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Quebecor World Announces Sale/Merger of European Business to RSDB and Releases Q3 '07 Results

Press release from the issuing company

November 7, 2007 - Montréal, Canada - Quebecor World Inc. and RSDB NV announced that they have signed a definitive Share Purchase Agreement (SPA) and Implementation Agreement to sell/merge Quebecor World's European operations to RSDB Group. RSDB will buy Quebecor World's European operations and Quebecor World will retain a 29.9% interest in the merged entity that will be named "Roto Smeets Quebecor" (RSQ) and will be listed on Euronext Amsterdam.
Under the terms of the Share Purchase Agreement and Implementation Agreement, RSDB will deliver to Quebecor World, at closing, cash, a note and shares valued in the aggregate at approximately €240 million ($341 million), subject to certain post-closing adjustments. More specifically, the consideration payable to Quebecor World will be comprised of approximately €150 million ($213 million) in cash, a €35 million ($50 million) note, and 1.4 million shares in RSQ representing approximately 29.9% of the issued and outstanding shares of the combined business post-closing.
Completion of the merger is conditional, among other things, on the approval of the shareholders of RSDB and receipt of clearances from the European Commission. Closing is expected to take place by the end of 2007.
"This transaction is a key element of our 5-Point Transformation Plan and is expected to deliver several significant benefits to our shareholders. The sale/merger will improve our balance sheet, and will provide additional financial flexibility and strategic options to create further shareholder value. We believe that it will also enable us to strategically reposition our company to focus on growing earnings within our core business in the Americas, where we are a leader", stated Wes Lucas, President and CEO Quebecor World. "We are pleased that retaining an investment in RSQ may present an upside opportunity, as Quebecor World will help facilitate the consolidation of the European print industry and the creation of the leading printer in Europe, which will benefit our customers and employees going forward. Quebecor World and RSQ will also work together in the future to serve global customers", Mr. Lucas added.
John Caris, Chief Executive Officer of RSDB stated: "The combination of Quebecor World's European printing business with RSDB will enable RSDB, through its increased scale and broader footprint throughout Europe, to play an important role in the consolidation of the graphic industry in Europe.  We see a great opportunity to pool the best practices and extensive industry experience available in the two businesses and to benefit from an attractive range of potential synergies".
Roto Smeets Quebecor, the new merged company, will become the leading player in the European printing industry, and the leader in the European market. Quebecor World's European operations currently include 18 printing and related facilities employing approximately 4,000 people in Austria, Belgium, Finland, France, Spain, Sweden, and the United Kingdom. These plants produce magazines, catalogs, retail inserts, direct mail products, book and directories for many of Europe's leading retailers, publishers and branded goods companies.
RSDB NV (Euronext: RSDB) is a leading European provider of high-value graphic printing services based in Hilversum, The Netherlands.  RSDB's principal business, Print Productions, produces full service gravure and offset printing material, with seven printing facilities in The Netherlands and one printing facility in Hungary, supported by sales offices in seven European countries. RSDB's Marketing Communications business focuses on marketing communications solutions and customer management processes.
Specifics of the Transaction
The aggregate consideration payable by RSDB to Quebecor World in respect of the transaction will amount to approximately €240 million ($341 million), to be paid in cash, shares and through the assumption of indebtedness by RSDB, subject to certain post-closing adjustments. RSDB will acquire all shares held by Quebecor World Europe Holding ("QWE"), a wholly-owned subsidiary of Quebecor World, and in return will make payment of €150 million ($213 million) in cash to Quebecor World, and will issue a €35 million ($50 million) 8-year note repayable from 2011 to 2015. RSDB will also issue approximately 1.4 million new RSQ shares to Quebecor World representing 29.9% of its share capital post-closing, on a fully diluted basis. RSDB will also assume QWE's pension, legal, and other liabilities, subject to restrictions in accordance with the terms of agreement.
The acquisition is subject to conditions precedent including the approval of RSDB's shareholders, and receipt of clearances from The European Commission (the "Conditions Precedent"). The transaction is not subject to the approval of Quebecor World's shareholders.
The parties have agreed to arrangements for the provision of certain transitional services and procurement arrangements in the period between the closing of the sale/merger until the end of 2008 in order to ensure the smooth transfer of QWE and its business to RSQ.
In the event that the transaction is not completed as a result of a default of one party (other than as a result of a failure to satisfy the Conditions Precedent or under other limited circumstances), the defaulting party is obliged to pay the other party a break-up fee of €15 million ($21 million).
The Supervisory Board of RSQ will be comprised of five directors. Two of the five members of the Supervisory Board will be nominated by QWI. Resolutions of the Supervisory Board are, in general, adopted by an absolute majority. However upon completion of the sale/merger, Quebecor World and RSDB have agreed that certain predefined corporate decisions relating to important strategic matters, such as decisions relating to mergers and acquisitions, the issuance of new shares and the change of the dividend policy, will require a four out of five majority vote.
RSDB's current CEO, John Caris, will lead RSQ. QWE's experienced senior management team will continue to run the operations in each European country from which it currently operates. The key members of QWE's existing senior management team have indicated their support for the transaction and their continued involvement with the combined business. Their local expertise will be a valuable asset of the combination of the companies.
Quebecor World Third Quarter Results
In the discussion of our third quarter 2007 results below, we use certain financial measures that are not calculated in accordance with Canadian generally accepted accounting principles (GAAP) or United States GAAP to assess our financial performance, including EBITDA (earnings before interest, tax, depreciation and amortization), Adjusted EBITDA and operating income before IAROC (impairment of assets, restructuring and other charges) and goodwill impairment. We use such non-GAAP financial measures because we believe that they are meaningful measures of our performance. Our method of calculating these non-GAAP financial measures may differ from the methods used by other companies and, as a result, the non-GAAP financial measures presented in this press release may not be comparable to other similarly titled measures disclosed by other companies. We provide a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures in Figures 5 and 6, "Reconciliation of non-GAAP Measures" of our third quarter 2007 management's discussion and analysis filed with the Canadian securities regulatory authorities at www.Sedar.com and with the United States Securities and Exchange Commission at www.sec.gov. A copy of our third quarter 2007 management's discussion and analysis is also available on the Company's website at www.quebecorworld.com.
Quebecor World Inc. announces that for the third quarter 2007, the Company reported a net loss of $315 million from continuing operations compared to net income of $19 million in the third quarter of 2006. On the same basis, diluted loss per share in the third quarter was $2.42 compared to diluted earnings per share of $0.09 in the third quarter 2006. Third quarter 2007 results incorporated an impairment of assets, restructuring and other charges (IAROC) and a goodwill impairment charge, net of income taxes, of $272 million, or $2.06 per share, compared with $10 million, or $0.08 per share, in 2006 which resulted in a non-cash impact mainly due to the European transaction. Excluding these charges, adjusted diluted loss per share was $0.36 in the third quarter of 2007 compared to adjusted diluted earnings per share of $0.17 for the same period in 2006. Consolidated revenues for the quarter were $1.41 billion compared to $1.55 billion in the third quarter of 2006. Operating income before IAROC and goodwill impairment in the third quarter was $43 million compared to $67 million during the same period last year. On the same basis, EBITDA was $126 million in the third quarter compared to $151 million in the same period last year.
Considering the transaction and evaluation of the Company's European operations, Quebecor World incurred a non-cash goodwill impairment charge of $166 million, $159 million net of taxes or $1.21 per share. In addition, because of the previously mentioned European transaction with RSDB and because of the retooling plan and the relocation of existing assets in North America, impairment tests were triggered that resulted in an impairment of assets restructuring and other charges of $133 million, $113 million net of taxes or $0.85 per share of which $128 million was a non-cash impairment of long-lived assets.
"Our overall third quarter financial results are disappointing, but we are achieving three key milestones in the third quarter to turn around our business and to grow earnings and cash flow: (1) sale/merger of our European business, (2) refinancing our balance sheet, and (3) completion of the 3-year retooling of our plants. We firmly believe that the sale/merger of our European platform combined with other initiatives will strengthen our balance sheet, give us additional financial flexibility and allow us to focus on our core business in the America's," said Wes Lucas, President and CEO, Quebecor World. "Now that our three-year retooling program is completed, we will concentrate on maximizing our cash flow, optimize the value of our asset base, reduce costs and further develop value-added initiatives to ensure we succeed in the marketplace by providing our customers with the best solutions."
Actions on 5-Point Transformation Plan
Customer Value: During the third quarter, Quebecor World continued to build the capability to increase value to customers by expanding its value-added services. For example, Quebecor World's multi-channel solution to marketers and retailers offers integrated solutions combining the multiple forms of media across Quebecor World, to support customers as they advertise, prospect for sales, drive store traffic, improve brand awareness and grow their business. As multi-channel marketers continue to target more focused market segments, they require a key partner to provide a complete solution that integrates the multiple channels of catalogs, retail fliers, direct mail, Internet, and other advertising channels, and Quebecor World is positioning itself to be this key partner.  The Company remains committed to achieve its objective of $300 million in new and higher margin sales, annual run-rate by year end 2008 from this initiative.
People: This initiative is focused on building high-performance teams and increasing the effectiveness of the organization. During the third quarter of 2007, the Company continued to make progress in training and organizational development. The Company also continues to make progress in making its plants a safer place to work, with 10% fewer accidents in its North American platform in the third quarter.
Execution: Continuous improvements in throughput and waste reduction have been the primary areas of focus as these represent the areas of highest impact with little or no capital requirement. In addition, gains are being recognized through the sharing of improved operating practices across the divisions as the projects integrate across the Company. Latin America will kick off their projects in November 2007 to increase the benefits. Ensuring continued improvements, a total of 153 people have been trained in the Six Sigma/Lean Manufacturing continuous improvement program. Based on this progress, the Company is on track with projects already implemented or being implemented to have a $100 million in annual improvements run-rate by year end 2008, and expects on the same basis to reach a $35 million run-rate by year end 2007.
Retooling Program: Quebecor World's three-year retooling initiative was completed in October 2007. This was focused on installing state-of-the-art technology, in fewer but larger facilities, by running faster, more efficient next-generation technology. Since the end of the second quarter, the Company started up 11 new and relocated presses in the North American book, catalog, retail and Canadian platforms, which negatively impacted the third quarter's results in North America. Management is confident that the Company will benefit from this retooled network in the future.
Given the substantial amount of investment during the last three years as part of the retooling program and the fact that the European operations will no longer be consolidated, additions to property plant and equipment are expected to be in the range of $100-to-$150 million per year for the next two years and normalized longer term to the level of $150-to-$200 million per year.
Balance Sheet: Quebecor World is committed to a long term solution to strengthen its balance sheet and ensure financial flexibility. The European transaction supports this initiative. During the quarter, Quebecor World also announced a full repurchase of its 8.42%, 8.52%, 8.54% and 8.69% Private Notes. Other initiatives are being planned to further strengthen the balance sheet.
North America
North American revenues for the third quarter of 2007 were $1.10 billion, down from $1.24 billion in 2006. Excluding the effect of currency translation and the unfavourable impact of paper sales, revenues decreased by 5.5% in the third quarter. Revenues in the North American segment continued to be impacted by the increase in retooling in the third quarter (11 new and relocated press start-ups), soft volumes and negative price pressures. Due to a very strong Canadian dollar, the Canada group continued to be affected by less favourable foreign exchange contracts on sales to its U.S. customers. Operating income in North America was impacted by the highly competitive market conditions as well as by inefficiencies and costs related to the finalization of the Company's retooling plan during the third quarter of 2007. The decrease was partly offset by the benefits from the retooling completed in 2006 and cost reductions in the Book & Directory and Magazine groups.
European revenues for the third quarter of 2007 were $243 million, down from $244 million in 2006. Excluding the impact of currency translation and paper sales, revenues were down 6.3% for the third quarter compared to the same period in 2006. Overall, the volume decrease experienced in Europe was mostly the result of the disposal of the Lille and the Strasbourg French facilities, as well as press start-up inefficiencies and equipment transfers. This shortfall was partly offset by increases in facilities re-equipped with new presses in Austria, Spain and Belgium, with Belgian volume up almost 45% from the nine month period compared to 2006.
Latin America
Latin America's revenues for the third quarter of 2007 were $75 million, up from $61 million in 2006. Excluding the impact of foreign currency and paper sales, revenues for the third quarter of 2007 were up 5.7% compared to last year. Significant revenue increases from Colombia and Mexico, during the third quarter were the result of growing volume. The increase in Colombia and Mexico mostly came from export sales of bibles and directories, respectively. However, the impact of these increases in volume on operating income was partly offset by less favourable pricing on the bibles during the quarter.
For the first nine months of 2007, Quebecor World reported a net loss from continuing operations of $374 million or a diluted loss of $2.96 per share, compared to net income from continuing operations of $19 million or a diluted loss of $0.06 per share for the same period in 2006. The results for the first nine months of 2007 included impairment of assets, restructuring, and other charges (IAROC) and goodwill impairment (net of taxes) of $321 million or $2.43 per share compared to $54 million or $0.42 per share in 2006 which resulted in a non-cash impact mainly due to the European transaction as discussed above. Excluding impairment of assets, restructuring, and other charges (IAROC), and goodwill impairment (net of taxes) adjusted diluted loss per share was $0.53 for the first nine months of 2007 compared to adjusted diluted earnings per share of $0.36 in the same period of 2006. On the same basis, adjusted operating income in the first nine months of 2007 was $88 million compared to $167 million in 2006. This decrease reflects lower revenues from plant closures, and restructuring programs as well as the effect of the poor European market conditions, which offset the increased profits in divisions where the retooling has already been completed, such as the U.S. Book and Magazines Divisions. Consolidated revenues for the first nine months of 2007 were $4.17 billion compared to $4.47 billion in the same period of 2006.
The Board of Directors of Quebecor World Inc. declared today a dividend of CA$0.3845 per share on Series 3 Preferred Shares and CA$0.43125 on Series 5 Preferred Shares. The dividends are payable on December 1, 2007 to shareholders of record at the close of business on November 19, 2007.
Full Financial Information
Management Discussion and Analysis ("MD&A")
Financial statements are available on the Company's website and through the SEDAR and SEC filings
SEDAR web address: www.sedar.com
SEC web address: www.sec.gov
Conference Call
Quebecor World to include slide presentation in its Quarterly Investor Conference Call
Quebecor World to Webcast Investor Conference Call and Presentation on November 7, 2007
Quebecor World Inc. will broadcast its third quarter conference call live over the Internet on November 7, 2007 at 8:30 AM (Eastern Time).
The conference call and accompanying PowerPoint presentation will be broadcast live and can be accessed on the Quebecor World Website:
The presentation and an archive of the Webcast will be available on the Quebecor World Web site following the conference call.
Prior to the call please ensure that you have the appropriate software. The Quebecor World web address listed above has instructions and a direct link to download the necessary software, free of charge.
Anyone unable to attend this conference call may listen to the replay tape by phoning 1-877-293-8133 or 403-266-2079 - passcode 516211#, available from November 7, 2007 to December 7, 2007.
For the European transaction the conversion rate of Euros into U.S. dollars was at an exchange rate of $1.4219 U.S. dollars for one Euro.