634 3,053 (10,292) Unrecognized net asset -- -- (3,058) -- -- (935) Unrecognized prior service cost (credit) -- -- (8,247) -- -- 485 - ------------------------------------------------------------------------------------------------------------------------- Prepaid pension cost $ 181,638 $ 278,170 $ 7,392 $ 15,570 $ 17,541 $ 14,368 - ------------------------------------------------------------------------------------------------------------------------- PENSION EXPENSE Service cost $ 20 $ 13,287 $ 11,965 $ 3,169 $ 3,076 $ 2,331 Interest cost 23,107 52,658 50,343 5,523 5,761 5,644 Expected return on assets (37,863) (82,523) (70,626) (7,497) (7,691) (7,742) Settlement loss 109,115 -- -- -- -- -- Curtailment gain -- (6,630) -- -- -- -- Amortization of net loss (gain) 2,154 (128) (12,746) 172 -- (876) Amortization of net asset -- -- (3,048) -- -- (908) Amortization of prior service cost -- 832 2,997 -- -- 170 Amendments -- -- 1,765 -- -- -- - ------------------------------------------------------------------------------------------------------------------------- Net pension expense (credit) $ 96,533 $ (22,504) $ ( 19,350) $ 1,367 $ 1,146 $ (1,381) - ------------------------------------------------------------------------------------------------------------------------- OTHER INFORMATION Assumptions: Discount rates January 1 7.8% 7.8% 8.0% 7.0% 7.5% 8.0% December 31 6.8% 7.8% 8.0% 6.5% 7.0% 8.0% Rate of return on plan assets 6.8% 9.0% 9.0% 8.0% 8.0% 8.0% Rate of compensation increase -- 5.0% 5.0% 4.0% 5.0% 5.0% Amortization period 14 years 13 years 13 years 15 years 15 years 15 years - ------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL - -------------------------------------------------------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------- FUNDED STATUS Actuarial present value of: Projected benefit obligation at beginning of year $ 100,406 $ 124,175 $121,380 Service cost 76 133 220 Interest cost 4,382 9,277 9,484 Amendments -- -- -- Actuarial loss (gain) (511) (7,162) 4,567 Effect of curtailment -- -- -- Effect of settlement (99,144) -- -- Foreign currency adjustments 1,367 (12,783) (3,474) Benefits paid -- (13,234) (6,472) - -------------------------------------------------------------------------------- Projected benefit obligation at end of year $ 6,576 $ 100,406 $125,705 - -------------------------------------------------------------------------------- Plan assets at fair value at beginning of year $ 118,932 $ 143,186 $140,685 Actual return on assets 503 3,959 14,762 Foreign currency adjustments 1,757 (14,979) (4,025) Effect of settlement (99,144) -- -- Benefits paid -- (13,234) (6,472) - -------------------------------------------------------------------------------- Plan assets at fair value at end of year $ 22,048 $ 118,932 $144,950 - -------------------------------------------------------------------------------- Excess of plan assets over projected benefit obligation $ 15,472 $ 18,526 $ 19,245 Unrecognized net (gain) loss 3,072 (2,057) (2,197) Unrecognized net asset -- -- -- Unrecognized prior service cost (credit) -- -- -- - -------------------------------------------------------------------------------- Prepaid pension cost $ 18,544 $ 16,469 $ 17,048 ================================================================================ PENSION EXPENSE Service cost $ 76 $ 133 $ 220 Interest cost 4,382 9,277 9,484 Expected return on assets (5,931) (10,780) (11,034) Settlement loss -- -- -- Curtailment gain -- -- -- Amortization of net loss (gain) (209) (208) (338) Amortization of net asset -- -- -- Amortization of prior service cost -- -- 230 Amendments -- -- -- - -------------------------------------------------------------------------------- Net pension expense (credit) $ (1,682) $ (1,578) $ (1,438) - -------------------------------------------------------------------------------- OTHER INFORMATION Assumptions: Discount rates January 1 8.3% 8.3% 8.3% December 31 5.0% 8.3% 8.3% Rate of return on plan assets 8.3% 8.3% 8.3% Rate of compensation increase 5.0% 5.0% 5.0% Amortization period 10 years 10 years 10 years - --------------------------------------------------------------------------------
35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) During 2000, the Corporation amended the United States pension plan to cease all benefit accruals effective December 31, 2000 and announced the Corporation's intention to terminate and wind-up the plan in 2001. The 2000 net pension expense includes a curtailment gain of $6,630 for this amendment. In March 2001, the Corporation partially settled this plan by purchasing approximately $600 million in annuities. This settlement reduced the projected benefit obligation and fair value of plan assets by $608,323 and $611,057, respectively, and resulted in a settlement loss of $109,115. In June 2001, this plan was terminated. Prior to the settlement, pension expense was based upon assumptions established as of January 1, 2001. Pension expense for the remainder of the year on the unsettled portion of the plan was calculated using a discount rate and rate of return on plan assets of approximately 6.25%, which were based upon estimated market rates to settle the remaining portion of the plan. The Corporation anticipates settling the remainder of the plan during 2002 and expects to incur an additional settlement loss. Additionally, the Corporation expects to receive approximately $150,000 before taxes, fees and transfers to other employee benefit plans resulting from the termination of this plan. During 2001, the Corporation purchased annuities to settle substantially all of the obligation under the United Kingdom plan. This settlement reduced the projected benefit obligation and fair value of plan assets by $99,144. In some subsidiaries, where either state or funded retirement plans exist, there are certain small supplementary unfunded plans. Pensionable service prior to establishing funded contributory retirement plans in other subsidiaries, covered by former discretionary non-contributory retirement plans, was assumed as a prior service obligation. In addition, the Corporation has supplemental retirement programs for certain senior executives. These unfunded pension obligations are included in other liabilities and include the unfunded portion of this prior service obligation and the supplementary unfunded plans. All of the retirement plans are non-contributory. Retirement benefits are generally based on years of service and employees' compensation during the last years of employment. At December 31, 2001, none of the United States or International plans' assets and about 62% of the Canadian plan's assets were held in equity securities with the remaining portion of the asset being mainly fixed income securities. DEFINED CONTRIBUTION SAVINGS PLANS Savings plans are maintained in Canada, the United States and the United Kingdom. Only the savings plan in the United Kingdom requires Corporation contributions for all employees who are eligible to participate in the retirement plans. These annual contributions consist of a retirement savings benefit contribution ranging from 1% to 3% of each year's compensation depending upon age. For all savings plans, if an employee contribution is made, a portion of such contribution may be eligible for a contribution match by the Corporation. For 2001, the defined contribution savings plan expenses were $6,913 (2000 -- $4,667; 1999 -- $4,868). 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS The Corporation provides employees with postretirement health care and life insurance benefits. The following data is based upon reports from independent consulting actuaries as at November 30, 2001 and 2000:
2001 2000 - ---------------------------------------------------------------------------------------------------- ACCRUED POSTRETIREMENT BENEFIT COST Projected postretirement benefit obligation at beginning of year $ 181,085 $ 179,046 Service cost 1,638 1,450 Interest cost 13,939 13,430 Actuarial loss 64,485 266 Foreign currency adjustments (468) (387) Benefits paid (13,215) (12,720) - ---------------------------------------------------------------------------------------------------- Projected postretirement benefit obligation at end of year $ 247,464 $ 181,085 Contributions paid in December (587) (1,072) Unrecognized net gain (loss) (48,526) 15,765 Unrecognized prior service credit 41,313 47,596 - ---------------------------------------------------------------------------------------------------- Accrued postretirement benefit cost liability $ 239,664 $ 243,374 - ---------------------------------------------------------------------------------------------------- POSTRETIREMENT BENEFIT EXPENSE Service cost $ 1,638 $ 1,450 Interest cost 13,939 13,430 Amortization of unrecognized prior service credit (6,282) (6,282) Amortization of net loss 51 -- - ---------------------------------------------------------------------------------------------------- Net postretirement benefit expense $ 9,346 $ 8,598 - ---------------------------------------------------------------------------------------------------- ASSUMPTIONS AND OTHER INFORMATION Weighted average discount rate 7.2% 7.7% Weighted average health care cost trend rate: Before age 65 11.8% 6.8% After age 65 13.7% 5.4% The healthcare cost trend rate will gradually decline to the ultimate trend rate then remain level thereafter Weighted average ultimate health care cost trend rate 6.0% 5.2% Year in which ultimate health care cost trend rate will be achieved Canada 2008 2004 United States: Before age 65 2011 2002 After age 65 2013 2002
37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following is the effect of a 1% increase in the assumed health care cost trend rates for each future year on:
Accumulated postretirement benefit obligation $13,905 $10,914 Aggregate of the service and interest cost components of net postretirement benefit cost 1,182 1,023 The following is the effect of a 1% decrease in the assumed health care cost trend rates for each future year on: Accumulated postretirement benefit obligation $12,244 $10,793 Aggregate of the service and interest cost components of net postretirement benefit cost 1,055 1,008
15. DISPOSITIONS AND ASSETS HELD FOR DISPOSITION
COMPANY NATURE OF BUSINESS DISPOSITION DATE - --------------------------------------------------------------------------------------- DISPOSITIONS Property information products and Data Management Services services provider. December 1999 Provider of direct marketing services Colleagues Group plc in the United Kingdom. March 2001 Provider of direct marketing services Phoenix Group, Inc. in the United States. October 2001
Included in the Corporation's results of operations for 1999 are net sales of $61,997 and losses from operations of $3,736 from the divested business. The Data Management Services business unit was sold to Vista Information Solutions Inc. for proceeds valued at $39,982. The sale price included cash of $20,000, a working capital note from Vista, secured convertible notes from Vista and non-registered common shares of Vista. The gain before taxes of $7,269 is recorded in investment and other income. In 2001, net sales of $68,251 (2000 -- $132,728, 1999 -- $154,763) and losses from operations of $47,465 relating to the divested businesses, are included in the Corporation's commercial segment results. The Phoenix Group was sold for cash proceeds of $26,009 and $2,526 was received for the Colleagues Group. The net loss of $7,540 on these dispositions is recorded in investment and other income. In the fourth quarter of 2001, based on a current valuation of a non-core business held for disposition, the Corporation wrote-off the remaining goodwill amounting to $28,528. The valuation criteria includes in part, earnings potential, revenue and operating multiples, and other industry standards. Included in the results of the Commercial segment are net sales of $191,350 (2000 -- $213,889, 1999 -- $232,761) and operating losses of $21,491 (income of $358 in 2000 and $8,382 in 1999) for this business. 16. RESTRUCTURING AND OTHER NON-RECURRING CHARGES EMPLOYEE OTHER TERMINATIONS CHARGES TOTAL - -------------------------------------------------------------------------------- Forms and Labels $33,597 $ 9,422 $ 43,019 Outsourcing 4,138 -- 4,138 Commercial 28,365 7,639 36,004 Corporate 10,894 48,480 59,374 $76,994 $65,541 $142,535 ================================================================================ During 2001, the Corporation recorded a charge of $142,535 related to the restructuring program directed at streamlining its processes and significantly reducing the cost structure. Included in the charge 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) is $76,994 for severance and other termination benefits for 3,366 employees (of which approximately 300 employees were remaining at December 31, 2001), $52,042 for lease terminations, $9,200 for facility closings, $3,600 for onerous contracts, and $700 for other incremental exit costs. The Corporation expects that substantially all remaining severance payments will occur within the next twelve months.
BALANCE AT BALANCE AT DECEMBER 31, NON-CASH DECEMBER 31, 2000 PROVISION, NET CASH PAID WRITE-OFFS 2001 - ---------------------------------------------------------------------------------------------------------- Employee terminations $ 6,626 $ 76,994 $ (41,665) $ -- $ 41,955 Other 39,335 52,685 (6,258) (1,044) 84,718 - ---------------------------------------------------------------------------------------------------------- $45,961 $129,679 $ (47,923) $ (1,044) $126,673 ==========================================================================================================
In the fourth quarter of 2001, the Corporation reversed $12,856 of the provision relating to the 1998 restructuring program. This is due to proceeds received from the final disposal of various properties, and the favorable settlement of liabilities for obligations and future payments related to the disposition of the European forms business. Approximately $27,000 of the restructuring balance at December 31, 2001 relates to the 1998 restructuring program. Pursuant to the 1998 restructuring program, a charge for severance and other termination benefits included 4,318 employees. Approximately 200 and nil employees were remaining at December 31, 1999 and 2000, respectively. For the years ended December 31, 2000 and 1999, the Corporation recorded net reversals of restructuring reserves no longer required of $24,033 and $68,410, respectively. These amounts relate to differences between management's estimate at the time the original charge was recorded and the actual amounts ultimately incurred to complete the related activities. For the year ended December 31, 2001 the Corporation recorded non-recurring pretax charges as follows:
SELLING, GENERAL AND DEPRECIATION INVESTMENT ADMINISTRATIVE AND AND OTHER COST OF SALES EXPENSE AMORTIZATION INCOME TOTAL - --------------------------------------------------------------------------------------------------- Forms and Labels $ 861 $ 4,287 $ 21,873 $ -- $ 27,021 Outsourcing -- -- 342 -- 342 Commercial 5,685 332 89,551 4,014 99,582 Corporate 61,209 41,212 19,627 12,545 134,593 - --------------------------------------------------------------------------------------------------- $67,755 $45,831 $131,393 $16,559 $261,538 ===================================================================================================
Included in cost of sales and selling, general and administrative expenses is a charge of $11,165 for the write-off of inventory and accounts receivable relating to exiting certain non-core businesses. The Corporation also recorded a net loss of $96,605 associated with the partial settlement of the U.S. pension plan, which was curtailed as of December 31, 2000 and other non-recurring cash charges of $4,816 included in selling, general and administrative expense. A charge of $1,221 and $10,396 related to the partial redemption of the private placement notes and the conversion of the subordinated convertible debentures is included in investment and other income, and $1,000 for legal and other professional fees in selling, general and administrative expense. Non-cash charges of $131,393 related to the write-down of goodwill of non-core businesses and asset impairments are included in depreciation and amortization. A loss on disposition of non-core businesses of $4,014 and $928 for the write-down of investments were charged to investment and other income (See Note 6 "Goodwill" and 15 "Disposition And Asset Held For Disposition"). During 2000, the Corporation recorded non-recurring costs of $44,946 related to non-cash write-downs of $34,717, included in depreciation and amortization, related to a non-core business held for disposal and the impairment of a component of the ERP asset, a loss on disposal of investment in JetForm 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Corporation of $8,474 and the write-down of a permanently impaired investment of $3,500; partially offset by the reversal of provisions no longer required of $7,003 and a gain on the curtailment of its U.S. pension plan of $6,630. 17. INCOME TAXES The components of earnings (loss) before income taxes and minority interest for the three years ended December 31 were as follows:
2001 2000 1999 - ------------------------------------------------------------------------------------------------- EARNINGS (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST Canada $ (68,232) $ (40,787) $ 2,485 United States (331,585) (78,991) 67,329 Other countries 11,397 38,186 58,796 - ------------------------------------------------------------------------------------------------- $ (388,420) $ (81,592) $128,610 =================================================================================================
LIABILITY METHOD LIABILITY METHOD DEFERRAL METHOD - ----------------------------------------------------------------------------------------------------- 2001 2000 1999 CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED - ----------------------------------------------------------------------------------------------------- PROVISION (RECOVERY) FOR INCOME TAXES Canada $ 469 $ 54 $ 73 $ 364 $ 561 $ 815 United States 189 (36,826) (158) (21,706) 2,011 25,940 Other countries 2,933 379 5,631 (2,352) 8,074 (2,251) Withholding taxes 610 -- 771 -- 136 -- - ----------------------------------------------------------------------------------------------------- $4,201 $ (36,393) $6,317 $ (23,694) $10,782 $ 24,504 =====================================================================================================
Deferred income taxes result from a number of temporary and timing differences in the jurisdictions in which the Corporation and its subsidiaries operate. These differences and the tax effect of each were as follows:
LIABILITY LIABILITY DEFERRAL METHOD METHOD METHOD - -------------------------------------------------------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------- DEFERRED INCOME TAXES Depreciation $ (459) $ 319 $ 2,968 Pensions (36,493) 6,151 7,436 Unearned revenue -- (10,847) -- Postretirement benefits -- 1,869 -- Restructuring -- 16,548 30,917 Tax benefit of loss carryforward -- (38,244) (16,746) Other 559 510 (71) - -------------------------------------------------------------------------------- $ (36,393) $ (23,694) $ 24,504 ================================================================================
40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Temporary differences and tax loss carryforwards, which give rise to deferred income tax assets and liabilities, are as follows:
2001 2000 - ------------------------------------------------------------------------- DEFERRED INCOME TAX ASSETS Postretirement benefits $ 94,092 $ 96,499 Tax benefit of loss carryforwards 154,605 118,593 Pensions 672 1,387 Restructuring 45,736 10,377 Other 57,648 52,533 - ------------------------------------------------------------------------- 352,753 279,389 Valuation allowance (166,695) (63,942) - ------------------------------------------------------------------------- $ 186,058 $ 215,447 - ------------------------------------------------------------------------- DEFERRED INCOME TAX LIABILITIES Depreciation $ 50,561 $ 71,929 Pensions 77,968 118,234 Other 10,341 13,200 - ------------------------------------------------------------------------- 138,870 203,363 - ------------------------------------------------------------------------- Net deferred income tax asset $ 47,188 $ 12,084 - ------------------------------------------------------------------------- Distributed as follows: Current deferred income tax asset $ 13,566 $ 69,879 Current deferred income tax liability 324 462 Long-term deferred income tax asset 47,651 8,949 Long-term deferred income tax liability 13,705 66,282 =========================================================================
The effective rates of tax for each year compared with the statutory Canadian rates were as follows:
2001 2000 1999 - ------------------------------------------------------------------------------------------------- EFFECTIVE TAX EXPENSE (RECOVERY) RATE Canada: Combined federal & provincial statutory rate (41.6)% (43.2)% 43.8% Corporate surtax (1.1) (1.1) 1.1 Manufacturing & processing rate reduction 5.4 6.0 (6.3) - ------------------------------------------------------------------------------------------------- Expected income tax expense (recovery) rate (37.3) (38.3) 38.6 Tax rate differences in other jurisdictions (2.2) (18.1) (10.6) Losses for which a benefit has not been provided 4.7 17.8 1.8 Restructuring costs 12.2 (1.6) (5.0) Impaired assets 6.4 -- -- International divestiture 5.4 -- -- Non-deductible goodwill amortization and write downs 3.0 17.1 1.4 Other (0.5) 1.8 1.2 - ------------------------------------------------------------------------------------------------- Total consolidated effective tax expense (recovery) rate (8.3)% (21.3)% 27.4% =================================================================================================
At December 31, 2001, the Corporation has tax loss carryforwards totaling $365,000. Of this amount, a valuation allowance has been recorded against $160,000. Of the $160,000, approximately $112,000 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) expires between 2002 and 2011 and $48,000 has no expiration date. In addition, the Corporation has recorded a valuation allowance against approximately $252,000 of temporary differences that are available for utilization in future years. The Corporation has reduced deferred tax assets by a valuation allowance for a portion of its deferred tax assets to the extent that it believes, based on the weight of available evidence, it is more likely than not that those assets will not be realized. 18. EARNINGS AND FULLY DILUTED EARNINGS PER COMMON SHARE The earnings per share calculations are based on the weighted average number of common shares outstanding during the year. For 2001 and 2000, the fully diluted earnings per share calculation excludes potentially dilutive items as their effect would be antidilutive. In 1999, the diluted common shares outstanding include 306,000 shares related to employee stock options. 19. SEGMENTED INFORMATION In December 2000, the Corporation changed its executive management and the Board of Directors and established a new strategic initiative that resulted in the establishment of a new operating platform during the third quarter of 2001. This realignment was made in order to segregate non-print related businesses and align core businesses to take advantage of synergies and capitalize on core competencies. The new segmentation reflects management's current structure with regard to management's process for making decisions as it relates to resource allocation and performance evaluation. During 2000, the Corporation operated in four reportable segments as follows: Moore North America, Customer Communication Services (United States), Latin America and Europe. Prior year segment information has been reclassified to conform to the current year presentation. The Corporation operates in the printing industry with three distinct operating segments based on the way management assesses information on a regular basis for decision-making purposes. The three segments are Forms and Labels, Outsourcing and Commercial. These segments market print and print related products and services to a geographically diverse customer base. The Corporation's reportable segments are: FORMS AND LABELS In this segment, the Corporation derives its revenues from operations in the United States, Canada and Latin America. This segment designs and manufactures business forms, labels and related products, systems and services which include: o Custom continuous forms, cut sheets and multipart forms o Print services o Self mailers o Electronic forms and services o Integrated form-label application o Proprietary label products o Pressure sensitive labels o Security documents o Logistics, warehouse and inventory management OUTSOURCING In this segment, the Corporation derives revenues from its Business Communications Services ("BCS") operations in the United States and Canada by offering outsourcing services for electronic printing, imaging, processing and distribution. BCS also manages custom, high-volume mailing applications. Products include: o Bill and service notifications o Insurance policies o Special notices o Telecommunication cards o Investment, banking, credit card, tax and year-end financial statements o Licenses 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) COMMERCIAL In this segment, the Corporation derives its revenues from operations in the United States, Canada and Europe mainly by producing highly personalized communications and database driven publications including: o Creation and production of personalized mail o Database management and segmentation services o Direct marketing program development o Response analysis services o Digital color printing. Other products within the Commercial segment include: o Variable-imaged bar codes o Printers, applicators and software products and solutions o Post processing equipment OPERATING SEGMENTS
IN THOUSANDS OF U.S. DOLLARS FORMS AND LABELS OUTSOURCING COMMERCIAL CONSOLIDATED ------------- ------------- ------------ ------------- 2001 Total revenue ........................... $1,167,721 $341,485 $ 666,795 $2,176,001 Intersegment revenue .................... (2,422) (2,006) (16,999) (21,427) Sales to customer outside the enterprise ............................. 1,165,299 339,479 649,796 2,154,574 Segment operating income (loss) ......... 42,743 49,508 (90,202) 2,049 Nonoperating expenses ................... (344,373) ---------- Loss from operations .................... (342,324) Segment assets .......................... 624,532 117,243 282,132 1,023,907 Corporate assets including investments ............................ 313,079 ---------- Total assets ............................ 1,336,986 Capital asset depreciation and amortization ........................... 110,037 19,383 109,652 239,072 Capital expenditures .................... 12,942 16,124 9,819 38,885 2000 (RESTATED) Total revenue ........................... $1,225,622 $297,851 $ 752,764 $2,276,237 Intersegment revenue .................... -- (1,082) (16,737) (17,819) Sales to customer outside the enterprise ............................. 1,225,622 296,769 736,027 2,258,418 Segment operating income (loss) ......... 71,917 43,126 (10,518) 104,525 Nonoperating expenses ................... (150,759) ---------- Loss from operations .................... (46,234) Segment assets .......................... 840,653 109,847 444,496 1,394,996 Corporate assets including investments ............................ 348,591 ---------- Total assets ............................ 1,743,587 Capital asset depreciation and amortization ........................... 83,407 19,276 48,835 151,518 Capital expenditures .................... 37,143 10,651 27,992 75,786 1999 (RESTATED) Total revenue ........................... $1,404,739 $281,152 $ 755,081 $2,440,972 Intersegment revenue .................... -- (735) (15,121) (15,856) Sales to customer outside the enterprise ............................. 1,404,739 280,417 739,960 2,425,116 Segment operating income (loss) ......... 195,691 47,732 52,836 296,259 Nonoperating expenses ................... (154,578) ---------- Income from operations .................. 141,681 Segment assets .......................... 937,907 109,717 481,822 1,529,446 Corporate assets including investments ............................ 100,847 ---------- Total assets ............................ 1,630,293 Capital asset depreciation and amortization ........................... 50,522 19,789 31,024 101,335 Capital expenditures .................... 62,898 18,449 19,490 100,837
GEOGRAPHIC INFORMATION
Canada United States International Consolidated - --------------------------------------------------------------------------------------------------------------------------------- 2001 Sales to customers outside the enterprise $ 199,628 $ 1,689,954 $ 264,992 $ 2,154,574 - --------------------------------------------------------------------------------------------------------------------------------- Capital assets and goodwill 36,484 270,475 42,975 349,934 - --------------------------------------------------------------------------------------------------------------------------------- 2000 Sales to customers outside the enterprise $ 222,311 $ 1,685,680 $ 350,427 $ 2,258,418 - --------------------------------------------------------------------------------------------------------------------------------- Capital assets and goodwill 47,110 415,763 76,756 539,629 - --------------------------------------------------------------------------------------------------------------------------------- 1999 Sales to customers outside the enterprise $ 218,870 $ 1,831,503 $ 374,743 $ 2,425,116 - --------------------------------------------------------------------------------------------------------------------------------- Capital assets and goodwill 42,321 473,886 99,471 615,678 - ---------------------------------------------------------------------------------------------------------------------------------
20. LEASE COMMITMENTS At December 31, 2001, long-term lease commitments require approximate future rental payments as follows: 2002 $32,835 2005 $15,432 - -------------------------------------------------------------------------------- 2003 $24,443 2006 $12,215 - -------------------------------------------------------------------------------- 2004 $19,992 2007 and thereafter $34,768 ================================================================================ Rent expense amounted to $56,499 in 2001 (2000 -- $69,897; 1999 -- $63,344). 21. CONTINGENCIES At December 31, 2001, certain lawsuits and other claims were pending against the Corporation. While the outcome of these matters is subject to future resolution, management's evaluation and analysis of such matters indicates that, individually and in the aggregate, the probable ultimate resolution of such matters will not have a material effect on the Corporation's consolidated financial statements. The Corporation is subject to laws and regulations relating to the protection of the environment. The Corporation provides for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. Such accruals are adjusted as new information develops or circumstances change and are not discounted. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Corporation's subsidiaries may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect upon the results of operations or consolidated financial condition of the Corporation. 22. FINANCIAL INSTRUMENTS At December 31, 2001, the aggregate amount of forward exchange contracts used as hedges was approximately $13,700 (2000 -- $18,300). Notional gains and losses from these contracts, for all years shown, were not significant. The Corporation may be exposed to losses if the counterparties to the above contracts fail to perform. The Corporation manages this risk by dealing only with financially sound counterparties and by establishing dollar and term limits for each counterparty. The Corporation does not use derivative financial instruments for trading purposes. 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. CASH FLOW DISCLOSURE For the year ended December 31, 2001, the following non-cash transactions are required to be disclosed for both Canadian and United States GAAP as follows: - -------------------------------------------------------------------------------- Subordinated convertible debentures $71,506 Inducement to certain debenture holders 15,345 - -------------------------------------------------------------------------------- 24. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The continued registration of the common shares of the Corporation with the Securities and Exchange Commission (SEC) and listing of the shares on the New York Stock Exchange require compliance with the integrated disclosure rules of the SEC. The accounting policies in Note 1 and accounting principles generally accepted in Canada are consistent in all material aspects with United States generally accepted accounting principles (GAAP) with the following exceptions. PENSIONS AND POSTRETIREMENT BENEFITS (SFAS NO. 87 AND 106) With the introduction of CICA 3461, Employee Future Benefits, there is no longer a difference in the method of accounting for these costs. The transitional rules for implementing the new Canadian standard continue to result in United States GAAP reporting differences. Prior to 2000, under Canadian GAAP, the discount rate for pensions was a long-term interest rate, whereas under United States GAAP, the discount rate reflects a rate at which the pension obligation could effectively be settled. For United States GAAP, the discount rates used in 1999 for Canada and the United States were 6.25% and 6.75%, respectively. Prior to 2000, postretirement benefits were expensed as incurred under Canadian GAAP whereas under United States GAAP the expected costs of these benefits were expensed during the years employees render services. STATEMENT OF CASH FLOWS (SFAS NO. 95) For Canadian GAAP the Statements of Cash Flows discloses the net change in cash resources, which is defined as cash less bank indebtedness. United States GAAP requires the disclosure of cash and cash equivalents. Under United States GAAP, net cash provided (used) by financing activities for 2001, 2000, and 1999 would be $(66,315), $18,451, and $(36,895), respectively. Cash and cash equivalents were $84,855, $36,538 and $38,179 for the years ended December 31, 2001, 2000 and 1999, respectively. INCOME TAXES (SFAS NO. 109) SFAS No. 109 requires a liability method under which temporary differences are tax effected at enacted rates, whereas under Canadian GAAP, temporary differences are tax effected using substantively enacted rates and laws that will be in effect when the differences are expected to reverse (see Note 17). STOCK COMPENSATION (SFAS NO. 123) SFAS No. 123 requires pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting for employee stock options had been applied. The Corporation uses the intrinsic value method for accounting for stock options. The disclosures in the table show the Corporation's net income and earnings per share on a proforma basis using the fair value method and Black-Scholes option pricing model. COMPREHENSIVE INCOME (SFAS NO. 130) SFAS No. 130 requires disclosure of comprehensive income and its components. Comprehensive income is the change in equity of the Corporation from transactions and other events other than those 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) resulting from transactions with owners, and is comprised of net income and other comprehensive income. The only components of other comprehensive income for the Corporation are unrealized foreign currency translation adjustments and unrealized gains (losses) on available-for-sale securities. Under Canadian GAAP, there is no standard for reporting comprehensive income. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (SFAS NO. 133) In June 1998, the United States Financial Accounting Standards Board issued SFAS No. 133, which standardized the accounting for all derivatives. This standard required implementation for all fiscal quarters for fiscal years beginning after June 15, 2000. The adoption of this standard did not have a significant impact on earnings or the statement of cash flows. There is no such standard under Canadian GAAP. FOREIGN CURRENCY TRANSLATION Under United States GAAP, foreign currency translation gains or losses are only recognized on the sale or substantial liquidation of a foreign subsidiary. Under Canadian GAAP, a foreign currency gain or loss due to a partial liquidation is recognized in income. BUSINESS PROCESS REENGINEERING Under United States GAAP, business process reengineering activities are expensed as incurred. Prior to October 28, 1998, Canadian GAAP permitted these costs to be capitalized or expensed. Subsequent to October 28, 1998, Canadian GAAP requires the cost of business process reengineering activities to be expensed as incurred. Prior to October 28, 1998, the Corporation capitalized business process reengineering costs and classified them as computer software. CONVERTIBLE DEBENTURES Canadian GAAP requires that a portion of the subordinated convertible debentures be classified as equity. The difference between the carrying amount of the debenture and contractual liability is amortized to earnings. United States GAAP would classify the subordinated convertible debentures as a liability. Under United States GAAP, when convertible debt is converted to equity securities pursuant to an inducement offer, the debtor is required to recognize in earnings, the fair value of all securities and other consideration transferred in excess of the fair value of the securities issuable in accordance with the original conversion terms. Under Canadian GAAP, the fair value of the securities issued is charged to retained earnings. Also under Canadian GAAP, certain other contingent consideration is not recognized until paid. Under United States GAAP, when convertible debt is converted to equity securities, any unamortized deferred debt issuance costs are charged to share capital. Under Canadian GAAP, these costs are charged to earnings. TERMINATION LIABILITIES Under United States GAAP, a liability for termination benefits is recognized provided that certain conditions are met and the details of the approved benefit arrangement are communicated to the employees. Prior to 2000, Canadian GAAP did not require that the benefit arrangement be communicated to the employees prior to recognition. SETTLEMENTS OF PENSION PLANS (SFAS NO. 88) Under United States GAAP, a gain or loss arising upon the settlement of a pension plan is only recognized once responsibility for the pension obligation has been relieved. Under Canadian GAAP, prior 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) to January 1, 2000, an intention to settle or curtail a pension plan that was expected to result in a loss, required recognition once the amount was likely and could be reasonably estimated. The provision for restructuring costs recorded in 1998 included a contingent loss on settlement that has now been recognized under United States GAAP. The following tables provides information required under United States GAAP:
2001 2000 1999 - ------------------------------------------------------------------------------------------------------ Net earnings (loss) as reported $ (358,038) $(66,372) $ 92,599 U.S. GAAP ADJUSTMENTS Pension expense 144,917 18,263 (6,775) Postretirement benefits 17,275 18,833 8,565 Capitalized software 17,287 (2,300) (7,521) Interest expense 258 -- -- Termination liabilities -- -- (44,372) Debt conversion costs (6,949) -- -- Financial instruments (2,700) -- -- Income taxes (82,014) (13,728) 30,388 - ------------------------------------------------------------------------------------------------------ Net earnings (loss) determined under United States GAAP $ (269,964) $(45,304) $ 72,884 - ------------------------------------------------------------------------------------------------------ Earnings Per Share 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ Net earnings (loss) $ (269,964) $(45,304) $ 72,884 - ------------------------------------------------------------------------------------------------------ Basic earnings (loss) per share $ (3.05) $ (0.51) $ 0.82 - ------------------------------------------------------------------------------------------------------ Diluted earnings (loss) per share $ (3.05) $ (0.51) $ 0.82 - ------------------------------------------------------------------------------------------------------ Comprehensive Income 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ Net earnings (loss) $ (269,964) $(45,304) $ 72,884 - ------------------------------------------------------------------------------------------------------ Other comprehensive income (loss): Currency translation adjustments (1,817) (8,104) (12,378) Reclassification adjustment for losses included in income (798) 11,092 -- Unrealized losses on available-for-sale securities -- (6,041) (4,253) - ------------------------------------------------------------------------------------------------------ Total other comprehensive income (loss) (2,615) (3,053) (16,631) ====================================================================================================== Total comprehensive income (loss) $ (272,579) $(48,357) $ 56,253 ====================================================================================================== Proforma Stock Compensation Disclosures 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ Net income (loss) $ (271,913) $(47,050) $ 70,981 - ------------------------------------------------------------------------------------------------------ Income (loss) per share Basic $ (3.07) $ (0.53) $ 0.80 Diluted $ (3.07) $ (0.53) $ 0.80 Assumptions: Risk-free interest rates 4.5% 5.5% 6.1% Expected lives (in years) 5 6 6 Dividend yield -- 7.6% 2.7% Volatility 46% 39% 26% ======================================================================================================
The fair values of the options granted for 2001, 2000, and 1999 were $6,996,000, $1,620,000, and $3,713,000, respectively. 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BALANCE SHEET ITEMS AT DECEMBER 31, 2001 2000 - -------------------------------------------------------------------------------------------------------------- AS REPORTED US GAAP AS REPORTED US GAAP - -------------------------------------------------------------------------------------------------------------- Net pension asset $ (188,024) $ (119,668) $ (286,360) $ (73,087) Other assets -- computer software (89,763) (57,463) (127,999) (78,412) Postretirement benefits 239,664 381,687 243,374 402,672 Deferred taxes, net (47,188) (134,982) (12,084) (181,892) Accounts payable and accrued liabilities 486,626 485,325 400,057 394,057 Long-term debt 111,062 111,062 272,465 280,808 Equity portion of subordinated convertible debentures -- -- 8,343 -- Cumulative translation adjustments (128,177) (92,993) (126,360) (91,176) Share capital 397,761 384,759 310,881 310,881 Retained earnings (deficit) 51,666 (124,100) 431,821 150,287 ==============================================================================================================
25. PENDING ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). The guidance of these standards is consistent with CICA Section 1581 and Section 3061. In August 2001, the CICA issued Handbook Section 1581, Business Combinations and Handbook Section 3062, Goodwill and other Intangible Assets. Section 1581 requires all business combinations to be accounted for using the purchase method of accounting and is effective for all business combinations consummated after June 30, 2001. Section 3062, which is effective for fiscal years beginning January 1, 2002 requires that the carrying value of goodwill be evaluated annually for impairment and disallows the amortization of goodwill. The standard also requires reclassification of identifiable intangibles out of previously reported goodwill. Identifiable intangibles are amortized over their estimated useful lives and will be reviewed annually for impairment. The Corporation does not believe that either of these accounting standards will have a material impact upon its financial condition or results of operations. In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supersedes previous guidelines for financial accounting and reporting for the impairment or disposal of long-lived assets and for segments of a business to be disposed of. The adoption of SFAS No. 144 on January 1, 2002 is not expected to have a material impact on the Corporation's financial position or results of operations. In 2001, the Accounting Standards Board has amended CICA Handbook section 1650 -- Foreign Currency Translation. The amendment eliminates the deferral and amortization of unrealized translation gains and losses on non-current monetary assets and liabilities and requires that exchange gain or loss arising on translation of a foreign currency denominated non-monetary item carried at market be included in income in the current reporting period. These amendments will be effective for fiscal years commencing on or after January 1, 2002 and should be applied retroactively, with restatement to prior period financial statements. The adoption of this section is not expected to have a material impact on the Corporation's financial position or results of operations. In 2001, the CICA issued Handbook Section 3870 that establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. It applies to transactions, including non-reciprocal transactions, in which an enterprise grants shares of common stock, stock options, or other equity instruments, or incurs liabilities based on the price of common stock or other equity instruments. The Standard encourages fair value measurement and recognition of equity instruments awarded to employees and cost of services received as consideration. The Standard must be implemented by all public enterprises in fiscal years commencing January 1, 2002. An enterprise that has not applied the fair value based method of 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) accounting should disclose for each period the pro forma net income and earnings per share, as if the fair value based accounting method had been used. The pro forma disclosure should be provided for awards granted in fiscal years beginning on or after January 1, 2002, but need not be provided for awards granted before that date. The Corporation will disclose the required pro forma effects. In 2001, the Accounting Standards Board of the CICA issued Accounting Guidelines No. 13 that increases the documentation, designation and effectiveness criteria to achieve hedge accounting. The guideline requires the discontinuance of hedge accounting for hedging relationships established that do not meet the conditions at the date it is first applied. It does not change the method of accounting for derivatives in hedging relationships, but requires fair value accounting for derivatives that do not qualify for hedge accounting. The new guideline is applicable for fiscal years commencing July 1, 2002. The Corporation is evaluating the impact this standard might have on its results of operations and financial position. 26. SUBSEQUENT EVENTS On January 31, 2002, the Corporation completed the acquisition of privately held The Nielsen Company ("Nielsen"). Nielsen specializes in producing high quality commercial print, which includes annual reports, brochures, catalogs, pharmaceutical inserts, and marketing promotional material. On February 7, 2002, the Corporation announced a program to repurchase up to $50 million of its shares. The program calls for shares to be purchased on the NYSE from time to time depending upon market conditions, market price of the common shares an the assessment of the cash flow needs by Corporation management. 48 MANAGEMENT REPORT All of the information in this annual report is the responsibility of management and has been approved by the Board of Directors. The financial information contained herein conforms to the accompanying consolidated financial statements, which have been prepared and.presented in accordance with accounting principles generally accepted in Canada and necessarily include amounts that are based on judgements and estimates applied consistently and considered appropriate in the circumstances. The consolidated financial statements as of and for the year ended December 31, 2001 have been audited by the Corporation's independent auditors, Deloitte & Touche LLP, and their report is included herein. The consolidated financial statements as of December 31, 2000 and for the two year period ended December 31, 2000 have been audited by PricewaterhouseCoopers LLP. The Corporation maintains a system of internal control which is designed to provide reasonable assurance that assets are safeguarded, that accurate accounting records are maintained, and that reliable financial information is prepared on a timely basis. To monitor compliance with the system of internal controls and to evaluate its effectiveness, management employs individuals in an ongoing program of internal auditing and had contracted with and directed PricewaterhouseCoopers LLP. The audit Committee of the Board of Directors is composed entirely of independent directors and meets quarterly with management and Deloitte & Touche LLP to review management's evaluation of internal controls, approve the scope of the program of internal auditing, and discuss the scope and results of audit examinations. Deloitte & Touche LLP has unrestricted access to the Audit Committee including the ability to meet without management representatives present. /s/ Robert G. Burton /s/ Mark A. Angelson - ------------------------------------- ------------------------------------- Robert G. Burton Mark A. Angelson President and Chief Executive Officer Non-Executive Chairman of the Board February 13, 2002 49 AUDITORS' REPORT To the Shareholders of Moore Corporation Limited: We have audited the consolidated balance sheet of Moore Corporation Limited as at December 31, 2000 and the consolidated statements of operations, retained earnings and cash flows for each of the two years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Canada and the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as at December 31, 2000 and the results of its operations and the changes in its cash flows for each of the two years in the period ended December 31, 2000 in accordance with generally accepted accounting principles in Canada. /s/ PricewaterhouseCoopers LLP - ---------------------------------------- PricewaterhouseCoopers LLP Chartered Accountants Toronto, Canada February 22, 2001 COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is a change in accounting principles that has a material effect on the comparability of the Corporation's financial statements, such as the changes described in Note 2 to the financial statements. Our report to the shareholders dated February 22, 2001 is expressed in accordance with Canadian reporting standards which do not require a reference to such changes in accounting principles in the auditors' report when the change is properly accounted for and adequately disclosed in the financial statements. /s/ PricewaterhouseCoopers LLP - ---------------------------------------- PricewaterhouseCoopers LLP Chartered Accountants Toronto, Canada February 22, 2001 50 AUDITORS' REPORT To the Shareholders of Moore Corporation Limited: We have audited the consolidated balance sheet of Moore Corporation Limited as at December 31, 2001 and the consolidated statements of operations, retained earnings and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Canada and the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2001 and the results of its operations and its cash flows for the year ended December 31, 2001 in accordance with Canadian generally accepted accounting principles. The financial statements as at December 31, 2000 and 1999 and for the years then ended, prior to the change in accounting policy for earnings per share as described in Note 2, the restatement of segmented information in Note 19 to conform with management's process for making decisions with regard to resource allocation and performance evaluation and reclassification of various amounts to conform to the current year's presentation, were audited by other auditors who expressed an opinion without reservation on those statements in their report dated February 22, 2001. We have audited the adjustments and reclassifications to the 2000 and 1999 financial statements and in our opinion, such adjustments and reclassifications, in all material respects, are appropriate and have been properly applied. /s/ Deloitte & Touche LLP - ---------------------------------------- Deloitte & Touche LLP Chartered Accountants Toronto, Canada February 13, 2002 51 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements with the independent auditors on accounting and financial disclosure 52 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding the Corporation's Executive Officers appears in the "Executive Officers" section of the end of Part I of this report. In addition, the information regarding the directors of the Corporation appearing on page 7 of the Management Information Circular and Proxy Statement for the Annual and Special Meeting of Shareholders to be held on April 18, 2002 is incorporated herein by reference. Each director will hold office until the next annual meeting of shareholders or until a successor is elected or appointed. ITEM 11. EXECUTIVE COMPENSATION The information regarding the Directors' and Executive Officers' compensation appears on pages 11 to 14 of the Management Information Circular and Proxy Statement for the Annual and Special Meeting of Shareholders to be held on April 18, 2002 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information captioned "Security Ownership of Certain Beneficial Owners and Management" appearing on pages 10 and 11 of the Management Information Circular and Proxy Statements for the Annual and Special Meeting of Shareholders to be held on April 18, 2002 is incorporated herein by reference. Certain officers of the Corporation, including the President and Chief Executive Officer, and members of the Board of Directors were investors in Chancery Lane/GSC Investors L.P., the partnership that owned the $70.5 million aggregate principal amount of 8.70% subordinated convertible debentures due June 30, 2009. The debentures were converted into 21,692,311 common shares on December 28, 2001. In 2000, Moore paid a dividend of $0.05 per common share each quarter. In the first quarter of 2001, Moore paid a dividend of $0.05 per common share. On April 25, 2001, the Board of Directors decided to suspend future dividends. Moore does not anticipate declaring and paying cash dividends on the common shares at any time in the foreseeable future. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information captioned "Certain Relationships and Related Transactions" appearing on page 18 of the Management Information Circular and Proxy Statement for the Annual and Special Meeting of Shareholders to be held on April 18, 2002 is incorporated herein by reference. 53 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 14(A) INDEX TO DOCUMENTS FILED AS PART OF THIS REPORT: 1. Financial Statements: The following consolidated financial statements and reports of the independent auditors of the Corporation are set forth in Item 8: Consolidated Balance Sheets at December 31, 2001 and 2000 Consolidated Statements of Operations for years ended December 31, 2001, 2000 and 1999 Consolidated Statements of Retained Earnings for the years ended December 31, 2001, 2000 and 1999 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 Notes to Consolidated Financial Statements Reports of Independent Auditors 2. FINANCIAL STATEMENT SCHEDULES: Reports of Independent Auditors on Financial Schedule on pages F-1 and F-2. SCHEDULE II -- ALLOWANCE FOR DOUBTFUL ACCOUNTS on page F-3. 3. EXHIBITS See Exhibit Index beginning on page E-1. 14(B) THE FOLLOWING FORMS ON FORM 8-K WERE FILED DURING THE LAST QUARTER OF THE PERIOD COVERED BY THIS REPORT: DATE OF REPORT ITEMS REPORTED -------------- -------------- October 23, 2001 The death of R. Theodore Ammon, the Corporation's Non-Executive Chairman October 24, 2001 Third quarter 2001 earnings press release December 19, 2001 Increased fourth quarter 2001 earnings guidance December 28, 2001 Conversion of the $70.5 million subordinated convertible debenture 14(C) SEE EXHIBIT INDEX BEGINNING ON PAGE E-1 14(D) THE RESPONSE TO THIS PORTION OF ITEM 14 IS SUBMITTED AS A SEPARATE SECTION OF THIS REPORT (SEE PAGE F-3). 54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MOORE CORPORATION LIMITED By: M.S. Hiltwein ------------------------------- M.S. Hiltwein, Executive Vice President, Chief Financial Officer By: R.T. Sansone ------------------------------- R.T. Sansone, Vice President, Controller (Chief Accounting Officer) Dated: March 28, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------- ------------------------------------ -------------- /s/ Mark A. Angelson Non-Executive Chairman of the Board March 28, 2002 ----------------------------- and Director Mark A. Angelson /s/ Robert G. Burton President, Chief Executive March 28, 2002 ----------------------------- Officer and Director Robert G. Burton /s/ Ronald J. Daniels March 28, 2002 ----------------------------- Ronald J. Daniels Director /s/ Shirley A. Dawe March 28, 2002 ----------------------------- Shirley A. Dawe Director /s/ Alfred C. Eckert, III March 28, 2002 ----------------------------- Alfred C. Eckert, III Director /s/ David R. McCamus March 28, 2002 ----------------------------- David R. McCamus Director - ------------------------------- Joan D. Manley Director /s/ Lionel H. Schipper March 28, 2002 ----------------------------- Lionel H. Schipper Director /s/ John W. Stevens March 28, 2002 ----------------------------- John W. Stevens Director
55 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Shareholders of Moore Corporation Limited: Our audits of the consolidated financial statements referred to in our report dated February 22, 2001 appearing on page 50 of this Form 10-K also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, the financial statement schedule presents fairly in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICEWATERHOUSECOOPERS LLP CHARTERED ACCOUNTANTS Toronto, Canada February 22, 2001 F-1 INDEPENDENT AUDITORS' REPORT To the Shareholders of Moore Corporation Limited: We have audited the consolidated financial statements of Moore Corporation Limited as of and for the year ended December 31, 2001, and have issued our report thereon dated February 13, 2002; such report is included on page 51 of this Form 10-K. Our audit also included the financial statement schedule of Moore Corporation Limited, listed in Item 14. This financial statement schedule is the responsibility of the Corporation's management. Our responsibility is to express an opinion based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP CHARTERED ACCOUNTANTS Toronto, Canada February 13, 2002 F-2 MOORE CORPORATION LIMITED SCHEDULE II -- ALLOWANCE FOR DOUBTFUL ACCOUNTS (EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
ADDITIONS BALANCE AT CHARGED TO COSTS BALANCE AT YEAR BEGINNING OF YEAR AND EXPENSE DEDUCTIONS (1) END OF YEAR - ---- ----------------- ----------- -------------- ----------- 1999 ......... $14,212 $ 2,129 $ (2,417) $13,924 2000 ......... 13,924 7,149 (5,779) 15,274 2001 ......... 15,274 11,102 (4,319) 22,057
- ---------- (1) Primarily write-offs, net recoveries and foreign currency translation adjustments. F-3 MOORE CORPORATION LIMITED ANNUAL REPORT ON FORM 10-K EXHIBIT LIST 3.1(a) Articles of Amalgamation (incorporated by reference from Exhibit 3(a) to the Annual Report on Form 10-K for the year ended December 31, 1992) 3.1(b) Amendment of Articles of Amalgamation (incorporated by reference from Exhibit 3.1(b) to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001) 3.2 By-Laws (incorporated by reference from Exhibit 3(g) to Annual Report on Form 10-K for the year ended December 31, 1989) 4.1 Note Purchase Agreement, dated as of March 25, 1999 among Moore Corporation Limited, Moore North America Finance, Inc. and the Purchasers named therein related to U.S. $85,500,000 principal amount of 7.84% Senior Guaranteed Notes, Series A Due March 25, 2006 and U.S. $114,500,000 principal amount of 8.05% Senior Guaranteed Notes, Series B Due March 25, 2009 (incorporated by reference from Exhibit 4.1 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001) 4.2 Debenture Purchase Agreement, dated as of December 12, 2000 between Moore Corporation Limited and Chancery Lane/GSC Investors L.P. (incorporated by reference from Exhibit 4.2 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001) 4.3 8.70% Subordinated Convertible Debenture due June 30, 2009 issued to Chancery Lane/GSC Investors L.P. (incorporated by reference from Exhibit 4.3 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001) 4.4 Standstill Agreement, dated December 21, 2000 among Moore Corporation Limited, Chancery Lane/GSC Investors L.P. and CLGI, Inc. (incorporated by reference from Exhibit 4.4 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001) 4.5 Registration Rights Agreement, dated as of December 21, 2000 between Moore Corporation Limited and Chancery Lane/GSC Investors L.P. (incorporated by reference from Exhibit 4.5 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001) 10.1 Supplemental Executive Retirement Plan for Designated Executives -- B (incorporated by reference from Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)* 10.2 2001 Long Term Incentive Plan* 10.3 Employment Agreement, dated December 11, 2000, between Moore Corporation Limited and Robert G. Burton (incorporated by reference from Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)* 10.4 Employment Agreement, dated as of December 11, 2000, between Moore Corporation Limited and Robert B. Lewis (incorporated by reference from Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)* 10.5 Employment Agreement, dated as of December 11, 2000, between Moore Corporation Limited and James E. Lillie (incorporated by reference from Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)* 10.6 Employment Agreement, dated as of December 11, 2000, between Moore Corporation Limited and Mark S. Hiltwein* 10.7 Employment Agreement, dated as of December 11, 2000, between Moore Corporation Limited and Thomas J. Quinlan, III* 10.8 Offer letter, dated January 2, 2001, between Moore Corporation Limited and Thomas W. Oliva* E-1 10.9 Offer letter, dated January 10, 2001, between Moore Corporation Limited and Dean E. Cherry* 10.10 Amended Restated Credit Agreement, dated as of August 15, 1999, among FRDK, Inc., as the Borrower, Moore Corporation Limited, as Parent and a Guarantor, Certain Subsidiaries of the Parent, named therein, as Subsidiary Guarantors, Certain Financial Institutions named therein, as the Lenders and the Bank of Nova Scotia, as Agent for the Lenders (incorporated by reference from Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001) 11 Calculation of Earnings and Earnings Per Share 21 Subsidiaries of the Registrant 23.1 Consent of PricewaterhouseCoopers LLP Chartered Accountants 23.2 Consent of Deloitte & Touche LLP Chartered Accountants - ---------- * Management contract or compensation plan or arrangement E-2 EX-10.2 3 file002.txt LONG TERM INCENTIVE PLAN MOORE CORPORATION LIMITED 2001 LONG TERM INCENTIVE PLAN Scotia Plaza 40 King Street West, Suite 3501 Toronto, Canada M5H 3Y2 MOORE CORPORATION LIMITED 2001 LONG TERM INCENTIVE PLAN ================================================================================ Table of Contents Page No. ================================================================================ SECTION 1. GENERAL PROVISIONS.................................................1 1.1. Purpose.......................................................1 1.2. Administration................................................1 1.3. Participation.................................................2 1.4. Shares Available..............................................2 1.5. Withholding...................................................3 1.6. Expenses......................................................3 1.7. Non-exclusivity...............................................3 1.8. Subsidiary....................................................4 1.9. Amendment.....................................................4 1.10. Laws..........................................................4 1.11. Effective Date................................................5 SECTION 2. STOCK OPTIONS......................................................5 2.1. Stock Option Grants...........................................5 2.2. Option Price..................................................6 2.3. Exercise of Options...........................................6 2.4. Participant Not a Shareholder.................................7 SECTION 3. RESTRICTED STOCK AWARDS............................................8 3.1. Restricted Stock Awards.......................................8 3.2. Terms and Conditions..........................................8 SECTION 4. SPECIAL STOCK AWARDS...............................................9 4.1. Special Stock Award Grants....................................9 4.2 Foreign Grants................................................9 APPENDIX A...................................................................A-1 APPENDIX B...................................................................B-1 SECTION 1. GENERAL PROVISIONS 1.1. Purpose The purpose of the Moore Corporation Limited 2001 Long Term Incentive Plan (the "Plan") is to advance the interests of Moore Corporation Limited (the "Corporation" and, together with its Subsidiaries, "Moore") by (i) providing certain of its key employees with additional incentive; (ii) encouraging stock ownership by such employees, thereby increasing their proprietary interest in the success of Moore; (iii) encouraging them to remain employees of Moore; (iv) attracting new key employees and (v) continuing to align the interests of the Corporation's directors with those of its shareholders. 1.2. Administration (a) The Plan shall be administered: (I) with respect to Employees (as defined below), by the Management Resource Committee of the Board of Directors of the Corporation (the "Board") or such other committee (the "Board Committee") as the Board may appoint from time to time and (ii) with respect to non-Employee Directors (as defined below), by the Board. The administrators of the Plan, whether the Board Committee, with respect to Employee Participants, or the Board, with respect to non-Employee Director Participants, are referred to herein as the Committee. (b) Subject to the limitations of the Plan, the Committee shall have the authority: (i) to select from the regular, full-time salaried key employees of Moore (the "Employee" or "Employees") those who, together with the Corporation's directors ("Directors") shall participate in the Plan (the "Participant" or "Participants"); (ii) to make grants under the Plan, subject to ratification of any grants by the Board, which relate to the issue of shares of the Corporation, and any limitations, restrictions and conditions upon such grants; (iii) to interpret the Plan and to adopt, amend and rescind such administrative guidelines and other rules and regulations relating to the Plan as it shall from time to time deem advisable, including, without limitation, special guidelines and provisions for persons who are residing in, or subject to, the taxes of, differing countries; and (iv) to make all other determinations and to take all other actions in connection with the implementation and administration of the Plan as it may deem necessary or advisable or as the Board may direct. The Committee's determinations on matters within its authority shall be conclusive and binding upon Moore and all other persons. The Corporation, the Board or the Committee may consult with professional advisors, including, without limitation, legal counsel, who may be counsel for the Corporation or other counsel, with respect to its obligations or duties hereunder, or with respect to any action or proceeding or any question of law, and shall not be liable with respect to any action taken or omitted by it in good faith pursuant to the advice of such counsel. -2- 1.3. Participation Employee participants shall be selected by the Committee from the Employees. In making this selection and in making decisions as to the form and amount of grants, the Committee may give consideration to (i) the functions and responsibilities of the Employee; (ii) his or her past, present and potential contributions to the profitability and growth of Moore; (iii) the value of his or her services to Moore; and (iv) other factors deemed relevant by the Committee. All Directors may participate in the Plan. Participation in the Plan is entirely voluntary. Neither this Plan nor the grant of any award hereunder shall give any Participant or other Employee any right with respect to continuance of employment by Moore, nor shall they be a limitation in any way on the right of Moore to terminate his or her employment at any time. Moore does not assume responsibility for the income and other tax consequences for the Participants, who are advised to consult with their own tax advisors. 1.4. Shares Available (a) All shares issued under the Plan shall be common shares in the capital stock of the Corporation ("Common Shares"). The maximum aggregate number of Common Shares which may be issued for all purposes under the Plan shall be two million five hundred thousand (2,500,000), subject to adjustment as provided in paragraph (b). The aggregate number of Common Shares reserved for issuance which may be issued to any one person under the Plan shall not exceed 5% of the outstanding Common Shares of the Corporation (on a non-diluted basis) less the aggregate number of Common Shares and Series 1 Preference Shares reserved for issuance to such person under any other stock option plan, options for services, inducement options or stock purchase plans. The total number of restricted stock awards ("Restricted Stock") and Special Stock Awards which may be granted in any fiscal year and during the term of the Plan may not exceed the lesser of one percent of the total outstanding capital of the Corporation and 880,000 Common Shares. The aggregate number of Common Shares reserved for issuance which may be issued to the non-employee Directors as a whole shall not exceed three hundred and seventy-five thousand (375,000) Common Shares. Subject to the provisions of the prior paragraph, the maximum number of Common Shares subject to a stock option (an "Option") which may be granted to any Participant during any fiscal year of the Corporation during the term of the Plan shall not exceed five hundred thousand (500,000) Common Shares (subject to adjustment as provided in paragraph (b)). The maximum number of Common Shares subject to an award of Restricted Stock which may be granted to any Participant during any fiscal year of the Corporation during the term of the Plan shall not exceed one hundred thousand (100,000) Common Shares (subject to adjustment as provided in paragraph (b)). The limits set forth in this paragraph are not individual limits on the number of Common Shares subject to Special Stock Awards which may be granted hereunder; awards of Special Stock Awards are only subject to the overall maximum limits set forth in the prior paragraph. -3- Any Common Shares subject to an Option which has been granted under the Plan and which for any reason is cancelled or terminated without having been exercised in full shall again be available for grants and awards under the Plan. Common Shares issued under the Plan as Restricted Stock which is forfeited for any reason prior to vesting shall not be available for further grants or awards under the Plan. No fractional shares shall be issued, and the Committee shall determine the manner in which fractional share values shall be treated. (b) In the event of any change in the number of outstanding Common Shares by reason of any stock dividend or split, recapitalization, reorganization, merger, amalgamation, consolidation, combination or exchange of shares, or other similar corporate change, the Committee shall make appropriate substitution or adjustment in (i) the number or kind of shares or other securities reserved for issuance pursuant to the Plan; and (ii) the number and kind of shares subject to unexercised Options theretofore granted and in the option price of such shares; and (iii) the number and kind of shares of Restricted Stock and Special Stock Awards; provided, however, that no substitution or adjustment shall obligate Moore to issue or sell fractional shares. The Committee may, in its sole discretion, pay cash in lieu of any fractional Common Shares in settlement of awards under the Plan. Notice of any adjustment shall be given by the Committee to each Participant whose award under the Plan has been adjusted and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of the Plan. 1.5. Withholding Moore shall have the right to deduct from all amounts paid in cash, or to otherwise require, prior to the issuance or delivery of any Common Shares, payment by the Participant of any taxes required by law to be withheld. In the case of payments in the form of Common Shares, the Participant shall be required to pay to the Corporation the amount of any taxes required to be withheld with respect to such shares; in lieu thereof, the Corporation shall have the right to sell without notice or to permit the Participant to elect to have the Corporation sell, a sufficient number of shares to cover the amount required to be withheld, or to withhold any such amount from the Participant's salary. Any fraction of a Common Share required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash by the Participant. 1.6. Expenses The expenses of administering the Plan by Moore shall be borne by Moore. 1.7. Non-exclusivity Nothing contained herein shall prevent the Corporation, the Board or the Committee from adopting other or additional compensation arrangements, subject to regulatory and shareholder approval if required, and such arrangements may be either generally applicable or applicable only in specific cases. No award under this Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of Moore nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation, except as specifically provided in any such plan. -4- 1.8. Subsidiary The term "Subsidiary" means, with respect to the Corporation, any corporation of which at least a majority of the voting shares are at the time, directly or indirectly, owned by the Corporation, and includes any corporation in like relationship to a Subsidiary. 1.9. Amendment The Board may amend, suspend or terminate the Plan or any portion thereof at any time in accordance with applicable legislation and subject to regulatory approval, provided that no amendment shall be made without shareholder approval which shall (i) increase (except as provided in Section 1.4(b) hereof) the maximum aggregate number of shares which may be issued pursuant to the Plan; (ii) increase the maximum individual Participant limitations for a fiscal year; (iii) change eligibility requirements for participation in the Plan; (iv) decrease the minimum option price of any Stock Option; (v) extend the maximum option period; (vi) materially increase the benefits accruing to Participants in the Plan; or (vii) increase (except as provided in Section 1.4(b) hereof) the maximum aggregate number of shares which may be issued under the Plan to non-employee Directors. No such amendment, suspension or termination shall alter or impair any right theretofore granted to any Participant without the consent of such Participant. In no event may any portion of the Plan intended to satisfy the requirements of: (i) the performance-based exception under Section 162(m) of the United States Internal Revenue Code of 1986, as amended (the "Code") or (ii) Section 422 of the Code be amended without shareholder approval if such amendment without shareholder approval would cause such portion of the Plan to fail to satisfy the requirements of such exception or such Section, as the case may be. With the consent of the Participant affected thereby and subject to regulatory approval, the Committee or the Board may amend or modify any outstanding Option, award of Restricted Stock or Special Stock Award (collectively, "Awards") in any manner to the extent that the Committee or the Board, as the case may be, would have had the authority to initially make such grant as so modified or amended, including without limitation, to change the date or dates as of which an Option becomes exercisable or the restrictions on shares of Restricted Stock are removed. No action may be taken pursuant to this paragraph which would result in an Award intended to satisfy the requirements of Section 162(m) of the Code to fail to satisfy any such requirements. 1.10. Laws The Plan and all matters to which reference is made herein shall be governed by and construed in accordance with the laws of the Province of Ontario, and the laws of Canada applicable therein. The Committee may postpone any exercise of any Option or the issue of any Common Shares pursuant to the Plan for such time as the Committee in its discretion may deem necessary in order to permit Moore to effect or maintain registration of the Plan or the Common Shares issuable pursuant thereto under the securities laws of any applicable jurisdiction, or to -5- determine that such shares and the Plan are exempt from such registration. Moore shall not be obligated by any provision of the Plan or grant or award thereunder to sell or issue shares in violation of the law of any government having jurisdiction therein. In addition, Moore shall have no obligation to issue any Common Shares pursuant to the Plan unless such shares shall have been duly listed, upon official notice of issuance, with each stock exchange on which such shares are listed for trading. 1.11. Effective Date The Plan shall be effective on February 22, 2001 and shall expire on February 21, 2004, provided, however, that if the Plan is not approved by shareholders of the Corporation prior to December 31, 2001, the Plan and all Options and all grants hereunder shall be null and void and shall be of no effect. SECTION 2. STOCK OPTIONS 2.1. Stock Option Grants Subject to the provisions hereof, the Committee, subject to ratification by the Board, shall have the authority to determine the Participants to whom Options shall be granted, the number of Common Shares to be covered by each Option, the conditions and limitations, if any, in addition to those set forth in Section 2.3 hereof, applicable to the exercise of an Option, including, without limitation, the nature and duration of the restrictions, if any, to be imposed upon the sale or other disposition of Common Shares acquired upon exercise of the Option, and the nature of the events, if any, and the duration of the period in which any Participant's rights in respect of Common Shares acquired upon exercise of an Option may be forfeited. A Participant may receive Options on more than one occasion under the Plan. The Committee shall have the authority to grant Options as either Incentive Stock Options ("ISOs") or Non-Qualified Stock Options ("NQSOs") for purposes of United States income tax legislation; provided, however, that ISOs shall not be granted to non-Employee Participants. To the extent that any Option does not qualify as an ISO (whether because of its provisions or the time and manner of its exercise or otherwise), it shall constitute a separate NQSO. To the extent that the aggregate Fair Market Value of shares with respect to which Options designated as ISOs are exercisable for the first time by any Participant during any year (under all plans of the Corporation and any parent or subsidiary corporation (as such terms are defined in Section 424 of the Code) thereof) exceeds US$100,000, such Options shall be treated as not being ISOs. The foregoing shall be applied by taking Options into account in the order in which they were granted. For the purposes of the foregoing, the Fair Market Value of any Common Share shall be determined as of the time the Option with respect to such share is granted. In the event the foregoing results in a portion of an Option designated as an ISO exceeding the above US$100,000 limitation, only such excess shall be treated as not being an ISO. In addition, if an Employee does not remain employed by the Corporation, any subsidiary or any parent at all times from the time an ISO is granted until 3 months prior to the date of exercise thereof (or such other period as required by applicable law), such Option shall be treated as a NQSO. Should any provision of this Plan not be necessary in order for the Options to -6- qualify as ISOs, or should any additional provisions be required, the Committee may amend this Plan accordingly, without the necessity of obtaining the approval of the shareholders of the Corporation. "Fair Market Value" means the average of the high and low prices at which Common Shares are traded in board lots on The Toronto Stock Exchange at the close of business on the trading day preceding the date of grant, or if not traded on such date, the average of the closing bid and asked prices on such exchange for that date. If such exchange was not open for trading on that date, Fair Market Value shall be so determined by reference to the last preceding date on which the exchange was open for trading. If the Common Shares are not traded on The Toronto Stock Exchange but are otherwise publicly traded, the Committee shall determine in good faith a method for determining "Fair Market Value". If the Common Shares are not publicly traded, "Fair Market Value" means the price for Common Shares set by the Committee in good faith. 2.2. Option Price The Committee shall establish the option price at the time each Option is granted, which shall in all cases be not less than 100% of the Fair Market Value of the shares covered by such Option; provided, however, that if an ISO is granted to a person (a "Ten Percent Shareholder") owning shares possessing more than 10% of the total combined voting power of all classes of stock of the Corporation, its subsidiaries or its parent (as such terms are defined in Section 424 of the Code), the option price shall be no less than 110% of the Fair Market Value of the shares covered by such Option. The option price shall be subject to adjustment in accordance with the provisions of Section 1.4(b) thereof. Notwithstanding the foregoing, subject to regulatory approval if required, even if any Option is modified, extended or renewed and, thereby, deemed to be the issuance of a new Option under applicable tax or accounting rules, the option price may continue to be the original exercise price even if less than the Fair Market Value of the shares at the time of such modification, extension or renewal. 2.3. Exercise of Options (a) Options shall not be exercisable later than ten years after the date of grant; provided, however, that an ISO granted to a Ten Percent Shareholder shall not be exercisable later than five years after the date of grant. (b) The Committee may determine when any Option shall become exercisable and may determine that the Option shall be exercisable in installments, and may impose such other restrictions as it shall deem appropriate. If the Committee provides, in its discretion, that any Option is exercisable subject to certain limitations (including, without limitation, that such Option is exercisable only in installments or within certain time periods), the Committee may, subject to regulatory approval if required, waive such limitations on the exercisability at any time at or after grant in whole or in part (including, without limitation, waiver of the installment exercise provisions or acceleration of the time at which such Option may be exercised), based on such factors, if any, as the Committee shall determined in its sole discretion. -7- (c) Except as provided in the next sentence, Options shall not be transferable or assignable by the Participant otherwise than by will or the laws of descent and distribution, and shall be exercisable during the lifetime of a Participant only by the Participant or his or her legal guardian or representative and after death only by the Participant's legal representative. The Committee may determine at the time of grant or thereafter that a NQSO that is otherwise not transferable pursuant to this Section 2.3(c) is transferable, to the extent permitted by applicable law, in whole or in part and in such circumstances, and under such conditions, as specified by the Committee. (d) Except as otherwise determined by the Committee: (i) in the event that an Employee Participant ceases to be an Employee for any reason other than death, retirement or disability, each of the Options held by the Participant shall cease to be exercisable after the date of termination of employment; or (ii) in the event of termination of an Employee Participant's employment as a result of death, retirement or disability, all of such Participant's Options shall thereupon become fully exercisable and remain exercisable within one year after the date of termination of employment, whether or not otherwise fully exercisable on that date. In no event shall any Option be exercisable after its stated termination date. The terms "retirement" and "disability" shall be interpreted in accordance with the Moore retirement and disability policies applicable to a Participant. (e) Each Option shall be confirmed by an agreement executed by Moore and by the Participant. (f) The option price of each Common Share as to which an Option is exercised shall be paid in full (i) in cash at the time of such exercise; (ii) through a procedure whereby the Participant delivers irrevocable instructions to a broker approved by the Committee to deliver promptly to the Corporation an amount equal to the purchase price either upon exercise or sale, as approved by the Committee; or (iii) on such other terms and conditions as may be acceptable to the Committee (including, without limitation, the relinquishment of Options. No Common Shares shall be issued until payment therefor, as provided herein, has been made or provided for. (g) The Committee may in its discretion permit Participants to defer delivery of Common Shares acquired pursuant to a Participant's exercise of an Option in accordance with the terms and conditions established by the Committee. (h) Notwithstanding anything to the contrary contained herein, any Option granted pursuant to the Plan and still outstanding at the date of a Change in Control (as defined in Appendix B), shall become fully exercisable as to all shares from and after the date of such Change in Control. 2.4. Participant Not a Shareholder A Participant shall have no rights as a shareholder of the Corporation with respect to any Common Shares covered by any Option until such time as and to the extent only that such Option has been exercised. -8- SECTION 3. RESTRICTED STOCK AWARDS 3.1. Restricted Stock Awards The Committee, subject to ratification by the Board, may in its discretion authorize the issue to any Employee Participant of shares to which are attached restrictions as to ownership, resale or such other matters as the Committee may determine ("Restricted Stock"). Subject to the provisions of the Plan, the Committee shall have the authority to determine the number of shares of Restricted Stock to be awarded to each Participant, the duration of the period (the "Restricted Period") during which, and the conditions under which, the Restricted Stock may be forfeited to the Corporation, the price to be paid by the recipient (which may be zero to the extent permitted by applicable law) and the terms and conditions of the award in addition to those contained in Section 3.2. The Committee may condition the grant or vesting of Restricted Stock upon the attainment of specified performance goals, including performance goals set forth in Appendix A established in accordance with Section 162(m) of the Code (the "Performance Criteria"), or such other factors as the Committee may determine, in its sole discretion. Such determinations shall be made by the Committee at the time of the award but in no event shall the duration of the Restricted Period be less than two or more than seven years. An Employee Participant may receive awards of Restricted Stock on more than one occasion under the Plan. 3.2. Terms and Conditions (a) Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as herein provided, during the Restricted Period. Each Employee Participant receiving shares of Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock, unless the Committee elects to use another system, such as book entries by the transfer agent, as evidencing ownership of shares of Restricted Stock. Stock certificates issued in respect of shares of Restricted Stock shall be registered in the name of the Participant, bear an appropriate legend referring to the terms, conditions and restrictions applicable to such shares of Restricted Stock and deposited by him or her, together with a stock power endorsed in blank, with the Corporation or its agent. At the expiration of the Restricted Period without prior forfeiture of the Restricted Stock, the Corporation shall deliver such certificates to the Participant, or his or her legal representative. The Committee may determine that any or all shares of Restricted Stock should be registered in the name of, or the certificates therefor held by, a trustee. The Committee may accelerate the vesting of all or any part of any Restricted Stock award and/or waive the deferral limitations for all or any part of any Restricted Stock award. (b) Except as provided in subsection (a) hereof or the next sentence, during the Restricted Period the Employee Participant shall have all the rights of a holder of the shares comprising the Restricted Stock, including but not limited to the right to receive any dividends (or amounts equivalent to dividends), the right to exercise any voting rights thereunder and, subject to and conditioned upon the full vesting of Restricted Stock, the right to tender such shares. The Committee may, in its sole discretion, determine at the time of grant that the payment of dividends shall be deferred until, and conditioned upon, the expiration of the applicable Restriction Period. -9- (c) In the event an Employee Participant ceases to be an Employee upon the occurrence of his or her death, retirement or disability during the Restricted Period, the restrictions imposed hereunder shall, except as limited by the agreement referred to in (d) hereof, lapse with respect to such number of shares of Restricted Stock as shall be determined by the Committee with respect to each award, but in no event less than a number equal to the product of (i) a fraction the numerator of which is the number of completed months which have elapsed subsequent to the date of such award and the denominator of which is the number of months in the Restricted Period for such award, and (ii) the number of shares of Restricted Stock covered by such award. In the event a Participant ceases to be an Employee for any other reason during the Restricted Period, all shares of Restricted Stock shall thereupon be forfeited to the Corporation. All shares of Restricted Stock which are forfeited to the Corporation shall be deemed to have been acquired by it from the Participant for no consideration. (d) Each award shall be confirmed by an agreement executed by the Corporation and by the Participant, which agreement shall expressly provide, inter alia, that the shares received thereunder and the disposition of said shares shall be subject to the provisions of all applicable securities and other legislation and, the terms and conditions applicable in the event the Participant is granted a leave of absence. SECTION 4. SPECIAL STOCK AWARDS 4.1. Special Stock Award Grants The Committee, subject to ratification by the Board, may grant Special Stock Awards to Employee Participants in payment of the amount due such Participants under an incentive or performance plan sponsored or maintained by Moore which provides for such alternative. Grants of Special Stock Awards may be made in the form of Restricted Stock or unrestricted Common Shares and may be subject to such other terms and conditions as the Committee may determine. 4.2. Foreign Grants The Committee, subject to ratification by the Board, may also grant other types of equity-based awards to key Employees subject to tax or securities laws in those locations (other than Canada or the United States) in which the law, including exchange control regulations, taxation or securities laws, unduly restricts the grant or effectiveness of Options or Restricted Stock as determined by the Committee. APPENDIX A PERFORMANCE CRITERIA FOR PERFORMANCE-BASED RESTRICTED STOCK INTENDED TO SATISFY THE REQUIREMENTS OF SECTION 162(M) OF THE CODE ------------------------------------------------------------------ Performance Criteria for performance-based Restricted Stock intended to satisfy the requirements of Section 162(m) of the Code shall be based on one or more of the following Performance Criteria: (i) the attainment of certain target levels of, or a specified percentage increase in, revenues, income before income taxes and extraordinary items, net income, earnings before income tax, earnings before interest, taxes, depreciation and amortization, funds from operation of real estate investments or a combination of any or all of the foregoing; (ii) the attainment of certain target levels of, or a percentage increase in, after-tax or pre-tax profits including, without limitation, that attributable to continuing and/or other operations; (iii) the attainment of certain target levels of, or a specified increase in, operational cash flow; (iv) the achievement of a certain level of, reduction of, or other specified objectives with regard to limiting the level of increase in, all or a portion of, the Corporation's bank debt or other long-term or short-term public or private debt or other similar financial obligations of the Corporation, which may be calculated net of such cash balances and/or other offsets and adjustments as may be established by the Committee; (v) the attainment of a specified percentage increase in earnings per share or earnings per share from continuing operations; (vi) the attainment of certain target levels of, or a specified increase in return on capital employed or return on invested capital; (vii) the attainment of certain target levels of, or a percentage increase in, after-tax or pre-tax return on stockholders' equity; (viii) the attainment of certain target levels of, or a specified increase in, economic value added targets based on a cash flow return on investment formula or net after-tax operating profit less cost of capital formula; (ix) the attainment of certain target levels in the fair market value of the shares of the Corporation's common shares; and (x) the growth in the value of an investment in the Corporation's common shares assuming the reinvestment of dividends. For purposes of item (i) above, "extraordinary items" shall mean all items of gain, loss or expense for the fiscal year determined to be extraordinary or unusual in nature or infrequent in occurrence or related to a corporate transaction (including, without limitation, a disposition or acquisition) or related to a change in accounting principle, all as determined in accordance with applicable account standards. In addition, such Performance Criteria may be based upon the attainment of specified levels of Corporation (or subsidiary, division or other operational unit of the Corporation) performance under one or more of the measures described above relative to the performance of other corporations. To the extent permitted under Section 162(m) of the Code, but only to the extent permitted under Section 162(m) of the Code (including, without limitation, compliance with any requirements for stockholder approval), the Committee may: (i) designate additional business criteria on which the Performance Criteria may be based or (ii) adjust, modify or amend the aforementioned business criteria. The foregoing limitations shall not affect the performance criteria which may be utilized with regard to Restricted Stock not intended to satisfy Section 162(m) of the Code. A-1 APPENDIX B CHANGE IN CONTROL ----------------- A "Change in Control" shall mean any of the following: (i) (A) the acquisition of direct or indirect beneficial ownership (as determined under Rule 13d-3 promulgated under the United States Securities Exchange Act of 1934), in the aggregate, of securities of the Corporation representing thirty percent (30%) or more of the total combined voting power of the Corporation's then issued and outstanding voting securities entitled to vote in the general election for directors by any person or entity or group of associated persons or entities (within the meaning of Section 13(d)(3) or 14(d)(2) of the United States Securities Exchange Act of 1934) acting in concert (other than the Corporation or its Subsidiaries or any employee benefit plan of either) (a "Person"), provided that, if a buyback of shares by the Corporation causes the Person to attain such limit, such limit shall not be deemed attained unless and until such Person acquires any such voting securities of the Corporation after the buyback that caused the level to be attained; (B) the amalgamation, merger or consolidation of the Corporation with any Person other than (a) an amalgamation, merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) fifty percent (50%) or more of the combined voting power (based on normal issue voting) of the voting securities of the Corporation or such surviving or parent entity outstanding immediately after such amalgamation, merger or consolidation in substantially the same proportion as immediately prior to such amalgamation, merger or consolidation; or (b) an amalgamation, merger or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly (as determined under Rule 13d-3 promulgated under the United States Securities Exchange Act of 1934), of securities representing more than the amounts set forth in (A) above; (C) the approval by the shareholders of the Corporation of any plan or proposal for the complete liquidation or dissolution of the Corporation; or (D) the sale or other disposition of all or substantially all of the assets of the Corporation other than the sale or other disposition of all or substantially all of the assets of the Corporation either (x) to a person or persons who beneficially own, directly or indirectly, at least fifty percent (50%) or more of the combined voting power (based on normal issue voting) of the voting securities of the Corporation at the time of the sale, or (y) in a manner such that after such sale or other disposition the ultimate parent entity of the acquirer is, directly or indirectly, owned (based on normal issue voting) at least fifty percent (50%) by shareholders who immediately prior to such transaction owned at least fifty percent (50%) of the voting power (based on normal issue voting) of the Corporation immediately prior to such transaction in materially the same proportion as owned by such shareholders immediately prior to such transaction; or (ii) during any period of not more than twenty-four (24) consecutive months, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into agreement with the Corporation to effect a transaction described in clause (i) or whose initial assumption of office is in connection with an actual or threatened "election contest" relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-11 under the United States Securities Exchange Act of 1934)) whose election by the Board or nomination for election by the Corporation's shareholders was approved by a vote of at least two-thirds of the -12- directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof. Only the first Change in Control after the date hereof shall be deemed a Change in Control hereunder. EX-10.6 4 file003.txt HILTWEIN LETTER MOORE(R) ROBERT B. LEWIS Executive Vice President, CFO 1200 Lakeside Drive Bannockburn, IL 60015 Phone: (847) 607-7129 Fax: (847) 607-7136 As of December 11, 2000 Mr. Mark Hiltwein Dear Mark: On behalf of Moore Corporation Limited (the "Company"), we are all extremely pleased that you have agreed to serve as the Senior Vice President, Controller (the "SVP, Controller") of the Company, effective as of the closing of the purchase of the Company's securities (the "Purchase") by Chancery Lane/GSC, L.P. (which is expected to occur on or about December 21, 2000), in accordance with the provisions of this letter agreement (the "Agreement"), which governs the terms of your employment. You will as of the date hereof in any event become a nonexecutive employee of the Company's subsidiary Moore U.S.A. Inc. ("MUSAI"). Furthermore, the Company shall have the right to assign its obligations under this Agreement to MUSAI and treat you as an employee of MUSAI, except for actions you take as an officer of the Company and you shall remain SVP, Controller of the Company. We and you hereby acknowledge that your employment with the Company and MUSAI constitutes "at-will" employment and that either party may terminate this Agreement at any time, upon written notice of termination within a reasonable period of time before the effective date of the termination. With respect to the terms of your employment with the Company, you will have the customary duties, responsibilities and authorities of a senior vice president, controller at a corporation of a similar size and nature. You will report to the Chief Financial Officer of the Company (the "CFO"). I. COMPENSATION ------------ You will receive the following compensation and benefits, from which the Company may withhold any amounts required by applicable law: (i) The Company will pay you a base salary ("Base Salary") at the rate of U.S. $215,000 per year. This Base Salary will be paid in accordance with the normal payroll practices of the Company. (ii) The Company will pay you an annual bonus (the "Annual Bonus") of up to 75% Base Salary in respect of each fiscal year of the Company in accordance with the Company's annual incentive compensation plan if the Company achieves the following performance objectives set forth by the board of directors of the Company (the "Board") (or any designated committee thereof) from time to time: (A) meeting or exceeding established EPS target, (B) meeting or exceeding established EBITDA target, and (C) meeting or exceeding your individual performance objectives. The Annual Bonus shall be approved by the CFO, the Chief Executive Officer of the Company and the Board and shall be paid on an all-or-nothing basis, provided, however, that with respect to the Company's 2001 fiscal year (which begins on January 1, 2001 and ends on December 31, 2001), your Annual Bonus will be at least equal to U.S. $161,250. (iii) In addition, you will be immediately eligible to participate in any nonqualified pension plans (with no waiting period) and qualified plans, if any (subject to applicable waiting periods), in which the senior executive officers of the Company customarily participate. The Company will compensate you for any benefit that you may have earned in a qualified plan where the applicable waiting period causes you not to begin receiving benefits immediately, as if you had met the waiting period eligibility. (iv) Further, with respect to any relocation expenses you may incur relating to the commencement of your employment with the Company in the United States Corporate Headquarters, the Company will reimburse you for all such reasonable expenses. Such expenses will be reimbursed upon presentation by you from time to time of appropriately itemized and approved (consistent with the Company's policy) accounts of such expenditures. II. SEVERANCE; CHANGE OF CONTROL ---------------------------- If the Company terminates your employment as SVP, Controller without Cause, as defined in Annex A, or if you terminate your employment for Good Reason, as defined in Annex A, whether the same occurs before or following a Change of Control (as defined in Annex A), the Company will pay you in a cash lump sum, an amount equal to one (1) times your Annualized Total Compensation (as defined below), subject to the execution by you of a customary release. The Company will also provide to you a continuation of all benefits, including automobile and other related benefits, if any, which you were eligible to receive immediately prior to such termination, for a period of twelve (12) months following the date of such termination. Your rights of indemnification under the Company's and MUSAI's organizational documents, any plan or agreement at law or otherwise and your rights thereunder to director's and officer's liability insurance -2- coverage for, in both cases, actions as an officer and director of the Company and its affiliates shall survive any termination of your employment. "Annualized Total Compensation" means Base Salary plus Annual Bonus (as if all necessary targets and objectives were met) for one year at the rate in effect immediately before termination. In addition, all outstanding stock options, grants, restricted stock awards or other equity grants issued to you will vest 100% immediately prior to the Change of Control becoming effective. The payments under this paragraph are in lieu of any notice requirements of any Canadian national or provincial law. In the event of any termination, you agree to resign as an officer and director of the Company and its affiliates. III. INDUCEMENT OPTIONS ------------------ In addition, effective immediately, you will be granted options (the "Initial Grant") to purchase an aggregate of 40,000 non-voting preference shares (the "Preference Shares") to be issued by the Company and having the terms set forth in Annex B. The Company represents and warrants that all necessary corporate action has been taken to authorize the Preference Shares and their issuance. Each year, during the ordinary course of business and based upon individual performance, you will also be considered by the Board or the applicable committee thereof to receive options to purchase common shares of the Company under the Company's stock option plan. The Initial Grant options will vest 25 percent over four years, beginning on January 3, 2002 and then on each succeeding anniversary of the date the options are granted provided you are then employed. The Initial Grant options will be fully vested on January 3, 2005, so long as you are still employed by the Company at such time. You agree (i) that at all times both during and (subject to your receiving full severance payments as outlined above) after your employment, you will respect the confidentiality of Company's and its affiliates' confidential information and will not disparage the Company and its affiliates or their officers, directors or employees, and (ii) during your employment and (subject to your receiving full severance payments as outlined above) for one (1) year thereafter, you will not (a) accept a position with, or provide material services to, an entity that competes with a portion of the Company's business representing more than 15% of the Company's revenues on the date of your departure, (b) solicit or hire, or assist others in the solicitation or hiring of, the Company's employees or (c) interfere with the Company's business relationships with any material customers or suppliers. All notices or communications under this Agreement must be in writing, addressed; (i) if to the Company, to the Chief Executive's attention at the Company's address first written above and (ii) at your address first written above (or to any other addresses as either party may designate in a notice duly delivered as described in this paragraph). Any notice or communication shall be delivered by telecopy, by hand or by courier. Notices and communications may also be sent by certified or registered mail, return receipt requested, postage prepaid, addressed as above and the third business day after the actual date of mailing shall constitute the time at which notice was given. -3- Any controversy or claim arising out of or relating to this Agreement or the breach of this Agreement that cannot be resolved by you and the Company, including any dispute as to the calculation of any payments hereunder, and the terms of this Agreement, shall be determined by a single arbitrator in Connecticut, in accordance with the rules of the American Arbitration Association. The decision of the arbitrator shall be final and binding and may be entered in any court of competent jurisdiction. The arbitrator may award the party he determines has prevailed in the arbitration any legal fees and other fees and expenses which may be incurred in respect of enforcing its respective rights under this Agreement. This Agreement shall be interpreted in accordance with the laws of Connecticut. This Agreement may be executed in counterparts. This Agreement is our full agreement and may not be modified or terminated orally. If the foregoing terms and conditions are acceptable and agreed to by you, please sign on the line provided below to signify such acceptance and agreement and return the executed copy to the undersigned. MOORE CORPORATION LIMITED By: /S/ Robert B. Lewis ------------------------------ Name: Title: Accepted and Agreed as of this 11th day of December, 2000 /s/ Mark S. Hiltwein - -------------------------- Mark Hiltwein -4- ANNEX A DEFINITIONS a. "CAUSE" means (1) the willful and continued failure of Executive to perform substantially his duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness or any such failure subsequent to Executive being delivered a notice of termination without Cause by the Company or delivering a notice of termination for Good Reason to the Company) after a written demand for substantial performance is delivered to Executive by the Board which specifically identifies the manner in which the Board believes that Executive has not substantially performed Executive's duties, (ii) the willful engaging by Executive in illegal conduct or misconduct which is demonstrably and materially injurious (monetarily or otherwise) to the Company or its affiliates, (iii) any misappropriation, fraud or breach of fiduciary duty with regard to the Company or its affiliates or any of the assets of the Company or its affiliates (other than good faith expense account disputes), (iv) conviction of, or the pleading of nolo contendere with regard to, a felony or any crime involving fraud, dishonesty or moral turpitude, or (v) refusal or failure to attempt in good faith to follow the written direction of the Board promptly upon receipt of such written direction. A termination for Cause after a Change of Control shall be based only on events occurring after such Change of Control; provided, however, the foregoing limitation shall not apply to an event constituting Cause which was not discovered by the Company prior to a Change of Control. For purpose of this paragraph (b), no act or failure to act by Executive shall be considered "willful" unless done or omitted to be done by Executive in bad faith and without reasonable belief that Executive's action or omission was in the best interests of the Company or its affiliates. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company. Cause shall not exist unless and until the Company has delivered to Executive a copy of a resolution duly adopted by three-quarters (3/4) of the entire Board (excluding Executive if Executive is a Board member) at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board an event set forth in clauses (i) or (ii) has occurred and specifying the particulars thereof in detail, provided that the Company may suspend the Executive with pay (without it being Good Reason) pending such meeting. The Company must notify Executive of any event constituting Cause within ninety (90) days following the Company's knowledge of its existence or such event shall not constitute Cause under this Agreement. b. "CHANGE IN CONTROL" means the occurrence of any one of the allowing events: (i) individuals who, on the date of this Agreement, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director pursuant to the Debenture Purchase Agreement of December 11, 2000, between Moore ANNEX A Corporation Limited and Chancery Lane/GSC Investors, L.P., or subsequent to the date of this Agreement, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director; (ii) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event described in this paragraph (ii) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any subsidiary, (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)), (E) pursuant to any acquisition or ownership by Robert G. Burton ("Burton") or any group of persons including Burton (or any entity controlled by Burton or any group of persons including Burton), or (F) pursuant to an acquisition or ownership by Ted Ammon or Greenwich Street Capital Partners or any group of persons including Ted Ammon or Greenwich Street Capital Partners (or any entity controlled by Ted Ammon or Greenwich Street Capital Partners or any group of persons including Ted Ammon or Greenwich Street Capital Partners); (iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "Business Combination"), unless immediately following such Business Combination: (A) more than 50% of the total voting power of (x) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company ANNEX A Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 25% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) other than persons set forth in (A) through (F) of paragraph (ii) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying Transaction"); (iv) the closing of a sale of all or substantially all of the Company's assets, other than to an entity or in a manner where the voting securities immediately prior to such sale represent directly or indirectly after such sale at least 50% of the voting securities of the entity acquiring such assets in approximately the same proportion as prior to such sale; or (v) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 25% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. c. "GOOD REASON" means, without Executive's express written consent, the occurrence of any of the following events: (i) the assignment to Executive of any duties or responsibilities (including reporting responsibilities) that is inconsistent in any material and adverse respect with Executive's position(s), duties, responsibilities or status with the Company or any material and adverse diminution of such duties or responsibilities (other than temporarily while incapacitated because of physical or ANNEX A mental illness) or (B) a material and adverse change in Executive's titles or offices (including, if applicable, membership on the Board) with the Company; (ii) a reduction by the Company in Executive's rate of annual base salary or annual target bonus opportunity (including any material and adverse change in the formula for such annual bonus target) as the same may be increased from time to time thereafter; (iii) any requirement of the Company that Executive (A) be based anywhere more than fifty (50) miles from the office where the Chief Executive Officer establishes the United States executive offices of the Company, it being recognized that Executive will also have an office in the Toronto area of Canada; (iv) any material breach of the Agreement by the Company. Notwithstanding the foregoing, a Good Reason event shall not be deemed to have occurred if the Company cures such action, failure or breach within ten (10) days after receipt of notice thereof given by Executive. Executive's right to terminate employment for Good Reason shall not be affected by Executive's incapacities due to mental or physical illness and Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any event or condition constituting Good Reason; provided, however, that Executive must provide notice of termination of employment within ninety (90) days following Executive's knowledge of an event constituting Good Reason or such event shall not constitute Good Reason under this Agreement. ANNEX B PREFERENCE SHARES TERM SHEET ISSUER: The Company. DIVIDENDS: Each Preference Share will be entitled to a non-cumulative preferential annual dividend of Cdn $.001, payable annually from and after the date of issuance, and also shall receive any dividend paid on a Common Share. LIQUIDATION PREFERENCE: Upon the liquidation and winding up of the corporation, each Preference Share will be entitled to a distribution from the Company's assets (in preference to any distribution being made on the Common Shares) of Cdn $.001 and thereafter shall participate on a share-for-share basis with the Common Shares. VOTING RIGHTS: The Preference Shares will be non-voting; the holder will irrevocably waive any class voting rights which may be waived under applicable law and will otherwise irrevocably agree to exercise any remaining class voting rights in accordance with the recommendation of the Board. TRANSFER: Neither the options received in the Initial Grant (the "Options"), nor the Preference Shares received upon exercise thereof, will be transferable by the holder. EXERCISE PRICE: The Options will have an exercise price of Cdn. $__ per share (the "Exercise Price"). CASH-OUT RIGHT: The Options will contain a cash-out provision permitting the holder to receive, at his election and in lieu of the delivery of Preference Shares, an amount with respect to each Preference Share equal to the positive difference between the Current Market Value per Preference Share (as defined below) and the Exercise Price; the Current Market Value per Preference Share shall be equal to the closing price per Common Share on the trading day immediately prior to exercise on the principal stock exchange (which shall be the Toronto Stock Exchange as long as the Common Shares are listed thereon) on which the Common Shares are then ANNEX B listed, or if not so listed, shall be conclusively deemed to be equal to the closing price of a Common Share as is applicable under the Company's customary form of option grant and the plans relating thereto. ANTI-DILUTION PROTECTIONS: The Options will be subject to anti-dilution and similar adjustments under the circumstances provided in the Company's customary form of option grant agreement and the plans relating thereto. CONVERSION TO NON-VOTING In the event that, at the time of exercise of an COMMON: Option, the holder of an Option elects to receive Preference Shares and the Company then has an authorized class of non-voting common shares, the Preference Shares issued upon the exercise of an Option shall automatically convert into such class of non-voting shares (on a share-for-share basis) immediately upon such exercise (and in such event, the cash-out provision described above shall not be applicable with respect to the non-voting Common Shares delivered). EXPIRATION: Each Option will expire immediately prior to the tenth anniversary of the date of the grant thereof or under the circumstances relating to expiration upon a separation of employment provided in the Company's customary form of option grant agreement and the plans relating thereto. EX-10.7 5 file004.txt QUINLAN LETTER MOORE(R) ROBERT G. BURTON President & Chief Executive Officer 1200 Lakeside Drive Bannockburn, IL 60015 Phone: (847) 607-6144 Fax: (847) 607-7113 As of December 11, 2000 Mr. Thomas Quinlan 564 Bement Ave Staten Island, NY 10310 Dear Tom: On behalf of Moore Corporation Limited (the "Company"), we are all extremely pleased that you have agreed to serve as the Executive Vice President, Treasurer (the "EVP, Treasurer") of the Company, effective as of the closing of the purchase of the Company's securities (the "Purchase") by Chancery Lane/GSC, L.P. (which is expected to occur on or about December 21, 2000), in accordance with the provisions of this letter agreement (the "Agreement"), which governs the terms of your employment. You will as of the date hereof in any event become a nonexecutive employee of the Company's subsidiary Moore U.S.A. Inc. ("MUSAI"). Furthermore, the Company shall have the right to assign its obligations under this Agreement to MUSAI and treat you as an employee of MUSAI, except for actions you take as an officer of the Company and you shall remain EVP, Treasurer of the Company. We and you hereby acknowledge that your employment with the Company and MUSAI constitutes "at-will" employment and that either party may terminate this Agreement at any time, upon written notice of termination within a reasonable period of time before the effective date of the termination. With respect to the terms of your employment with the Company, you will have the customary duties, responsibilities and authorities of an executive vice president, treasurer at a corporation of a similar size and nature. You will report to the Chief Executive Officer of the Company (the "CEO"). I. COMPENSATION ------------ You will receive the following compensation and benefits, from which the Company may withhold any amounts required by applicable law: (i) The Company will pay you a base salary ("Base Salary") at the rate of U.S. $275,000 per year. This Base Salary will be paid in accordance with the normal payroll practices of the Company. (ii) The Company will pay you an annual bonus (the "Annual Bonus") of up to 100% Base Salary in respect of each fiscal year of the Company in accordance with the Company's annual incentive compensation plan if the Company achieves the following performance objectives set forth by the board of directors of the Company (the "Board") (or any designated committee thereof) from time to time: (A) meeting or exceeding established EPS target, (B) meeting or exceeding established EBITDA target, and (C) meeting or exceeding your individual performance objectives. The Annual Bonus shall be approved by the CEO and the Board and shall be paid on an all-or-nothing basis, provided, however, that with respect to the Company's 2001 fiscal year (which begins on January 1, 2001 and ends on December 31, 2001), your Annual Bonus will be at least equal to U.S. $275,000. (iii) In addition, you will be immediately eligible to participate in any nonqualified pension plans (with no waiting period) and qualified plans, if any (subject to applicable waiting periods), in which the senior executive officers of the Company customarily participate. The Company will compensate you for any benefit that you may have earned in a qualified plan where the applicable waiting period causes you not to begin receiving benefits immediately, as if you had met the waiting period eligibility. (iv) Further, with respect to any relocation expenses you may incur relating to the commencement of your employment with the Company in the United States Corporate Headquarters, the Company will reimburse you for all such reasonable expenses. Such expenses will be reimbursed upon presentation by you from time to time of appropriately itemized and approved (consistent with the Company's policy) accounts of such expenditures. II. SEVERANCE; CHANGE OF CONTROL ---------------------------- If the Company terminates your employment as EVP, Treasurer without Cause, as defined in Annex A, or if you terminate your employment for Good Reason, as defined in Annex A, whether the same occurs before or following a Change of Control (as defined in Annex A), the Company will pay you in a cash lump sum, an amount equal to one (1) times your Annualized Total Compensation (as defined below), subject to the execution by you of a customary release. The Company will also provide to you a continuation of all benefits, including automobile and other related benefits, if any, which you were -2- eligible to receive immediately prior to such termination, for a period of twelve (12) months following the date of such termination. Your rights of indemnification under the Company's and MUSAI's organizational documents, any plan or agreement at law or otherwise and your rights thereunder to director's and officer's liability insurance coverage for, in both cases, actions as an officer and director of the Company and its affiliates shall survive any termination of your employment. "Annualized Total Compensation" means Base Salary plus Annual Bonus (as if all necessary targets and objectives were met) for one year at the rate in effect immediately before termination. In addition, all outstanding stock options, grants, restricted stock awards or other equity grants issued to you will vest 100% immediately prior to the Change of Control becoming effective. The payments under this paragraph are in lieu of any notice requirements of any Canadian national or provincial law. In the event of any termination, you agree to resign as an officer and director of the Company and its affiliates. III. INDUCEMENT OPTIONS ------------------ In addition, effective immediately, you will be granted options (the "Initial Grant") to purchase an aggregate of 100,000 non-voting preference shares (the "Preference Shares") to be issued by the Company and having the terms set forth in Annex B. The Company represents and warrants that all necessary corporate action has been taken to authorize the Preference Shares and their issuance. Each year, during the ordinary course of business and based upon individual performance, you will also be considered by the Board or the applicable committee thereof to receive options to purchase common shares of the Company under the Company's stock option plan. The Initial Grant options will vest 25 percent over four years, beginning on January 3, 2002 and then on each succeeding anniversary of the date the options are granted provided you are then employed. The Initial Grant options will be fully vested on January 3, 2005, so long as you are still employed by the Company at such time. You agree (i) that at all times both during and (subject to your receiving full severance payments as outlined above) after your employment, you will respect the confidentiality of Company's and its affiliates' confidential information and will not disparage the Company and its affiliates or their officers, directors or employees, and (ii) during your employment and (subject to your receiving full severance payments as outlined above) for one (1) year thereafter, you will not (a) accept a position with, or provide material services to, an entity that competes with a portion of the Company's business representing more than 15% of the Company's revenues on the date of your departure, (b) solicit or hire, or assist others in the solicitation or hiring of, the Company's employees or (c) interfere with the Company's business relationships with any material customers or suppliers. All notices or communications under this Agreement must be in writing, addressed; (i) if to the Company, to the Chief Executive's attention at the Company's address first written above and (ii) if to you, at your address first written above (or to any other addresses as either party may designate in a notice duly delivered as described in -3- this paragraph). Any notice or communication shall be delivered by telecopy, by hand or by courier. Notices and communications may also be sent by certified or registered mail, return receipt requested, postage prepaid, addressed as above and the third business day after the actual date of mailing shall constitute the time at which notice was given. Any controversy or claim arising out of or relating to this Agreement or the breach of this Agreement that cannot be resolved by you and the Company, including any dispute as to the calculation of any payments hereunder, and the terms of this Agreement, shall be determined by a single arbitrator in Connecticut, in accordance with the rules of the American Arbitration Association. The decision of the arbitrator shall be final and binding and may be entered in any court of competent jurisdiction. The arbitrator may award the party he determines has prevailed in the arbitration any legal fees and other fees and expenses which may be incurred in respect of enforcing its respective rights under this Agreement. This Agreement shall be interpreted in accordance with the laws of Connecticut. This Agreement may be executed in counterparts. This Agreement is our full agreement and may not be modified or terminated orally. If the foregoing terms and conditions are acceptable and agreed to by you, please sign on the line provided below to signify such acceptance and agreement and return the executed copy to the undersigned. MOORE CORPORATION LIMITED By: /s/ Robert G. Burton ------------------------------- Name: Title: Accepted and Agreed as of this 11th day of December, 2000 /s/ Thomas Quinlan - ------------------------- Thomas Quinlan -4- ANNEX A DEFINITIONS a. "CAUSE" means (i) the willful and continued failure of Executive to perform substantially his duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness or any such failure subsequent to Executive being delivered a notice of termination without Cause by the Company or delivering a notice of termination for Good Reason to the Company) after a written demand for substantial performance is delivered to Executive by the Board which specifically identifies the manner in which the Board believes that Executive has not substantially performed Executive's duties, (ii) the willful engaging by Executive in illegal conduct or misconduct which is demonstrably and materially injurious (monetarily or otherwise) to the Company or its affiliates, (iii) any misappropriation, fraud or breach of fiduciary duty with regard to the Company or its affiliates or any of the assets of the Company or its affiliates (other than good faith expense account disputes), (iv) conviction of or the pleading of nolo contendere with regard to, a felony or any crime involving fraud, dishonesty or moral turpitude, or (v) refusal or failure to attempt in good faith to follow the written direction of the Board promptly upon receipt of such written direction. A termination for Cause after a Change of Control shall be based only on events occurring after such Change of Control; provided, however, the foregoing limitation shall not apply to an event constituting Cause which was not discovered by the Company prior to a Change of Control. For purpose of this paragraph (b), no act or failure to act by Executive shall be considered "willful" unless done or omitted to be done by Executive in bad faith and without reasonable belief that Executive's action or omission was in the best interests of the Company or its affiliates. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company. Cause shall not exist unless and until the Company has delivered to Executive a copy of a resolution duly adopted by three-quarters (3/4) of the entire Board (excluding Executive if Executive is a Board member) at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board an event set forth in clauses (i) or (ii) has occurred and specifying the particulars thereof in detail, provided that the Company may suspend the Executive with pay (without it being Good Reason) pending such meeting. The Company must notify Executive of any event constituting Cause within ninety (90) days following the Company's knowledge of its existence or such event shall not constitute Cause under this Agreement. b. "CHANGE IN CONTROL" means the occurrence of any one of the following events: (i) individuals who, on the date of this Agreement, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director pursuant to the Debenture Purchase Agreement of December 11, 2000, between Moore ANNEX A Corporation Limited and Chancery Lane/GSC Investors, L.P., or subsequent to the date of this Agreement, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director; (ii) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event described in this paragraph (ii) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any subsidiary, (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)), (E) pursuant to any acquisition or ownership by Robert G. Burton ("Burton") or any group of persons including Burton (or any entity controlled by Burton or any group of persons including Burton), or (F) pursuant to an acquisition or ownership by Ted Ammon or Greenwich Street Capital Partners or any group of persons including Ted Ammon or Greenwich Street Capital Partners (or any entity controlled by Ted Ammon or Greenwich Street Capital Partners or any group of persons including Ted Ammon or Greenwich Street Capital Partners); (iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "Business Combination"), unless immediately following such Business Combination: (A) more than 50% of the total voting power of (x) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company ANNEX A Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 25% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) other than persons set forth in (A) through (F) of paragraph (ii) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying Transaction"); (iv) the closing of a sale of all or substantially all of the Company's assets, other than to an entity or in a manner where the voting securities immediately prior to such sale represent directly or indirectly after such sale at least 50% of the voting securities of the entity acquiring such assets in approximately the same proportion as prior to such sale; or (v) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 25% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. c. "GOOD REASON" means, without Executive's express written consent, the occurrence of any of the following events: (i) the assignment to Executive of any duties or responsibilities (including reporting responsibilities) that is inconsistent in any material and adverse respect with Executive's position(s), duties, responsibilities or status with the Company or any material and adverse diminution of such duties or responsibilities (other than temporarily while incapacitated because of physical or ANNEX A mental illness) or (B) a material and adverse change in Executive's titles or offices (including, if applicable, membership on the Board) with the Company; (ii) a reduction by the Company in Executive's rate of annual base salary or annual target bonus opportunity (including any material and adverse change in the formula for such annual bonus target) as the same may be increased from time to time thereafter; (iii) any requirement of the Company that Executive (A) be based anywhere more than fifty (50) miles from the office where the Chief Executive Officer establishes the United States executive offices of the Company, it being recognized that Executive will also have an office in the Toronto area of Canada; (iv) any material breach of the Agreement by the Company. Notwithstanding the foregoing, a Good Reason event shall not be deemed to have occurred if the Company cures such action, failure or breach within ten (10) days after receipt of notice thereof given by Executive. Executive's right to terminate employment for Good Reason shall not be affected by Executive's incapacities due to mental or physical illness and Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any event or condition constituting Good Reason; provided, however, that Executive must provide notice of termination of employment within ninety (90) days following Executive's knowledge of an event constituting Good Reason or such event shall not constitute Good Reason under this Agreement. ANNEX B PREFERENCE SHARES TERM SHEET ISSUER: The Company. DIVIDENDS: Each Preference Share will be entitled to a non- cumulative preferential annual dividend of Cdn $.001, payable annually from and after the date of issuance, and also shall receive any dividend paid on a Common Share. LIQUIDATION PREFERENCE: Upon the liquidation and winding up of the corporation, each Preference Share will be entitled to a distribution from the Company's assets (in preference to any distribution being made on the Common Shares) of Cdn $.001 and thereafter shall participate on a share-for-share basis with the Common Shares. VOTING RIGHTS: The Preference Shares will be non-voting; the holder will irrevocably waive any class voting rights which may be waived under applicable law and will otherwise irrevocably agree to exercise any remaining class voting rights in accordance with the recommendation of the Board. TRANSFER: Neither the options received in the Initial Grant (the "Options"), nor the Preference Shares received upon exercise thereof, will be transferable by the holder. EXERCISE PRICE: The Options will have an exercise price or Cdn. $___ per share (the "Exercise Price"). CASH-OUT RIGHT: The Options will contain a cash-out provision permitting the holder to receive, at his election and in lieu of the delivery of Preference Shares, an amount with respect to each Preference Share equal to the positive difference between the Current Market Value per Preference Share (as defined below) and the Exercise Price; the Current Market Value per Preference Share shall be equal to the closing price per Common Share on the trading day immediately prior to exercise on the principal stock exchange (which shall be the Toronto Stock Exchange as long as the Common Shares are listed ANNEX B thereon) on which the Common Shares are then listed, or if not so listed, shall be conclusively deemed to be equal to the closing price of a Common Share as is applicable under the Company's customary form of option grant and the plans relating thereto. ANTI-DILUTION PROTECTIONS: The Options will be subject to anti-dilution and similar adjustments under the circumstances provided in the Company's customary form of option grant agreement and the plans relating thereto. CONVERSION TO NON-VOTING In the event that, at the time of exercise of an COMMON: Option, the holder of an Option elects to receive Preference Shares and the Company then has an authorized class of non-voting common shares, the Preference Shares issued upon the exercise of an Option shall automatically convert into such class of non-voting shares (on a share-for-share basis) immediately upon such exercise (and in such event, the cash-out provision described above shall not be applicable with respect to the non-voting Common Shares delivered). EXPIRATION: Each Option will expire immediately prior to the tenth anniversary of the date of the grant thereof or under the circumstances relating to expiration upon a separation of employment provided in the Company's customary form of option grant agreement and the plans relating thereto. EX-10.8 6 file005.txt OLIVA LETTER MOORE(R) ROBERT G. BURTON President & Chief Executive Officer 1200 Lakeside Drive Bannockburn, IL 60015 Phone: (847) 607-6144 Fax: (847) 607-7113 January 2, 2001 Mr. Thomas W. Oliva 21380 N. Middleton Drive Kildeer, IL 60047 Dear Tom: I am pleased to offer you, formally, the opportunity to join Moore on January 2, 2001 or as soon as possible thereafter as President of Moore North America reporting to Bob Burton. Summarized in the following paragraphs is our employment offer. We believe this offer recognizes your level of career achievement and will reward you for performance. BASE SALARY - Your annual base salary will be $300,000 (U.S.) with equal monthly payments being made on the twentieth of each month. MBO INCENTIVE PLAN - You will participate in our MBO incentive program. You will be eligible under this program to receive from 0% to 100% of your annual base salary subject to the terms and conditions of the program. With respect to 2001, your payout under the MBO program of 100% is guaranteed as an inducement for you to join the company. STOCK OPTIONS - You will also participate in the Corporate Stock Option Plan and have a target award level consistent with the amount normally granted to positions at your level in the organization. This plan has been developed to maintain focus on improving long-term shareholder value by aligning executive performance to shareholder interest. The timing of the stock option grants is determined each year by the Board. (A copy of the Plan will be provided.) I will recommend to the board an initial grant of 50,000 options. BENEFITS - You will be eligible to participate in the various Moore Benefit programs based on their individual eligibility requirements. VACATION - You are eligible for four (4) weeks vacation annually. - -------- AUTO ALLOWANCE - You will be eligible for a car allowance of $1,000 monthly. - -------------- MOORE 401-K SAVINGS PLAN - You may elect to defer up to 15% of your base salary, up to a maximum of $10,500 pre-tax and a company match of 50% of the first 6% of eligible pay that you save through the plan. EMPLOYMENT SECURITY - While we expect a long and stable employment relationship, you will be provided with outplacement, twelve (12) months of base salary and bonus, medical benefits, and auto allowance continuation as a severance plan if you are terminated for reasons other than cause and provided you agree to confidentially, non competition for twelve (12) months and release Moore from all employment termination-related liabilities. Tom, we are excited about your acceptance and feel you will make a positive and substantial contribution to our growth objectives. As you review this offer please feel free to contact me at your convenience with any questions. If the offer of employment is acceptable to you, please acknowledge your acceptance by signing below, retain one copy for your records and return the other copy to me. This offer is contingent upon verification of your legal work status. Sincerely, /s/ Robert Burton - ------------------- Robert G. Burton President & CEO ACCEPTED: /s/ Thomas W. Oliva 3/12/01 - -------------------------------------------------------------------------------- Signature Date EX-10.9 7 file006.txt CHERRY LETTER MOORE(R) ROBERT G. BURTON President & Chief Executive Officer 1200 Lakeside Drive Bannockburn, IL 60015 Phone: (847) 607-6144 Fax: (847) 607-7113 January 10, 2001 Mr. Dean F. Cherry 1537 Spring Creek Dr. Murray, KY 42071 Dear Dean: I am pleased to offer you, formally, the opportunity to join Moore on January 15, 2001 or as soon as possible thereafter as Executive Vice President, International and Subsidiary Operations reporting directly to me. Summarized in the following paragraphs is our employment offer. We believe this offer recognizes your level of career achievement and will reward you for performance. BASE SALARY - Your annual base salary will be $300,000 (U.S.) with equal monthly payments being made on the twentieth of each month. MBO INCENTIVE PLAN - You will participate in our MBO incentive program. You will be eligible under this program to receive from 0% to 100% of your annual base salary subject to the terms and conditions of the program. With respect to 2001, your payout under the MBO program of 100% is guaranteed as an inducement for you to join the company. STOCK OPTIONS - You will also participate in the Corporate Stock Option Plan and have a target award level consistent with the amount normally granted to positions at your level in the organization. This plan has been developed to maintain focus on improving long-term shareholder value by aligning executive performance to shareholder interest. The timing of the stock option grants is determined each year by the Board. (A copy of the Plan will be provided.) I will recommend to the board an initial grant of 50,000 options. BENEFITS - You will be eligible to participate in the various Moore Benefit programs based on their individual eligibility requirements. VACATION - You are eligible for four (4) weeks vacation annually. AUTO ALLOWANCE - You will be eligible for a car allowance of $1,000 monthly. MOORE 401-K SAVINGS PLAN - You may elect to defer up to 15% of your base salary, up to a maximum of $10,500 pre-tax and a company match of 50% of the first 6% of eligible pay that you save through the plan. EMPLOYMENT SECURITY - While we expect a long and stable employment relationship, you will be provided with outplacement, twelve (12) months of base salary and bonus, medical benefits, and auto allowance continuation as a severance plan if you are terminated for reasons other than cause and provided you agree to confidentially, non competition for twelve (12) months and release Moore from all employment termination-related liabilities. Dean, we are excited about your acceptance and feel you will make a positive and substantial contribution to our growth objectives. As you review this offer please feel free to contact me at your convenience with any questions. If the offer of employment is acceptable to you, please acknowledge your acceptance by signing below, retain one copy for your records and return the other copy to me. This offer is contingent upon verification of your legal work status. Sincerely, /s/ Robert Burton - ----------------- Robert G. Burton President & CEO ACCEPTED: /s/ Dean E. Cherry 3/1/01 - -------------------------------------------------------------------------------- Signature Date EX-11 8 file007.txt CALCULATION OF EARNINGS MOORE CORPORATION LIMITED EXHIBIT 11 - CALCULATION OF EARNINGS AND EARNINGS PER SHARE UNDER UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Expressed in Thousands of U.S. Dollars, except per share data)
2001 2000 1999 --------- --------- --------- Numerator: Net earnings (loss) (1) $(269,964) $ (45,304) $ 72,884 Denominator: Basic weighted average number of shares outstanding 88,648 88,457 88,457 Add: Dilutive options 443 827 306 Add: Convertible debentures 21,692 -- -- --------- --------- --------- Diluted weighted average number of shares outstanding 110,783 (2) 89,284 (2) 88,763 --------- --------- --------- Earnings (loss) per share Basic ($3.05) ($0.51) $ 0.82 Diluted ($3.05)(2) ($0.51)(2) $ 0.82 (1) Refer to Note 24 of the Notes to the Consolidated Financial Statements on pages 44 to 47 of this Form 10-K. (2) Diluted weighted average shares outstanding were not used to calculate the diluted loss per share because the effect would be anti-dilutive. - --------------------------------------------------------------------------------
EX-21 9 file008.txt SUBSIDIARIES MOORE CORPORATION LIMITED -------------------------
Jurisdiction of Subsidiaries Incorporation - ------------ ---------------- Moore Holdings USA Inc. Delaware Moore North America Finance, Inc. Delaware Moore North America, Inc. Delaware Moore Financial Inc. Nevada Moore Business Forms de Puerto Rico S.A. Puerto Rico The Nielson Company Ohio Litho Industries, Inc. North Carolina FRDK Inc. New York G2.com Inc. Delaware Peak Technologies Inc. Illinois Peak Technologies Holdings Ltd United Kingdom Peak Technologies UK Ltd United Kingdom Accuscan International Ltd United Kingdom Peak Technologies Benelux BV The Netherlands Peak Technologies (Schwiez) AG Switzerland Peak Technologies Holdings GmbH Germany Peak Technologies GmbH Germany Accuscan GmbH Germany FGSU Holding BV The Netherlands MH Holdings Limited Ontario Moore International Hungary Financial Services Limited Hungary Quality Color Press Inc. (50%) Alberta Moore Group Services bvba Belgium Moore International Ireland Ireland Moore Business Forms Holdings UK Limited United Kingdom Moore Business Forms Limited United Kingdom Moore IMS Limited United Kingdom Moore Business Forms Pensions Trustees UK Ltd. United Kingdom Paragon GmbH Germany Moore Response Marketing Limited United Kingdom
Jurisdiction of Subsidiaries Incorporation - ------------ ---------------- Moore International BV The Netherlands Moore Response Marketing BV The Netherlands Moore IMS B.V. The Netherlands Moore Paragon (Caribbean) Ltd.(60%) Barbados Moore Trinadad (99%) Trinadad GCS Limited (50%) Barbados Moore Granada Limited Granada Moore Cayman Islands Ltd. Cayman Islands Moore Belgium NV Belgium Moore Response Marketing NV Belgium Moore Response Marketing GmbH Germany Moore Response Marketing SA France Response Marketing SARL (99.9%) France Moore de Mexico Holdings, SA de CV Mexico Moore de Mexico SA de CV Mexico Commercializadora Moore de Mexico Mexico Moore Brasil Ltda Brazil Inversiones Moore CA Venezuela Moore Technology and Trading CA Venezuela Moore de Venezuela SA (50.1%) Venezuela Moore de Centro America, SA (56%) Guatemala Moore de Centro America, SA de CV (56%) El Salvador Moore de Centro America, SA de CV (56%) Honduras Moore de Centro America, SA (56%) Costa Rica Formularios Comerciales de Nicaragua, S.A. Nicaragua Moore Interantional S.A. Panama Moore Argenta S.A. Argentina Communicacion Dinamica S.A. (50%) Argentina Inversora Dirkon Uruguay Moore Business Forms Caribbean Ltd. (40%) Jamaica MI Insurance Ltd. Barbados Shanghai Jielong Moore Business Forms & Systems Co.Ltd.(60%) China
EX-23.1 10 file009.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-10630 and 333-6366) of Moore Corporation Limited of our reports dated February 22, 2001, relating to the consolidated financial statements and financial statement schedule, which appear in this Form 10-K. PRICEWATERHOUSECOOPERS LLP CHARTERED ACCOUNTANTS Toronto, Canada February 22, 2001 EX-23.2 11 file010.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statements (No. 333-10630, 333-6366) on Form S-8 of our reports dated February 13, 2002, appearing in this Form 10-K of Moore Corporation Limited for the year ended December 31, 2001. DELOITTE & TOUCHE LLP CHARTERED ACCOUNTANTS Toronto, Canada March 26, 2002 -----END PRIVACY-ENHANCED MESSAGE-----