Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Annual Report -- [x] Reg. S-K Item 405 55 290K
2: EX-3.1 Articles of Incorporation/Organization or By-Laws 4 15K
3: EX-3.2 Articles of Incorporation/Organization or By-Laws 21 43K
4: EX-4.3 Instrument Defining the Rights of Security Holders 4 18K
5: EX-4.4 Instrument Defining the Rights of Security Holders 9 35K
6: EX-4.5 Instrument Defining the Rights of Security Holders 5 21K
7: EX-10.1 Material Contract 31 100K
13: EX-10.10 Material Contract 8 41K
14: EX-10.13 Material Contract 7 32K
15: EX-10.14 Material Contract 3 18K
16: EX-10.15 Material Contract 3 18K
8: EX-10.2 Material Contract 2 10K
9: EX-10.3 Material Contract 53 249K
10: EX-10.4 Material Contract 4 18K
11: EX-10.8 Material Contract 11 50K
12: EX-10.9 Material Contract 9 45K
17: EX-21 Subsidiaries of the Registrant 1 9K
18: EX-23.1 Consent of Experts or Counsel 1 8K
19: EX-27.1 Financial Data Schedule (Pre-XBRL) 2 11K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 1-11802
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QUEBECOR WORLD (USA) INC.
(FORMERLY KNOWN AS WORLD COLOR PRESS, INC.)
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DELAWARE 37-1167902
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
THE MILL
340 PEMBERWICK ROAD
GREENWICH, CONNECTICUT 06831
(Address of principal executive offices) (Zip Code)
203-532-4200
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Title of each class
6% Convertible Senior Subordinated Notes due 2007
8 3/8% Senior Subordinated Notes due 2008
7 3/4% Senior Subordinated Notes due 2009
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. YES /X/ 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 ONLY CLASS OF VOTING SECURITIES OF QUEBECOR WORLD (USA) INC. IS ITS
COMMON STOCK, PAR VALUE $1.00 PER SHARE (THE "COMMON STOCK"). ON MARCH 15, 2000,
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT WAS $0.
------------------------
AS OF MARCH 15, 2000, TEN SHARES OF COMMON STOCK WERE OUTSTANDING.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE
CERTAIN EXHIBITS AS LISTED ON THE EXHIBIT INDEX AND FILED WITH REGISTRANT'S
REGISTRATION STATEMENT ON FORM S-4 (NO. 333-74087) UNDER THE SECURITIES ACT OF
1933, AS AMENDED, ARE INCORPORATED BY REFERENCE INTO PART IV OF THIS FORM 10-K.
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INDEX
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PAGE
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PART I
ITEM 1. Business.................................................... 1
ITEM 2. Properties.................................................. 6
ITEM 3. Legal Proceedings........................................... 7
ITEM 4. Submission of Matters to a Vote of Security Holders......... 7
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 8
ITEM 6. Selected Financial Data..................................... 9
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10
ITEM 7A. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 16
ITEM 8. Financial Statements and Supplementary Data................. 16
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 16
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 17
ITEM 11. Executive Compensation...................................... 19
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 24
ITEM 13. Certain Relationships and Related Transactions.............. 25
PART IV
ITEM 14. Exhibits, Financial Statement Schedule and Reports on Form
8-K....................................................... 26
SIGNATURES.......................................................................... 29
FINANCIAL STATEMENTS
Index to Financial Statements and Financial Statement
Schedule.................................................. 30
Independent Auditors' Report................................ F-1
Balance Sheets as of December 31, 1999 and December 27,
1998...................................................... F-2
Statements of Operations for the Years ended December 31,
1999, December 27, 1998 and December 28, 1997............. F-3
Statements of Stockholders' Equity for the Years ended
December 31, 1999, December 27, 1998 and December 28,
1997...................................................... F-4
Statements of Cash Flows for the Years ended December 31,
1999, December 27, 1998 and December 28, 1997............. F-5
Notes to Financial Statements............................... F-6-F-22
FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Accounts.............. S-1
PART I
ITEM 1. BUSINESS.
GENERAL
Quebecor World (USA) Inc. ("Quebecor World" or the "Company"), formerly
known as World Color Press, Inc. ("World Color"), is a wholly owned subsidiary
of Quebecor Printing (USA) Holdings Inc. and an indirect wholly owned subsidiary
of Quebecor Printing Inc. ("QPI"). On July 12, 1999, World Color entered into an
Agreement and Plan of Merger with QPI and its indirect wholly owned subsidiary,
Printing Acquisition Inc. ("Acquisition Inc."). On July 16, 1999, QPI, through
Acquisition Inc., commenced a tender offer (the "Offer") to acquire up to
23,500,000 shares of World Color common stock at a price of $35.69 per share. On
August 20, 1999, QPI acquired, through Acquisition Inc., 19,179,495, or
approximately 50.4%, of World Color's outstanding shares of common stock (the
"Change in Control"). On October 8, 1999, World Color and Acquisition Inc.
completed a merger (the "Merger") of World Color with and into Acquisition Inc.,
with World Color as the surviving corporation, following receipt of approval
from the Company's stockholders. The capital structure of the surviving
corporation is 3,000 authorized shares of common stock, par value $1.00 per
share. As of March 15, 2000 there were 10 shares outstanding. The surviving
corporation is known as Quebecor World (USA) Inc. As a result of the Merger, we
became an indirect wholly owned subsidiary of QPI. The remaining outstanding
shares of the common stock of World Color (other than shares purchased by
Acquisition Inc. in the Offer) were converted into the right to receive 1.2685
subordinate voting shares of QPI and $8.18 in cash per share. In addition, each
of World Color's 6% Convertible Senior Subordinated Notes due 2007, outstanding
at the Merger, became convertible into the number of QPI subordinate voting
shares and cash that would have been received had the convertible note been
converted immediately prior to October 8, 1999.
DUE TO CERTAIN COVENANTS IN ITS REGISTERED DEBT SECURITIES, QUEBECOR WORLD
IS REQUIRED TO CONTINUE TO MAKE REPORTS UNDER SECTION 13 AND 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT"). THIS ANNUAL REPORT SPEAKS
TO THE OPERATIONS OF THE FORMER WORLD COLOR PRESS, INC. AND SUBSIDIARIES AND
EXCLUDES THE OTHER OPERATIONS OF QPI OF WHICH IT IS NOW AFFILIATED.
QUEBECOR PRINTING INC.
GENERAL
QPI, a diversified global commercial printing company, is the largest
commercial printer in Canada and Europe and one of the largest in the United
States and South America. Its 1999 revenues reached $5.0 billion, including
approximately $1.0 billion contributed by the Company since its acquisition by
QPI. QPI offers its customers state-of-the-art web offset, gravure and sheet fed
printing capabilities, plus related value-added printing services in product
categories including magazines, retail circulars, books, catalogs, directories,
specialty printing and direct mail, and digital and other value-added services.
QPI is a market leader in most of its product categories. QPI believes that the
diversity of its customer base, geographic coverage and product segments reduces
its reliance on any single product line or market. QPI's strategy for growth
focuses on increasing its geographic coverage and expanding its product segments
and services across its network of facilities. QPI services these markets and
offers its products through a network of 160 printing and related services
facilities capable of servicing virtually all major markets in the United
States, Canada, France, Germany, Austria, United Kingdom, Spain, Sweden,
Finland, Mexico, India, Chile, Argentina, Peru and Colombia. As of March 1,
2000, QPI employed over 40,000 people.
QUEBECOR WORLD (USA) INC.
GENERAL
We are an industry leader in the management and distribution of print and
digital information. Prior to the acquisition by QPI, we were the second largest
diversified commercial printer in the United States, providing digital
pre-media, press, binding, distribution and multi-media services to customers in
the commercial, magazine, catalog, direct mail, book and directory markets.
Founded in 1903, we currently
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operate 54 facilities with a network of sales offices nationwide. Through
selective acquisitions and internal expansion, we have strategically positioned
ourselves as a full-service provider of high technology solutions for our
customers' imaging, print and distribution needs. We operate in one business
segment--printing services, which is comprised of six separate sectors including
commercial, magazines, catalogs, direct mail, books and directories.
We completed five acquisitions in fiscal year 1999: Great Western Publishing
(December 1998), a commercial retail insert printer; Infiniti Graphics
(January), a commercial printer; Universal Press Graphics (March), a commercial
printer which also provided us with an entry into the packaging sector; Downey
Printing (April), a printer of specialty directories; and Metroweb (June), a
publication and commercial printer.
Substantially all sales are made to customers through our employees based
upon customer specification. A significant amount of our sales are made pursuant
to term contracts with our customers, with the remainder being made on an
order-by-order basis. As a result, we have a significant backlog of orders. No
customer accounted for more than 5% of our net sales in 1999. In our opinion,
the loss, at substantially the same time, of all of the business provided by any
one of our largest customers could have an adverse effect upon us.
MARKET SECTORS
COMMERCIAL
We are a premier printer of virtually all of the different kinds of printed
materials used by businesses to promote their goods and services to businesses,
investors and consumers. We print high quality specialty products such as annual
reports and automobile and travel brochures. We are also a leading printer of
product brochures, bill stuffers, informational marketing materials and other
advertising supplements. We also print freestanding inserts and retail inserts
for established national and regional retailers and are the second largest
offset printer of retail advertising inserts in the United States. We are an
industry leader in three highly specialized areas: (1) complex personalized
direct response materials; (2) unique and intricate consumer-involvement
promotional materials such as scratch-off game pieces; and (3) airline guides
and hotel directories. With a broad range of specialized equipment and focused
attention to customer service, we provide commercial customers with format
flexibility, high-speed production and the ability to print high quality
commercial products from start to finish at one full-service source.
MAGAZINES
We are a leading printer of consumer magazines in the United States. The
publication customer base includes some of the largest and most established
consumer magazine publishers in a diverse range of market categories. The
popularity of these magazines makes them less susceptible to cyclical downturns
in advertising spending, which we believe provides us with a significant
advantage over our competitors whose customers may be more susceptible to these
downturns. A majority of our magazine printing is performed under contracts with
remaining terms of between one and nine years, the largest of which are with
customers with whom the Company has had relationships for, on average, more than
20 years. We have extended a majority of these contracts beyond the initial
expiration dates and intend to continue this practice when economically
practicable.
CATALOGS
We are a leading printer for the U.S. catalog market. We currently print
many of the most well known catalog titles. In addition, our
business-to-business catalog printing work spans a broad range of industries
including the computer, home and office furniture, office products and
industrial safety products industries.
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DIRECT MAIL
We print direct mail materials such as booklets, inserts, bill stuffers and
other advertisements. In addition, we provide direct marketers with direct
imaging, personalization and other lettershop services. We believe that we are
the only direct mail printer capable of providing complex personalization for
both short and long-run projects.
BOOKS
We print mass-market rack size books as well as hardcover books for the
consumer, education and reference markets. We service many of the largest U.S.
publishers.
DIRECTORIES
We print four-color white-page and yellow-page directories for Pacific Bell
and certain other independent directory publishers.
CURRENT SERVICES
DIGITAL AND PRE-MEDIA SERVICES
We are a leader in the transition from conventional pre-media services to an
all-digital workflow, providing a complete spectrum of film and digital
preparation services, from traditional paste-up and color separations to
state-of-the-art, all-digital pre-media services, as well as digital imaging and
digital archiving. Our specialized digital and pre-media facilities, which are
strategically located close to and, in certain cases, onsite at customer's
facilities, provide our customers high quality, 24-hour preparatory services
linked directly to our various printing facilities. In addition, our computer
systems enable us to exchange images and textual material electronically,
directly between our facilities and our customers' business locations. The
integrated pre-media operations provide us with competitive advantages over
traditional pre-media shops that are not able to provide the same level of
integrated services. Our digital group also provides multi-media services such
as the transformation of customers' existing printed and digital material into
interactive media such as user-friendly information kiosk systems, Internet web
sites, corporate intranets, CD-ROMs and computer laptop sales presentations. Our
digital services group has provided a natural opportunity for cross-selling
efforts by offering integrated pre-media and multi-media services to print
customers who may have historically used third-party suppliers for their
pre-media and multi-media needs.
PRESS AND BINDING SERVICES
We believe that we provide our customers with access to state-of-the-art
technology in all phases of the printing and binding process, including, among
others, wide-web presses, computerized quality information systems,
computer-to-plate and digital processing systems, high speed binding and
personalization capabilities and robotic material handling. Wide-web press
technology, which only a small number of well-capitalized printers are able to
justify, generates a significant cost savings on longer press runs. Computerized
quality information systems provide us and our customers with instant analysis
of the quality of the printing, thereby enabling us to improve our performance
and plan preventive maintenance of our equipment more effectively.
Computer-to-plate and digital processing technologies eliminate the use of film,
which significantly reduces costs and production time and enables customers to
extend their production deadlines. Our personalization capabilities allow
customers to include different content, whether advertising or editorial or
both, within different copies of their product depending upon the geographic,
demographic and subscriber specifications of their readers. We operate web and
sheet fed offset, rotogravure and flexographic presses. We believe that the
variety and capabilities of our presses and other production equipment allows us
to meet the broad range of our customers' printing needs and be the full service
provider demanded by the market. This capacity provides us with a competitive
advantage over smaller printers who are unable to meet this demand.
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DISTRIBUTION AND LOGISTICS
We believe that our sophisticated mailing and distribution capabilities are
among the best in the industry. We maintain a network of strategic regional
locations as well as a central facility in the Chicago, Illinois area from which
we provide customers important access to our nationwide services. Nearly all of
our printing facilities dedicated to servicing our magazine, catalog and direct
mail customers are strategically located in the mid-region of the country. We
believe that the size of these printing plants and their central location and
close proximity to each other provide us with a significant advantage in
distribution capabilities, enabling us to distribute a greater volume of product
than our competitors to a wider target market at a lower cost. We also operate
facilities on the west and east coasts which serve more regionalized needs. We
use computerized cost studies to examine the benefits of pooled and palletized
mailing for our customers to develop an efficient and cost effective
distribution plan designed to enable the customer's product to reach consumers
at narrowly specified delivery times. Our mail capabilities extend from
state-of-the-art mail list processing technology through entry point
optimization, load planning, consolidation, carrier management, mail tracking
and customer reporting.
COMPETITION
Although we are one of the largest diversified commercial printers in the
United States, the industry is highly competitive in most product categories and
geographic regions. Competition is largely based on price, quality, range of
services offered, distribution capabilities, customer service, availability of
printing time on appropriate equipment and state-of-the-art technology. We
compete for commercial business not only with large national printers, but also
with smaller regional printers. In certain circumstances, due primarily to
factors such as freight rates and customer preference for local services,
printers with better access to certain regions of the country may have a
competitive advantage in such a region.
The printing industry is experiencing excess capacity. Further, the
industries that we serve have been subject to consolidation efforts, leading to
a smaller number of potential customers who exercise increased pricing leverage
over the industry. Primarily as a result of this excess capacity and customer
consolidation, there has been, and we believe will continue to be, downward
pricing pressure and increased competition in the printing industry.
We continue to evaluate solutions to address the challenges and
opportunities presented to us by the increased use of e-commerce and reliance on
communication through electronic media, including the Internet, in the conduct
of our business, both with our customers and suppliers. We are being called upon
to address our customers' use of electronic media throughout their business
spectrums, from the delegation of their print requirements through the
production and distribution of their product. We have continued to move to an
all digital environment in our pre-media service offerings to allow our
customers to produce, manage and redeploy their media assets by electronic
means. We are also developing electronic transaction technology that will enable
us to use electronic tools in aggregating and transacting our supply side
purchases.
Sales volume in general has been positively affected by increased
advertising pages, including those related to Internet/New Media companies. We
expect this trend to continue through 2000 and beyond.
SEASONALITY
The operations of our business are seasonal with approximately two-thirds of
historical operating income recognized in the second half of the fiscal year,
primarily due to the higher number of magazine pages, new product launches and
back-to-school and holiday catalog promotions.
RAW MATERIALS
The primary raw materials required in a printing operation are ink and
paper. We supply all of the ink and a substantial amount of the paper used in
the printing process. Our net sales include sales to certain customers of paper
that we purchase. We provide warehouse space for both ourselves and customer
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supplied paper. The price of paper is volatile over time and may cause
significant swings in net sales and cost of sales. We generally are able to pass
on increases in the cost of paper to our customers, while declines in paper
costs result in lower prices to our customers. In 1998, paper prices declined
from previous years and availability was plentiful for most grades of paper. In
the first three quarters of 1999, paper prices in general continued to decline
moderately. In the fourth quarter of 1999, paper prices started to recover and
were relatively flat compared to the same period in 1998. We expect the trend of
increasing paper prices to continue throughout 2000. We believe we have adequate
allocations with our paper suppliers to meet our customers' needs. Our contracts
with our customers generally provide for price adjustments to reflect price
changes for other materials, wages and outside services.
Our materials management program capitalizes on our purchasing power in
order to minimize materials costs while optimizing inventory management. We are
not dependent upon any one source for our paper or ink. We believe that an
adequate supply of ink is available. Given the volume of our purchases, we are
generally able to obtain quality paper, ink and other materials at competitive
prices. Our strong commercial relationships with a relatively small number of
suppliers allow us to negotiate favorable price discounts and achieve more
assured sourcing of high quality paper that meets our specifications.
ENVIRONMENTAL COMPLIANCE
We are subject to regulation under various and changing federal, state and
local laws relating to the environment and to employee safety and health. These
environmental regulations relate to the generation, storage, transportation,
disposal and emission into the environment of various substances. Permits are
required for operation of our business (particularly air emission permits), and
these permits are subject to renewal, modification and, in certain
circumstances, revocation. We believe that we are in substantial compliance with
such laws and permitting requirements. We are also subject to regulation under
various and changing federal, state and local laws which allow regulatory
authorities to compel (or to seek reimbursement for) clean-up of environmental
contamination at our own sites and at facilities where our waste is or has been
disposed.
We have procedural controls and personnel dedicated to compliance with all
applicable environmental laws. We estimate that capital expenditures in 2000
required to comply with federal, state and local provisions for environmental
controls, as well as expenditures for our share of costs for environmental
clean-up, if any, will not be material and will not have a material adverse
effect on us. We expect to incur ongoing capital and operating costs to maintain
compliance with applicable environmental laws, which costs we do not expect to
be, in the aggregate, material.
RESEARCH AND DEVELOPMENT
Suppliers of equipment and materials used by companies such as us perform
most of the research and development related to the printing industry.
Accordingly, our expenses and capital investments for research and development
are not material. We do, however, dedicate significant resources to improving
our operating efficiencies and the services we provide to our customers. In an
effort to realize increased efficiencies in our printing processes, we have made
significant investments in state-of-the-art equipment, including new press and
binding technology, digital photography, computer-to-plate and digital
processing technology and real-time product quality monitoring systems.
EMPLOYEES
As of March 1, 2000, we had over 16,000 employees, approximately 17% of who
were represented by unions under several different labor contracts, which expire
at various times from April 2000 through August 2005.
As of March 1, 2000, approximately 600 of such unionized employees, in one
facility, were covered under a contract, the term of which has been
automatically extended by its terms and currently is under negotiation. Under
the terms of the contract during the period of extension either party may give
the other party 21 calendar days written notice terminating the contract.
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ITEM 2. PROPERTIES.
Our corporate office is currently located in leased facilities in Greenwich,
Connecticut. Production facilities are located throughout the United States, as
set forth below. We believe our facilities provide adequate productive capacity
for our needs. Summary information regarding our facilities as of March 1, 2000
is set forth as follows:
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USE AND LOCATION OWNED/LEASED SQUARE FOOTAGE
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CORPORATE HEADQUARTERS:
Greenwich, Connecticut...................................... Leased 55,000
PRINTING PLANTS:
Atlanta, Georgia............................................ Owned 129,000
Augusta, Georgia............................................ Owned 700,000
Brookfield, Wisconsin....................................... Owned 309,000
Caroll, Iowa................................................ Owned 58,000
Corinth, Mississippi........................................ Owned 630,000
Covington, Tennessee........................................ Owned 535,000
Dresden, Tennessee.......................................... Owned 678,000
Dyersburg, Tennessee........................................ Owned 869,000
Elk Grove Village, Illinois................................. Owned 175,000
Elk Grove Village, Illinois................................. Leased 93,000
Effingham, Illinois......................................... Owned 570,000
Enfield, Connecticut........................................ Owned 75,000
Erlanger, Kentucky.......................................... Leased 94,000
Jonesboro, Arkansas......................................... Owned 400,000
Lebanon, Ohio............................................... Owned 270,000
Los Angeles, California..................................... Leased 283,000
Merced, California.......................................... Owned 460,000
Metairie, Louisiana......................................... Owned 106,000
North Haven, Connecticut.................................... Owned 440,000
Oakwood, Georgia............................................ Owned 251,000
Oberlin, Ohio............................................... Owned 110,000
Oklahoma City, Oklahoma..................................... Owned 220,000
Omaha, Nebraska............................................. Owned 52,000
Ontario, California......................................... Leased 39,000
Orlando, Florida............................................ Leased 191,000
Pawtucket, Rhode Island..................................... Leased 300,000
Phoenix, Arizona............................................ Leased 83,000
Providence, Rhode Island.................................... Owned 88,000
Red Bank, Ohio.............................................. Owned 180,000
Salem, Illinois............................................. Owned 688,000
South Windsor, Connecticut.................................. Owned 42,000
Stillwater, Oklahoma........................................ Owned 335,000
Taunton, Massachusetts...................................... Owned 355,000
Versailles, Kentucky........................................ Owned 1,058,000
Waukee, Iowa................................................ Owned 119,000
Westwood, Massachusetts..................................... Leased 102,000
Wilmington, Massachusetts................................... Leased 195,000
Winchester, Virginia........................................ Owned 96,000
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USE AND LOCATION OWNED/LEASED SQUARE FOOTAGE
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DIGITAL SERVICES/PRE-MEDIA:
Arlington Heights, Illinois................................. Leased 18,000
Charlotte, North Carolina................................... Leased 21,000
Lake Mary, Florida.......................................... Leased 18,000
Lexington, Kentucky......................................... Leased 27,000
Los Angeles, California..................................... Leased 22,000
New York, New York.......................................... Leased 6,000
Orlando, Florida............................................ Leased 18,000
St. Charles, Missouri....................................... Leased 21,000
Warren, Michigan............................................ Leased 12,000
Washington, D.C............................................. Leased 67,000
DISTRIBUTION:
Altamont, Illinois.......................................... Leased 27,000
Bensenville, Illinois (DISTRIBUTION/BINDERY)................ Owned 307,000
Flora, Illinois............................................. Owned 120,000
Lexington, Kentucky......................................... Leased 241,000
Trenton, Tennessee.......................................... Leased 96,000
Versailles, Kentucky........................................ Leased 26,000
WAREHOUSE:
Jonesboro, Arkansas......................................... Leased 105,000
Memphis, Tennessee.......................................... Leased 100,000
Newburn, Tennessee.......................................... Leased 68,000
West Annex, Oklahoma........................................ Owned 54,000
In addition, we maintain an extensive network of sales offices located
throughout the United States, as well as additional warehouse space. We believe
that none of our leases are material to our operations and that such leases were
entered into on market terms.
ITEM 3. LEGAL PROCEEDINGS.
We do not believe that there are any pending legal proceedings, which, if
adversely determined, could have a material adverse effect on our financial
condition or results of operations, taken as a whole.
There were no material pending legal proceedings that were terminated in the
fourth quarter of the fiscal year ended December 31, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On October 8, 1999, World Color held a Special Meeting of Stockholders. At
the meeting, the stockholders voted on the Merger of World Color and Acquisition
Inc. A total of 32,588,921 and 5,447,381 shares were voted and unvoted,
respectively. The following table sets forth certain information with respect to
such stockholder vote.
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SHARES SHARES VOTED SHARES
VOTED FOR AGAINST ABSTAINING
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32,584,072 3,767 1,082
No other matters were submitted for stockholder vote during the fourth
quarter of 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET PRICE RANGE OF COMMON STOCK
Until the effective time of the Merger on October 8, 1999, World Color's
common stock was listed on the New York Stock Exchange under the symbol: WRC. In
connection with the Merger, the remaining outstanding shares of the common stock
of World Color were converted into 1.2685 subordinate voting shares of QPI and
$8.18 in cash per share. The following table sets forth the range of the high
and low sales prices of the common stock of World Color as quoted on the New
York Stock Exchange for 1998 and 1999*. We did not pay dividends during 1998 or
1999.
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1998 HIGH LOW CLOSE
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First Quarter.......................................... 34 3/4 25 3/8 34 1/8
Second Quarter......................................... 35 11/16 29 7/8 33 1/16
Third Quarter.......................................... 36 1/4 26 29 1/2
Fourth Quarter......................................... 34 3/4 22 3/4 27 1/8
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1999 HIGH LOW CLOSE
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First Quarter.......................................... 30 7/16 21 15/16 23 3/16
Second Quarter......................................... 27 5/8 20 26 7/8
Third Quarter.......................................... 37 3/16 27 1/16 35 1/2
Fourth Quarter (*)..................................... 38 3/8 35 1/2 38
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* October 8, 1999, the day of the Merger, was the final day of public trading
for the common stock of World Color. Following the Merger, there is no
established public trading market for our Common Stock, par value $1.00 per
share. There was one holder of such Common Stock at March 15, 2000, which was
an affiliate of the Company.
DIVIDEND POLICY
We do not expect to declare or pay cash dividends on the Common Stock at any
time in the foreseeable future. The decision whether to apply legally available
funds to the payment of dividends on the Common Stock will be made by our Board
of Directors from time to time in the exercise of its prudent business judgment,
taking into account, among other things, our results of operations and financial
condition and any then existing or proposed commitments for our use of available
funds. We are restricted by the terms of certain of our outstanding debt and
financing agreements from paying cash dividends on our Common Stock.
8
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data for the five fiscal years ended
December 31, 1999 have been derived from the Company's audited consolidated
financial statements. The data presented below should be read in conjunction
with, and is qualified in its entirety by reference to, the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this report.
[Enlarge/Download Table]
FISCAL YEAR(1)
--------------------------------------------------------------
1999(2) 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
OPERATING DATA:
Net sales.............................. $2,552,895 $2,356,885 $1,981,225 $1,641,412 $1,295,582
Cost of sales.......................... 2,223,424 1,927,790 1,613,938 1,349,130 1,074,785
---------- ---------- ---------- ---------- ----------
Gross profit........................... 329,471 429,095 367,287 292,282 220,797
Selling, general and administrative
expenses............................. 406,730 214,862 188,688 153,071 125,539
Restructuring and streamlining
charges(3)(4)........................ 74,807 -- -- -- 40,900
---------- ---------- ---------- ---------- ----------
Operating income (loss)................ (152,066) 214,233 178,599 139,211 54,358
Interest expense and securitization
fees................................. 103,866 88,589 80,039 58,417 37,897
Income tax provision (benefit)......... (56,406) 52,054 41,341 33,533 6,584
Extraordinary items, net of tax(5)..... (11,992) -- -- -- --
Cumulative effect of change in
accounting principle, net of
tax(6)............................... (10,513) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)...................... $ (222,031) $ 73,590 $ 57,219 $ 47,261 $ 9,877
========== ========== ========== ========== ==========
OTHER OPERATING DATA:
Depreciation and amortization.......... $ 155,766 $ 140,725 $ 131,710 $ 104,493 $ 74,668
Capital expenditures(7)................ 140,005 95,533 93,145 70,639 120,339
BALANCE SHEET DATA (AT PERIOD END):
Working capital........................ $ 291,068 $ 239,428 $ 168,752 $ 227,068 $ 160,835
Property, plant and equipment, net..... 877,998 885,999 857,195 818,157 480,421
Total assets........................... 2,376,121 2,433,886 1,933,571 1,822,432 1,150,728
Long-term debt (including current
maturities).......................... 1,291,196 1,255,920 819,113 897,867 487,106
Stockholders' equity................... 549,325 668,647 599,769 414,932 358,766
------------------------
(1) In 1999, the Company changed its fiscal year end to December 31, 1999 from
the last Sunday in December. The change resulted in a 369-day period rather
than a 52-week period. This change was not material to the Company's results
of operations. The fiscal years prior to 1999 each represent the 52 or 53
week period ending on the last Sunday in December. Fiscal year 1995
consisted of 53 weeks. Fiscal years 1996, 1997 and 1998 each consisted of 52
weeks.
(2) In 1999, the Company recognized merger related charges of $313,845. See
Note 4 to the consolidated financial statements for further details.
(3) In 1999, the Company recognized restructuring and other special charges of
$74,807 to eliminate redundant and less efficient capacity resulting from
its ongoing acquisition strategy. See Note 8 to the consolidated financial
statements for further details.
(4) Operating income in 1995 was reduced by $40,900 of a nonrecurring
streamlining charge. This charge reflects the Company's strategy in 1995 to
realign certain business operations. The major components
9
of this realignment plan were to close a facility and to consolidate certain
digital prepress operations and functions.
(5) In 1999, the Company recognized extraordinary charges of $11,992, net of
tax, for the early extinguishment of certain debt instruments. See Note 9 to
the consolidated financial statements for further details.
(6) The Company adopted Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities," in the first quarter of 1999 which resulted in a
charge of $10,513, net of tax. See Note 2 to the consolidated financial
statements for further details.
(7) 1998 capital expenditures are net of proceeds of approximately $88,500 from
the sale and leaseback of certain equipment.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
(Dollars in thousands, except per share data)
GENERAL
We are a diversified commercial printer serving customers in the commercial,
magazine, catalog, direct mail, book and directory markets. We operate in one
business segment--the management and distribution of print and digital
information. Our revenues are derived primarily from the sale of services and
materials to our customers, including digital and pre-media services, press and
binding services and distribution and logistics services.
On July 12, 1999, we entered into an Agreement and Plan of Merger with
Quebecor Printing Inc. ("QPI") and its indirect wholly owned subsidiary,
Printing Acquisition Inc. ("Acquisition Inc."), which provided for the
acquisition of World Color (the "Merger"). On July 16, 1999, QPI, through
Acquisition Inc., commenced a tender offer to acquire up to 23,500,000 shares of
our common stock at a price of $35.69 per share. On August 20, 1999, QPI
acquired, through Acquisition Inc., 19,179,495, or approximately 50.4%, of our
outstanding shares.
On October 8, 1999, World Color and Acquisition Inc. completed the Merger
following receipt of approval from our stockholders. As a result, World Color
became an indirect wholly owned subsidiary of QPI and at that time was renamed
Quebecor World (USA) Inc. The remaining outstanding shares of our common stock
(other than shares purchased by QPI in the tender offer) were converted into the
right to receive 1.2685 subordinate voting shares of QPI and $8.18 in cash per
share. In addition, each 6% Convertible Senior Subordinated Note due 2007,
outstanding at the Merger, became convertible into the number of QPI subordinate
voting shares and cash that would have been received had the convertible note
been converted immediately prior to October 8, 1999. Our new capital structure
consists of 3,000 authorized shares of common stock, par value $1.00 per share.
At December 31, 1999, 10 common shares were outstanding.
In connection with the Merger, we incurred $169,301 of non-recurring costs
in the third quarter of 1999. These costs included: the cancellation and
settlement by Acquisition Inc. of all vested and unvested options, bonuses,
severance, legal and attorney fees, and other fees specifically related to the
Merger. In addition, our outstanding restricted stock became fully vested in
connection with the Merger. The costs related to the Merger are included in
selling, general and administrative expenses in our 1999 consolidated statement
of operations. The majority of these costs were paid during 1999.
In connection with the Merger, we have developed an integration strategy for
the combined entities that requires the redeployment and/or disposal of assets
and the shutdown or relocation of certain of our plant locations and sales
offices. This revised strategic initiative resulted in a charge to our 1999 cost
of sales and selling, general and administrative expenses of $134,668 and
$9,876, respectively. The charge was
10
primarily composed of $40,011 for the writedown of fixed assets to reflect fair
market value, $32,303 for severance and related costs to shut down certain plant
locations and sales offices, $19,672 for the disposal and other related costs of
inventories and $34,100 to reflect other operational changes in the business as
a result of the Merger.
At December 31, 1999, all such assets have been adjusted to reflect the
appropriate value and we expect to proceed with the closure of the facilities
and related employee terminations in 2000. The expected cash expenditures for
the above charges are approximately $14,000, the majority of which is severance
related and will be paid in 2000. As a result of the Merger integration plan, we
anticipate incurring additional charges, primarily in 2000, of approximately
$26,000.
There continues to be significant pricing pressure on all printers,
including us. Our net sales include sales to certain customers of paper we
purchased. The price of paper, our primary raw material, is volatile over time
and may cause significant swings in net sales and cost of sales. We generally
are able to pass on increases in the cost of paper to our customers, while
declines in paper costs result in lower prices to our customers. In 1998, paper
prices declined from previous years and availability was plentiful for most
grades of paper. In the first three quarters of 1999, paper prices in general
continued to decline moderately. In the fourth quarter of 1999, paper prices
started to recover and were relatively flat compared to the same period in 1998.
We expect the trend of increasing paper prices to continue throughout 2000. Our
contracts with our customers generally provide for price adjustments to reflect
price changes for other materials, wages and outside services.
ACQUISITIONS
In fiscal year 1999, we acquired five businesses serving customers in the
commercial, retail, publication and directory markets for an aggregate purchase
price of approximately $203,000, including assumed indebtedness. In 1998, we
acquired four businesses serving customers in the commercial, direct mail and
book markets for an aggregate purchase price of approximately $200,000. In 1997,
we acquired two businesses serving the book and short-run publications markets
for an aggregate purchase price of approximately $194,000. These companies have
been included in results of operations since their respective acquisition dates
and the acquisitions were accounted for as purchases.
RESULTS OF OPERATIONS
Historically our fiscal years have represented the 52 or 53 week period
ending on the last Sunday in December. Fiscal 1997 and 1998 were 52-week years.
In 1999, we changed our fiscal year end to December 31, 1999 in order to conform
with the fiscal year end of QPI. The change in the fiscal year did not have a
material effect on our results of operations.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 27, 1998
Net sales increased $196,010 or 8.3% to $2,552,895 in 1999 from $2,356,885
in 1998. The increase was due to the inclusion of both a full year of results
from the acquisitions in 1998 and results from the acquisitions in 1999, higher
paper volume and improved sales in our base business.
Gross profit decreased $99,624 or 23.2% to $329,471 in 1999 from $429,095 in
1998, due primarily to the fourth quarter charges related to the Merger as
described above, partially offset by the inclusion of the 1998 and 1999
acquisitions and improved operating efficiencies in our base business. Excluding
the effect of the Merger related costs, gross profit margin remained flat at
18.2% in 1999 and 1998, respectively, due to the increased sales resulting from
higher paper volume, offset by synergies resulting from the integration of the
acquired businesses.
Selling, general and administrative expenses, including expenses related to
the Merger of $179,177 and restructuring and other special charges of $74,807,
increased $266,675 to $481,537 in 1999 from
11
$214,862 in 1998. Excluding the non-recurring Merger and restructuring charges,
the 1999 increase of $12,691 or 5.9% to $227,553 was due primarily to the
acquisitions in 1999 and 1998, including the related additional amortization
expense for goodwill, partially offset by benefits derived from cost saving
initiatives.
In 1999, we recorded restructuring and other special charges of $74,807, or
$44,297 net of tax, to eliminate redundant and less efficient capacity resulting
from our ongoing acquisition strategy. The restructuring and other special
charges included the costs to exit and consolidate certain facilities and sales
offices, write down impaired assets and eliminate certain administrative
positions. These charges, consisting primarily of $26,615 for the writedown of
equipment and $44,566 to reserve for certain lease costs, resulted from changes
in our strategic growth objectives and were primarily determined based on
independent appraisals. As of year end 1999, we have closed the affected
facilities and sales offices and terminated the related employees. Fixed assets
have been adjusted to reflect their appropriate values. In 1999, we paid
approximately $5,000 related to these charges. The remaining costs, primarily
lease payments, will extend through 2008. The aggregate effect of all
restructuring and other special charges was originally estimated to be in the
range of $125,000 to $175,000 for the closure of facilities, write down of
assets and elimination of administrative positions. The Merger significantly
altered this estimate and as of the fourth quarter of 1999, we have completed
this restructuring initiative.
Interest expense and securitization fees increased $15,277 or 17.2% to
$103,866 in 1999 from $88,589 in 1998. The increase was due to higher average
borrowings incurred to fund acquisitions, capital expenditures and working
capital requirements, offset by a lower average cost of funds.
The effective tax rate, primarily composed of the combined federal and state
statutory rates, was approximately 22.0% for 1999 and 41.4% for 1998. Full year
1999's rate was impacted by costs related to the Merger, some of which were
nondeductible, as well as restructuring and other special charges.
YEAR ENDED DECEMBER 27, 1998 COMPARED TO YEAR ENDED DECEMBER 28, 1997
Net sales increased $375,660 or 19.0% to $2,356,885 in 1998 from $1,981,225
in 1997. The increase was due to the inclusion of both a full year of results
from the acquisitions in 1997 and results from the acquisitions in 1998, higher
paper prices and volume and improved sales in our base business.
Gross profit increased $61,808 or 16.8% to $429,095 in 1998 from $367,287 in
1997, due primarily to the inclusion of the 1997 and 1998 acquisitions and
improved operating efficiencies in our base business. Gross profit margin
decreased to 18.2% in 1998 from 18.5% in 1997 due to increased sales resulting
from higher paper prices and volume, slightly offset by the benefits of certain
cost reduction initiatives and other synergies resulting from the integration of
the acquired businesses.
Selling, general and administrative expenses increased $26,174 or 13.9% to
$214,862 in 1998 from $188,688 in 1997. The increase was due to the 1997 and
1998 acquisitions, including the related additional amortization expense for
goodwill, offset by benefits derived from cost saving initiatives and a decrease
in the 1998 provision for bad debts. The 1997 provision for bad debts was higher
than usual because of bad debts related to a customer that entered into
bankruptcy.
Interest expense and securitization fees increased $8,550 or 10.7% to
$88,589 in 1998 from $80,039 in 1997. The increase was due to higher average
borrowings incurred to fund acquisitions, capital expenditures and working
capital requirements, offset by a lower average cost of funds. The 1998 and 1997
amounts included $11,888 and $5,133, respectively, of fees resulting from the
asset securitization agreement entered into in June 1997.
The effective tax rate, primarily composed of the combined federal and state
statutory rates, was approximately 41.4% for 1998 and 42.0% for 1997.
12
LIQUIDITY AND CAPITAL RESOURCES
In November 1998, we issued Senior Subordinated Notes in the aggregate
principal amount of $300,000 for net proceeds of approximately $291,700.
Interest on the notes is payable semi-annually at the annual rate of 8.375%.
Principal payments on the notes are not required prior to maturity on
November 15, 2008. We used a portion of the net proceeds to repay certain
indebtedness incurred under the Second Amended and Restated Credit Agreement
dated June 6, 1996, as amended ("1996 Credit Agreement"). The remaining net
proceeds were invested in money market securities through December 27, 1998. In
the beginning of fiscal year 1999, we used the remaining net proceeds to redeem
all of our then outstanding 9.125% Senior Subordinated Notes due 2003 (the
"Notes") in an aggregate principal amount of $150,000. The Notes were redeemed
for approximately $160,800, including the redemption premium of $6,840 and
accrued interest. This early extinguishment of debt generated an extraordinary
charge of $5,946, net of taxes of $4,132, for the redemption premium and
write-off of deferred financing costs. The Notes were included in current
maturities of long-term debt at December 27, 1998.
On February 22, 1999, we issued Senior Subordinated Notes in the aggregate
principal amount of $300,000, receiving net proceeds of approximately $294,000.
Interest on the notes is payable semi-annually at the annual rate of 7.75%. The
notes do not have required principal payments prior to maturity on February 15,
2009. The net proceeds from the notes issuance were used to repay certain
indebtedness under the 1996 Credit Agreement. In connection with the issuance of
these notes, we amended our 1996 Credit Agreement resulting in, among other
modifications, a $95,000 permanent reduction in borrowings and commitments under
the 1996 Credit Agreement. As a result, aggregate total commitments decreased
from $920,000 to $825,000. The amendment and related permanent reduction in
total borrowings and commitments resulted in a substantial modification of the
terms under the 1996 Credit Agreement. Accordingly, we recognized an
extraordinary charge for the early extinguishment of debt of $6,046, net of
taxes of $4,201, in the first quarter of 1999. As described below, all amounts
outstanding under the 1996 Credit Agreement were repaid in connection with the
Merger. At December 31, 1999, there were no available commitments under the 1996
Credit Agreement.
In August 1999, certain wholly owned subsidiaries of QPI provided us with
$511,500, which was borrowed on our behalf from subsidiaries' external long-term
credit facilities. We used these funds to pay certain Merger expenses and repay
$491,600 in outstanding debt incurred under the 1996 Credit Agreement. Our
resulting indebtedness has an interest rate of LIBOR plus 2% per annum, adjusted
quarterly. In 1999, the interest rate ranged from 7.23% to 8.07%. Payment is not
required prior to January 1, 2001.
On August 20, 1999, we entered into a credit agreement with a third party
lender with a maximum commitment of $100,000. Interest is payable at a variable
floating rate based on LIBOR or prime rate. We do not owe any amounts under this
credit agreement at December 31, 1999.
As part of the Merger expenses discussed above, we recognized a non-cash
charge of $67,474 for the cancellation and settlement by Acquisition Inc. of all
vested and unvested options. Of this amount, $40,868 was paid directly by
Acquisition Inc. to the option holders on our behalf and $26,606 was paid in
stock of QPI upon consummation of the Merger. In addition, we received $51,299
from Acquisition Inc. to pay certain other Merger expenses. These amounts will
not be repaid and are, therefore, included in stockholders' equity in the
December 31, 1999 consolidated balance sheet.
In July and October 1998, we entered into agreements for the sale and
leaseback of certain printing equipment for which we received approximately
$88,500 of proceeds. The equipment used for the sale and leaseback transaction
was primarily composed of 1998 capital expenditures. The lease expires in
July 2010 and has been classified as an operating lease. The proceeds were used
to repay certain indebtedness incurred under the 1996 Credit Agreement.
In August 1998, the Board of Directors authorized the repurchase of up to
1,800,000 shares of our common stock. The repurchase of shares commenced in
August 1998 and continued through mid 1999.
13
Shares were repurchased primarily to satisfy commitments under certain employee
benefit plans. From the inception of the plan through mid-1999, we repurchased
1,750,153 shares at a weighted average cost of $26.02 and reissued 466,255
shares. In connection with the Merger, the share repurchase plan was terminated
and the treasury stock was retired.
In October 1997, we issued 4,600,000 shares of our common stock, receiving
net proceeds of approximately $127,600. Concurrent with the stock offering, we
issued $151,800 aggregate principal amount of Convertible Senior Subordinated
Notes, receiving net proceeds of approximately $147,900. Interest on the
convertible notes is payable semi-annually at the annual rate of 6%. The
convertible notes have no required principal payments prior to maturity on
October 1, 2007. Prior to the Merger, the convertible notes in the aggregate
were convertible into 3,660,477 shares of our common stock at $41.47 per share,
subject to adjustment upon the occurrence of certain events. Subsequent to the
Merger, each note is convertible into the number of QPI subordinated shares and
cash that would have been received had the convertible note been converted
immediately prior to October 8, 1999. Certain convertible notes were redeemed by
the holders in 1999, reducing our liability to approximately $144,000 at
December 31, 1999. While we have the option to redeem the notes subsequent to
October 4, 2000, we do not intend to do so. Therefore, the notes are classified
as long-term in the consolidated balance sheets.
In June 1997, we entered into an agreement to sell, on a revolving basis for
a period of up to five years, certain of our accounts receivable to a
wholly-owned subsidiary, which entered into an agreement to transfer, on a
revolving basis, an undivided percentage ownership interest in a designated pool
of accounts receivable to a maximum of $204,000. Subsequent to the Merger, this
asset securitization program was cancelled. We entered into a new agreement
which was aligned with QPI's existing program and has substantially the same
terms and conditions as our previous agreement. In 1997, we received the
proceeds from the sale of $200,000 of accounts receivable. Accordingly, accounts
receivable has been reduced by $200,000 at December 31, 1999 and December 27,
1998. Fees associated with the asset securitization vary based on commercial
paper rates plus a margin, providing a lower effective rate than that available
from our traditional funding sources.
Working capital was $291,068 at December 31, 1999 and $239,428 at
December 27, 1998, increasing $51,640 or 21.6% primarily due to the 1999
acquisitions and the repayment of the 1996 Credit Agreement in 1999, a portion
of which was included in current maturities of long-term debt in 1998. Cash flow
from operations was primarily used to fund working capital requirements, capital
expenditures and acquisitions.
Capital expenditures totaled $140,005 and $95,533 in 1999 and 1998,
respectively. These capital expenditures reflect the purchase of additional
press and bindery equipment which increased our capacity and are part of our
ongoing program to maintain modern, efficient plants and continually increase
productivity.
At December 31, 1999, we had net operating loss carryforwards from business
acquisitions for federal income tax purposes of $1,762 available to reduce
future taxable income, expiring from 2007 to 2010. We also had federal tax
credits of $4,162 expiring primarily from 2000 to 2002 and state tax credits of
$3,894 expiring from 2001 to 2013. In addition, we had alternative minimum tax
carryover credits of $29,631 which do not expire and may be applied against
regular tax in the future, in the event that the regular tax expense exceeds the
alternative minimum tax.
Concentrations of credit risk with respect to accounts receivable are
limited due to our diverse operations and large customer base. As of
December 31, 1999, we had no significant concentrations of credit risk.
In the normal course of business, we are exposed to changes in interest
rates. However, we manage this exposure by having a balanced variety of debt
maturities as well as a combination of fixed and variable rate obligations. In
addition, in 1998, we entered into interest rate cap and swap agreements in
order to further reduce the exposure on our variable rate obligations. The
interest rate cap agreements expired in
14
1999. As allowed under the interest rate swap agreements, these agreements were
cancelled in the third quarter of 1999 by the respective counterparties. These
agreements did not have a material impact on the consolidated financial
statements for the periods presented. As of December 31, 1999 we are not party
to any such agreements. We do not hold or issue any derivative financial
instruments for trading purposes.
We believe that our liquidity, capital resources and cash flows from
operations are sufficient to fund planned capital expenditures, working capital
requirements and interest and principal payments for the foreseeable future.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." This SOP requires
certain costs related to computer software developed or obtained for internal
use to be expensed or capitalized depending on the stage of development and the
nature of the costs. We adopted this SOP in the first quarter of fiscal year
1999. The adoption of SOP 98-1 did not have a material effect on our
consolidated financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities and
organization costs to be expensed as incurred. We adopted this SOP in the first
quarter of fiscal year 1999, which resulted in a charge of $10,513, net of taxes
of $7,305, for the non-recurring write-off of deferred start-up costs. The
adoption of this SOP did not have a material effect on our operating income on a
continuing basis.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. We would account for gains or losses resulting from
changes in the values of those derivatives depending on the use of the
derivative and whether it qualifies for hedge accounting. In June 1999, the
Financial Accounting Standards Board issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," to delay the effective date of SFAS No. 133 to fiscal
years beginning after June 15, 2000. Therefore, we plan to adopt this statement
in the first quarter of fiscal year 2001. We do not expect the adoption of SFAS
No. 133 to have a material impact on our consolidated financial statements.
SEASONALITY
The operations of our business are seasonal with approximately two-thirds of
historical operating income recognized in the second half of the fiscal year,
primarily due to the higher number of magazine pages, new product launches and
back-to-school and holiday catalog promotions.
YEAR 2000
We did not experience any material adverse impact with regard to software or
hardware failure or malfunction as a result of the year 2000 transition. The
costs incurred to date related to the year 2000 efforts have not been material,
nor are they expected to be material in 2000. We will continue to monitor our
systems throughout the first quarter of 2000.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the statements in this
document are forward-looking and made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve known and unknown risks and uncertainties, which may cause our actual
results in future periods to differ materially from forecasted results. Those
risks include, among
15
others, changes in customers' demand for our products, changes in raw material
and equipment costs and availability, seasonal changes in customer orders,
pricing actions by our competitors and general changes in economic condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For quantitative and qualitative disclosures about market risk, see the
notes to the consolidated financial statements (Note 9) referenced in Item 8 of
this report, and the information presented under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations:
Liquidity and Capital Resources" on pages 13-15 referenced in Item 7 of this
report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company on pages F-1 through
F-22 hereof and the related schedule thereto set forth on page S-1 hereof are
incorporated hereto by reference. The supplementary quarterly data set forth in
Note 18 on page F-22 hereof is incorporated hereto by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS
The table below sets forth certain information regarding the current
executive officers and Directors of the Company as of March 1, 2000.
[Enlarge/Download Table]
NAME AGE POSITION
---- -------- ----------------------------------------------------------
Marc L. Reisch.................... 44 Chairman of the Board of Directors, President and Chief
Executive Officer
Kenneth Bacon..................... 49 Vice President, Taxes
Jerome V. Brofft.................. 55 Senior Vice President, Purchasing
Paul B. Carousso.................. 30 Vice President, Controller
David R. Coates................... 62 Director
Mark A. D'Souza................... 39 Vice President and Treasurer
Marcello A. De Giorgis............ 69 Director
Kevin P. Hayden................... 36 Vice President, Operations
Marie D. Hlavaty.................. 36 Vice President, General Counsel and Secretary
Heidi J. Nolte.................... 42 Senior Vice President, Chief Information Officer
Christian M. Paupe................ 41 Director and Executive Vice President
Michel P. Salbaing................ 54 Director and Senior Vice President, Chief Financial
Officer
MARC L. REISCH has been the Chairman of the Board of Directors, President
and Chief Executive Officer of the Company since October 1999. Prior to that,
Mr. Reisch had served as President of World Color since November 1998. Prior to
holding that position, Mr. Reisch held the position of Vice Chairman, Group
President since January 1998. Mr. Reisch held the position of Group President,
Sales and Chief Operating Officer from August 1996 until January 1998 and the
position of Executive Vice President, Chief Operating and Financial Officer from
June 1996 until August 1996. Mr. Reisch held the position of Executive Vice
President, Chief Operating and Financial Officer and Treasurer from July 1995
until June 1996. Prior to holding that position, Mr. Reisch was Executive Vice
President, Chief Financial Officer and Treasurer since October 1993. Mr. Reisch
has been a director of the Company since March 1996.
KENNETH BACON has been Vice President, Taxes since January 1998. Prior to
holding that position, Mr. Bacon held the position of Tax Director for the
Company, since joining the Company in June 1996. Prior to joining the Company,
Mr. Bacon was a Senior Tax Manager at Coopers & Lybrand LLP.
JEROME V. BROFFT has been Senior Vice President, Purchasing since
October 1995. Prior to holding that position, Mr. Brofft held the position of
Vice President, Purchasing and Logistics from February 1995 until October 1995
and the position of Vice President, Purchasing from May 1992 until
February 1995.
PAUL B. CAROUSSO has been Vice President, Controller since December 1998.
Prior to holding that position, Mr. Carousso was Vice President, Assistant
Controller from July 1998. Mr. Carousso held the position of Assistant
Controller from July 1996 until July 1998 and the position of Manager, Financial
Reporting from October 1994 until July 1996. Prior to joining the Company,
Mr. Carousso was an auditor with Ernst & Young LLP.
DAVID R. COATES has served as director since October 1999. Mr. Coates is
retired as a partner of KPMG, where he was employed until June 1993. Currently,
Mr. Coates provides business advisory services and serves as director of Green
Mountain Power Corporation.
17
MARK A. D'SOUZA has been an officer of the Company since August 1999.
Mr. D'Souza has also served as Vice President, Treasurer of Quebecor
Printing Inc. since November 1998. From September 1997 to November 1998,
Mr. D'Souza was Treasurer of Quebecor Printing Inc. From March 1995 to
September 1997 he was Director, Finance of Societe Generale de Financement du
Quebec and from July 1989 to March 1995, Mr. D'Souza held several positions in
Corporate Finance at the Royal Bank of Canada and Union Bank of Switzerland.
Mr. D'Souza is a Canadian citizen.
MARCELLO A. DE GIORGIS has been director of the Company since October 1999.
Mr. DeGiorgis is currently the sole proprietor of Berkshire International
Business Consulting. Mr. DeGiorgis also serves as director of Quebecor
Printing Inc.
KEVIN P. HAYDEN has been Vice President, Operations of the Company since
February 1998. Prior thereto, Mr. Hayden was Director, Operations of the
Company's Northeast Graphics Inc. subsidiary from November 1997. Prior to
holding that position, Mr. Hayden served as Director, Planning since joining the
Company in July 1994.
MARIE D. HLAVATY has been Vice President, General Counsel and Secretary of
the Company since November 1999. Prior to holding that position, Ms. Hlavaty was
Vice President, Deputy General Counsel and Assistant Secretary from March 1998.
Ms. Hlavaty held the position of Vice President, Assistant General Counsel from
October 1996 to March 1998 and the position of Assistant General Counsel from
August 1995 to October 1996. Prior thereto, Ms. Hlavaty was Associate Counsel
since joining the Company in February 1994.
HEIDI J. NOLTE has been Senior Vice President, Chief Information Officer of
the Company since July 1997. Prior to holding that position, Ms. Nolte was Vice
President, Chief Information Officer since joining the Company in
September 1994. Prior to joining World Color, Ms. Nolte was Senior Director, MIS
at U.S. Surgical where she had been employed since 1979.
CHRISTIAN M. PAUPE has been an officer and director of the Company since
August 1999. Mr. Paupe has also served as Executive Vice President and Chief
Financial Officer of Quebecor Printing Inc., since January 1999. In April 1999,
Mr. Paupe was appointed as Executive Vice President, Chief Administrative
Officer and Chief Financial Officer of Quebecor Printing Inc. Prior thereto,
Mr. Paupe held the position of Senior Executive Vice President and Director of
Levesque Beaubien Geoffrion Inc. (investment dealer) from 1997 until
January 1999. Prior thereto, Mr. Paupe was a Senior Vice President of
Southam Inc. (newspaper publisher) from 1995 to 1997. From 1993 to 1995,
Mr. Paupe was Vice President, Corporate Finance of Bell Canada
International Inc. (cable and telecommunications). Mr. Paupe is a Swiss and
Canadian citizen.
MICHEL P. SALBAING has been Senior Vice President, Chief Financial Officer
since August 1999 and a director since October 1999. Prior to holding that
position, Mr. Salbaing held the position of Chief Executive Officer, Quebecor
Printing Europe since April 1998. From June 1996 to April 1998, Mr. Salbaing
held the position of Chief Financial Officer of Quebecor Printing Inc. Prior
thereto, Mr. Salbaing was Chief Financial Officer of Societe Generale de
Financement du Quebec. Mr. Salbaing is a United States, French and Canadian
citizen.
DIRECTOR'S FEES
Each director who is not an employee of the Company receives an annual board
retainer of $7,500 as well as $1,000 attendance fee per meeting. Directors who
are also employees of the Company receive no remuneration for serving as
directors.
18
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the cash compensation awarded in fiscal years
1997, 1998 and 1999, paid to or earned by (i) all individuals serving as a Chief
Executive Officer during the last completed fiscal year, (ii) our four most
highly paid executive officers other than Chief Executive Officer who were
serving as executive officers at the end of the last completed fiscal year, and
(iii) two additional individuals who would have been covered under (ii) but for
the fact that he/she was not serving as an executive officer at the end of the
last fiscal year.
[Enlarge/Download Table]
LONG TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION RESTRICTED NUMBER OF
-------------------------------- STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS (6) (7) GRANTED COMPENSATION (8)
--------------------------- -------- -------- ---------- -------------- --------- ----------------
Robert G. Burton (1)............. 1999 $744,231 $2,250,000 $ 847,500 1,050,000 $24,202,252
1998 801,102 2,000,000 1,965,000 175,000 --
1997 675,583 1,600,000 -- 375,000 --
Marc L. Reisch................... 1999 $568,270 $ 962,500 $ 635,625 125,000 $ 3,655,749
Chairman of the Board of 1998 463,462 700,000 1,361,563 125,000 --
Directors, President and Chief 1997 393,250 500,000 -- 40,000 --
Executive Officer
Jennifer L. Adams (2)............ 1999 $297,958 $ 439,425 $ 423,750 65,000 $ 4,036,277
1998 324,308 440,000 751,563 65,000 --
1997 310,833 400,000 -- 40,000 --
Jerome V. Brofft................. 1999 $190,000 $ 114,000 -- 10,000 $ 120,000
Senior Vice President, 1998 184,039 114,000 -- 10,000 --
Purchasing 1997 164,338 60,000 -- 10,000 --
Heidi J. Nolte................... 1999 $220,079 $ 110,000 -- 10,000 $ 132,000
Vice President, Chief 1998 200,000 100,000 -- 10,000 --
Information Officer 1997 189,466 93,000 -- 7,500 --
Michel P. Salbaing (3)........... 1999 $111,137 -- -- -- --
Senior Vice President, Chief 1998 -- -- -- -- --
Financial Officer 1997 -- -- -- -- --
Robert B. Lewis (4).............. 1999 $155,288 $ 275,000 $ 317,812 20,000 $ 2,822,012
1998 185,673 150,000 -- 20,000 --
1997 119,567 65,000 -- 7,500 --
James E. Lillie (5).............. 1999 $175,961 $ 302,500 $ 158,906 20,000 $ 3,064,831
1998 241,186 250,000 -- 20,000 --
1997 162,186 93,000 -- 5,000 --
------------------------
(1) Mr. Burton was employed by the Company until October 1999.
(2) Ms. Adams was employed by the Company until December 1999.
(3) Mr. Salbaing commenced employment as of August 1999. Accordingly,
compensation shown reflects amounts paid after that date.
(4) Mr. Lewis was employed by the Company until August 1999.
(5) Mr. Lillie was employed by the Company until August 1999.
19
(6) On April 6, 1999, the Company granted Mr. Burton 40,000 Restricted Shares.
In addition, Mr. Reisch, Ms. Adams, Mr. Lewis and Mr. Lillie were granted
30,000 Restricted Shares, 20,000 Restricted Shares, 15,000 Restricted Shares
and 7,500 Restricted Shares, respectively. The fair market value of World
Color's common stock on such date was $21.19 per share. Under the Company's
Restricted Stock Plan, shares vested over a five year period. Pursuant to
the Merger Agreement, the Board of Directors of World Color (or, if
appropriate, the committee administering the Restricted Stock Plan) adopted
resolutions and took such actions as required to provide that any
restrictions imposed pursuant to the Restricted Stock Plan on any shares of
common stock of World Color (such shares, "Restricted Stock") would (subject
to the consummation of the Offer) lapse and each share of Restricted Stock
would be entitled to receive $35.69 per share. All such shares were
subsequently tendered into the Offer.
(7) On May 28, 1998, the Company granted Mr. Burton, Mr. Reisch and Ms. Adams
40,000 shares of Restricted Stock, 25,000 shares of Restricted Stock and
25,000 shares of Restricted Stock, respectively. The fair market value of
the Company's common stock on such date was $30.063 per share. On
November 16, 1998, the Company granted Mr. Burton and Mr. Reisch an
additional 25,000 shares of Restricted Stock and 20,000 shares of Restricted
Stock, respectively. The fair market value of the Company's common stock on
such date was $30.50 per share. Under the Company's 1998 Restricted Stock
Plan, shares vested over a five-year period. Any of such shares outstanding
at the time of the Offer were tendered into the Offer.
(8) Messrs. Burton, Reisch, Brofft, Lewis and Lillie and Ms. Adams and Nolte
received certain amounts provided for under their respective Change in
Control/Retention and Severance Agreements in connection with the Change in
Control. Mr. Burton's amount includes the amount due to him under the Third
Amended and Restated Supplemental Retirement Plan.
20
OPTION GRANTS IN 1999
INDIVIDUAL GRANTS
[Enlarge/Download Table]
PERCENT OF TOTAL
OPTIONS GRANTED EXERCISE PRICE
OPTIONS TO EMPLOYEES IN PER SHARE EXPIRATION GRANT DATE
NAME GRANTED(1) 1999 ($/SH.) DATE VALUE(2)
---- ---------- ---------------- -------------- ---------- -----------
Robert G. Burton............... 875,000 50.1% $ 24.33 2/3/09 $11,404,497
Robert G. Burton............... 175,000 10.0% $23.3125 5/5/09 $ 2,185,276
Marc L. Reisch................. 125,000 7.2% $23.3125 5/5/09 $ 1,560,911
Jennifer L. Adams.............. 65,000 3.7% $23.3125 5/5/09 $ 811,674
Michel P. Salbaing............. -- -- -- -- --
Jerome V. Brofft............... 10,000 0.6% $23.3125 5/5/09 $ 124,873
Heidi J. Nolte................. 10,000 0.6% $23.3125 5/5/09 $ 124,873
Robert B. Lewis................ 20,000 1.1% $23.3125 5/5/09 $ 249,746
James E. Lillie................ 20,000 1.1% $23.3125 5/5/09 $ 249,746
------------------------
(1) Had these options not been settled in connection with the consummation of
the Offer in August 1999, the options would have vested in 20% annual
increments over a period of five years from the date of grant, subject to
accelerated vesting in the event of termination of employment upon death,
permanent disability or a permitted retirement and upon a change in control
of World Color. The options were exercisable for ten years from the date of
the grant, with certain exceptions, including, without limitation, in the
case of the termination of the option holder's employment with World Color.
Under certain circumstances, the option holder had the right to resell
option shares and World Color had the right to repurchase a specified
percentage of options and option shares.
(2) The fair market value as of the dates of grant, February 3, 1999, in the
case of Mr. Burton's grant of 875,000 options and May 5, 1999 in the case of
all other grants to the named executive officers, has been calculated using
the Black-Scholes method using assumptions about stock price volatility,
dividend yield and future interest rates. The assumptions used in
calculating the grant date values are set forth in the following table:
[Enlarge/Download Table]
GRANT DATE VOLATILITY FACTOR RISK-FREE INTEREST RATE
---------- ----------------- -----------------------
February 3, 1999........................... .300 5.39%
May 5, 1999................................ .300 5.72%
For each grant, the assumed expected life of the options was ten years, and
the assumed dividend yield of the option was zero. The fair market value as
of the grant dates set forth in the table are only theoretical values and
may not accurately determine fair market value. The actual value, if any,
that was realized by each individual depended on the market price of the
common stock on the date of exercise/settlement.
21
AGGREGATE OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR END OPTION VALUES
[Enlarge/Download Table]
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS AT OPTIONS AT DECEMBER 31,
UNDERLYING DECEMBER 31,1999 (3) 1999(3)
OPTIONS VALUE --------------------------- ---------------------------
NAME EXERCISED RESULTED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------- ----------- ----------- ------------- ----------- -------------
Robert G. Burton........ 279,941 $ 3,824,321(1) -- -- -- --
Robert G. Burton........ 1,770,000 20,722,985(2) -- -- -- --
Marc L. Reisch.......... 453,539 6,223,606(2) -- -- -- --
Jennifer L. Adams....... 315,745 4,728,418(2) -- -- -- --
Jerome V. Brofft........ 65,880 1,031,776(2) -- -- -- --
Heidi J. Nolte.......... 59,285 915,812(2) -- -- -- --
Michel P. Salbaing...... -- -- -- -- -- --
Robert B. Lewis......... 47,500 440,950(2) -- -- -- --
James E. Lillie......... 54,255 605,798(2) -- -- -- --
------------------------
(1) Mr. Burton exercised these options in April 1999.
(2) Pursuant to the Merger Agreement, the Board of Directors of World Color (or,
if appropriate, the committee administering the Stock Option Plans) adopted
such resolutions or took such other actions as required to effect the
following: adjust the terms of all outstanding employee or director stock
options to purchase common shares and any related stock appreciation rights
("Company Stock Options") granted under any stock option or stock purchase
plan, program or arrangement of World Color (the "Stock Plans"), to provide
that, subject to certain exceptions, at the consummation of the Offer, each
Company Stock Option outstanding immediately prior to the consummation of
the Offer be cancelled in exchange for (A) a cash payment from the surviving
corporation to be made promptly following the consummation of the Offer
(subject to any applicable withholding taxes) equal in value to (1) the
product of (x) the total number of shares of World Color common stock
subject to such Company Stock Option (the "Option Shares"), multiplied by
(y) $22.00, multiplied by (z) the excess of $35.69 over the exercise price
per share of World Color common stock subject to such Company Stock Option,
divided by (2) $35.69, and (B) a number of shares of QPI common stock to be
issued promptly following the effective time of the Merger equal to (1) the
product of (x) the number of Option Shares, multiplied by (y) 0.6311,
multiplied by (z) the excess of $35.69 over the exercise price per share of
World Color common stock subject to such Company Stock Option, divided by
(2) $35.69. The calculation of the amounts described in (A) and (B) may also
be expressed with the following formulas:
(A) = (Options Shares) X ($22.00) X ($35.69-Exercise Price)/$35.69
(B) = (Options Shares) X (.6311) X ($35.69-Exercise Price)/$35.69
The Stock Plans and any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of
World Color or any subsidiary terminated as of the effective time of the
Merger.
(3) As of December 31, 1999, all options had been settled in connection with the
Merger and none were outstanding.
COMPENSATION UNDER RETIREMENT PLANS
PENSION PLAN BENEFITS
The retirement plan of the Company in which the named executive officers,
among others, participate is named the World Color Press Cash Balance Plan (the
"Cash Balance Plan"), and provides for the determination of a participant's
accrued benefit on a cash balance formula. Although the Cash Balance
22
Plan is a defined benefit pension plan, each participant is credited with a
hypothetical individual account in order to better describe his or her benefit.
A participant's cash balance account is credited each month with an amount equal
to 4% (on an annualized basis) of the participant's annual base wages plus
monthly interest at an annual rate equal to the interest on one-year U.S.
Treasury securities. A participant in the Cash Balance Plan becomes fully vested
in his/her accrued benefit after the completion of five years of service.
Benefits under the Cash Balance Plan are limited to the extent required by
provisions of the Internal Revenue Code of 1986, as amended (the "Code") and the
Employee Retirement Income Security Act of 1974, as amended. If payment of
actual retirement benefits is limited by such provisions, an amount equal to any
reduction in retirement benefits will be paid as a supplemental benefit under
World Color's unfunded Supplemental Executive Retirement Plan, as amended. The
following table sets forth the estimated combined annual retirement benefits
under the Cash Balance Plan and the Supplemental Executive Retirement Plan
(exclusive of Social Security payments) payable on a straight single life
annuity basis to each of Messrs. Reisch and Brofft and Ms. Nolte assuming
continued service until age 65 and current compensation levels remain unchanged.
PENSION TABLE
[Download Table]
ESTIMATED ANNUAL
BENEFITS PAYABLE
NAME UPON RETIREMENT
---- ----------------
Marc L. Reisch.............................................. $568,336
Jerome V. Brofft............................................ 33,765
Heidi J. Nolte.............................................. 81,788
In connection with their departure from the Company, none of Ms. Adams or
Messrs. Lillie or Lewis, participate in the Cash Balance Plan and the
Supplemental Executive Retirement Plan.
Mr. Salbaing does not participate in the Cash Balance Plan or the
Supplemental Executive Retirement Plan.
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
The terms of employment for Mr. Reisch as the President and Chief Executive
Officer of Quebecor World North America, contemplate that he will be paid an
annual salary of $600,000 to be reviewed annually; he will participate in the
Quebecor Printing Inc. short-term incentive plan; he will be entitled to receive
stock option grants under the Quebecor Printing Inc. Executive Stock Option
Plan; and that he will receive all benefits to which other senior executives of
Quebecor Printing Inc. are entitled to receive. Mr. Reisch is also entitled to
receive severance benefits in case of termination of employment pursuant to his
employment arrangement with QPI and that certain Retention and Severance
Agreement entered into between Mr. Reisch and the Company in August 1999 (the
"Retention and Severance Agreement").
The Retention and Severance Agreement and condition of the special one-time
option grants by Quebecor Printing Inc. to Mr. Reisch include
non-competition/non-solicitation covenants restricting Mr. Reisch's ability to
own, manage, operate, join, control or participate in the ownership, management,
operation or control of any "competing business," with certain exceptions or
solicit customers or employees. Such restrictions are to be effective during
Mr. Reisch's employment and for a period of up to 18 months after termination of
his employment.
Each of Ms. Nolte and Ms. Hlavaty and Messrs. Bacon, Brofft, Carousso and
Hayden are party to Retention and Severance Agreements with the Company
providing for the payment of retention bonuses and in the case of a termination
of employment by the Company without cause or by the employee for good reason
(as such terms are defined in the respective agreements), the payment of
severance benefits
23
including continuation of coverage and participation in employee welfare and
fringe benefit plans or programs until the earlier of the first anniversary of
termination or the date on which the respective employee becomes re-employed and
receives comparable benefits. Pursuant to their respective Retention and
Severance Agreements, each of Ms. Nolte and Ms. Hlavaty and each of
Messrs. Brofft, Carousso and Hayden are subject to
non-competition/non-solicitation covenants, which provide that for one year from
the earlier of August 20, 2000 or the date of termination of employment, the
respective employee shall not directly or indirectly, own, manage, operate,
join, control or participate in the ownership, management, operation or control
of any "competing business," with certain exceptions, or solicit customers or
employees. Under these agreements, the employees receive a full gross-up for all
excise taxes and related costs in connection with any payments deemed "excess
parachute payments."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee for the Company during 1999 until the Change in
Control was comprised of Messrs. Gerald Armstrong and Scott Stuart, Dr. Mark
Griffin and Ms. Patrice Daniels. Until the acquisition by QPI, World Color paid
fees to Kohlberg Kravis Roberts & Co. L.P. ("KKR") of $750,000 per year for
management consulting and financial advisory services. Mr. Stuart, a former
director and member of the Compensation Committee, is a member of the limited
liability company which is a general partner of KKR and is a general partner of
KKR Associates. Mr. Alexander Navab, Jr., a former director of World Color, is
an Executive of KKR and a limited partner of KKR Associates.
CIBC, Inc., an affiliate of CIBC Oppenheimer Corp., was a lender under the
Company's credit facility and CIBC Oppenheimer Corp. was a co-lead manager in
the Company's November 1998 issuance of $300.0 million of its 8 3/8% Senior
Subordinated Notes due 2008 and a co-manager in the Company's February 1999
issuance of $300.0 million of its 7 3/4% Senior Subordinated Notes due 2009.
Ms. Daniels, who is a former director and member of the Compensation Committee,
is a managing director of CIBC Oppenheimer Corp.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the beneficial
ownership of the Common Stock of Quebecor World as of March 1, 2000, including
beneficial ownership by (i) each stockholder of Quebecor World who owns more
than 5% of the outstanding shares of Quebecor World Common Stock, (ii) each
director of Quebecor World, (iii) the Chief Executive Officer of Quebecor World,
(iv) Quebecor World's four highest paid executive officers (exclusive of the
Chief Executive Officer) and (v) all directors and executive officers of
Quebecor World as a group. Except otherwise noted, the persons named in the
table below have sole voting and investment power with respect to all shares of
Quebecor World common stock shown as beneficially owned by them.
[Enlarge/Download Table]
NUMBER OF SHARES OF COMMON PERCENTAGE OF OUTSTANDING SHARES
NAME STOCK OWNED (1) OF THE COMMON STOCK
---- -------------------------- --------------------------------
Quebecor Printing (USA) Holdings Inc.
(2)...................................... 10 100%
Marc L. Reisch............................. 0 0%
Jerome V. Brofft........................... 0 0%
David R. Coates............................ 0 0%
Marcello A. De Giorgis..................... 0 0%
Heidi J. Nolte............................. 0 0%
Christian M. Paupe......................... 0 0%
Michel P. Salbaing......................... 0 0%
All directors and executive officers as a
group.................................... 0 0%
------------------------
(1) For purposes of this table, "beneficial ownership" includes any shares that
a person has the right to acquire within 60 days of March 1, 2000. For
purposes of computing the percentage of outstanding
24
shares of Quebecor World Common Stock held by each person or group of
persons named above on a given date, any security which this person(s) has
the right to acquire within 60 days after March 1, 2000 is deemed to be
outstanding for purposes of computing the percentage ownership of this
person, but is not deemed to be outstanding in computing the percentage
ownership of any other person.
(2) Quebecor Printing Inc. indirectly owns all of the issued and outstanding
shares of its subsidiary, Quebecor Printing (USA) Holdings Inc. The address
for Quebecor Printing (USA) Holdings Inc. is 300 Delaware Ave., Suite 900,
Wilmington, DE 19801.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Until the acquisition by QPI, World Color paid fees to KKR of $750,000 per
year for management consulting and financial advisory services. In August 1999,
World Color paid KKR fees of $17,997,000 for consulting services related to the
acquisition by QPI. We believe these fees were no less favorable than those
which could be obtained for comparable services from unaffiliated third parties.
Members of the limited liability company which is the general partner of KKR and
employees of KKR who also served as directors of World Color did not receive
additional compensation for service in such capacity, other than customary
directors' fees. Mr. Scott Stuart was a director of World Color until
August 1999 and is a member of the limited liability company which is the
general partner of KKR and a general partner of KKR Associates. Mr. Alexander
Navab, Jr. was a director of World Color until August 1999 and is an executive
of KKR and a limited partner of KKR Associates.
CIBC, Inc., an affiliate of CIBC Oppenheimer Corp., was a lender under World
Color's credit facility and CIBC Oppenheimer Corp. was a co-lead manager in
World Color's November 1998 issuance of $300.0 million of its 8 3/8% Senior
Subordinated Notes due 2008 and a co-manager in World Color's February 1999
issuance of $300.0 million of its 7 3/4% Senior Subordinated Notes due 2009.
Ms. Patrice Daniels was a director of World Color and is a managing director of
CIBC Oppenheimer Corp.
On November 5, 1997, World Color loaned $100,000 to each of Messrs. Lewis,
Lillie and Quinlan, each of whom were executive officers of World Color, to
enable each of such persons to purchase World Color's common stock in the open
market. Each such loan bore interest at the rate of 7.0% per annum in 1999. In
connection with the Change of Control of World Color, these loans were forgiven
in accordance with the applicable Change in Control agreements between World
Color and such individuals. On April 26, 1999, World Color loaned $100,000 to
each of Messrs. Lewis, Lillie, Quinlan, Carousso and Ms. Hlavaty. Each of
Messrs. Lewis, Lillie, Quinlan and Carousso were executive officers for purposes
of Section 16 of the Securities Exchange Act of 1934 at such time. These loans
were made to enable such persons to purchase World Color's common stock in the
open market. Each of such loans bore interest at the rate of 7.0% per annum in
1999. In connection with the Change in Control in August 1999 such loans were
repaid by these individuals and in accordance with the applicable requirements
of Section 16(b) of the Securities Exchange Act of 1934 the profit with respect
to such shares purchased was disgorged, as applicable.
In connection with World Color's common stock repurchase program and in an
effort to provide for an orderly disposition of options held since at least 1991
and expiring over the next two to three years, World Color repurchased from
Messrs. Armstrong and Burton shares issued upon the exercise of certain stock
options. Specifically, World Color repurchased 31,603 shares and 180,782 shares
from Messrs. Armstrong and Burton, respectively, on April 6, 1999 at the fair
market value of $21.00 per share.
In 1999, certain wholly owned subsidiaries of QPI provided Company with
$511.5 million, which was borrowed on the Company's behalf from the
subsidiaries' external long-term credit facilities. The resulting indebtedness
has an interest rate of LIBOR plus 2% per annum, adjusted quarterly. The
interest rate was 8.07% at December 31, 1999. Payment is not required prior to
January 1, 2001. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
25
As part of the Merger costs, the Company recognized a non-cash charge of
$67.5 million for the cancellation and settlement by Acquisition Inc. of all
vested and unvested options. Of this amount, $40.9 million was paid directly by
Acquisition Inc. to the option holders on behalf of the Company and
$26.6 million was paid in stock of QPI upon consummation of the Merger. In
addition, Acquisition Inc. contributed $51.3 million to the Company to pay
certain other Merger costs. These amounts will not be repaid and are, therefore,
included in stockholders' equity in the 1999 consolidated balance sheet.
At December 31, 1999, the Company had amounts payable to a wholly owned
subsidiary of QPI of approximately $5.1 million for the purchase of raw
materials. In addition, the Company sold land for $4.0 million to a wholly owned
subsidiary of QPI. The Company subsequently leased this property from the
subsidiary for a lease term through 2004.
The Company believes that any past or present transactions with its
affiliates have been at prices and on terms no less favorable to the Company
than transactions with independent third parties. The Company may enter into
transactions with its affiliates in the future. However, the Company intends to
enter into such transactions only at prices and on terms no less favorable to
the Company than transactions with independent third parties. In addition, the
Company's debt instruments generally prohibit the Company from entering into any
such affiliate transaction on other than arm's length terms.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
(i) Consolidated Financial Statements--See accompanying Index to
Consolidated Financial Statements and Financial Statement Schedule on
page 30
(ii) Financial Statement Schedule:
Schedule II, Valuation and Qualifying Accounts, as set forth on page S-1
of this report.
All other schedules have been omitted because they are inapplicable or
are not required or the information is included elsewhere in the
financial statements or notes thereto.
(iii) Exhibits:
26
[Download Table]
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
3.1 Certificate of Merger of Printing Acquisition Inc. into
World Color Press, Inc.
3.2 By-Laws of Quebecor World (USA) Inc.
4.1 Indenture (the "Convert Indenture") between World Color
Press, Inc. and State Street Bank and Trust Company, as
trustee, relating to World Color's 6% Convertible Senior
Subordinated Notes due 2007 (the "Converts"), incorporated
by reference to Exhibit 4.1 to World Color's Quarterly
Report on Form 10-Q for the quarterly period ended September
28, 1997.
4.2 Specimen of Converts (included in the Convert Indenture,
incorporated by reference as Exhibit 4.1).
4.3 First Supplemental Indenture to the Convert Indenture, dated
as of August 10, 1999.
4.4 Second Supplemental Indenture to the Convert Indenture,
dated as of October 8, 1999.
4.5 Third Supplemental Indenture to the Convert Indenture, dated
as of November 23, 1999.
4.6 Indenture between World Color Press, Inc. and The Bank of
New York, as trustee, relating to World Color's 8 3/8%
Senior Subordinated Notes due 2008, incorporated by
reference to Exhibit 4.1 to World Color's Registration
Statement on Form S-4 (No. 333-74087) under the Securities
Act of 1933, as amended (the "World Color Debt S-4").
4.7 Specimen of World Color's 8 3/8% Senior Subordinated Notes
due 2008 (included in the Indenture incorporated by
reference as Exhibit 4.6 hereto).
4.8 Indenture between World Color Press, Inc. and The Bank of
New York, as trustee, relating to World Color's 7 3/4%
Senior Subordinated Notes due 2009, incorporated by
reference to Exhibit 4.3 to the World Color Debt S-4.
4.9 Specimen of World Color's 7 3/4% Senior Subordinated Notes
due 2009 (included in the Indenture incorporated by
reference as Exhibit 4.8 hereto).
10.1 Receivables Purchase Agreement dated as of September 24,
1999 among the Sellers Parties thereto and Quebecor World
Finance Inc.
10.2 Letter Amendment dated December 22, 1999 to Receivables
Purchase Agreement among Quebecor World (USA) Inc., Quebecor
World Finance Inc., and the Sellers party to the Receivables
Purchase Agreement dated as of September 24, 1999.
10.3 Amended and Restated Receivables Sale Agreement dated as of
December 22, 1999 among Quebecor World Finance Inc., as
Seller, Quebecor Printing (USA) Holdings Inc., as the
Initial Collection Agent, ABN AMRO Bank N.V., as the Agent
and a Purchaser Agent, Amsterdam Funding Corporation, as a
Conduit Purchaser, the other conduit purchasers from time to
time party thereto, the other purchase agents from time to
time party thereto and related bank purchasers from time to
time party thereto.
10.4 Acknowledgement of Termination of Purchased Interest and
Direction for Payment for Reduction in Purchased Interest
dated December 22, 1999 between World Color Finance Inc. and
ABN AMRO Bank N.V.
10.5 Retention and Severance Agreement, dated as of August 16,
1999, between World Color Press, Inc. and Jennifer L. Adams,
incorporated by reference to Exhibit 10.1 to the World Color
Quarterly Report on Form 10-Q for the quarterly period ended
September 26, 1999.
27
[Download Table]
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
10.6 Retention and Severance Agreement, dated as of August 16,
1999, between World Color Press, Inc. and Marc L. Reisch,
incorporated by reference to Exhibit 10.2 to the World Color
Quarterly Report on Form 10-Q for the quarterly period ended
September 26, 1999.
10.7 Settlement Agreement, dated as of August 16, 1999, between
World Color Press, Inc. and Robert G. Burton, incorporated
by reference to Exhibit 10.3 to the World Color Quarterly
Report on Form 10-Q for the quarterly period ended September
26, 1999.
10.8 Form of Retention and Severance Agreement, dated as of
August 16, 1999, by and between World Color Press, Inc. and
each of Paul B. Carousso and Marie D. Hlavaty.
10.9 Form of Retention and Severance Agreement, dated as of
August 16, 1999, by and between World Color Press, Inc. and
each of Jerome V. Brofft, Heidi J. Nolte and Kevin P.
Hayden.
10.10 Form of Retention and Severance Agreement, dated as of
August 16, 1999, between World Color Press, Inc. and Kenneth
Bacon.
10.11 Third Amendment to the World Color Press, Inc. Supplemental
Executive Retirement Plan, incorporated by reference to
Exhibit 10.18 to World Color's Annual Report on Form 10-K
for the fiscal year ended December 25, 1994.
10.12 Agreement Plan of Merger dated as of July 12, 1999 by and
among Quebecor Printing Inc., Printing Acquisition Inc. and
World Color Press, Inc., incorporated by reference to
Exhibit 1 to the Form 14D-9.
10.13 Promissory Note dated December 1, 1999, made by and among
Quebecor World (USA) Inc., Quebecor Printing (USA) Holdings
Inc. and Bank of America, N.A.
10.14 Promissory Note dated August 20, 1999 made by and between
World Color Press, Inc. and Quebecor Printing (USA) Holdings
Inc.
10.15 Promissory Note dated August 20, 1999 made by and between
World Color Press, Inc. and Quebecor Printing Delaware LLC.
21.0 Subsidiaries of registrant.
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedule for the year ended December 31, 1999
(filed in electronic format only).
------------------------
(b) Reports on Form 8-K
The registrant filed a Current Report on Form 8-K dated October 8, 1999,
with respect to the merger with an indirect wholly owned subsidiary of Quebecor
Printing Inc. The items reported in such Current Report were Item 2 (Acquisition
or Disposition of Assets) and Item 7 (Financial Statements, Pro Forma Financial
Information and Exhibits).
28
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.
[Download Table]
QUEBECOR WORLD (USA) INC.
(Registrant)
Date: March 30, 2000 By: /s/ MICHEL P. SALBAING
-----------------------------------------
Michel P. Salbaing
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER
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 in the capacities indicated on March 30, 2000.
[Enlarge/Download Table]
SIGNATURES TITLES
---------- ------
/s/ MARC L. REISCH Chairman of the Board of Directors, President
------------------------------------------- and Chief Executive Officer
Marc L. Reisch
/s/ MICHEL P. SALBAING Senior Vice President
------------------------------------------- (Principal Financial Officer) and Director
Michel P. Salbaing
/s/ PAUL B. CAROUSSO Vice President, Controller
------------------------------------------- (Principal Accounting Officer)
Paul B. Carousso
Director
-------------------------------------------
David R. Coates
Director
-------------------------------------------
Marcello A. De Giorgis
/s/ CHRISTIAN M. PAUPE Director
-------------------------------------------
Christian M. Paupe
29
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
[Download Table]
PAGE
----------
FINANCIAL STATEMENTS
Independent Auditors' Report.......................... F-1
Balance Sheets as of December 31, 1999 and December
27, 1998............................................ F-2
Statements of Operations for the Years ended December
31, 1999, December 27, 1998 and December 28, 1997... F-3
Statements of Stockholders' Equity for the Years ended
December 31, 1999, December 27, 1998 and December
28, 1997............................................ F-4
Statements of Cash Flows for the Years ended December
31, 1999, December 27, 1998 and December 28, 1997... F-5
Notes to Financial Statements......................... F-6 - F-22
FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Accounts........ S-1
All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission are omitted because they
are not required under the related instructions or are not applicable or the
required information is shown in the financial statements or notes thereto.
30
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Quebecor World (USA) Inc.:
We have audited the accompanying consolidated balance sheets of Quebecor
World (USA) Inc. and subsidiaries as of December 31, 1999 and December 27, 1998,
and related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years then ended. Our audits also included the
financial statement schedule listed in the Index at Item 14. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Quebecor World (USA) Inc. and
subsidiaries at December 31, 1999 and December 27, 1998, and the results of
their operations and their cash flows for each of the years then ended in
conformity with accounting principles generally accepted in the United States of
America. Also, 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.
As discussed in Note 2 to the consolidated financial statements, in 1999
Quebecor World (USA) Inc. changed its method of accounting for deferred start-up
costs to conform with Statement of Position 98-5.
DELOITTE & TOUCHE LLP
New York, New York
January 24, 2000
F-1
QUEBECOR WORLD (USA) INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND DECEMBER 27, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
[Enlarge/Download Table]
1999 1998
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 47,383 $ 199,932
Accounts receivable--net of allowances for doubtful
accounts of $13,844 and $10,638, respectively........... 270,399 229,209
Inventories............................................... 230,716 276,111
Deferred income taxes..................................... 47,990 16,986
Other..................................................... 40,226 63,729
---------- ----------
Total current assets.................................... 636,714 785,967
Property, plant and equipment--net........................ 877,998 885,999
Goodwill--net............................................. 793,011 647,085
Other..................................................... 68,398 114,835
---------- ----------
TOTAL ASSETS................................................ $2,376,121 $2,433,886
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 194,212 $ 171,683
Accrued expenses.......................................... 137,964 149,525
Payables to related parties............................... 7,380 --
Current maturities of long-term debt...................... 6,090 225,331
---------- ----------
Total current liabilities............................... 345,646 546,539
Long-term debt............................................ 1,285,106 1,030,589
Deferred income taxes..................................... 62,687 94,793
Other long-term liabilities............................... 133,357 93,318
---------- ----------
Total liabilities....................................... 1,826,796 1,765,239
---------- ----------
Stockholders' equity:
Common stock, $1.00 par value--authorized, 3,000 shares in
1999; shares outstanding, 10 in 1999.................... -- --
Common stock, $.01 par value--authorized, 100,000,000
shares in 1998; shares outstanding, 38,639,642 in
1998.................................................... -- 386
Additional paid-in capital................................ 701,893 721,913
Capital contribution from Printing Acquisition Inc........ 118,773 --
Accumulated deficit....................................... (271,341) (49,310)
Treasury stock, at cost: 20,246 shares.................... -- (613)
Unamortized restricted stock compensation................. -- (3,729)
---------- ----------
Total stockholders' equity.............................. 549,325 668,647
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $2,376,121 $2,433,886
========== ==========
See notes to consolidated financial statements.
F-2
QUEBECOR WORLD (USA) INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(IN THOUSANDS)
[Enlarge/Download Table]
1999 1998 1997
---------- ---------- ----------
Net sales................................................ $2,552,895 $2,356,885 $1,981,225
Cost of sales............................................ 2,223,424 1,927,790 1,613,938
---------- ---------- ----------
Gross profit............................................. 329,471 429,095 367,287
Selling, general and administrative expenses............. 406,730 214,862 188,688
Restructuring and other special charges.................. 74,807 -- --
---------- ---------- ----------
Operating income (loss).................................. (152,066) 214,233 178,599
Interest expense and securitization fees................. 103,866 88,589 80,039
---------- ---------- ----------
Income (loss) before income taxes, extraordinary items
and cumulative effect of change in accounting
principle.............................................. (255,932) 125,644 98,560
Income tax provision (benefit)........................... (56,406) 52,054 41,341
---------- ---------- ----------
Income (loss) before extraordinary items and cumulative
effect of change in accounting principle............... (199,526) 73,590 57,219
Extraordinary items, net of tax.......................... (11,992) -- --
Cumulative effect of change in accounting principle, net
of tax................................................. (10,513) -- --
---------- ---------- ----------
Net income (loss)........................................ $ (222,031) $ 73,590 $ 57,219
========== ========== ==========
See notes to consolidated financial statements.
F-3
QUEBECOR WORLD (USA) INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(IN THOUSANDS)
[Enlarge/Download Table]
UNAMORTIZED
ADDITIONAL RESTRICTED
COMMON PAID-IN CAPITAL ACCUMULATED TREASURY STOCK
STOCK CAPITAL CONTRIBUTION DEFICIT STOCK COMPENSATION
-------- ---------- ------------ ----------- -------- ------------
BALANCE
DECEMBER 29, 1996........................ $337 $583,721 $ -- $(169,126) $ -- $ --
Net income............................. -- -- -- 57,219 -- --
Common stock issued.................... 47 127,571 -- -- -- --
---- -------- -------- --------- ------- ------
BALANCE
DECEMBER 28, 1997........................ 384 711,292 -- (111,907) -- --
---- -------- -------- --------- ------- ------
Net income............................. -- -- -- 73,590 -- --
Common stock issued.................... 1 6,544 -- (10,993) 14,371 --
Common stock repurchased............... -- -- -- -- (14,984) --
Restricted stock issued................ 1 4,077 -- -- -- (4,078)
Amortization of restricted stock....... -- -- -- -- -- 349
---- -------- -------- --------- ------- ------
BALANCE
DECEMBER 27, 1998........................ 386 721,913 -- (49,310) (613) (3,729)
---- -------- -------- --------- ------- ------
Net income............................. -- -- -- (222,031) -- --
Common stock issued.................... 5 6,469 -- -- -- --
Common stock repurchased............... -- -- -- -- (30,558) --
Restricted stock issued................ 2 4,289 -- -- -- (4,291)
Amortization of restricted stock....... -- -- -- -- -- 8,020
Capital contribution from Printing
Acquisition Inc...................... -- -- 118,773 -- -- --
Merger with Printing Acquisition
Inc.................................. (393) (30,778) -- -- 31,171 --
---- -------- -------- --------- ------- ------
BALANCE
DECEMBER 31, 1999........................ $ -- $701,893 $118,773 $(271,341) $ -- $ --
==== ======== ======== ========= ======= ======
See notes to consolidated financial statements.
F-4
QUEBECOR WORLD (USA) INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(IN THOUSANDS)
[Enlarge/Download Table]
1999 1998 1997
---------- -------- --------
OPERATING ACTIVITIES:
Net income (loss)......................................... $ (222,031) $ 73,590 $ 57,219
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 155,766 140,725 131,710
Settlement of stock options............................... 67,474 -- --
Amortization of restricted stock.......................... 8,020 349 --
Restructuring and other special charges................... 74,807 -- --
Writedown of fixed assets................................. 40,011 -- --
Extraordinary items, net of tax........................... 11,992 -- --
Cumulative effect of change in accounting principle, net
of tax.................................................. 10,513 -- --
Deferred income tax (benefit) provision................... (48,036) 17,897 14,272
Changes in operating assets and liabilities:
Proceeds from sale of accounts receivable............... -- -- 200,000
Other changes in accounts receivable--net............... (14,096) (16,031) (13,812)
Inventories............................................. 54,920 (58,029) (53,936)
Accounts payable, accrued expenses and payables to
related parties....................................... (43,148) (26,700) (43,577)
Other assets and liabilities--net....................... 21,974 (119,916) (52,571)
---------- -------- --------
Net cash provided by operating activities............. 118,166 11,885 239,305
---------- -------- --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment................ (140,005) (184,004) (93,145)
Proceeds from sale and leaseback of equipment............. -- 88,471 --
Proceeds from sale of property, plant and equipment....... 14,751 9,533 2,006
Acquisitions of businesses, net of cash acquired.......... (120,693) (190,095) (172,539)
---------- -------- --------
Net cash used in investing activities................. (245,947) (276,095) (263,678)
---------- -------- --------
FINANCING ACTIVITIES:
Proceeds from borrowings.................................. 992,900 451,553 285,775
Payments on long-term debt................................ (1,038,043) (20,026) (384,526)
Capital contribution from Printing Acquisition Inc........ 51,299 -- --
Premium paid on debt extinguishment....................... (6,840) -- --
Proceeds from issuance of common stock.................... 6,474 6,545 127,618
Repurchases of common stock--net.......................... (30,558) (11,606) --
---------- -------- --------
Net cash (used in) provided by financing activities... (24,768) 426,466 28,867
---------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (152,549) 162,256 4,494
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 199,932 37,676 33,182
---------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 47,383 $199,932 $ 37,676
========== ======== ========
See notes to consolidated financial statements.
F-5
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION
Quebecor World (USA) Inc., formerly known as World Color Press, Inc., (along
with its subsidiaries the "Company" or "World") specializes in the production
and distribution of data for customers in the commercial, magazine, catalog,
direct mail, book and directory markets.
On July 12, 1999, the Company entered into an Agreement and Plan of Merger
with Quebecor Printing Inc. ("QPI") and its indirect wholly owned subsidiary,
Printing Acquisition Inc. ("Acquisition Inc."), which provided for the
acquisition of the Company (the "Merger"). On July 16, 1999, QPI, through
Acquisition Inc., commenced a tender offer to acquire up to 23,500,000 shares of
the Company's common stock at a price of $35.69 per share. On August 20, 1999,
QPI acquired, through Acquisition Inc., 19,179,495, or approximately 50.4%, of
the Company's outstanding shares.
On October 8, 1999, the Company and Acquisition Inc. completed the Merger
following receipt of approval from the Company's stockholders. As a result, the
Company became an indirect wholly owned subsidiary of QPI and at that time was
renamed Quebecor World (USA) Inc. The remaining outstanding shares of World's
common stock (other than shares purchased by QPI in the tender offer) were
converted into the right to receive 1.2685 subordinate voting shares of QPI and
$8.18 in cash per share. In addition, each 6% Convertible Senior Subordinated
Note due 2007, outstanding at the Merger, became convertible into the number of
QPI subordinate voting shares and cash that would have been received had the
convertible note been converted immediately prior to October 8, 1999.
In connection with the Merger, all of the Company's then outstanding common
stock, treasury stock and additional paid-in capital was recapitalized into 10
common shares, par value $1.00 per share. All shares are held by a wholly owned
subsidiary of QPI. Under the Company's new capital structure, 3,000 common
shares, par value $1.00, were authorized. No preferred shares were authorized.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Quebecor World (USA) Inc. and its subsidiaries. Intercompany
transactions have been eliminated.
CASH AND CASH EQUIVALENTS--Cash equivalents consist of highly liquid
instruments with original maturities of three months or less.
ACCOUNTING PERIOD--In 1999, the Company changed its fiscal year end from the
last Sunday in December to December 31, 1999 to conform to QPI's fiscal year
end. This change resulted in a 369-day period rather than a 52-week period under
the previous policy. The change in fiscal year did not have a material effect on
the Company's results of operations. The Company's fiscal year in 1998 and 1997
was the 52-week period ending on the last Sunday in December.
CONSOLIDATED STATEMENTS OF CASH FLOWS--During 1999, 1998 and 1997, the
Company borrowed and repaid $1,860,706, $599,100 and $563,200, respectively,
pursuant to the terms of credit agreements. See also Note 9. Such amounts have
been reflected as net in the consolidated statements of cash flows because of
the short-term nature of the borrowings.
F-6
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash paid for interest by the Company during the years 1999, 1998 and 1997
was $101,141, $82,392 and $75,738, respectively, net of capitalized interest of
$1,919, $2,374 and $941, respectively. Cash paid for taxes during the years
1999, 1998 and 1997 was $19,162, $35,145 and $28,266, respectively.
REVENUE RECOGNITION--In accordance with trade practice, sales are recognized
by the Company on the basis of production and service activity at the pro rata
billing value of work completed.
INVENTORIES--The Company's raw materials of paper and ink and the related
raw material component of work-in-process are valued at the lower of cost, as
determined using the first-in, first-out method, or market. The remainder of the
work-in-process is valued at the pro rata billing value of work completed.
DEPRECIATION AND AMORTIZATION--Property, plant and equipment is stated at
cost. Depreciation is recorded principally on the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the lesser of the useful life of the improvement
or the lease term. Estimated useful lives used in computing depreciation and
amortization expense are 3 to 15 years for machinery and equipment and 15 to
40 years for buildings and leasehold improvements.
GOODWILL--Goodwill is amortized using the straight-line method primarily
over 35 years. Amortization of goodwill for the years 1999, 1998 and 1997 was
$24,093, $20,008 and $16,424, respectively, and is included in selling, general
and administrative expenses. Accumulated amortization of goodwill was $95,329
and $71,236 as of year end 1999 and 1998, respectively.
RECLASSIFICATIONS--Certain reclassifications have been made to prior years'
amounts to conform with the current year presentation.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTEREST RATE SWAP AGREEMENTS--The Company enters into interest rate swap
agreements from time to time to reduce exposures to market risks resulting from
fluctuations in interest rates. The Company does not hold or issue any
derivative financial instruments for trading purposes. Gains and losses on
interest rate agreements are recognized through income and offset the
transactions which they are intended to hedge.
RECENT ACCOUNTING PRONOUNCEMENTS--In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. The Company adopted this statement in the first quarter of
fiscal year 1998. The adoption of SFAS No. 130 did not have a material effect on
the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board also issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for
F-7
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reporting information on operating segments in the financial statements. The
Company adopted this statement for the fiscal year ended 1998. In accordance
with this standard, the Company has determined that, while it offers services to
a diverse group of customers in different industries, the Company itself
operates in one business segment, the management and distribution of print and
digital information. In accordance with the management approach prescribed in
the statement, there are no discernable operating segments that management
evaluates separately on a regular basis. In addition, no customer accounted for
more than 5% of the Company's net sales in 1999.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." This SOP requires
certain costs related to computer software developed or obtained for internal
use to be expensed or capitalized depending on the stage of development and the
nature of the costs. The Company adopted this SOP in the first quarter of fiscal
year 1999. The adoption of SOP 98-1 did not have material effect on the
Company's consolidated financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires costs of start-up activities and
organization costs to be expensed as incurred. The Company adopted this SOP in
the first quarter of fiscal year 1999, which resulted in a charge of $10,513,
net of taxes of $7,305, as the cumulative effect of a change in accounting
principle for the non-recurring write-off of deferred start-up costs. The
adoption of this SOP did not have a material effect on operating income on a
continuing basis .
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
requires companies to recognize all derivatives as either assets or liabilities
and measure those instruments at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. In
June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133," to delay the effective date of SFAS
No. 133 to fiscal years beginning after June 15, 2000. Therefore, the Company
plans to adopt SFAS No. 133 in the first quarter of fiscal year 2001. The
Company does not expect the adoption of SFAS No. 133 to have a material impact
on its consolidated financial statements.
3. BUSINESS ACQUISITIONS
In fiscal year 1999, the Company acquired five businesses serving customers
in the commercial, retail and directory markets for an aggregate purchase price
of approximately $203,000, including assumed indebtedness. In 1998, the Company
acquired four businesses serving customers in the commercial, direct mail and
book markets for an aggregate purchase price of approximately $200,000. In 1997,
the Company acquired two businesses serving the book and short-run publication
markets for an aggregate purchase price of approximately $194,000.
These acquisitions were accounted for as purchases and the consolidated
financial statements include the results of their operations from the respective
acquisition dates. These acquisitions have not had a material effect on the
Company's results of operations.
F-8
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. MERGER RELATED COSTS
The Company incurred $169,301 of non-recurring Merger related costs in 1999.
These costs included: the cancellation and settlement by Acquisition Inc. of all
vested and unvested options, bonuses, severance, legal and attorney fees, and
other fees specifically related to the Merger. In addition, the Company's
outstanding restricted stock became fully vested in connection with the Merger.
The Merger related costs are included in selling, general and administrative
expenses in the Company's 1999 consolidated statement of operations. The
majority of these costs were paid in 1999.
In connection with the Merger, the Company has developed an integration
strategy for the combined entities that requires the redeployment and/or
disposal of assets and the shutdown or relocation of certain of the Company's
plant locations and sales offices. This revised strategic initiative resulted in
a charge to the Company's 1999 cost of sales and selling, general and
administrative expenses of $134,668 and $9,876, respectively. The charge was
primarily composed of $40,011 for the writedown of fixed assets to reflect the
fair market value, $32,303 for severance and related costs to shut down certain
plant locations and sales offices, $19,672 for the disposal and other related
costs of inventories and $34,100 to reflect other operational changes in the
business as a result of the Merger.
At December 31, 1999, all such assets have been adjusted to reflect the
appropriate value and the Company expects to proceed with the closure of the
facilities and related employee terminations in 2000. The expected cash
expenditures for the above charges are approximately $14,000, the majority of
which is severance related and will be paid in 2000.
As a result of the Merger integration plan, the Company anticipates
incurring additional charges, primarily in 2000, of approximately $26,000.
5. INVENTORIES
[Download Table]
1999 1998
-------- --------
Inventories are summarized as follows:
Work-in-process....................................... $135,543 $139,259
Raw materials......................................... 95,173 136,852
-------- --------
Total............................................... $230,716 $276,111
======== ========
F-9
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. PROPERTY, PLANT AND EQUIPMENT
[Download Table]
1999 1998
--------- ---------
Property, plant and equipment is as follows:
Land................................................. $ 17,922 $ 17,041
Buildings and leasehold improvements................. 310,227 303,051
Machinery and equipment.............................. 1,379,859 1,291,658
Leased property under capitalized leases............. -- 1,924
--------- ---------
1,708,008 1,613,674
Accumulated depreciation and amortization............ 830,010 727,675
--------- ---------
Total.............................................. $ 877,998 $ 885,999
========= =========
Depreciation expense related to property, plant and equipment was $131,206,
$120,250 and $114,819 for the years 1999, 1998 and 1997, respectively.
7. ACCRUED EXPENSES
[Download Table]
1999 1998
-------- --------
Accrued expenses are as follows:
Compensation.......................................... $ 42,155 $ 55,727
Employee health and welfare benefits.................. 11,093 9,858
Deferred revenue...................................... 12,918 12,408
Interest.............................................. 16,080 14,794
Other................................................. 55,718 56,738
-------- --------
Total............................................... $137,964 $149,525
======== ========
8. RESTRUCTURING AND OTHER SPECIAL CHARGES
In 1999, the Company recorded restructuring and other special charges of
$74,807, or $44,297 net of tax, to eliminate redundant and less efficient
capacity resulting from its ongoing acquisition strategy. The restructuring and
other special charges included the costs to exit and consolidate certain
facilities and sales offices, write down impaired assets and eliminate certain
administrative positions. These charges, consisting primarily of $26,615 for the
writedown of equipment and $44,566 to reserve for certain lease costs, resulted
from changes in the Company's strategic growth objectives and were primarily
determined based on independent appraisals.
The Company has closed the affected facilities and sales offices and
terminated related employees. Fixed assets have been adjusted to reflect their
appropriate values. In 1999, the Company paid approximately $5,000 related to
these charges. The remaining costs, primarily lease payments, will extend
through 2008. The Company does not expect to incur additional expenses related
to this restructuring initiative.
F-10
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. LONG-TERM DEBT
[Download Table]
1999 1998
---------- ----------
Long-term debt is summarized as follows:
7.75% Senior Subordinated Notes.................... $ 300,000 $ --
8.375% Senior Subordinated Notes................... 300,000 300,000
Convertible Senior Subordinated Notes.............. 144,179 151,800
9.125% Senior Subordinated Notes................... -- 150,000
Borrowings under credit agreements................. -- 599,800
Notes borrowed on the Company's behalf............. 511,500 --
Notes payable, average of 9.12% due 2004--2005..... 26,160 33,008
Capitalized lease obligations...................... -- 527
Other debt, average of 7.21% due 2001--2008........ 9,357 20,785
---------- ----------
Total............................................ 1,291,196 1,255,920
Less current maturities.............................. 6,090 225,331
---------- ----------
Noncurrent portion................................... $1,285,106 $1,030,589
========== ==========
7.75% SENIOR SUBORDINATED NOTES--On February 22, 1999, the Company issued
Senior Subordinated Notes in the aggregate principal amount of $300,000,
receiving net proceeds of approximately $294,000. Interest on the notes is
payable semi-annually at the annual rate of 7.75%. The notes do not have
required principal payments prior to maturity on February 15, 2009. The net
proceeds from the notes issuance were utilized to repay certain indebtedness
under the Credit Agreement, as defined below.
The fair value of the notes was approximately $287,000 at December 31, 1999
based on quoted market prices.
8.375% SENIOR SUBORDINATED NOTES--On November 20, 1998, the Company issued
Senior Subordinated Notes in the aggregate principal amount of $300,000,
receiving net proceeds of approximately $291,700. Interest on the Senior
Subordinated Notes is payable semi-annually at the annual rate of 8.375%. The
notes do not have required principal payments prior to maturity on November 15,
2008. The Company utilized the net proceeds from the issuance of these notes to
repay revolving loan commitments incurred under the Credit Agreement and to
redeem all of its outstanding 9.125% Senior Subordinated Notes.
The fair value of the notes was approximately $299,000 and $300,000 at
December 31, 1999 and December 27, 1998, respectively, based on quoted market
prices.
CONVERTIBLE SENIOR SUBORDINATED NOTES--On October 8, 1997, the Company
issued $151,800 aggregate principal amount of Convertible Senior Subordinated
Notes (the "Convertible Notes"), receiving net proceeds of approximately
$147,900. Interest on the Convertible Notes is payable semi-annually at the
annual rate of 6.00%. The Convertible Notes have no required principal payments
prior to maturity on October 1, 2007. The Convertible Notes are convertible at
the option of the holder at any time and at the option of the Company, at
specified prices, subsequent to October 4, 2000. As discussed in Note 1, on
October 8, 1999, each 6% Convertible Note due 2007 became convertible into the
number of QPI subordinate voting shares and cash that would have been received
had the Convertible Note been converted immediately prior to October 8, 1999.
F-11
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. LONG-TERM DEBT (CONTINUED)
The face value of the Convertible Notes was reduced to approximately
$144,000 during 1999, due to the redemption of the notes by the holders. The
Company does not intend to exercise its option to redeem the Convertible Notes
in 2000, therefore the Convertible Notes are classified as long-term in the
consolidated balance sheet.
The fair value of the notes was approximately $146,000 and $149,000 at
December 31, 1999 and December 27, 1998, respectively, based on quoted market
prices.
9.125% SENIOR SUBORDINATED NOTES--On May 10, 1993, the Company issued Senior
Subordinated Notes in the aggregate principal amount of $150,000. Interest on
the Senior Subordinated Notes was payable semi-annually at the annual rate of
9.125%. The notes did not have required principal payments prior to maturity on
March 15, 2003.
On December 28, 1998, the Company used proceeds from its November 1998 debt
issuance to redeem all of its outstanding 9.125% Senior Subordinated Notes due
2003 in an aggregate principal amount of $150,000. The notes were redeemed for
approximately $160,800, including the redemption premium of $6,840 and accrued
interest. This early extinguishment of debt generated an extraordinary charge of
$5,946, net of taxes of $4,132, for the redemption premium and write-off of
deferred financing costs. The 9.125% Senior Subordinated Notes were classified
as current maturities of long-term debt in the December 27, 1998 consolidated
balance sheet.
BORROWINGS UNDER CREDIT AGREEMENTS--On February 22, 1999 concurrent with the
7.75% Senior Subordinated Notes issuance, the Second Amended and Restated Credit
Agreement dated as of June 6, 1996, as amended (the "Credit Agreement"), was
amended resulting in, among other modifications, a $95,000 permanent reduction
in borrowings and commitments under the Credit Agreement. As a result, aggregate
total commitments decreased from $920,000 to $825,000. The amendment and related
permanent reduction in total borrowings and commitments resulted in a
substantial modification of the terms under the Credit Agreement. Accordingly,
the Company recognized an extraordinary charge for the early extinguishment of
debt of $6,046, net of taxes of $4,201, for the write-off of deferred financing
costs.
Subsequent to the Merger, the Company repaid all of its outstanding debt
incurred under the Credit Agreement. At December 31, 1999, there were no
available commitments under the Credit Agreement.
On August 20, 1999, the Company entered into a credit agreement with a third
party lender with a maximum total commitment of $100,000. Interest is payable at
a variable floating rate based on LIBOR or prime rate. At December 31, 1999, the
Company did not owe any amounts under this agreement.
NOTES BORROWED ON THE COMPANY'S BEHALF--In 1999, certain wholly owned
subsidiaries of QPI provided the Company with $511,500, which was borrowed on
the Company's behalf from subsidiaries' external long-term credit facilities.
The Company used these funds to pay certain Merger expenses and repay $491,600
in outstanding debt incurred under the Credit Agreement. The borrowings bear
interest at rates based on LIBOR plus 2% per annum, adjusted quarterly. Interest
on the borrowings ranged from 7.23% to 8.07% in 1999. Payment is not required
prior to January 1, 2001. In 1999, the Company incurred $14,374 of interest
expense, of which $2,305 was included in payables to related parties on the
consolidated balance sheet at December 31, 1999.
F-12
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. LONG-TERM DEBT (CONTINUED)
The fair value of these notes was approximately $511,600 at December 31,
1999, based upon the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
The fair value of the Company's remaining debt approximated its carrying
value, based upon the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
Aggregate annual maturities of long-term debt subsequent to December 31,
1999 are as follows:
[Download Table]
YEAR AMOUNT
---- ----------
2000........................................................ $ 6,090
2001........................................................ 518,106
2002........................................................ 7,125
2003........................................................ 7,055
2004........................................................ 6,377
2005 and thereafter......................................... 746,443
----------
Total................................................... $1,291,196
==========
10. ASSET SECURITIZATION
On June 30, 1997, the Company entered into an agreement to sell, on a
revolving basis for a period of up to five years, certain of its accounts
receivable to a wholly-owned subsidiary, which entered into an agreement to
transfer, on a revolving basis, an undivided percentage ownership interest in a
designated pool of accounts receivable to a maximum of $204,000. Subsequent to
the Merger, this asset securitization program was cancelled. The Company entered
into a new agreement which was aligned with QPI's existing program and has
substantially the same terms and conditions as World's previous agreement. At
December 31, 1999 and December 27, 1998, accounts receivable was reduced by
$200,000 for amounts sold. Fees arising from the securitization transaction of
$11,456, $11,888 and $5,133 are included in interest expense and securitization
fees in the consolidated statements of operations for the years ended
December 31, 1999, December 27, 1998 and December 28, 1997, respectively. These
fees vary based on commercial paper rates plus a margin. The Company maintains
an allowance for doubtful accounts based on the expected collectibility of all
accounts receivable, including receivables sold.
11. LEASES
OPERATING LEASES--The Company leases certain equipment, warehouse facilities
and office space under noncancellable operating leases which expire over the
next 11 years. Most of these operating leases provide the Company with the
option, after the initial lease term, either to purchase the equipment or renew
its lease based upon the fair value of the property at the option date.
In 2000, the Company entered into an agreement to lease real property from a
wholly owned subsidiary of QPI. The lease, which expires in December 2004, has
been classified as an operating lease. The lease payments of $360 per year have
been included in the minimum rental payments table.
F-13
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
11. LEASES (CONTINUED)
In 1998, the Company entered into interest rate swap agreements to exchange
floating rate for fixed interest payments. The agreements effectively converted
a notional principal amount of $75,000 variable rate, quarterly operating lease
payments into fixed. As allowable under the agreements, the respective
counterparties cancelled the agreements in September 1999. These agreements did
not have a material impact on the consolidated financial statements for the
periods presented.
SALE AND LEASEBACK OF EQUIPMENT--In 1998, the Company entered into
agreements for the sale and leaseback of certain printing equipment for which it
received approximately $88,500 of proceeds. The lease, which expires in
July 2010, has been classified as an operating lease. The proceeds were utilized
to repay revolving loan commitments incurred under the Credit Agreement.
Future minimum rental payments required under noncancellable leases at
December 31, 1999 were as follows:
[Download Table]
YEAR
----
2000........................................................ $ 51,989
2001........................................................ 46,687
2002........................................................ 41,031
2003........................................................ 33,732
2004........................................................ 25,249
2005 and thereafter......................................... 94,102
--------
Total minimum lease payments................................ $292,790
========
Rental expense for operating leases was $57,154, $49,697 and $44,703 for the
years 1999, 1998 and 1997, respectively. Assets recorded under capital leases
amounted to $1,567, net of accumulated amortization of $357, at the end of 1998.
12. INCOME TAXES
The provision (benefit) for income taxes is summarized as follows:
[Download Table]
1999 1998 1997
-------- -------- --------
Current:
Federal....................................... $ 6,318 $27,429 $21,178
State......................................... 950 6,728 5,891
-------- ------- -------
7,268 34,157 27,069
-------- ------- -------
Deferred:
Federal....................................... (60,776) 17,450 14,525
State......................................... (2,898) 447 (253)
-------- ------- -------
(63,674) 17,897 14,272
-------- ------- -------
Total........................................... $(56,406) $52,054 $41,341
======== ======= =======
F-14
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. INCOME TAXES (CONTINUED)
The tax effects of significant items comprising the Company's net deferred
tax liability as of December 31, 1999 and December 27, 1998 are as follows:
[Download Table]
1999 1998
--------- ---------
Deferred tax assets:
Operating loss carryforwards........................ $ 4,125 $ 6,422
Tax credit carryforwards............................ 37,687 25,871
Employee health and welfare benefits................ 9,748 10,917
Postretirement benefits other than pensions......... 19,948 16,213
Pension benefits accrual............................ 6,853 4,533
Vacation accrual.................................... 6,654 9,232
Restructuring and Merger accrual.................... 24,076 --
Other differences................................... 21,029 12,603
--------- ---------
Gross deferred tax assets......................... 130,120 85,791
--------- ---------
Deferred tax liabilities:
Differences between book and tax bases of
property.......................................... (126,336) (125,184)
Other differences................................... (15,474) (33,319)
--------- ---------
Gross deferred tax liabilities.................... (141,810) (158,503)
--------- ---------
Deferred tax asset valuation allowance................ (3,007) (5,095)
--------- ---------
Net deferred tax liability............................ (14,697) (77,807)
Less current deferred tax asset....................... 47,990 16,986
--------- ---------
Noncurrent deferred tax liability..................... $ (62,687) $ (94,793)
========= =========
The 1999 and 1998 amounts above include a valuation allowance of $3,007 and
$5,095, respectively, relating to a capital loss carryforward that potentially
may not be realized for tax purposes and for the limitations of certain state
net operating loss carryforwards.
The following table reconciles the difference between the U.S. federal
statutory tax rates and the rates used by the Company in the determination of
net income:
[Download Table]
1999 1998 1997
-------- -------- --------
Income tax provision (benefit), at 35%.......... $(89,576) $43,975 $34,496
State and local income taxes, net of federal
income tax benefit............................ (1,266) 4,664 3,665
Release of deferred tax asset valuation
allowance..................................... -- (1,745) --
Costs related to acquisition.................... 29,077 -- --
Other, primarily goodwill amortization.......... 5,359 5,160 3,180
-------- ------- -------
Total........................................... $(56,406) $52,054 $41,341
======== ======= =======
F-15
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. INCOME TAXES (CONTINUED)
At December 31, 1999, the Company had net operating loss carryforwards from
business acquisitions for federal income tax purposes of $1,762 available to
reduce future taxable income, expiring from 2007 to 2010. The Company also had
federal tax credits of $4,162 expiring primarily from 2000 to 2002 and state tax
credits of $3,894 expiring from 2001 to 2013. In addition, the Company had
alternative minimum tax carryover credits of $29,631 which do not expire and may
be applied against regular tax in the future, in the event that the regular tax
expense exceeds the alternative minimum tax.
13. EMPLOYEE BENEFIT PLANS
PENSION PLANS--The Company has defined benefit pension plans in effect which
cover certain employees who meet minimum eligibility requirements. The Company
contributes annually amounts sufficient to satisfy the government's minimum
standards.
Net periodic pension cost is determined based upon years of service and
compensation levels, using the projected unit credit method. Prior year service
costs and unrecognized gains and losses are amortized over the estimated future
service periods of active employees in the respective plan.
POSTRETIREMENT PLANS--The Company provides postretirement medical benefits
to eligible employees. The Company's postretirement health care plans are
unfunded.
F-16
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table provides a reconciliation of the changes in the plans'
benefit obligations and fair value of plan assets for the fiscal years ended
December 31, 1999 and December 27, 1998 and a statement of the funded status as
of December 31, 1999 and December 27, 1998:
[Enlarge/Download Table]
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------- -----------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year............ $205,845 $191,849 $ 43,075 $ 44,665
Service cost....................................... 4,865 5,603 382 945
Interest cost...................................... 14,677 14,568 2,582 2,946
Plan participants' contributions................... -- -- 583 329
Plan amendments.................................... -- -- -- (2,345)
Acquisitions....................................... -- -- -- 741
Curtailment gain................................... -- -- (7,387) (740)
Settlement loss.................................... 2,301 -- -- --
Actuarial (gain) or loss........................... (18,699) 8,932 (1,013) (815)
Benefits paid...................................... (20,306) (15,107) (2,959) (2,651)
Settlements paid................................... (2,533) -- -- --
-------- -------- -------- --------
Benefit obligation at end of year.................. $186,150 $205,845 $ 35,263 $ 43,075
======== ======== ======== ========
[Enlarge/Download Table]
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------- -----------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year..... $180,665 $168,625 $ -- $ --
Actual return on plan assets....................... 27,204 22,089 -- --
Employer contributions............................. 5,428 5,058 2,376 2,322
Plan participants' contributions................... -- -- 583 329
Settlements paid................................... (2,533) -- -- --
Benefits paid...................................... (20,306) (15,107) (2,959) (2,651)
-------- -------- -------- --------
Fair value of plan assets at end of year........... $190,458 $180,665 $ -- $ --
======== ======== ======== ========
RECONCILIATION OF FUNDED STATUS
Funded status...................................... $ 4,308 $(25,180) $(35,263) $(43,075)
Unrecognized actuarial (gain) loss................. (8,553) 20,417 (3,194) 2,539
Unrecognized net transition obligation (asset)..... 45 (182) -- --
Unrecognized prior service cost.................... (10,929) (11,962) (1,731) (3,327)
-------- -------- -------- --------
Net amount recognized.............................. $(15,129) $(16,907) $(40,188) $(43,863)
======== ======== ======== ========
The unrecognized net transition asset is being amortized over the average
expected future service periods of employees. Plan assets consist principally of
common stocks and U.S. government and corporate
F-17
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
obligations. The plans' assets included common stock of the Company totaling
$8,934 at December 27, 1998.
The following table provides the amounts recognized in the consolidated
balance sheets as of December 31, 1999 and December 27, 1998:
[Enlarge/Download Table]
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------- -----------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
Accrued benefit liability............................ $(18,362) $(22,621) $(40,188) $(43,863)
Prepaid benefit cost................................. 2,925 -- -- --
Intangible asset..................................... 308 5,714 -- --
-------- -------- -------- --------
Net amount recognized................................ $(15,129) $(16,907) $(40,188) $(43,863)
======== ======== ======== ========
The following table provides the components of net periodic benefit cost for
the fiscal years ended December 31, 1999 and December 27, 1998:
[Enlarge/Download Table]
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------- -----------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
Service cost......................................... $ 4,865 $ 5,603 $ 382 $ 945
Interest cost........................................ 14,677 14,568 2,582 2,946
Expected return on plan assets....................... (17,428) (16,584) -- --
Amortization of prior service cost................... (1,013) (1,015) (1,595) (1,596)
Amortization of transitional asset................... (226) (226) -- --
Curtailment gain..................................... -- -- (2,667) (740)
Recognized actuarial loss............................ 474 336 -- 136
-------- -------- -------- --------
Net periodic cost.................................... $ 1,349 $ 2,682 $ (1,298) $ 1,691
======== ======== ======== ========
The weighted average assumptions used in the measurement of the Company's
benefit obligation are as follows:
[Enlarge/Download Table]
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------- -----------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
Discount rate........................................ 8.00% 7.25% 8.00% 7.25%
Expected return on plan assets....................... 10.25% 10.25% -- --
Rate of compensation increase........................ 3.50% 3.50% -- --
At December 31, 1999, the Company had only one pension plan with an
accumulated benefit obligation in excess of plan assets of $1,731. At
December 27, 1998, accumulated benefit obligations exceeded plan assets for all
pension plans. The market value of plan assets was used to calculate the
expected return on plan assets.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 5% at the end of 1998 and 1999, and is
expected to remain constant at that rate for future
F-18
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
periods. A one percentage point increase in the assumed health care cost trend
rate would increase the accumulated postretirement benefit obligation as of
December 31, 1999 by $3,395 and the annual postretirement benefit expense by
approximately $290. A one percentage point decrease in the assumed health care
cost trend rate would decrease the accumulated postretirement benefit obligation
as of December 31, 1999 by $3,093 and the annual postretirement benefit expense
by approximately $255.
Certain union employees of the Company participate in multiemployer plans.
Amounts charged to benefit expense relating to the multiemployer plans for 1999,
1998 and 1997 totaled $3,850, $3,685 and $3,352, respectively. In addition, the
Company has various deferred savings and profit sharing plans for certain
employees who meet eligibility requirements. Amounts charged to benefit expense
related to these plans for 1999,1998 and 1997 totaled $3,891, $2,993 and $1,977,
respectively.
14. STOCK-BASED COMPENSATION PLANS
STOCK OPTION PLANS--Prior to the Merger, the Company had stock option plans
that permitted the Stock Option Committee to grant up to an aggregate of
7,750,000 options to purchase shares of the Company's common stock to certain
key employees of the Company. Options granted under the plans generally vested
ratably over a five-year period. Vested options were exercised up to ten years
from the date of grant. Subsequent to the Merger, the Company's stock option
plan was terminated and no options were granted. Information related to the
Company's stock option plans is presented below.
[Enlarge/Download Table]
NUMBER OF OPTIONS OPTION PRICE
----------------- ----------------
Outstanding at December 29, 1996........................... 2,562,305 $ 5.49 to $22.00
Granted.................................................. 804,000 $23.75 to $26.75
Exercised................................................ (12,000) $6.89
Rescinded/Canceled....................................... (45,365) $11.20 to $22.00
----------
Outstanding at December 28, 1997........................... 3,308,940 $ 5.49 to $26.75
----------
Granted.................................................. 937,500 $29.13 to $32.56
Exercised................................................ (617,044) $ 5.49 to $26.75
Rescinded/Canceled....................................... (166,500) $15.00 to $32.56
----------
Outstanding at December 27, 1998........................... 3,462,896 $ 5.49 to $30.75
----------
Granted.................................................. 1,771,500 $23.31 to $24.33
Exercised................................................ (478,058) $ 5.49 to $26.75
Rescinded/Canceled....................................... (16,400) $26.75 to $29.13
Settled at Merger........................................ (4,739,938) $ 5.49 to $30.75
----------
Outstanding at December 31, 1999........................... --
==========
RESERVED FOR
EXERCISABLE FUTURE GRANTS
----------- ----------------
December 27, 1998.......................................... 1,600,600 2,009,800
December 28, 1997.......................................... 1,861,934 396,770
F-19
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
14. STOCK-BASED COMPENSATION PLANS (CONTINUED)
As discussed in Note 4, the Company canceled and settled all vested and
unvested options at the time of the Merger. The Company recognized $67,474
compensation expense related to the cancellation and settlement of the
outstanding stock options.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation,"
prior to 1999, the Company had not recorded compensation expense for stock
options granted to employees. Therefore, the Company has determined the pro
forma net income for fiscal years 1998 and 1997, had compensation expense been
recorded for options granted during those years under the applicable fair value
method described in the statement.
For options granted during 1998 and 1997, the fair value at the date of
grant was estimated using the Black-Scholes option pricing model. Under the
Black-Scholes model, a volatility factor of .281 and .310 was used for 1998 and
1997, respectively.
The following weighted average assumptions were used in calculating the fair
value of the options granted in 1998 and 1997, respectively: risk-free interest
rates of 5.13% and 6.33%; an assumed dividend yield of zero; and an expected
life of the options of ten years.
For purposes of the pro forma disclosures, the estimated fair value of the
options granted is amortized to compensation expense over the options' vesting
period. The Company's pro forma information is as follows:
[Download Table]
1998 1997
-------- --------
Net income:
As reported............................................. $73,590 $57,219
Pro forma............................................... $71,319 $55,893
Weighted average fair value of options granted during the
year.................................................... $ 15.00 $ 14.39
RESTRICTED STOCK--Restricted shares of the Company's stock were issued in
1999 and 1998 to certain key employees under a restricted stock plan. The stock
vested ratably over five years and was contingent upon employment. The market
value of the stock at the time of grant was recorded as unamortized restricted
stock compensation in stockholders' equity and was amortized to expense over the
five year vesting period. In 1999 and 1998, the Company issued 202,500 and
135,000 restricted shares of common stock at a weighted average price of $21.19
and $30.21 per share, respectively. As discussed in Note 4, all of the Company's
restricted stock became fully vested at the time of the Merger. Unamortized
restricted stock compensation at the time of the Merger of $7,306 was recognized
in selling, general and administrative expenses as part of the Merger related
expenses in 1999.
15. TREASURY STOCK
In August 1998, the Board of Directors authorized the repurchase of up to
1,800,000 shares of the Company's common stock. The repurchase of shares
commenced in August 1998 in the open market at prevailing market prices or in
negotiated transactions, depending on market conditions. The shares were
repurchased to satisfy commitments under certain employee benefit plans. When
treasury shares were reissued, the Company used the weighted average cost method
and the excess of repurchase cost over
F-20
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
15. TREASURY STOCK (CONTINUED)
reissuance price was treated as a reduction of retained earnings. In 1999, the
Company repurchased 1,263,652 shares of common stock at a weighted average cost
of $24.18 per share. Since the inception of the plan in 1998, the Company had
repurchased 1,750,153 shares at a weighted average cost of $26.02 and reissued
466,255 shares. The Company terminated the share purchase plan in 1999 and the
treasury stock was retired as a result of the Merger.
16. RELATED PARTY TRANSACTIONS
As part of the Merger expenses discussed in Note 4, the Company recognized a
non-cash charge of $67,474 for the cancellation and settlement by
Acquisition Inc. of all vested and unvested options. Of this amount, $40,868 was
paid directly by Acquisition Inc. to the option holders on behalf of the Company
and $26,606 was paid in stock of QPI upon consummation of the Merger. In
addition, Acquisition Inc. contributed $51,299 to the Company to pay certain
other Merger expenses. These amounts will not be repaid and are, therefore,
included in stockholders' equity in the 1999 consolidated balance sheet.
At December 31, 1999, the Company had amounts payable to a wholly owned
subsidiary of QPI of approximately $5,075 for the purchase of raw materials.
This payable, along with the interest payable discussed in Note 9, is included
in short-term payables to related parties in the consolidated balance sheet at
December 31, 1999.
In 1999, the Company sold land for $4,000 to a wholly owned subsidiary of
QPI. The Company subsequently entered into a lease agreement for the land with
this subsidiary for a lease term through 2004.
The Company paid $17,997 for consulting services related to the Merger
provided by Kohlberg Kravis Roberts & Co. L.P. These fees are included in the
Merger related costs discussed in Note 4.
The Company has incurred expenses of $750 in each of the fiscal years ending
1999, 1998 and 1997 for management services provided by affiliated companies
prior to the Merger.
17. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is subject to legal proceedings and other claims arising in the
ordinary course of operations. In the opinion of management, ultimate resolution
of proceedings currently pending will not have a material effect on the results
of operations or financial position of the Company.
F-21
QUEBECOR WORLD (USA) INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, DECEMBER 27, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
18. UNAUDITED QUARTERLY FINANCIAL INFORMATION
[Enlarge/Download Table]
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF
QUARTER ENDED NET SALES GROSS PROFIT CHANGE IN ACCOUNTING NET INCOME (LOSS)
------------- ---------- ------------ ----------------------- -----------------
March 28, 1999..................... $ 605,843 $ 98,036 $ 10,379 $ (12,126)
June 27, 1999...................... 566,545 99,772 (26,218) (26,218)
September 26, 1999................. 686,840 139,677 (109,399) (109,399)
December 31, 1999.................. 693,667 (8,014) (74,288) (74,288)
---------- -------- --------- ---------
$2,552,895 $329,471 $(199,526) $(222,031)
========== ======== ========= =========
March 29, 1998..................... $ 550,407 $ 87,573 $ 9,358 $ 9,358
June 28, 1998...................... 546,503 94,211 9,772 9,772
September 27, 1998................. 635,980 127,037 28,987 28,987
December 27, 1998.................. 623,995 120,274 25,473 25,473
---------- -------- --------- ---------
$2,356,885 $429,095 $ 73,590 $ 73,590
========== ======== ========= =========
F-22
SCHEDULE II
QUEBECOR WORLD (USA) INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
[Enlarge/Download Table]
ADDITIONS OTHER
BALANCE CHARGED TO CHARGES- BALANCE AT
BEGINNING COSTS AND DEDUCTIONS- ADD (DEDUCT) END
CLASSIFICATION OF YEAR EXPENSES DESCRIBE DESCRIBE OF YEAR
-------------- --------- ---------- ----------- ------------ ----------
YEAR ENDED DECEMBER 31, 1999
Allowance for uncollectible accounts
receivable............................. $10,638 $5,269 $3,367(1) $1,304(2) $13,844
YEAR ENDED DECEMBER 27, 1998
Allowance for uncollectible accounts
receivable............................. $ 9,287 $2,428 $2,545(1) $1,468(2) $10,638
YEAR ENDED DECEMBER 28, 1997
Allowance for uncollectible accounts
receivable............................. $ 8,476 $7,193 $8,345(1) $1,963(2) $ 9,287
------------------------
(1) Write-offs of receivables, net of recoveries.
(2) Balance of acquired companies at acquisition date.
S-1
Dates Referenced Herein and Documents Incorporated by Reference
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