##### Table of Contents



SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003COMMISSION FILE NUMBER 1-8014

MOORE WALLACE INCORPORATED

(Exact name of registrant as specified in its charter)

CANADA
    
    98-0154502(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. employer identification no.)6100 Vipond Drive
MISSISSAUGA, ONTARIO, CANADA
(Address of principal executive offices)
    
    L5T 2X1
(Zip code)


905-362-3100
(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Sections 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  o

Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

YES  x     NO  o

At October 31, 2003, 158,037,148 shares of the registrants common shares,
without par value, were issued and outstanding.





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TABLE OF CONTENTS



|                              |                                                                                               |  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                              | ITEM 4.  CONTROLS AND PROCEDURES                                                             
|PART II  OTHER INFORMATION  
|                              | ITEM 1.  LEGAL PROCEEDINGS                                                                   
|                              | ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.                                          
|                              | ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.                                                    
|                              | ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.                                 
|                              | ITEM 5.  OTHER INFORMATION                                                                   
|                              | ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                                    
|SIGNATURES                   
|CERTIFICATIONS               
|CERTIFICATIONS               



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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS


MOORE WALLACE INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)

SEPTEMBER 30,
    
    DECEMBER 31,2003
    
    2002(UNAUDITED)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    117,104
    
    
    $
    139,630Accounts receivable, less allowance for doubtful
accounts of $18,392 (2002 - $19,538)
    
    
    588,032
    
    
    
    341,383Inventories (Note 2)
    
    
    236,853
    
    
    
    129,889Prepaid expenses
    
    
    34,375
    
    
    
    17,317Deferred income taxes
    
    
    25,008
    
    
    
    31,912Total Current Assets
    
    
    1,001,372
    
    
    
    660,131Property, plant and equipment  net
    
    
    611,979
    
    
    
    255,722Investments
    
    
    29,305
    
    
    
    32,256Prepaid pension cost
    
    
    224,723
    
    
    
    221,520Goodwill (Note 4)
    
    
    804,085
    
    
    
    106,254Other intangibles  net (Note 4)
    
    
    155,770
    
    
    
    6,434Deferred income taxes
    
    
    4,425
    
    
    
    53,938Other assets
    
    
    189,017
    
    
    
    103,504Total Assets
    
    $
    3,020,676
    
    
    $
    1,439,759LIABILITIESCurrent LiabilitiesBank indebtedness
    
    $
    66,449
    
    
    $
    18,158Accounts payable and accrued liabilities
    
    
    604,926
    
    
    
    486,507Short-term debt
    
    
    2,383
    
    
    
    2,135Income taxes
    
    
    57,316
    
    
    
    58,562Deferred income taxes
    
    
    380
    
    
    
    3,184Total Current Liabilities
    
    
    731,454
    
    
    
    568,546Long-term debt (Note 5)
    
    
    920,872
    
    
    
    187,463Postretirement benefits
    
    
    261,481
    
    
    
    241,344Deferred income taxes
    
    
    50,213
    
    
    
    9,482Other liabilities
    
    
    101,114
    
    
    
    43,776Minority interest
    
    
    4,669
    
    
    
    6,652Total Liabilities
    
    
    2,069,803
    
    
    
    1,057,263SHAREHOLDERS EQUITYShare CapitalAuthorized:Unlimited number of preference
(none outstanding for 2003 and 2002)
and common shares without par valueIssued:158,007,398 common shares in 2003111,842,348 common shares in 2002
    
    
    886,741
    
    
    
    403,800Unearned restricted shares
    
    
    (2,669
    )
    
    
    (2,572
    )Retained earnings
    
    
    188,648
    
    
    
    114,601Cumulative translation adjustments
    
    
    (121,847
    )
    
    
    (133,333
    )Total Shareholders Equity
    
    
    950,873
    
    
    
    382,496Total Liabilities and Shareholders Equity
    
    $
    3,020,676
    
    
    $
    1,439,759


(See notes to the consolidated financial statements)



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MOORE WALLACE INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002Net sales
    
    $
    828,895
    
    
    $
    486,767
    
    
    $
    1,990,111
    
    
    $
    1,516,059Cost of sales
    
    
    585,234
    
    
    
    333,900
    
    
    
    1,416,325
    
    
    
    1,036,672Selling, general and administrative expenses
    
    
    143,728
    
    
    
    103,370
    
    
    
    373,999
    
    
    
    340,717Restructuring provision  net (Note 6)
    
    
    10,633
    
    
    
    
    
    
    
    12,330
    
    
    
    Depreciation and amortization
(includes impairment charge of $1,377
and $3,509 for the three and nine months
ended September 30, 2003, respectively)
    
    
    38,293
    
    
    
    20,916
    
    
    
    92,058
    
    
    
    65,578Total operating expenses
    
    
    777,888
    
    
    
    458,186
    
    
    
    1,894,712
    
    
    
    1,442,967Income from operations
    
    
    51,007
    
    
    
    28,581
    
    
    
    95,399
    
    
    
    73,092Investment and other income (expense)
    
    
    (82
    )
    
    
    5,581
    
    
    
    (5,409
    )
    
    
    4,936Interest expense  net
    
    
    14,640
    
    
    
    3,612
    
    
    
    41,023
    
    
    
    8,965Debt settlement expense  net (Note 5)
    
    
    
    
    
    
    16,746
    
    
    
    7,493
    
    
    
    16,746Earnings before income taxes
and minority interest
    
    
    36,285
    
    
    
    13,804
    
    
    
    41,474
    
    
    
    52,317Income tax expense (benefit)
    
    
    9,993
    
    
    
    (3,777
    )
    
    
    (33,451
    )
    
    
    6,503Minority interest
    
    
    296
    
    
    
    83
    
    
    
    878
    
    
    
    577Net earnings
    
    $
    25,996
    
    
    $
    17,498
    
    
    $
    74,047
    
    
    $
    45,237Net earnings per common share:Basic
    
    $
    0.16
    
    
    $
    0.16
    
    
    $
    0.55
    
    
    $
    0.41Diluted
    
    $
    0.16
    
    
    $
    0.15
    
    
    $
    0.54
    
    
    $
    0.40Average shares outstanding (in thousands):Basic
    
    
    157,702
    
    
    
    111,392
    
    
    
    135,189
    
    
    
    111,568Diluted
    
    
    158,475
    
    
    
    113,403
    
    
    
    135,977
    
    
    
    113,885


(See notes to the consolidated financial statements)





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MOORE WALLACE INCORPORATED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)

2003
    
    2002Balance at beginning of period
    
    $
    114,601
    
    
    $
    51,666Net earnings
    
    
    74,047
    
    
    
    45,237Repurchase of common shares (1,069,700 shares in 2002)
    
    
    
    
    
    
    (10,323
    )Balance at end of period
    
    $
    188,648
    
    
    $
    86,580


(See notes to the consolidated financial statements)





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MOORE WALLACE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)

Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002OPERATING ACTIVITIESNet earnings
    
    $
    25,996
    
    
    $
    17,498
    
    
    $
    74,047
    
    
    $
    45,237Adjustments to reconcile net earnings to cash provided
by operating activities:Depreciation and amortization
    
    
    38,293
    
    
    
    20,916
    
    
    
    92,058
    
    
    
    65,578(Gain) loss on sale of investment and other assets  net
    
    
    29
    
    
    
    (5,759
    )
    
    
    (500
    )
    
    
    (8,138
    )Acquisition related charges:Inventory and backlog
    
    
    
    
    
    
    
    
    
    
    38,590
    
    
    
    Derivative (income) charges
    
    
    (727
    )
    
    
    
    
    
    
    4,440
    
    
    
    Write-off of deferred debt issue and settlement costs
    
    
    
    
    
    
    16,746
    
    
    
    7,493
    
    
    
    16,746Deferred income taxes
    
    
    8,617
    
    
    
    (4,395
    )
    
    
    (36,958
    )
    
    
    (25,755
    )Restructuring provision  net
    
    
    10,633
    
    
    
    
    
    
    
    12,330
    
    
    
    Restricted share compensation
    
    
    213
    
    
    
    
    
    
    
    730
    
    
    
    Other
    
    
    2,593
    
    
    
    (1,338
    )
    
    
    5,170
    
    
    
    (2,265
    )Changes in operating assets and liabilities:Accounts receivable  net
    
    
    (8,978
    )
    
    
    (6,140
    )
    
    
    3,323
    
    
    
    10,891Inventories
    
    
    (5,361
    )
    
    
    537
    
    
    
    (3,257
    )
    
    
    3,926Prepaid expenses
    
    
    (8,487
    )
    
    
    1,812
    
    
    
    (9,725
    )
    
    
    (2,533
    )Accounts payable and accrued liabilities
    
    
    (10,909
    )
    
    
    (18,488
    )
    
    
    (73,479
    )
    
    
    (38,362
    )Income taxes
    
    
    5,497
    
    
    
    (1,633
    )
    
    
    939
    
    
    
    29,600Other
    
    
    3,953
    
    
    
    (3,066
    )
    
    
    (1,163
    )
    
    
    (4,765
    )Net cash provided by operating activities
    
    
    61,362
    
    
    
    16,690
    
    
    
    114,038
    
    
    
    90,160INVESTING ACTIVITIESProperty, plant and equipment  net
    
    
    (12,290
    )
    
    
    1,088
    
    
    
    (31,936
    )
    
    
    (3,423
    )Long-term receivables and other investments
    
    
    (1,975
    )
    
    
    802
    
    
    
    (28,571
    )
    
    
    (1,922
    )Acquisition of businesses  net of cash acquired
    
    
    (925
    )
    
    
    (2,000
    )
    
    
    (847,868
    )
    
    
    (65,966
    )Proceeds from sale of investment and other assets
    
    
    
    
    
    
    
    
    
    
    31,417
    
    
    
    Software expenditures
    
    
    (1,685
    )
    
    
    (3,329
    )
    
    
    (4,812
    )
    
    
    (8,209
    )Other
    
    
    2,845
    
    
    
    (3,998
    )
    
    
    2,411
    
    
    
    (3,945
    )Net cash used in investing activities
    
    
    (14,030
    )
    
    
    (7,437
    )
    
    
    (879,359
    )
    
    
    (83,465
    )FINANCING ACTIVITIESNet change in short-term debt
    
    
    (17,150
    )
    
    
    (44,811
    )
    
    
    248
    
    
    
    (14,828
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    200,000
    
    
    
    1,010,280
    
    
    
    200,000Payments on long-term debt
    
    
    (12,385
    )
    
    
    (117,765
    )
    
    
    (292,712
    )
    
    
    (119,101
    )Debt issue costs
    
    
    (2,516
    )
    
    
    (7,779
    )
    
    
    (33,032
    )
    
    
    (7,779
    )Issuance (repurchase) of common shares  net
    
    
    751
    
    
    
    164
    
    
    
    10,406
    
    
    
    (8,167
    )Other
    
    
    (86
    )
    
    
    (118
    )
    
    
    (1,468
    )
    
    
    (903
    )Net cash (used in) provided by financing activities
    
    
    (31,386
    )
    
    
    29,691
    
    
    
    693,722
    
    
    
    49,222Effect of exchange rate on cash resources
    
    
    56
    
    
    
    1,021
    
    
    
    782
    
    
    
    2,376Net increase (decrease) in cash resources
    
    
    16,002
    
    
    
    39,965
    
    
    
    (70,817
    )
    
    
    58,293Cash resources at beginning of period (a)
    
    
    34,653
    
    
    
    47,002
    
    
    
    121,472
    
    
    
    28,674Cash resources at end of period (a)
    
    $
    50,655
    
    
    $
    86,967
    
    
    $
    50,655
    
    
    $
    86,967Supplemental disclosure of cash flow information:Interest paid  net
    
    $
    17,125
    
    
    $
    5,138
    
    
    $
    23,065
    
    
    $
    10,174Income taxes paid (refund)  net
    
    
    (26,723
    )
    
    
    634
    
    
    
    (20,396
    )
    
    
    3,073Non-cash activity:Shares issued for acquisition of business
    
    
    
    
    
    
    
    
    
    
    471,708
    
    
    
    




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|(a) |  | Cash resources are defined as cash and cash equivalents less bank
indebtedness.
|--- |  | -------------------------------------------------------------------------------

(See notes to the consolidated financial statements)





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##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)

1.  BASIS OF PRESENTATION

The accompanying consolidated interim financial statements have been prepared
by Moore Wallace Incorporated (the Corporation), formerly Moore Corporation
Limited (Moore), in accordance with the recommendations of the Canadian
Institute of Chartered Accountants (CICA) Handbook Section 1751  Interim
Financial Statements. As permitted by these standards, these interim financial
statements do not include all information required by Canadian generally
accepted accounting principles (GAAP) to be included in annual financial
statements. However, the Corporation considers that the disclosures made are
adequate for a fair presentation. Comparative figures have been reclassified
where appropriate to conform to the current presentation. Net sales and net
earnings for any interim period are not necessarily indicative of results that
may be expected for the entire year.

On May 15, 2003, the Corporation acquired all the outstanding shares of Wallace
Computer Services, Inc. (Wallace), a leading provider of printed products and
print management services (see Note 3). The Corporations results of operations
for the nine months ended September 30, 2003 include the results of Wallace
from May 15, 2003 (the acquisition date). The allocation of the purchase
price is preliminary and subject to change, based upon the determination and
receipt of additional information, including the finalization of the fair value
of real and personal property acquired and the recognition of certain
liabilities in connection with the acquisition.

The consolidated interim financial statements of the Corporation have been
prepared in conformity with Canadian GAAP, and include estimates and
assumptions of management that affect the amounts reported in the consolidated
financial statements. Actual results could differ from these estimates. All
adjustments necessary for a fair presentation of these financial statements
have been included.

These consolidated interim financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto included in
each of Moores and Wallaces latest Annual Reports on Form 10-K filed on
February 13, 2003 and October 23, 2002, respectively.

In June 2003 the CICA issued Accounting Guideline AcG-15, Consolidation of
Variable Interest Entities (AcG-15). This guideline addresses consolidation
by business enterprises of certain variable interest entities where there is a
controlling financial interest in a variable interest entity or where the
variable interest does not have sufficient equity at risk to finance its
activities without additional subordinated financial support from other
parties. AcG-15 is effective for both new and pre-existing entities to annual
and interim periods beginning on or after November 1, 2004. The Corporation is
assessing the impact, if any, of the adoption of ACG-15 on the results of
operations and financial condition of the Corporation.

2. INVENTORIES

September 30,
    
    December 31,2003
    
    2002Raw materials
    
    $
    65,482
    
    
    $
    31,883Work-in-process
    
    
    30,720
    
    
    
    10,303Finished goods
    
    
    137,196
    
    
    
    84,190Other
    
    
    3,455
    
    
    
    3,513$
    236,853
    
    
    $
    129,889


3.  ACQUISITION

On May 15, 2003, the Corporation acquired all the outstanding shares of
Wallace, a leading provider of printed products and print management services,
in exchange for consideration of $14.40 in cash and 1.05 shares of the
Corporation for each outstanding share of Wallace. Management believes the
acquisition of Wallace (the Acquisition) will enhance the Corporations
combined competitive position within the industry and establish the Corporation
as a leading provider of integrated print management services across multiple
industries. Management also believes the Acquisition will enable the
Corporation to improve profitability, achieve significant cost synergies,
leverage complementary products and services and augment cross-selling
opportunities across a more diverse platform. The aggregate consideration to
the Wallace shareholders was $1.1 billion and was comprised of a cash payment
of $609.7 million and 44,458,825 common shares of the Corporation with a fair
value of $471.7 million. The fair value of the Corporations shares was based
upon the actual number of shares issued to the Wallace shareholders using the
average closing trading price of the Corporations common shares on the New
York Stock Exchange (NYSE) during a five-day trading period beginning two
days prior to the announcement of the merger agreement on January 17, 2003. The
total purchase price of $1.3 billion also included

Table of Contents

MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.  ACQUISITION (continued)

$218.2 million for the settlement of Wallace debt and other liabilities, and
direct acquisition costs to date of $19.9 million.

The transaction was recorded by allocating the cost of the assets acquired,
including intangible assets and liabilities assumed based on their estimated
fair values at the date of acquisition. The excess of the cost of the
Acquisition over the net of amounts assigned to the fair value of the assets
acquired and the liabilities assumed was recorded as goodwill. Based on the
Corporations preliminary independent valuation, which is subject to further
refinement, the purchase price was allocated as follows:

Accounts receivable
    
    $
    238,321Inventory
    
    
    137,562Customer backlog
    
    
    3,790Other current assets
    
    
    13,350Property, plant and equipment  net
    
    
    390,536Long-term and other assets
    
    
    38,583Capitalized software
    
    
    45,400Amortizable intangible assets
    
    
    60,824Intangible assets with indefinite lives
    
    
    92,310Goodwill
    
    
    694,851Accounts payable and accrued liabilities
    
    
    (176,941
    )Short-term and long-term debt
    
    
    (16,189
    )Postretirement and pension benefits
    
    
    (52,484
    )Deferred taxes  net
    
    
    (131,306
    )Other long-term liabilities
    
    
    (19,031
    )Total purchase price  net of cash acquired
    
    $
    1,319,576


Pro forma results

The following unaudited pro forma financial information presents the combined
results of operations of the Corporation and Wallace as if the Acquisition had
occurred as of the beginning of the periods presented. The historical results
for the nine months ended September 30, 2003 include the results of Wallace
from the acquisition date. The pro forma results for the nine months ended
September 30, 2003 combine the results of the Corporation for the nine months
ended September 30, 2003 and the historical results of Wallace from January 1,
2003 through May 15, 2003. Due to the different historical fiscal period-ends
for Moore and Wallace, the pro forma results for the three and nine months
ended September 30, 2002 combine the historical results of Moore for the three
and nine months ended September 30, 2002 and the historical quarterly results
of Wallace for the three and nine months ended July 31, 2002. The unaudited pro
forma financial information is not intended to represent or be indicative of
the Corporations consolidated results of operations or financial condition
that would have been reported had the Acquisition been completed as of the
beginning of the periods presented and should not be taken as indicative of the
Corporations future consolidated results of operations or financial condition.
Pro forma adjustments are tax effected at the Corporations statutory tax
rate.

Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002Net sales
    
    $
    828,895
    
    
    $
    859,182
    
    
    $
    2,531,119
    
    
    $
    2,653,255Net earnings
    
    
    33,052
    
    
    
    26,055
    
    
    
    85,177
    
    
    
    15,029Net earnings per common share:Basic
    
    
    0.21
    
    
    
    0.17
    
    
    
    0.54
    
    
    
    0.10Diluted
    
    
    0.21
    
    
    
    0.17
    
    
    
    0.54
    
    
    
    0.09


The three and nine month periods in both 2003 and 2002 include $2.2 million and
$6.6 million, respectively, for the amortization of purchased intangibles. The
unaudited pro forma financial information also includes the following
non-recurring charges: acquisition related charges of $66.7 million and $54.8
million for the nine months ended September 30, 2003 and 2002, respectively;
and
restructuring charges of $10.6 million and $12.3 million for the three and nine
months ended September 30, 2003, respectively, and $5.1 million and $40.7
million for the three and nine months ended September 30, 2002, respectively.





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##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.  GOODWILL AND OTHER INTANGIBLES

Balance at
    
    
    
    
    
    Foreign
    
    Balance atGoodwill
    
    December 31, 2002
    
    Additions
    
    Exchange
    
    September 30, 2003Forms and Labels
    
    $
    45,550
    
    
    $
    359,952
    
    
    $
    1,043
    
    
    $
    406,545Outsourcing
    
    
    11,846
    
    
    
    
    
    
    
    1,937
    
    
    
    13,783Commercial
    
    
    48,858
    
    
    
    334,899
    
    
    
    
    
    
    
    383,757$
    106,254
    
    
    $
    694,851
    
    
    $
    2,980
    
    
    $
    804,085


The allocation of goodwill from the Acquisition among the segments is
preliminary and based upon managements best estimate at September 30, 2003.
The allocation is subject to further refinement.

Other intangibles at September 30, 2003, include:

AccumulatedGross
    
    Additions
    
    Amortization and
    
    Balance at
    
    AmortizableCarrying Amount
    
    During the Year
    
    Foreign Exchange
    
    September 30, 2003
    
    LifeTrademarks, licenses
and agreements
    
    $
    3,390
    
    
    $
    20,824
    
    
    $
    (2,818
    )
    
    $
    21,396
    
    
    2-10 YearsCustomer relationship
intangibles
    
    
    2,729
    
    
    
    40,000
    
    
    
    (2,607
    )
    
    
    40,122
    
    
    2-12 YearsIndefinite-lived
trade names
    
    
    1,664
    
    
    
    92,310
    
    
    
    278
    
    
    
    94,252$
    7,783
    
    
    $
    153,134
    
    
    $
    (5,147
    )
    
    $
    155,770


The total intangible asset amortization expense for the three and nine months
ended September 30, 2003 was $2.6 million and $4.4 million, respectively.
Amortization expense for the next five years is estimated to be:

2004
    
    $
    10,0252005
    
    $
    7,0642006
    
    $
    5,2022007
    
    $
    5,1902008
    
    $
    5,190


5.  DEBT

In March 2003, the Corporation entered into an $850.0 million senior secured
credit facility (the New Facility) in connection with
the Acquisition. The New Facility consists of a seven-year $500.0 million B
Term Loan, which was funded in escrow until the Acquisition, and a five-year
$350.0 million Revolving Credit Facility, each of which are subject to a number
of restrictive and financial covenants that, in part, limit additional
indebtedness and the ability of the Corporation to engage in certain
transactions with affiliates, create liens on assets, engage in mergers and
consolidations, or dispose of assets. The financial covenants are calculated
quarterly and include, in part, tests of leverage and interest coverage.

The loans under the New Facility bear interest based on a variable index
(LIBOR), plus an applicable margin. On August 5, 2003, the Corporation entered
into an agreement with the lenders of the New Facility to amend the New
Facility to reduce the basis point spread. The New Facility replaced the
Corporations $400.0 million senior secured credit facility (the Existing
Facility). At September 30, 2003, $498.8 million is outstanding under the New
Facility.

Also, in March 2003, the Corporation issued $403.0 million of 7 7/8 % senior
unsecured notes (the Senior Notes) due 2011 at a $2.8 million discount to the
principal amount. Interest on the Senior Notes is payable semiannually on
January 15 and July 15 of each year, and commenced on July 15, 2003. The
proceeds from the Senior Notes, along with $16.0 million in prepaid interest
through September 15, 2003, were held in escrow until the Acquisition. The
indenture governing the Senior Notes contains certain restrictive covenants
that, among other things, limit additional indebtedness and the Corporations
ability to engage in certain transactions with affiliates, create liens on
assets, engage in mergers and consolidations, or dispose of assets. The
Corporation, at its option, may redeem up to 40% of the Senior Notes prior to
January 15, 2006, at a predetermined redemption price with the proceeds of
certain equity offerings. In addition, subsequent to January 15, 2007, the
Senior Notes may be redeemed at predetermined redemption prices. On or prior to January 15, 2007, the Corporation may also redeem the Senior
Notes upon a change of control, at a price equal to 100% of the principal plus
an applicable premium.





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##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.  DEBT(continued)

In August 2002, the Corporation entered into the Existing Facility which is
comprised of a five-year $125.0 million Revolving Credit Facility, a five-year
$75.0 million Delayed Draw Term Loan A Facility, and a six-year $200.0 million
Term Loan B Facility. On September 4, 2002, with proceeds from the Term Loan B
Facility, the Corporation redeemed $100.0 million of senior guaranteed notes
and incurred a net prepayment charge of $16.7 million. At December 31, 2002,
$179.5 million was outstanding under this facility.

For the nine months ended September 30, 2003, interest expense includes the
following acquisition related items: pre-acquisition interest expense of $10.7
million; the write-off of deferred financing fees of $7.5 million; interest
income of $1.3 million on aforementioned proceeds held in escrow; and $4.0
million of bridge financing fees.

As a result of replacing the Existing Facility, the Corporation recorded a
charge of $5.2 million during the second quarter for the fair value on $150.0
million notional amount fixed rate interest rate swaps that were designated as
cash flow hedges of the variable interest on the Existing Facility. The $5.2
million liability resulting from this charge will be ratably reduced and
recorded as income over the remaining term of the swaps. For the nine months
ended September 30, 2003, investment and other income (expense) includes $0.7
million of income, related to the reduction of this liability. These swap
agreements exchange the variable interest rates (LIBOR) for fixed interest
rates over the terms of the agreements. The Corporation has designated these
swaps as cash flow hedges of the interest rate risk attributable to forecasted
variable interest payments. The Corporation entered into an additional $250.0
million notional amount fixed rate interest rate swaps that are designated as
cash flow hedges of the interest rate risk attributable to forecasted variable
interest payments. These swaps, which begin accruing interest on October 7,
2003, exchange the LIBOR interest on the New Facility to fixed rate interest
over the term of the swaps. At September 30, 2003, the $400.0 million notional
amount fixed interest rate swaps outstanding had a weighted average fixed
interest rate of 2.29% and their fair market value was a $5.8 million
liability.

The Corporation has also entered into $250.0 million notional amount interest
rate swaps that exchange the fixed rate interest on the Senior Notes to
floating rate six-month LIBOR plus a basis point spread. The swaps are
designated as a fair value hedge against $250.0 million of principal on the
Senior Notes and mature January 2011. At September 30, 2003, the fair market
value of these floating rate swaps was an $11.1 million liability.

The interest rate differential received or paid on both the cash flow and fair
value hedges is recognized as an adjustment to interest expense.

The Corporation had approximately $43.0 million in outstanding letters of
credit at September 30, 2003, of which $23.7 million were issued against the
$350.0 million Revolving Credit Facility.

6.  RESTRUCTURING AND RESTRUCTURING RELATED CHARGES

During 2003, in connection with the Acquisition, management approved and
initiated plans to restructure the operations of both Wallace and Moore
(restructuring plans) to eliminate certain duplicative functions, to close
certain facilities and to dispose of redundant software systems, underutilized
assets and real estate holdings in order to reduce the combined cost structure
of the organization. As a result, the Corporation accrued approximately $12.8
million of costs to exit certain Wallace activities, such as severance, costs
of vacating redundant facilities (leased or owned) and other costs associated
with exiting these activities. These costs are recognized as a liability
assumed in the purchase business combination and are included in the allocation
of the cost to acquire Wallace and are included in goodwill (see Note 3). The
Corporation accrued $10.6 million and $13.9 million for the three and nine
months ended September 30, 2003, respectively, of similar restructuring costs
in connection with exiting of certain Moore activities. These costs have been
included as a charge to the results of operations for the three and nine months
ended September 30, 2003.

The restructuring charges recorded are based on the aforementioned
restructuring plans that have been committed to by management and are in part
based upon managements best estimates of future events. Changes to the
estimates could require adjustments to the restructuring liabilities.
Adjustments to the Wallace restructuring liability will be recorded through
goodwill during the allocation period and adjustments to other restructuring
liabilities would be reflected in the results of operations.





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##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.  RESTRUCTURING AND RESTRUCTURING RELATED CHARGES(continued)

Restructuring Costs Charged to Expense

For the three and nine months ended September 30, 2003, the Corporation
recorded the following restructuring provisions:

Three Months
    
    Nine MonthsEmployee
    
    Other
    
    
    
    
    
    Employee
    
    OtherTerminations
    
    Charges
    
    Total
    
    Terminations
    
    Charges
    
    TotalForms and Labels
    
    $
    4,452
    
    
    $
    509
    
    
    $
    4,961
    
    
    $
    5,494
    
    
    $
    519
    
    
    $
    6,013Outsourcing
    
    
    203
    
    
    
    86
    
    
    
    289
    
    
    
    203
    
    
    
    86
    
    
    
    289Commercial
    
    
    1,259
    
    
    
    2
    
    
    
    1,261
    
    
    
    1,259
    
    
    
    2
    
    
    
    1,261Corporate
    
    
    1,149
    
    
    
    2,973
    
    
    
    4,122
    
    
    
    3,403
    
    
    
    2,973
    
    
    
    6,376$
    7,063
    
    
    $
    3,570
    
    
    $
    10,633
    
    
    $
    10,359
    
    
    $
    3,580
    
    
    $
    13,939


For the three and nine months ended September 30, 2003, the Corporation
recorded a restructuring provision of $7.0 million and $10.3 million,
respectively, for workforce reductions (289 and 330 employees, respectively)
primarily related to the closure of several plants and the elimination of
duplicative corporate administrative functions resulting from the Acquisition,
as well as $3.6 million of other charges for lease termination and facility
closing costs. For the
nine months ended September 30, 2003, the net restructuring provision includes
the reversal of $1.6 million of restructuring reserves related to its 2001
program due to favorable settlements of liabilities for obligations and future
payments primarily related to the European operations within the Commercial
segment. No reversals were made during the three months ended September 30,
2003.

There was no restructuring provision recorded for the three and nine months
ended September 30, 2002.

Restructuring Costs Capitalized as a Cost of Acquisition

At September 30, 2003, the $12.8 million in costs that were accrued in
connection with restructuring Wallace, and recognized as a liability assumed in
the purchase business combination and included in the allocation of the cost to
acquire Wallace, relate to workforce reductions of 684 employees for the plant
closures and elimination of certain duplicative corporate administrative
functions.

The reconciliation of the restructuring reserve as of September 30, 2003 is as
follows:

Balance at
    
    
    
    
    
    Capitalized
    
    
    
    
    
    Balance atDecember 31,
    
    Restructuring
    
    Restructuring
    
    Cash
    
    September 30,2002
    
    Provision - Net
    
    Costs
    
    Paid
    
    2003Employee terminations
    
    $
    14,319
    
    
    $
    10,022
    
    
    $
    11,521
    
    
    $
    (14,965
    )
    
    $
    20,897Other
    
    
    67,121
    
    
    
    2,308
    
    
    
    1,269
    
    
    
    (8,387
    )
    
    
    62,311$
    81,440
    
    
    $
    12,330
    
    
    $
    12,790
    
    
    $
    (23,352
    )
    
    $
    83,208


The restructuring reserves classified as other primarily consist of the
estimated remaining payments related to lease terminations and facility closing
costs. Payments on these lease obligations are scheduled to continue until
2010. Market conditions and the Corporations ability to sublease these
properties may affect the ultimate charge related to its lease obligations.
Any potential recovery
or additional charge may affect amounts reported in the consolidated financial
statements of future periods. The Corporation anticipates that payments
associated with employee terminations will be substantially completed by the
end of 2003.

Restructuring Related Charges

For the three and nine months ended September 30, 2003, the Corporation
recorded in the Forms and Label Segment, a charge of $1.4 million and $3.5
million, respectively, for asset impairments associated with the disposal of
machinery and equipment and the disposal of redundant enterprise software
systems as a result of the Acquisition.





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##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.  INCOME TAXES

The difference between the statutory rate and the effective rate relates to
lower tax rates in non-U.S. jurisdictions combined with a reduction of the
deferred tax valuation allowance, which is based on managements best estimate
of the amount of deferred tax assets that will more likely than not be
realized. The 2003 rate was also affected by a loss generated in the U.S. as a
result of expenses incurred from the Acquisition. For the three and nine months
ended September 30, 2003, the valuation allowance was reduced $1.2 million and
$41.6 million, respectively. For the three and nine months ended September 30,
2002, the valuation allowance was reduced by $6.7 million and $42.8 million,
respectively.

8.  ASSETS HELD FOR DISPOSITION

In the fourth quarter of 2001, the Corporation classified a non-core business
as an asset held for disposition and the carrying value was adjusted to its net
recoverable amount. Included in the results of the Commercial segment for the
three and nine months ended September 30, 2003 and 2002 are net sales relating
to this business of $49.5 million and $150.4 million, respectively, and $49.0
million and $148.6 million, respectively. For the three and nine months ended
September 30, 2003 and 2002, income from operations relating to this business
was $2.1 million and $8.2 million, respectively, and $2.9 million and $9.1
million, respectively.

9.  RECONCILIATION TO U.S. GAAP

The following summarizes the significant accounting differences between
Canadian generally accepted accounting principles (Canadian GAAP) and U.S.
generally accepted accounting principles (U.S. GAAP) that result in the
differences disclosed in the U.S. GAAP reconciliation.

PENSIONS AND POSTRETIREMENT BENEFITS

The adoption of CICA Handbook Section 3461, Employee Future Benefits, on
January 1, 2000, eliminated any material difference in the method of accounting
for these costs. However, the transition rules for the implementation of this
Canadian standard continue to result in a U.S. GAAP reporting difference.
Under CICA Handbook Section 3461, all past net gains (losses), net assets and
prior service costs were recognized as of the date of adoption. Under U.S.
GAAP, net gains (losses), net assets and prior service costs which occurred
before January 1, 2000 are recognized over the appropriate amortization period.

STATEMENT OF CASH FLOWS

The Statements of Cash Flows for Canadian GAAP disclose the net change in cash
resources, which is defined as cash and cash equivalents less bank
indebtedness. U.S. GAAP requires the disclosure of the net change in cash and
cash equivalents. Under U.S. GAAP, net cash provided by financing activities
for the nine months ended September 30, 2003 and 2002 is $742.0 million and
$20.1 million, respectively. Cash and cash equivalents are the same for both
Canadian GAAP and U.S. GAAP.

INCOME TAXES

The liability method of accounting for income taxes is used for both Canadian
GAAP and U.S. GAAP. However, under U.S. GAAP, temporary differences are tax
effected at enacted rates, whereas under Canadian GAAP, temporary differences
are tax effected using substantively enacted rates and laws that will be in
effect when the differences are expected to reverse. For all periods presented,
the tax rates used are the same for both Canadian GAAP and U.S. GAAP.

STOCK COMPENSATION

The adoption of CICA Handbook, Section 3870, Stock-Based Compensation and Other
Stock-Based Payments, reduced most prospective differences in accounting for
these costs between Canadian GAAP and U.S. GAAP. The pro forma disclosures of
net income and earnings per share under the fair value method of accounting for
stock options will continue to differ as CICA Handbook Section 3870 is
applicable for awards granted on or after January 1, 2002. For both Canadian
and U.S. GAAP, the Corporation uses the intrinsic value method for accounting
for stock options. Prior to CICA Handbook Section 3870, recognition of
compensation
expense was not required for the Corporations Series 1 Preference Share
options, whereas under U.S. GAAP, the expense is measured at the fair value of
the Preference Share options, less the amount the employee is required to pay,
and is accrued over the vesting period.

In April 2002, the shareholders of the Corporation approved the amendment of
the options to purchase Series 1 Preference Shares (Preference Shares) to
eliminate the cash-out provision and to make them exercisable for one common
share per each Preference Share option. The exercise price and the number of
Preference Share options remained unchanged. This amendment effectively made
these options common share equivalents for diluted earnings per share
computations. The transition rules for CICA Handbook Section 3870 required
that these common share equivalents be considered outstanding as of the
beginning of the year, whereas for U.S. GAAP purposes, these Preference Share options were not considered common
share equivalents until amended. The difference in the diluted weighted
average common shares between Canadian and U.S. GAAP relates solely to the
Preference Share options.





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##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.  RECONCILIATION TO U.S. GAAP(continued)

Additionally, no compensation expense or pro forma compensation expense is
required to be recognized in the current and future periods under Canadian GAAP
pursuant to CICA Handbook Section 3870, whereas under U.S. GAAP, unearned
compensation cost will be recognized over the remaining vesting period (through
December 11, 2004) based on the intrinsic value of the options on the date of
approval. Pro forma fair value compensation expense will also be recorded
under U.S. GAAP for the Preference Shares commencing on the amendment date. In
accordance with the transition rules for CICA Handbook Section 3870, no
compensation expense was recorded for the Preference Shares for Canadian GAAP.

COMPREHENSIVE INCOME

U.S. GAAP requires disclosure of comprehensive income and its components.
Comprehensive income is the change in equity of the Corporation from
transactions and other events other than those resulting from transactions with
owners, and is comprised of net income and other comprehensive income. The
components of other comprehensive income for the Corporation are unrealized
foreign currency translation adjustments and the change in fair value of
derivatives. Under Canadian GAAP, there is no standard for reporting
comprehensive income.

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

For U.S. GAAP purposes the changes in the fair value of the Corporations
interest rate swaps that are designated as cash flow hedges are recorded in
other comprehensive income. For U.S. GAAP purposes the changes in the fair
value of the Corporations interest rate swaps that are designated as fair
value hedges are recorded as an adjustment to the Senior Notes. Under Canadian
GAAP, there is no standard requiring the recognition of the fair value of
derivatives either through comprehensive income or the hedged item.

FOREIGN CURRENCY TRANSLATION

Under U.S. GAAP, foreign currency translation gains or losses are only
recognized on the sale or substantial liquidation of a foreign subsidiary.
Under Canadian GAAP, a foreign currency gain or loss due to a partial
liquidation is recognized in income.

BUSINESS PROCESS REENGINEERING

Under U.S. GAAP, business process reengineering activities are expensed as
incurred. Prior to October 28, 1998, Canadian GAAP permitted these costs to be
capitalized or expensed. Subsequent to October 28, 1998, Canadian GAAP
requires the cost of business process reengineering activities to be expensed
as incurred. Prior to October 28, 1998, the Corporation capitalized business
process reengineering costs and classified them as computer software. As a
result, computer software under Canadian GAAP exceeds the amount capitalized
under U.S. GAAP.

CONVERTIBLE DEBENTURES

The debt conversion costs relate to the December 28, 2001 induced conversion of
the Corporations subordinated convertible debentures and more specifically
represent the right granted with the inducement shares for the holder to
potentially receive additional consideration in the future based on the 20-day
weighted average share price of the Corporations share at December 31, 2002
and 2003. For Canadian GAAP purposes, to the extent that any shares or cash is
paid, it will be recorded as a charge to retained earnings. For U.S. GAAP
purposes, the fair value of this contingent consideration is recognized in
earnings and recorded at fair market value. The fair value of the consideration
is based upon an independent third party valuation using an option pricing
valuation model that includes, but is not limited to, the following factors:
the Corporations share price volatility; cost of borrowings; and certain
equity valuation multiples.

CHANGES IN ACCOUNTING POLICIES

In the first quarter of 2003, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 145, Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS
145). Among other things, under the provision of SFAS 145, gains and losses
from the early extinguishment of debt are no longer classified as an
extraordinary item, net of income taxes, but are included in the determination
of pretax earnings. The effective date for SFAS 145 is for fiscal years
beginning after May 15, 2002, with early application encouraged. Upon adoption,
all gains and losses from the extinguishment of debt previously reported as an
extraordinary item shall be reclassified to pretax earnings. The adoption of
SFAS 145 had no impact on the financial position or results of operations of
the Corporation for the nine months ended September 30, 2003.





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##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.  RECONCILIATION TO U.S. GAAP(continued)

In the first quarter of 2003, the Corporation adopted SFAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities (SFAS 146). This
statement addresses significant issues regarding the recognition, measurement,
and reporting of costs that are associated with exit and disposal activities,
including restructuring activities that are currently accounted for pursuant to
the guidance that the Emerging Issues Task Force (EITF) has set forth in EITF
Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). The principal difference between
SFAS 146 and EITF 94-3 is that SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability
is incurred versus EITF 94-3 where a liability was recognized on the date an
entity committed to an exit plan. SFAS 146 is effective for exit and disposal
activities that are initiated after December 31, 2002.

In April 2003, the Financial Accounting Standards Board (FASB) issued SFAS
No. 149, Amendment of SFAS No. 133 on Derivative Instruments and Hedging
Activities (SFAS 149). SFAS 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under SFAS No. 133 Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). In particular, it
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative, clarifies when a derivative contains
a financing component, amends the definition of an underlying, and amends
certain other existing pronouncements. SFAS 149 is generally effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 had no
material impact on the results of operation or financial condition.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity (SFAS 150).
SFAS 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. Some of the provisions
of this Statement are consistent with the current definition of liabilities in
FASB Concepts Statement No. 6, Elements of Financial Statements. The remaining
provisions of this Statement are consistent with the proposal to revise that
definition to encompass certain obligations that a reporting entity can or must
settle by issuing its own equity shares, depending on the nature of the
relationship established between the holder and the issuer. SFAS 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS 150 had no material impact
on the results of operations or financial condition.

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). This interpretation of Accounting
Research Bulletin No. 51, Consolidated Financial Statements, addresses
consolidation by business enterprises of certain variable interest entities
where there is a controlling financial interest in a variable interest entity
or where the variable interest does not have sufficient equity at risk to
finance its activities without additional subordinated financial support from
other parties. FIN 46 applies immediately to variable interest entities created
after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period beginning after December 15, 2003, to variable interest
entities in which an enterprise holds a variable interest that it acquired
before February 1, 2003. The Corporation is assessing the impact, if any, of
the adoption of FIN 46 on the results of operations and financial condition of
the Corporation.

Table of Contents

MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.  RECONCILIATION TO U.S. GAAP(continued)

The following tables provide a reconciliation of net earnings as reported under
Canadian GAAP to net earnings under U.S. GAAP:

Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002Net earnings as reported
    
    $
    25,996
    
    
    $
    17,498
    
    
    $
    74,047
    
    
    $
    45,237U.S. GAAP Adjustments:Pension expense
    
    
    1,013
    
    
    
    3,115
    
    
    
    3,038
    
    
    
    3,153Postretirement benefits
    
    
    4,332
    
    
    
    4,324
    
    
    
    12,992
    
    
    
    12,971Computer software
    
    
    1,693
    
    
    
    1,691
    
    
    
    5,091
    
    
    
    5,073Debt conversion costs
    
    
    92
    
    
    
    (366
    )
    
    
    1,162
    
    
    
    785Stock-based compensation expense
    
    
    (79
    )
    
    
    (978
    )
    
    
    (523
    )
    
    
    (5,121
    )Income taxes
    
    
    (2,750
    )
    
    
    (3,037
    )
    
    
    (8,486
    )
    
    
    (6,576
    )Net earnings under U.S. GAAP
    
    $
    30,297
    
    
    $
    22,247
    
    
    $
    87,321
    
    
    $
    55,522Net earnings per common share:Basic
    
    $
    0.19
    
    
    $
    0.20
    
    
    $
    0.65
    
    
    $
    0.50Diluted
    
    $
    0.19
    
    
    $
    0.20
    
    
    $
    0.64
    
    
    $
    0.49Average shares (in thousands):Basic
    
    
    157,702
    
    
    
    111,392
    
    
    
    135,189
    
    
    
    111,568Diluted
    
    
    158,442
    
    
    
    113,403
    
    
    
    135,934
    
    
    
    113,386Comprehensive income:Net earnings
    
    $
    30,297
    
    
    $
    22,247
    
    
    $
    87,321
    
    
    $
    55,522Other comprehensive income (loss)  net of tax:Currency translation adjustments
    
    
    (1,304
    )
    
    
    (5,837
    )
    
    
    11,486
    
    
    
    (9,727
    )Fair value adjustment on derivatives
    
    
    394
    
    
    
    (2,588
    )
    
    
    2,262
    
    
    
    (2,588
    )Total comprehensive income
    
    $
    29,387
    
    
    $
    13,822
    
    
    $
    101,069
    
    
    $
    43,207


Net gains on the disposal of property, plant and equipment for the nine months
ended September 30, 2003 and 2002 were $1.1 million and $8.1 million,
respectively. For U.S. GAAP purposes these amounts are recorded in income from
operations.

Interest expense is net of investment income of $1.3 million and $1.2 million
for the nine months ended September 30, 2003 and 2002, respectively.

September 30, 2003
    
    December 31, 2002Balance Sheet Items:
    
    As reported
    
    U.S. GAAP
    
    As reported
    
    U.S. GAAPNet pension asset
    
    $
    (183,208
    )
    
    $
    (122,089
    )
    
    $
    (193,350
    )
    
    $
    (129,193
    )Computer software  net
    
    
    (117,739
    )
    
    
    (97,294
    )
    
    
    (89,208
    )
    
    
    (63,672
    )Fair value of derivatives  liability
    
    
    4,440
    
    
    
    16,918
    
    
    
    
    
    
    
    5,089Postretirement benefits
    
    
    261,481
    
    
    
    373,222
    
    
    
    241,344
    
    
    
    366,077Deferred taxes  net
    
    
    21,160
    
    
    
    (51,962
    )
    
    
    (73,184
    )
    
    
    (156,239
    )Accounts payable and accrued liabilities
    
    
    604,926
    
    
    
    598,933
    
    
    
    486,507
    
    
    
    481,676Long-term debt
    
    
    920,872
    
    
    
    909,773
    
    
    
    187,463
    
    
    
    187,463Accumulated other comprehensive income
    
    
    (121,847
    )
    
    
    (87,504
    )
    
    
    (133,333
    )
    
    
    (101,253
    )Share capital
    
    
    886,741
    
    
    
    888,801
    
    
    
    403,800
    
    
    
    405,337Retained earnings (deficit)
    
    
    188,648
    
    
    
    36,676
    
    
    
    114,601
    
    
    
    (50,645
    )






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##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.  RECONCILIATION TO U.S. GAAP(continued)

The Corporations U.S. GAAP net earnings and earnings per share on a pro forma
basis, if compensation expense for employee stock options were determined using
the fair value method are as follows:

Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002Net earnings
    
    $
    30,297
    
    
    $
    22,247
    
    
    $
    87,321
    
    
    $
    55,522Pro forma adjustments  net of tax:Stock compensation recorded
    
    
    48
    
    
    
    597
    
    
    
    370
    
    
    
    4,771Fair value compensation expense
    
    
    (235
    )
    
    
    (1,941
    )
    
    
    (1,418
    )
    
    
    (5,824
    )Pro forma net earnings
    
    $
    30,110
    
    
    $
    20,903
    
    
    $
    86,273
    
    
    $
    54,469Pro forma earnings per common share:Basic
    
    $
    0.19
    
    
    $
    0.19
    
    
    $
    0.64
    
    
    $
    0.49Diluted
    
    $
    0.19
    
    
    $
    0.18
    
    
    $
    0.64
    
    
    $
    0.48


10. SEGMENT INFORMATION

The Corporation operates in the printing industry with three distinct operating
segments based on the way management assesses information on a regular basis
for decision-making purposes. The three segments are Forms and Labels,
Outsourcing and Commercial. These segments market print and print related
products and services to a geographically diverse customer base. Management
has aggregated divisions within the reportable segments due to strong
similarities in the economic characteristics, nature of products and services,
production processes, class of customer and distribution methods used.

Wallace historically operated in two operating segments, Forms and Labels and
Integrated Graphics. The principal products within the Forms and Labels
segment included paper-based forms, electronic data processing and packaging
labels and a standard line of office products. The principal products within
the Integrated Graphics segment included commercial print and direct mail. The
Corporation has classified the Wallace Forms and Labels operations within the
Forms and Labels segment and the Integrated Graphics operations within the
Commercial segment. The segment information in the table below includes
Wallace from the acquisition date.

As a result of acquiring the remaining interest in Quality Color Press, Inc. in
May 2002, management has reclassified this business from the Commercial segment
to the Forms and Labels segment.





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##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  SEGMENT INFORMATION(continued)

Three months ended
    
    Forms andSeptember 30, 2003
    
    Labels
    
    Outsourcing
    
    Commercial
    
    Corporate
    
    ConsolidatedTotal revenue
    
    $
    445,868
    
    
    $
    80,718
    
    
    $
    320,006
    
    
    $
    
    
    
    $
    846,592Intersegment revenue
    
    
    (5,373
    )
    
    
    (17
    )
    
    
    (12,307
    )
    
    
    
    
    
    
    (17,697
    )Sales to customers outside
the enterprise
    
    
    440,495
    
    
    
    80,701
    
    
    
    307,699
    
    
    
    
    
    
    
    828,895Income (loss) from operations
    
    
    52,300
    
    
    
    14,805
    
    
    
    25,819
    
    
    
    (41,917
    )
    
    
    51,007Depreciation and amortization
    
    
    14,742
    
    
    
    3,552
    
    
    
    10,181
    
    
    
    9,818
    
    
    
    38,293Capital expenditures
    
    
    3,054
    
    
    
    3,935
    
    
    
    4,943
    
    
    
    1,298
    
    
    
    13,230


Nine months ended
    
    Forms andSeptember 30, 2003
    
    Labels
    
    Outsourcing
    
    Commercial
    
    Corporate
    
    ConsolidatedTotal revenue
    
    $
    1,065,873
    
    
    $
    254,484
    
    
    $
    699,852
    
    
    $
    
    
    
    $
    2,020,209Intersegment revenue
    
    
    (8,060
    )
    
    
    (30
    )
    
    
    (22,008
    )
    
    
    
    
    
    
    (30,098
    )Sales to customers outside
the enterprise
    
    
    1,057,813
    
    
    
    254,454
    
    
    
    677,844
    
    
    
    
    
    
    
    1,990,111Income (loss) from operations
    
    
    93,534
    
    
    
    53,681
    
    
    
    47,117
    
    
    
    (98,933
    )
    
    
    95,399Total assets
    
    
    1,292,496
    
    
    
    126,153
    
    
    
    1,045,605
    
    
    
    556,422
    
    
    
    3,020,676Depreciation and amortization
    
    
    36,729
    
    
    
    10,139
    
    
    
    21,452
    
    
    
    23,738
    
    
    
    92,058Capital expenditures
    
    
    9,544
    
    
    
    15,546
    
    
    
    11,526
    
    
    
    6,170
    
    
    
    42,786


Three months ended
    
    Forms andSeptember 30, 2002 (Reclassified)
    
    Labels
    
    Outsourcing
    
    Commercial
    
    Corporate
    
    ConsolidatedTotal revenue
    
    $
    270,459
    
    
    $
    67,200
    
    
    $
    152,946
    
    
    $
    
    
    
    $
    490,605Intersegment revenue
    
    
    (993
    )
    
    
    (1
    )
    
    
    (2,844
    )
    
    
    
    
    
    
    (3,838
    )Sales to customers outside
the enterprise
    
    
    269,466
    
    
    
    67,199
    
    
    
    150,102
    
    
    
    
    
    
    
    486,767Income (loss) from operations
    
    
    35,712
    
    
    
    10,997
    
    
    
    10,941
    
    
    
    (29,069
    )
    
    
    28,581Depreciation and amortization
    
    
    8,540
    
    
    
    3,411
    
    
    
    3,475
    
    
    
    5,490
    
    
    
    20,916Capital expenditures
    
    
    432
    
    
    
    
    
    
    
    1,769
    
    
    
    5,641
    
    
    
    7,842


Nine months ended
    
    Forms andSeptember 30, 2002 (Reclassified)
    
    Labels
    
    Outsourcing
    
    Commercial
    
    Corporate
    
    ConsolidatedTotal revenue
    
    $
    845,214
    
    
    $
    234,491
    
    
    $
    446,710
    
    
    $
    
    
    
    $
    1,526,415Intersegment revenue
    
    
    (2,682
    )
    
    
    (28
    )
    
    
    (7,646
    )
    
    
    
    
    
    
    (10,356
    )Sales to customers outside
the enterprise
    
    
    842,532
    
    
    
    234,463
    
    
    
    439,064
    
    
    
    
    
    
    
    1,516,059Income (loss) from operations
    
    
    97,990
    
    
    
    40,532
    
    
    
    33,687
    
    
    
    (99,117
    )
    
    
    73,092Total assets
    
    
    590,130
    
    
    
    105,837
    
    
    
    338,089
    
    
    
    383,406
    
    
    
    1,417,462Depreciation and amortization
    
    
    26,366
    
    
    
    11,235
    
    
    
    11,267
    
    
    
    16,710
    
    
    
    65,578Capital expenditures
    
    
    2,357
    
    
    
    1,857
    
    
    
    4,898
    
    
    
    11,943
    
    
    
    21,055






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##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.  CONTINGENCIES

At September 30, 2003, certain lawsuits and other claims and assessments were
pending against the Corporation. While the outcome of these matters is subject
to future resolution, managements evaluation and analysis of such matters
indicates that, individually and in the aggregate, the probable ultimate
resolution of such matters will not have a material effect on the Corporations
consolidated financial statements.

The Corporation is subject to laws and regulations relating to the protection
of the environment. The Corporation provides for expenses associated with
environmental remediation obligations when such amounts are probable and can be
reasonably estimated. Such accruals are adjusted as new information develops or
circumstances change and are not discounted. While it is not possible to
quantify with certainty the potential impact of actions regarding environmental
matters, particularly remediation and other compliance efforts that the
Corporations subsidiaries may undertake in the future, in the opinion of
management, compliance with the present environmental protection laws, before
taking into account estimated recoveries from third parties, will not have a
material adverse effect upon the results of operations or consolidated
financial condition of the Corporation.

The Corporation has been identified as a Potentially Responsible Party (PRP)
at the Dover, New Hampshire Municipal Landfill, a United States Environmental
Protection Agency Superfund Site. The Corporation has been participating with a
group of approximately 26 other PRPs to fund the study of and implement
remedial activities at the site. Remediation at the site has been on-going and
is anticipated to continue for at least several years. The total cost of the
remedial activity was estimated to be approximately $26.0 million. The
Corporations share is not expected to exceed $1.5 million. The Corporation
believes that its reserves are sufficient based on the present facts and recent
tests performed at this site.

12.  EARNINGS PER SHARE

Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2002
    
    2003
    
    2002Net earnings
    
    $
    25,996
    
    
    $
    17,498
    
    
    $
    74,047
    
    
    $
    45,237Weighted average number of common shares outstanding:Basic
    
    
    157,702
    
    
    
    111,392
    
    
    
    135,189
    
    
    
    111,568Dilutive options and awards
    
    
    773
    
    
    
    2,011
    
    
    
    788
    
    
    
    2,317Diluted
    
    
    158,475
    
    
    
    113,403
    
    
    
    135,977
    
    
    
    113,885Earnings per share:Basic
    
    $
    0.16
    
    
    $
    0.16
    
    
    $
    0.55
    
    
    $
    0.41Diluted
    
    $
    0.16
    
    
    $
    0.15
    
    
    $
    0.54
    
    
    $
    0.40


13.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION

Moore North America Finance Inc. (Finance Inc.), a wholly-owned subsidiary of
the Corporation (the Parent), is the issuer of the Senior Notes. The Parent
and certain of the Corporations wholly owned subsidiaries (Guarantor
Subsidiaries) have guaranteed Finance Inc.s obligation under the Senior
Notes. The guarantees are joint and several, full, complete and unconditional.
Other wholly owned subsidiaries of the Corporation (Non-Guarantor
Subsidiaries) have not guaranteed the obligation under the Senior Notes.

The following supplemental condensed consolidating financial data illustrate,
in separate columns, the composition of the Parent, Finance Inc., Guarantor
Subsidiaries, Non-Guarantor Subsidiaries, eliminations, and the consolidated
total.

Investments in subsidiaries are accounted for by the equity method for purposes
of the supplemental condensed consolidating financial information. The
principal elimination entries eliminate investments in subsidiaries and
intercompany balances and transactions. The
financial information may not necessarily be indicative of the results of
operations or financial position had the subsidiaries been operated as
independent entities.





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##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (continued)

Supplemental Consolidating Balance Sheet at September 30, 2003 (unaudited):

Non-Finance
    
    Guarantor
    
    GuarantorParent
    
    Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedASSETSCurrent AssetsCash and cash equivalents
    
    $
    37,599
    
    
    $
    
    
    
    $
    66,107
    
    
    $
    13,398
    
    
    $
    
    
    
    $
    117,104Accounts receivable  net
    
    
    37,071
    
    
    
    
    
    
    
    514,847
    
    
    
    36,114
    
    
    
    
    
    
    
    588,032Intercompany receivables
    
    
    34,051
    
    
    
    5,148
    
    
    
    25,662
    
    
    
    3,970
    
    
    
    (68,831
    )
    
    
    Inventories
    
    
    21,369
    
    
    
    
    
    
    
    205,338
    
    
    
    10,146
    
    
    
    
    
    
    
    236,853Prepaid expenses
    
    
    1,800
    
    
    
    
    
    
    
    31,184
    
    
    
    1,391
    
    
    
    
    
    
    
    34,375Deferred income taxes
    
    
    278
    
    
    
    
    
    
    
    24,222
    
    
    
    508
    
    
    
    
    
    
    
    25,008Total Current Assets
    
    
    132,168
    
    
    
    5,148
    
    
    
    867,360
    
    
    
    65,527
    
    
    
    (68,831
    )
    
    
    1,001,372Property, plant and equipment  net
    
    
    32,632
    
    
    
    
    
    
    
    555,828
    
    
    
    23,519
    
    
    
    
    
    
    
    611,979Investments
    
    
    
    
    
    
    
    
    
    
    148
    
    
    
    29,157
    
    
    
    
    
    
    
    29,305Investment in subsidiaries
    
    
    912,456
    
    
    
    
    
    
    
    53,810
    
    
    
    230
    
    
    
    (966,496
    )
    
    
    Prepaid pension cost
    
    
    15,038
    
    
    
    
    
    
    
    191,374
    
    
    
    18,311
    
    
    
    
    
    
    
    224,723Goodwill
    
    
    20,935
    
    
    
    
    
    
    
    783,150
    
    
    
    
    
    
    
    
    
    
    
    804,085Other intangibles  net
    
    
    3,323
    
    
    
    
    
    
    
    152,447
    
    
    
    
    
    
    
    
    
    
    
    155,770Intercompany loans receivable
    
    
    651
    
    
    
    436,078
    
    
    
    31,233
    
    
    
    2,012
    
    
    
    (469,974
    )
    
    
    Deferred income taxes
    
    
    1,135
    
    
    
    
    
    
    
    2,102
    
    
    
    1,188
    
    
    
    
    
    
    
    4,425Other assets
    
    
    938
    
    
    
    10,330
    
    
    
    177,326
    
    
    
    423
    
    
    
    
    
    
    
    189,017Total Assets
    
    $
    1,119,276
    
    
    $
    451,556
    
    
    $
    2,814,778
    
    
    $
    140,367
    
    
    $
    (1,505,301
    )
    
    $
    3,020,676LIABILITIESCurrent LiabilitiesBank indebtedness
    
    $
    18,191
    
    
    $
    
    
    
    $
    48,235
    
    
    $
    23
    
    
    $
    
    
    
    $
    66,449Accounts payable and
accrued liabilities
    
    
    78,437
    
    
    
    7,614
    
    
    
    468,499
    
    
    
    50,376
    
    
    
    
    
    
    
    604,926Intercompany payables
    
    
    717
    
    
    
    15,408
    
    
    
    46,844
    
    
    
    5,862
    
    
    
    (68,831
    )
    
    
    Short-term debt
    
    
    784
    
    
    
    
    
    
    
    1,501
    
    
    
    98
    
    
    
    
    
    
    
    2,383Income taxes
    
    
    16,851
    
    
    
    (31
    )
    
    
    39,429
    
    
    
    1,067
    
    
    
    
    
    
    
    57,316Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    380
    
    
    
    
    
    
    
    380Total Current Liabilities
    
    
    114,980
    
    
    
    22,991
    
    
    
    604,508
    
    
    
    57,806
    
    
    
    (68,831
    )
    
    
    731,454Intercompany loans payable
    
    
    25,156
    
    
    
    
    
    
    
    438,089
    
    
    
    6,729
    
    
    
    (469,974
    )
    
    
    Long-term debt
    
    
    623
    
    
    
    400,370
    
    
    
    516,294
    
    
    
    3,585
    
    
    
    
    
    
    
    920,872Postretirement benefits
    
    
    13,309
    
    
    
    
    
    
    
    248,172
    
    
    
    
    
    
    
    
    
    
    
    261,481Deferred income taxes
    
    
    5,169
    
    
    
    
    
    
    
    44,363
    
    
    
    681
    
    
    
    
    
    
    
    50,213Other liabilities
    
    
    9,166
    
    
    
    
    
    
    
    88,643
    
    
    
    3,305
    
    
    
    
    
    
    
    101,114Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,669
    
    
    
    
    
    
    
    4,669Total Liabilities
    
    
    168,403
    
    
    
    423,361
    
    
    
    1,940,069
    
    
    
    76,775
    
    
    
    (538,805
    )
    
    
    2,069,803SHAREHOLDERS EQUITYShare capital
    
    
    886,741
    
    
    
    60,000
    
    
    
    2,079,341
    
    
    
    173,662
    
    
    
    (2,313,003
    )
    
    
    886,741Unearned restricted shares
    
    
    (2,669
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,669
    )Retained earnings
    
    
    188,648
    
    
    
    (31,805
    )
    
    
    (1,229,605
    )
    
    
    (63,920
    )
    
    
    1,325,330
    
    
    
    188,648Cumulative translation adjustments
    
    
    (121,847
    )
    
    
    
    
    
    
    24,973
    
    
    
    (46,150
    )
    
    
    21,177
    
    
    
    (121,847
    )Total Shareholders Equity
    
    
    950,873
    
    
    
    28,195
    
    
    
    874,709
    
    
    
    63,592
    
    
    
    (966,496
    )
    
    
    950,873Total Liabilities
and Shareholders Equity
    
    $
    1,119,276
    
    
    $
    451,556
    
    
    $
    2,814,778
    
    
    $
    140,367
    
    
    $
    (1,505,301
    )
    
    $
    3,020,676Shareholders Equity
as reported
    
    $
    950,873
    
    
    $
    28,195
    
    
    $
    874,709
    
    
    $
    63,592
    
    
    $
    (966,496
    )
    
    $
    950,873U.S. GAAP Adjustments:Net pension asset
    
    
    (5,457
    )
    
    
    
    
    
    
    (55,662
    )
    
    
    
    
    
    
    
    
    
    
    (61,119
    )Computer software  net
    
    
    
    
    
    
    
    
    
    
    (20,445
    )
    
    
    
    
    
    
    
    
    
    
    (20,445
    )Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    (12,478
    )
    
    
    
    
    
    
    
    
    
    
    (12,478
    )Postretirement benefits
    
    
    (2,418
    )
    
    
    
    
    
    
    (109,323
    )
    
    
    
    
    
    
    
    
    
    
    (111,741
    )Deferred income taxes  net
    
    
    3,054
    
    
    
    
    
    
    
    72,250
    
    
    
    (2,182
    )
    
    
    
    
    
    
    73,122Accounts payable and
accrued liabilities
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    5,993Long-term debt
    
    
    
    
    
    
    
    
    
    
    11,099
    
    
    
    
    
    
    
    
    
    
    
    11,099Equity investments
    
    
    (110,741
    )
    
    
    
    
    
    
    3,818
    
    
    
    
    
    
    
    106,923
    
    
    
    (115,569
    )
    
    
    
    
    
    
    (110,741
    )
    
    
    3,818
    
    
    
    106,923
    
    
    
    (115,569
    )Shareholders Equity
under U.S. GAAP
    
    $
    835,304
    
    
    $
    28,195
    
    
    $
    763,968
    
    
    $
    67,410
    
    
    $
    (859,573
    )
    
    $
    835,304






---



##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (continued)

Supplemental Consolidating Balance Sheet at December 31, 2002:Non-Finance
    
    Guarantor
    
    GuarantorParent
    
    Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedASSETSCurrent AssetsCash and cash equivalents
    
    $
    29,127
    
    
    $
    101
    
    
    $
    100,338
    
    
    $
    10,064
    
    
    $
    
    
    
    $
    139,630Accounts receivable  net
    
    
    33,131
    
    
    
    
    
    
    
    271,219
    
    
    
    37,033
    
    
    
    
    
    
    
    341,383Intercompany receivables
    
    
    
    
    
    
    2,222
    
    
    
    60,496
    
    
    
    4,571
    
    
    
    (67,289
    )
    
    
    Inventories
    
    
    21,121
    
    
    
    
    
    
    
    99,384
    
    
    
    9,384
    
    
    
    
    
    
    
    129,889Prepaid expenses
    
    
    949
    
    
    
    
    
    
    
    15,604
    
    
    
    764
    
    
    
    
    
    
    
    17,317Deferred income taxes
    
    
    549
    
    
    
    
    
    
    
    29,066
    
    
    
    2,297
    
    
    
    
    
    
    
    31,912Total Current Assets
    
    
    84,877
    
    
    
    2,323
    
    
    
    576,107
    
    
    
    64,113
    
    
    
    (67,289
    )
    
    
    660,131Property, plant and equipment  net
    
    
    28,503
    
    
    
    
    
    
    
    199,457
    
    
    
    27,762
    
    
    
    
    
    
    
    255,722Investments
    
    
    
    
    
    
    
    
    
    
    1,784
    
    
    
    30,472
    
    
    
    
    
    
    
    32,256Investment in subsidiaries
    
    
    374,237
    
    
    
    
    
    
    
    47,917
    
    
    
    230
    
    
    
    (422,384
    )
    
    
    Prepaid pension cost
    
    
    14,363
    
    
    
    
    
    
    
    188,605
    
    
    
    18,552
    
    
    
    
    
    
    
    221,520Goodwill
    
    
    17,956
    
    
    
    
    
    
    
    88,298
    
    
    
    
    
    
    
    
    
    
    
    106,254Other intangibles  net
    
    
    3,354
    
    
    
    
    
    
    
    3,080
    
    
    
    
    
    
    
    
    
    
    
    6,434Intercompany loans receivable
    
    
    1,188
    
    
    
    5,082
    
    
    
    5,223
    
    
    
    32,264
    
    
    
    (43,757
    )
    
    
    Deferred income taxes
    
    
    (202
    )
    
    
    
    
    
    
    54,129
    
    
    
    11
    
    
    
    
    
    
    
    53,938Other assets
    
    
    1,756
    
    
    
    
    
    
    
    98,456
    
    
    
    3,292
    
    
    
    
    
    
    
    103,504Total Assets
    
    $
    526,032
    
    
    $
    7,405
    
    
    $
    1,263,056
    
    
    $
    176,696
    
    
    $
    (533,430
    )
    
    $
    1,439,759LIABILITIESCurrent LiabilitiesBank indebtedness
    
    $
    12
    
    
    $
    
    
    
    $
    17,673
    
    
    $
    473
    
    
    $
    
    
    
    $
    18,158Accounts payable and
accrued liabilities
    
    
    42,959
    
    
    
    1,002
    
    
    
    380,567
    
    
    
    61,979
    
    
    
    
    
    
    
    486,507Intercompany payables
    
    
    54,939
    
    
    
    3,817
    
    
    
    
    
    
    
    8,533
    
    
    
    (67,289
    )
    
    
    Short-term debt
    
    
    401
    
    
    
    
    
    
    
    1,414
    
    
    
    320
    
    
    
    
    
    
    
    2,135Income taxes
    
    
    14,469
    
    
    
    (31
    )
    
    
    43,073
    
    
    
    1,051
    
    
    
    
    
    
    
    58,562Deferred income taxes
    
    
    1,219
    
    
    
    
    
    
    
    
    
    
    
    1,965
    
    
    
    
    
    
    
    3,184Total Current Liabilities
    
    
    113,999
    
    
    
    4,788
    
    
    
    442,727
    
    
    
    74,321
    
    
    
    (67,289
    )
    
    
    568,546Intercompany loans payable
    
    
    6,479
    
    
    
    
    
    
    
    30,976
    
    
    
    6,302
    
    
    
    (43,757
    )
    
    
    Long-term debt
    
    
    1,090
    
    
    
    
    
    
    
    183,146
    
    
    
    3,227
    
    
    
    
    
    
    
    187,463Postretirement benefits
    
    
    10,869
    
    
    
    
    
    
    
    230,475
    
    
    
    
    
    
    
    
    
    
    
    241,344Deferred income taxes
    
    
    3,378
    
    
    
    
    
    
    
    5,834
    
    
    
    270
    
    
    
    
    
    
    
    9,482Other liabilities
    
    
    7,721
    
    
    
    
    
    
    
    32,619
    
    
    
    3,436
    
    
    
    
    
    
    
    43,776Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,652
    
    
    
    
    
    
    
    6,652Total Liabilities
    
    
    143,536
    
    
    
    4,788
    
    
    
    925,777
    
    
    
    94,208
    
    
    
    (111,046
    )
    
    
    1,057,263SHAREHOLDERS EQUITYShare capital
    
    
    403,800
    
    
    
    20,000
    
    
    
    1,607,533
    
    
    
    204,042
    
    
    
    (1,831,575
    )
    
    
    403,800Unearned restricted shares
    
    
    (2,572
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,572
    )Retained earnings
    
    
    114,601
    
    
    
    (17,383
    )
    
    
    (1,292,916
    )
    
    
    (77,715
    )
    
    
    1,388,014
    
    
    
    114,601Cumulative translation adjustments
    
    
    (133,333
    )
    
    
    
    
    
    
    22,662
    
    
    
    (43,839
    )
    
    
    21,177
    
    
    
    (133,333
    )Total Shareholders Equity
    
    
    382,496
    
    
    
    2,617
    
    
    
    337,279
    
    
    
    82,488
    
    
    
    (422,384
    )
    
    
    382,496Total Liabilities
and Shareholders Equity
    
    $
    526,032
    
    
    $
    7,405
    
    
    $
    1,263,056
    
    
    $
    176,696
    
    
    $
    (533,430
    )
    
    $
    1,439,759Shareholders Equity
as reported
    
    $
    382,496
    
    
    $
    2,617
    
    
    $
    337,279
    
    
    $
    82,488
    
    
    $
    (422,384
    )
    
    $
    382,496U.S. GAAP Adjustments:Net pension asset
    
    
    (5,536
    )
    
    
    
    
    
    
    (58,621
    )
    
    
    
    
    
    
    
    
    
    
    (64,157
    )Computer software  net
    
    
    
    
    
    
    
    
    
    
    (25,536
    )
    
    
    
    
    
    
    
    
    
    
    (25,536
    )Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    (5,089
    )
    
    
    
    
    
    
    
    
    
    
    (5,089
    )Postretirement benefits
    
    
    (2,575
    )
    
    
    
    
    
    
    (122,158
    )
    
    
    
    
    
    
    
    
    
    
    (124,733
    )Deferred income taxes  net
    
    
    3,590
    
    
    
    
    
    
    
    81,647
    
    
    
    (2,182
    )
    
    
    
    
    
    
    83,055Accounts payable and
accrued liabilities
    
    
    (1,169
    )
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    4,831Equity investments
    
    
    (125,939
    )
    
    
    
    
    
    
    3,818
    
    
    
    
    
    
    
    122,121
    
    
    
    (131,629
    )
    
    
    
    
    
    
    (125,939
    )
    
    
    3,818
    
    
    
    122,121
    
    
    
    (131,629
    )Shareholders Equity
under U.S. GAAP
    
    $
    250,867
    
    
    $
    2,617
    
    
    $
    211,340
    
    
    $
    86,306
    
    
    $
    (300,263
    )
    
    $
    250,867






---



##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (continued)

Supplemental Consolidating Statement of Operations for the nine months ended September 30, 2003 (unaudited):

Non-Finance
    
    Guarantor
    
    GuarantorParent
    
    Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet sales
    
    $
    161,314
    
    
    $
    
    
    
    $
    1,739,165
    
    
    $
    102,327
    
    
    $
    (12,695
    )
    
    $
    1,990,111Cost of sales
    
    
    117,894
    
    
    
    
    
    
    
    1,245,187
    
    
    
    65,939
    
    
    
    (12,695
    )
    
    
    1,416,325Selling, general and
administrative expenses
    
    
    28,341
    
    
    
    
    
    
    
    320,026
    
    
    
    25,632
    
    
    
    
    
    
    
    373,999Restructuring provision  net
    
    
    729
    
    
    
    
    
    
    
    11,395
    
    
    
    206
    
    
    
    
    
    
    
    12,330Depreciation and amortization
    
    
    7,618
    
    
    
    
    
    
    
    81,612
    
    
    
    2,828
    
    
    
    
    
    
    
    92,058Total operating expenses
    
    
    154,582
    
    
    
    
    
    
    
    1,658,220
    
    
    
    94,605
    
    
    
    (12,695
    )
    
    
    1,894,712Income from operations
    
    
    6,732
    
    
    
    
    
    
    
    80,945
    
    
    
    7,722
    
    
    
    
    
    
    
    95,399Equity earnings (loss)
of subsidiaries
    
    
    74,883
    
    
    
    
    
    
    
    (12,199
    )
    
    
    
    
    
    
    (62,684
    )
    
    
    Investment and other
income (expense)
    
    
    (8,653
    )
    
    
    
    
    
    
    (5,122
    )
    
    
    8,366
    
    
    
    
    
    
    
    (5,409
    )Interest expense  net
    
    
    (81
    )
    
    
    14,422
    
    
    
    26,790
    
    
    
    (108
    )
    
    
    
    
    
    
    41,023Debt settlement expense
    
    
    
    
    
    
    
    
    
    
    7,493
    
    
    
    
    
    
    
    
    
    
    
    7,493Earnings (loss) before income
taxes and minority interest
    
    
    73,043
    
    
    
    (14,422
    )
    
    
    29,341
    
    
    
    16,196
    
    
    
    (62,684
    )
    
    
    41,474Income tax expense (benefit)
    
    
    (1,004
    )
    
    
    
    
    
    
    (33,970
    )
    
    
    1,523
    
    
    
    
    
    
    
    (33,451
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    878
    
    
    
    
    
    
    
    878Net earnings (loss)
    
    $
    74,047
    
    
    $
    (14,422
    )
    
    $
    63,311
    
    
    $
    13,795
    
    
    $
    (62,684
    )
    
    $
    74,047U.S. GAAP Adjustments:Pension expense
    
    
    79
    
    
    
    
    
    
    
    2,959
    
    
    
    
    
    
    
    
    
    
    
    3,038Postretirement benefits
    
    
    157
    
    
    
    
    
    
    
    12,835
    
    
    
    
    
    
    
    
    
    
    
    12,992Computer software
    
    
    
    
    
    
    
    
    
    
    5,091
    
    
    
    
    
    
    
    
    
    
    
    5,091Debt conversion costs
    
    
    1,162
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,162Stock-based compensation
    
    
    (523
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (523
    )Income taxes
    
    
    (341
    )
    
    
    
    
    
    
    (8,145
    )
    
    
    
    
    
    
    
    
    
    
    (8,486
    )Equity earnings
    
    
    12,740
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,740
    )
    
    
    13,274
    
    
    
    
    
    
    
    12,740
    
    
    
    
    
    
    
    (12,740
    )
    
    
    13,274Net earnings (loss)
under U.S. GAAP
    
    $
    87,321
    
    
    $
    (14,422
    )
    
    $
    76,051
    
    
    $
    13,795
    
    
    $
    (75,424
    )
    
    $
    87,321






---



##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (continued)

Supplemental Consolidating Statement of Operations for the nine months ended September 30, 2002 (unaudited):

Non-Finance
    
    Guarantor
    
    GuarantorParent
    
    Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet sales
    
    $
    160,623
    
    
    $
    
    
    
    $
    1,267,230
    
    
    $
    96,963
    
    
    $
    (8,757
    )
    
    $
    1,516,059Cost of sales
    
    
    116,781
    
    
    
    
    
    
    
    867,376
    
    
    
    61,272
    
    
    
    (8,757
    )
    
    
    1,036,672Selling, general and
administrative expenses
    
    
    37,555
    
    
    
    
    
    
    
    279,176
    
    
    
    23,986
    
    
    
    
    
    
    
    340,717Depreciation and amortization
    
    
    7,686
    
    
    
    
    
    
    
    54,496
    
    
    
    3,396
    
    
    
    
    
    
    
    65,578Total operating expenses
    
    
    162,022
    
    
    
    
    
    
    
    1,201,048
    
    
    
    88,654
    
    
    
    (8,757
    )
    
    
    1,442,967Income from operations
    
    
    (1,399
    )
    
    
    
    
    
    
    66,182
    
    
    
    8,309
    
    
    
    
    
    
    
    73,092Equity earnings (loss)
of subsidiaries
    
    
    46,210
    
    
    
    
    
    
    
    (12,462
    )
    
    
    
    
    
    
    (33,748
    )
    
    
    Investment and other
income (expense)
    
    
    303
    
    
    
    
    
    
    
    4,141
    
    
    
    492
    
    
    
    
    
    
    
    4,936Interest expense  net
    
    
    (210
    )
    
    
    (818
    )
    
    
    10,491
    
    
    
    (498
    )
    
    
    
    
    
    
    8,965Debt settlement and issue costs
    
    
    
    
    
    
    16,746
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,746Earnings (loss) before income
taxes and minority interest
    
    
    45,324
    
    
    
    (15,928
    )
    
    
    47,370
    
    
    
    9,299
    
    
    
    (33,748
    )
    
    
    52,317Income tax expense
    
    
    87
    
    
    
    
    
    
    
    4,799
    
    
    
    1,617
    
    
    
    
    
    
    
    6,503Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    577
    
    
    
    
    
    
    
    577Net earnings (loss)
    
    $
    45,237
    
    
    $
    (15,928
    )
    
    $
    42,571
    
    
    $
    7,105
    
    
    $
    (33,748
    )
    
    $
    45,237U.S. GAAP Adjustments:Pension expense
    
    
    130
    
    
    
    
    
    
    
    3,023
    
    
    
    
    
    
    
    
    
    
    
    3,153Postretirement benefits
    
    
    146
    
    
    
    
    
    
    
    12,825
    
    
    
    
    
    
    
    
    
    
    
    12,971Computer software
    
    
    
    
    
    
    
    
    
    
    5,073
    
    
    
    
    
    
    
    
    
    
    
    5,073Debt conversion costs
    
    
    785
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    785Stock-based compensation
    
    
    (5,121
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,121
    )Income taxes
    
    
    1,583
    
    
    
    
    
    
    
    (8,159
    )
    
    
    
    
    
    
    
    
    
    
    (6,576
    )Equity earnings
    
    
    12,762
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,762
    )
    
    
    10,285
    
    
    
    
    
    
    
    12,762
    
    
    
    
    
    
    
    (12,762
    )
    
    
    10,285Net earnings (loss)
under U.S. GAAP
    
    $
    55,522
    
    
    $
    (15,928
    )
    
    $
    55,333
    
    
    $
    7,105
    
    
    $
    (46,510
    )
    
    $
    55,522






---



##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (continued)

Supplemental Consolidating Statement of Operations for the three months ended
September 30, 2003 (unaudited):

Non-Finance
    
    Guarantor
    
    GuarantorParent
    
    Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet sales
    
    $
    49,650
    
    
    $
    
    
    
    $
    753,109
    
    
    $
    34,367
    
    
    $
    (8,231
    )
    
    $
    828,895Cost of sales
    
    
    37,356
    
    
    
    
    
    
    
    533,755
    
    
    
    22,354
    
    
    
    (8,231
    )
    
    
    585,234Selling, general and
administrative expenses
    
    
    7,787
    
    
    
    
    
    
    
    127,444
    
    
    
    8,497
    
    
    
    
    
    
    
    143,728Restructuring provision  net
    
    
    59
    
    
    
    
    
    
    
    10,229
    
    
    
    345
    
    
    
    
    
    
    
    10,633Depreciation and amortization
    
    
    2,597
    
    
    
    
    
    
    
    34,764
    
    
    
    932
    
    
    
    
    
    
    
    38,293Total operating expenses
    
    
    47,799
    
    
    
    
    
    
    
    706,192
    
    
    
    32,128
    
    
    
    (8,231
    )
    
    
    777,888Income from operations
    
    
    1,851
    
    
    
    
    
    
    
    46,917
    
    
    
    2,239
    
    
    
    
    
    
    
    51,007Equity earnings (loss)
of subsidiaries
    
    
    23,122
    
    
    
    
    
    
    
    (5,544
    )
    
    
    
    
    
    
    (17,578
    )
    
    
    Investment and other
income (expense)
    
    
    (48
    )
    
    
    
    
    
    
    (69
    )
    
    
    35
    
    
    
    
    
    
    
    (82
    )Interest expense  net
    
    
    78
    
    
    
    6,147
    
    
    
    8,480
    
    
    
    (65
    )
    
    
    
    
    
    
    14,640Earnings (loss) before income
taxes and minority interest
    
    
    24,847
    
    
    
    (6,147
    )
    
    
    32,824
    
    
    
    2,339
    
    
    
    (17,578
    )
    
    
    36,285Income tax expense (benefit)
    
    
    (1,149
    )
    
    
    
    
    
    
    9,504
    
    
    
    1,638
    
    
    
    
    
    
    
    9,993Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    296
    
    
    
    
    
    
    
    296Net earnings (loss)
    
    $
    25,996
    
    
    $
    (6,147
    )
    
    $
    23,320
    
    
    $
    405
    
    
    $
    (17,578
    )
    
    $
    25,996U.S. GAAP Adjustments:Pension expense
    
    
    (2
    )
    
    
    
    
    
    
    1,015
    
    
    
    
    
    
    
    
    
    
    
    1,013Postretirement benefits
    
    
    54
    
    
    
    
    
    
    
    4,278
    
    
    
    
    
    
    
    
    
    
    
    4,332Computer software
    
    
    
    
    
    
    
    
    
    
    1,693
    
    
    
    
    
    
    
    
    
    
    
    1,693Debt conversion costs
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92Stock-based compensation
    
    
    (79
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79
    )Income taxes
    
    
    (25
    )
    
    
    
    
    
    
    (2,725
    )
    
    
    
    
    
    
    
    
    
    
    (2,750
    )Equity earnings
    
    
    4,261
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,261
    )
    
    
    4,301
    
    
    
    
    
    
    
    4,261
    
    
    
    
    
    
    
    (4,261
    )
    
    
    4,301Net earnings (loss)
under U.S. GAAP
    
    $
    30,297
    
    
    $
    (6,147
    )
    
    $
    27,581
    
    
    $
    405
    
    
    $
    (21,839
    )
    
    $
    30,297






---



##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (continued)

Supplemental Consolidating Statement of Operations for the three months ended
September 30, 2002 (unaudited):

Non-Finance
    
    Guarantor
    
    GuarantorParent
    
    Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet sales
    
    $
    49,098
    
    
    $
    
    
    
    $
    407,611
    
    
    $
    32,020
    
    
    $
    (1,962
    )
    
    $
    486,767Cost of sales
    
    
    36,442
    
    
    
    
    
    
    
    279,038
    
    
    
    20,382
    
    
    
    (1,962
    )
    
    
    333,900Selling, general and
administrative expenses
    
    
    7,077
    
    
    
    
    
    
    
    88,655
    
    
    
    7,638
    
    
    
    
    
    
    
    103,370Depreciation and amortization
    
    
    2,408
    
    
    
    
    
    
    
    17,446
    
    
    
    1,062
    
    
    
    
    
    
    
    20,916Total operating expenses
    
    
    45,927
    
    
    
    
    
    
    
    385,139
    
    
    
    29,082
    
    
    
    (1,962
    )
    
    
    458,186Income from operations
    
    
    3,171
    
    
    
    
    
    
    
    22,472
    
    
    
    2,938
    
    
    
    
    
    
    
    28,581Equity earnings (loss)
of subsidiaries
    
    
    14,102
    
    
    
    
    
    
    
    (15,886
    )
    
    
    
    
    
    
    1,784
    
    
    
    Investment and other
income (expense)
    
    
    108
    
    
    
    
    
    
    
    4,856
    
    
    
    617
    
    
    
    
    
    
    
    5,581Interest expense  net
    
    
    (91
    )
    
    
    (290
    )
    
    
    3,949
    
    
    
    44
    
    
    
    
    
    
    
    3,612Debt settlement and issue costs
    
    
    
    
    
    
    16,746
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,746Earnings (loss) before income
taxes and minority interest
    
    
    17,472
    
    
    
    (16,456
    )
    
    
    7,493
    
    
    
    3,511
    
    
    
    1,784
    
    
    
    13,804Income tax expense (benefit)
    
    
    (26
    )
    
    
    
    
    
    
    (4,153
    )
    
    
    402
    
    
    
    
    
    
    
    (3,777
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83
    
    
    
    
    
    
    
    83Net earnings (loss)
    
    $
    17,498
    
    
    $
    (16,456
    )
    
    $
    11,646
    
    
    $
    3,026
    
    
    $
    1,784
    
    
    $
    17,498U.S. GAAP Adjustments:Pension expense
    
    
    65
    
    
    
    
    
    
    
    3,050
    
    
    
    
    
    
    
    
    
    
    
    3,115Postretirement benefits
    
    
    49
    
    
    
    
    
    
    
    4,275
    
    
    
    
    
    
    
    
    
    
    
    4,324Computer software
    
    
    
    
    
    
    
    
    
    
    1,691
    
    
    
    
    
    
    
    
    
    
    
    1,691Debt conversion costs
    
    
    (366
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (366
    )Stock-based compensation
    
    
    (978
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (978
    )Income taxes
    
    
    480
    
    
    
    
    
    
    
    (3,517
    )
    
    
    
    
    
    
    
    
    
    
    (3,037
    )Equity earnings
    
    
    5,499
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,499
    )
    
    
    4,749
    
    
    
    
    
    
    
    5,499
    
    
    
    
    
    
    
    (5,499
    )
    
    
    4,749Net earnings (loss)
under U.S. GAAP
    
    $
    22,247
    
    
    $
    (16,456
    )
    
    $
    17,145
    
    
    $
    3,026
    
    
    $
    (3,715
    )
    
    $
    22,247






---



##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (continued)

Supplemental Consolidating Statement of Cash Flows for the nine months ended
September 30, 2003 (unaudited):

Non-Finance
    
    Guarantor
    
    GuarantorParent
    
    Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedOPERATING ACTIVITIESNet earnings (loss)
    
    $
    74,047
    
    
    $
    (14,422
    )
    
    $
    63,311
    
    
    $
    13,795
    
    
    $
    (62,684
    )
    
    $
    74,047Adjustments to reconcile net
earnings (loss) to cash provided
(used) by operating activities:Equity (earnings) loss
of subsidiaries
    
    
    (74,883
    )
    
    
    
    
    
    
    12,199
    
    
    
    
    
    
    
    62,684
    
    
    
    Depreciation and amortization
    
    
    7,618
    
    
    
    
    
    
    
    81,612
    
    
    
    2,828
    
    
    
    
    
    
    
    92,058Acquisition related charges:Inventory and backlog
    
    
    
    
    
    
    
    
    
    
    38,590
    
    
    
    
    
    
    
    
    
    
    
    38,590Derivative charges
    
    
    
    
    
    
    
    
    
    
    4,440
    
    
    
    
    
    
    
    
    
    
    
    4,440Write-off deferred debt issue costs
    
    
    
    
    
    
    
    
    
    
    7,493
    
    
    
    
    
    
    
    
    
    
    
    7,493Deferred income taxes
    
    
    (494
    )
    
    
    
    
    
    
    (35,902
    )
    
    
    (562
    )
    
    
    
    
    
    
    (36,958
    )Restructuring provision  net
    
    
    729
    
    
    
    
    
    
    
    11,395
    
    
    
    206
    
    
    
    
    
    
    
    12,330Other
    
    
    2,093
    
    
    
    738
    
    
    
    1,371
    
    
    
    1,198
    
    
    
    
    
    
    
    5,400Changes in operating
assets and liabilities:Accounts receivable  net
    
    
    2,126
    
    
    
    
    
    
    
    (1,348
    )
    
    
    2,545
    
    
    
    
    
    
    
    3,323Inventories
    
    
    3,094
    
    
    
    
    
    
    
    (5,733
    )
    
    
    (618
    )
    
    
    
    
    
    
    (3,257
    )Accounts payable and
accrued liabilities
    
    
    14,330
    
    
    
    6,612
    
    
    
    (95,304
    )
    
    
    883
    
    
    
    
    
    
    
    (73,479
    )Income taxes
    
    
    (685
    )
    
    
    
    
    
    
    1,596
    
    
    
    28
    
    
    
    
    
    
    
    939Other
    
    
    (899
    )
    
    
    (138
    )
    
    
    (9,053
    )
    
    
    (798
    )
    
    
    
    
    
    
    (10,888
    )Net cash provided (used) by
operating activities
    
    
    27,076
    
    
    
    (7,210
    )
    
    
    74,667
    
    
    
    19,505
    
    
    
    
    
    
    
    114,038INVESTING ACTIVITIESProperty, plant and equipment  net
    
    
    (5,053
    )
    
    
    
    
    
    
    (24,241
    )
    
    
    (2,642
    )
    
    
    
    
    
    
    (31,936
    )Long-term receivables
and other investments
    
    
    6
    
    
    
    
    
    
    
    644
    
    
    
    (29,221
    )
    
    
    
    
    
    
    (28,571
    )Acquisition of businesses
    
    
    
    
    
    
    
    
    
    
    (847,868
    )
    
    
    
    
    
    
    
    
    
    
    (847,868
    )Proceeds from sale of investments
and other assets
    
    
    1,500
    
    
    
    
    
    
    
    
    
    
    
    29,917
    
    
    
    
    
    
    
    31,417Software expenditures
    
    
    
    
    
    
    
    
    
    
    (4,812
    )
    
    
    
    
    
    
    
    
    
    
    (4,812
    )Other
    
    
    
    
    
    
    
    
    
    
    612
    
    
    
    1,799
    
    
    
    
    
    
    
    2,411Net cash used by
investing activities
    
    
    (3,547
    )
    
    
    
    
    
    
    (875,665
    )
    
    
    (147
    )
    
    
    
    
    
    
    (879,359
    )FINANCING ACTIVITIESNet change in short-term debt
    
    
    383
    
    
    
    
    
    
    
    87
    
    
    
    (222
    )
    
    
    
    
    
    
    248Issuance of long-term debt
    
    
    
    
    
    
    400,370
    
    
    
    609,910
    
    
    
    
    
    
    
    
    
    
    
    1,010,280Payments on long-term debt
    
    
    (210
    )
    
    
    
    
    
    
    (292,502
    )
    
    
    
    
    
    
    
    
    
    
    (292,712
    )Debt issue costs
    
    
    
    
    
    
    (10,824
    )
    
    
    (22,208
    )
    
    
    
    
    
    
    
    
    
    
    (33,032
    )Issuance common shares
    
    
    10,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,406Intercompany activity  net
    
    
    (44,604
    )
    
    
    (382,437
    )
    
    
    442,156
    
    
    
    (15,115
    )
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    (964
    )
    
    
    (504
    )
    
    
    
    
    
    
    (1,468
    )Net cash provided (used) by
financing activities
    
    
    (34,025
    )
    
    
    7,109
    
    
    
    736,479
    
    
    
    (15,841
    )
    
    
    
    
    
    
    693,722Effect of exchange rate
on cash resources
    
    
    789
    
    
    
    
    
    
    
    (274
    )
    
    
    267
    
    
    
    
    
    
    
    782Increase (decrease)
in cash resources
    
    
    (9,707
    )
    
    
    (101
    )
    
    
    (64,793
    )
    
    
    3,784
    
    
    
    
    
    
    
    (70,817
    )Cash resources at
beginning of period
    
    
    29,115
    
    
    
    101
    
    
    
    82,665
    
    
    
    9,591
    
    
    
    
    
    
    
    121,472Cash resources at
end of period
    
    $
    19,408
    
    
    $
    
    
    
    $
    17,872
    
    
    $
    13,375
    
    
    $
    
    
    
    $
    50,655






---



##### Table of Contents



MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (continued)

Supplemental Consolidating Statement of Cash Flows for the nine months ended
September 30, 2002 (unaudited):

Non-Finance
    
    Guarantor
    
    GuarantorParent
    
    Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedOPERATING ACTIVITIESNet earnings (loss)
    
    $
    45,237
    
    
    $
    (15,928
    )
    
    $
    42,571
    
    
    $
    7,105
    
    
    $
    (33,748
    )
    
    $
    45,237Adjustments to reconcile net
earnings (loss) to cash provided
(used) by operating activities:Equity (earnings) loss
of subsidiaries
    
    
    (46,210
    )
    
    
    
    
    
    
    12,462
    
    
    
    
    
    
    
    33,748
    
    
    
    Depreciation and amortization
    
    
    7,686
    
    
    
    
    
    
    
    54,496
    
    
    
    3,396
    
    
    
    
    
    
    
    65,578Gain on sale of investments
and other assets
    
    
    (29
    )
    
    
    
    
    
    
    (6,615
    )
    
    
    (1,494
    )
    
    
    
    
    
    
    (8,138
    )Debt settlement
    
    
    
    
    
    
    16,746
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,746Deferred income taxes
    
    
    11,544
    
    
    
    
    
    
    
    (37,935
    )
    
    
    636
    
    
    
    
    
    
    
    (25,755
    )Other
    
    
    735
    
    
    
    364
    
    
    
    (5,020
    )
    
    
    1,656
    
    
    
    
    
    
    
    (2,265
    )Changes in operating
assets and liabilities:Accounts receivable  net
    
    
    (1,348
    )
    
    
    
    
    
    
    9,400
    
    
    
    2,839
    
    
    
    
    
    
    
    10,891Inventories
    
    
    2,538
    
    
    
    
    
    
    
    1,877
    
    
    
    (489
    )
    
    
    
    
    
    
    3,926Accounts payable and
accrued liabilities
    
    
    (6,283
    )
    
    
    (2,150
    )
    
    
    (27,107
    )
    
    
    (2,822
    )
    
    
    
    
    
    
    (38,362
    )Income taxes
    
    
    79
    
    
    
    
    
    
    
    29,715
    
    
    
    (194
    )
    
    
    
    
    
    
    29,600Other
    
    
    (537
    )
    
    
    
    
    
    
    (5,829
    )
    
    
    (932
    )
    
    
    
    
    
    
    (7,298
    )Net cash provided (used) by
operating activities
    
    
    13,412
    
    
    
    (968
    )
    
    
    68,015
    
    
    
    9,701
    
    
    
    
    
    
    
    90,160INVESTING ACTIVITIESProperty, plant and equipment  net
    
    
    (731
    )
    
    
    
    
    
    
    (3,182
    )
    
    
    490
    
    
    
    
    
    
    
    (3,423
    )Long-term receivables and
other investments
    
    
    679
    
    
    
    
    
    
    
    (996
    )
    
    
    (1,605
    )
    
    
    
    
    
    
    (1,922
    )Acquisition of businesses
    
    
    (8,764
    )
    
    
    
    
    
    
    (57,202
    )
    
    
    
    
    
    
    
    
    
    
    (65,966
    )Software expenditures
    
    
    
    
    
    
    
    
    
    
    (8,209
    )
    
    
    
    
    
    
    
    
    
    
    (8,209
    )Other
    
    
    749
    
    
    
    
    
    
    
    (4,694
    )
    
    
    
    
    
    
    
    
    
    
    (3,945
    )Net cash used by
investing activities
    
    
    (8,067
    )
    
    
    
    
    
    
    (74,283
    )
    
    
    (1,115
    )
    
    
    
    
    
    
    (83,465
    )FINANCING ACTIVITIESNet change in short-term debt
    
    
    (95
    )
    
    
    
    
    
    
    (14,928
    )
    
    
    195
    
    
    
    
    
    
    
    (14,828
    )Proceeds from issuance of
long-term debt
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000Payments on long-term debt
    
    
    (890
    )
    
    
    (116,746
    )
    
    
    (1,465
    )
    
    
    
    
    
    
    
    
    
    
    (119,101
    )Debt issue costs
    
    
    
    
    
    
    
    
    
    
    (7,779
    )
    
    
    
    
    
    
    
    
    
    
    (7,779
    )Repurchase of common shares  net
    
    
    (8,167
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,167
    )Intercompany activity  net
    
    
    15,437
    
    
    
    117,715
    
    
    
    (126,394
    )
    
    
    (6,758
    )
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (903
    )
    
    
    
    
    
    
    (903
    )Net cash provided (used) by
financing activities
    
    
    6,285
    
    
    
    969
    
    
    
    49,434
    
    
    
    (7,466
    )
    
    
    
    
    
    
    49,222Effect of exchange rate
on cash resources
    
    
    1,064
    
    
    
    
    
    
    
    1,350
    
    
    
    (38
    )
    
    
    
    
    
    
    2,376Increase in cash resources
    
    
    12,694
    
    
    
    1
    
    
    
    44,516
    
    
    
    1,082
    
    
    
    
    
    
    
    58,293Cash resources at
beginning of period
    
    
    12,920
    
    
    
    100
    
    
    
    5,777
    
    
    
    9,877
    
    
    
    
    
    
    
    28,674Cash resources at
end of period
    
    $
    25,614
    
    
    $
    101
    
    
    $
    50,293
    
    
    $
    10,959
    
    
    $
    
    
    
    $
    86,967






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##### Table of Contents



14.  SUBSEQUENT EVENT

During 2000, the Corporation amended the United States pension plan ( the
Plan) to cease all benefit accruals and announced its intention to terminate
and wind-up the Plan. In April 2001, the Plan was further amended to terminate
effective June 2001. Upon termination the Corporation sought a determination
letter from the Internal Revenue Service (IRS) as to the Plans tax
qualification status. The terms of the April 2001 Plan amendment made the
receipt of the IRS determination letter a prerequisite to the wind-up of the
Plan and the distribution of the Plan assets. The IRS has imposed a moratorium
on issuing such determination letters. Due to the uncertainty regarding the
receipt of the determination letter and the effect such uncertainty has on the
Corporations ability to effectively manage the Plans assets, on October 15,
2003, the Board of Directors of the Corporation resolved to take the steps
necessary to revoke the amendment terminating the Plan. The Plan, as restored,
remains frozen and will continue with no further benefit accruals.

Proposed Combination

On
November 8, 2003, the Corporation entered into a combination
agreement with R. R. Donnelley & Sons Company
(Donnelley) under which each common share of the
Corporation will be exchanged for 0.63 of a share of common stock of
Donnelley. The
transaction was unanimously approved by the Boards of Directors of
both the Corporation and Donnelley, but remains subject to closing
conditions that include, among others, receipt of required approval
from the Corporations and Donnelleys shareholders,
required regulatory approvals and Ontario Superior Court of Justice
approval of a plan of arrangement. The transaction may not be
completed if any of the closing conditions are not satisfied. If
approved, the transaction is expected to close in the first quarter
of 2004.





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##### Table of Contents



MOORE WALLACE INCORPORATED
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

This section provides a review of the financial performance of Moore Wallace
Incorporated (the Corporation), formerly Moore Corporation Limited (Moore),
for the three and nine months ended September 30, 2003 and 2002. This analysis
is based on the consolidated financial statements that are presented in Item 1,
prepared in accordance with Canadian generally accepted accounting principles
(GAAP). Differences between Canadian and U.S. GAAP are disclosed in Note 9 to
the consolidated financial statements. Where appropriate, comparative figures
have been reclassified to conform to the current presentation in the
Corporations consolidated financial statements.

As discussed further hereafter, on May 15, 2003, the Corporation acquired all
the outstanding shares of Wallace Computer Services, Inc. (Wallace), a
leading provider of printed products and print management services. The results
of operations for the nine months ended September 30, 2003 include the results
of Wallace from May 15, 2003. The differences in operating results in 2003
versus 2002 are primarily due to this acquisition (the Acquisition).

OVERVIEW

The Corporation is a diversified printing company that operates in three
distinct operating segments: Forms and Labels, Outsourcing, and Commercial. The
Corporation offers its products and services principally in the United States
and Canada, but it also has operations in Europe and in Latin America,
primarily in Mexico and Brazil.

The Forms and Labels segment provides a wide array of products and services,
including the design and production of business forms, labels and related
products, as well as electronic print management solutions. The Outsourcing
segment provides fully integrated business-to-business and business-to-consumer
solutions involving high quality variable image print and mail, electronic
statement and database management services. The Commercial segment provides
high quality multi-color personalized business communications and direct
marketing services, including project, database and list management services.
For the nine months ended September 30, 2003, approximately 53%, 13% and 34% of
consolidated net sales were attributable to the Forms and Labels, Outsourcing
and Commercial segments, respectively.

As with many other companies, net sales in 2003 and 2002 have been affected by
the economic downturn in the United States. In addition to general economic
conditions, the Corporations financial results for the periods discussed
herein have been affected by a number of strategic factors including
acquisitions of complementary businesses, the restructuring of operations, the
disposal of non-core businesses and the exiting of unprofitable accounts and
product lines. These initiatives have resulted in improved performance in 2003,
relative to the comparable periods last year. Historically, net sales have not
been materially affected by seasonal factors.

On January 31, 2002, the Corporation completed the acquisition of The Nielsen
Company (Nielsen), a commercial printer, which is complementary to its core
operations.

On May 15, 2003, the Corporation acquired all the outstanding shares of Wallace
for consideration of $14.40 in cash and 1.05 shares of the Corporation for each
outstanding share of Wallace. Management believes the Acquisition will enhance
the Corporations combined competitive position within the industry and
establish the Corporation as a leading provider of integrated print management
services across multiple industries. Management also believes the Acquisition
will enable the Corporation to improve profitability, achieve significant cost
synergies, leverage complementary products and services and augment
cross-selling opportunities across a more diverse platform. The aggregate
consideration to the Wallace shareholders was $1.1 billion and was comprised of
a cash payment of $609.7 million and 44,458,825 common shares of the
Corporation with a fair value of $471.7 million. The fair value of the
Corporations shares was based upon the actual number of shares issued to the
Wallace shareholders using the average closing trading price of the
Corporations common shares on the New York Stock Exchange (NYSE) during a
five-day trading period beginning two days prior to the announcement of the
merger agreement on January 17, 2003. The total purchase price of $1.3 billion
also included $218.2 million for the settlement of Wallace debt and other
liabilities, and direct acquisition costs to date of $19.9 million.

On
November 8, 2003, the Corporation entered into a combination
agreement with R. R. Donnelley & Sons Company
(Donnelley) under which each common share of the
Corporation will be exchanged for 0.63 of a share of common stock of
Donnelley. The
transaction was unanimously approved by the Boards of Directors of
both the Corporation and Donnelley, but remains subject to closing
conditions that include, among others, receipt of required approval
from the Corporations and Donnelleys shareholders,
required regulatory approvals and Ontario Superior Court of Justice
approval of a plan of arrangement. The transaction may not be
completed if any of the closing conditions are not satisfied. If
approved, the transaction is expected to close in the first quarter
of 2004.

Consistent with the strategy to focus on core printing operations, the
Corporation disposed of various non-core businesses. During the first quarter
of 2002, the Corporation disposed of several of its interests in non-U.S.
investments that were no longer strategic or where the Corporation lacked
sufficient control to achieve its objectives.

During 2003, in connection with the Acquisition, management approved and
initiated plans to restructure the operations of both Wallace and Moore
(restructuring plans) to eliminate certain duplicative functions, to close
certain facilities, to dispose of redundant software systems and underutilized
assets and to rationalize real estate holdings in order to reduce the combined
cost structure of the organization. As a result, the Corporation accrued
approximately $12.8 million of costs to exit certain Wallace activities, such
as severance, costs of vacating redundant facilities (leased or owned) and
other costs associated with exiting these activities. These costs are
recognized as a liability assumed in the purchase business combination and are
included in the allocation of the cost to acquire Wallace and are recorded in
goodwill (see Note 3). The Corporation accrued approximately $10.6 million and
$13.9 million for the three and nine months ended September 30, 2003, respectively, of similar
restructuring costs in connection with exiting certain Moore activities. These
costs have been included as a charge to the results of operations for the three
and nine months ended September 30, 2003.





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##### Table of Contents



MOORE WALLACE INCORPORATED
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Corporations results during the periods discussed have also been affected
by industry-wide trends, mainly downward pricing pressure associated with the
high degree of competition resulting, in part, from excess capacity in the
industry and fragmentation in the printing market. While the Corporation
believes that continued consolidation in the industry will result in greater
opportunities for cross-selling, other trends may have a countervailing effect.
The eventual effect, for example, of electronic substitution on the printing
industry cannot be predicted. The Corporation continues to adapt its product
line to the evolving demands of the digital products and services market. The
effects these actions will have on the Corporations results or financial
condition cannot be predicted.

The following discussion includes information on a consolidated basis presented
in accordance with Canadian GAAP. This discussion is supplemented by a
discussion of segment operating income. This supplemental discussion should be
read in conjunction with the Corporations reported consolidated financial
statements.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2002

CONSOLIDATED

Net sales for the three months ended September 30, 2003 increased $342.1
million to $828.9 million, representing a 70.3% increase versus the same period
last year. The inclusion of the operations of Wallace ($351.2 million) and the
increased volume in the Outsourcing segment ($13.4 million) more than offset
the sales declines in the U.S. and Canadian Forms and Labels business ($35.5
million) as customers continued to defer spending decisions as a result of
economic conditions affecting the printing industry.

Cost of sales increased $251.3 million to $585.2 million or 70.6% of
consolidated net sales for the quarter ended September 30, 2003 versus 68.6%
for the same period in the prior year. Cost of sales margins were adversely
affected by continued pricing pressure in the forms and labels industry, lower
volumes in the U.S. and Canadian Forms and Labels business and the effect of
business interruption related to the Acquisition. Also included in cost of
sales are $2.9 million of acquisition and integration related expenses
associated primarily with moving of equipment and inventory from vacated
facilities, equipment disassembly, consulting, travel, training and retention
pay.

Selling, general and administrative expenses increased $40.4 million to $143.8
million or 17.3% of consolidated net sales for the three months ended September
30, 2003, compared to $103.4 million or 21.2% of consolidated net sales versus
the same period last year. The margin improvement is primarily due to benefits
achieved from the Corporations prior restructuring activities, continued focus
on cost containment of discretionary spending and benefits recognized as a
result of reducing duplicative employee functions subsequent to the
Acquisition. Also included in selling, general and administrative costs are
$9.2 million of acquisition and integration expenses related to sales and use
taxes, consulting, travel, training and retention pay.

During the three months ended September 30, 2003, the Corporation recorded a
restructuring provision of $10.6 million comprised of $7.0 million for
workforce reductions (289 positions) and $3.6 million for lease termination and
facility close costs primarily related to the closure of Moore plants and sales
offices and the elimination of certain redundant administrative and corporate
functions. There was no restructuring provision recorded during the three
months ended September 30, 2002.

Depreciation and amortization increased $17.4 million to $38.3 million for the
three months ended September 30, 2003 compared to the same period in 2002,
primarily as a result of the Acquisition ($18.0 million). Acquisition related
depreciation and amortization includes $2.2 million amortization of purchased
intangibles and $1.4 million of asset impairments associated with the disposal
of machinery and equipment from vacated facilities and the abandonment of
certain redundant enterprise software systems as a result of the Acquisition.

Investment and other income, for the three months ended September 30, 2003,
include $0.7 million of income for the reduction of the deferred interest rate
swap liability that resulted from the extinguishment of Moores historical debt
on the date of the Acquisition (see Note 5).

Income from operations increased $22.4 million to $51.0 million for the three
months ended September 30, 2003 compared to the same period in 2002. The
increase is primarily due to improved operating results versus the prior year
and the incremental increase from the Acquisition, partially offset by
acquisition related items ($12.1 million) and restructuring and restructuring
related charges ($12.0 million) as previously discussed.

Net interest and debt settlement expense declined by $5.7 million to $14.6
million for the three months ended September 30, 2003, compared to the same
period in 2002, primarily due to the $16.7 million of debt settlement costs
related to the refinancing of Moores historical debt during the three months ended September 30, 2002, partially
offset by increased interest expense resulting from higher current debt levels.





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##### Table of Contents



MOORE WALLACE INCORPORATED
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2002

CONSOLIDATED(continued)

Net earnings for the three months ended September 30, 2003 increased $8.5
million over the prior year to $26.0 million, or $0.16 per diluted share.
Included in net income for the quarter were acquisition related charges of
$11.4 million ($6.6 million net of taxes) or $0.04 per diluted share, and
restructuring and restructuring related charges of $12.0 million ($7.3 million
net of taxes) or $0.05 per diluted share. The following table below summarizes
the acquisition related and restructuring and restructuring related charges
(credits):

Three Months EndedSeptember 30, 2003(In millions of U.S. dollars)Acquisition and integration expenses
    
    $
    12.1Fair value of interest rate swaps
    
    
    (0.7
    )Total acquisition related charges
    
    $
    11.4Restructuring
    
    $
    10.6Asset impairments
    
    
    1.4Total restructuring and restructuring related charges
    
    $
    12.0


For the same period in 2002, the Corporation reported net income of $17.5
million, or $0.15 per diluted share. The increase relates to improved operating
results across all business segments, and benefits recognized as a result of
synergies associated with the Acquisition.

OPERATING RESULTS BY SEGMENT

The following table and management discussion summarize the operating results
of the Corporations operating segments:

Operating incomeNet sales
    
    (loss)Three months ended September 30,(In millions of U.S. dollars)
    
    2003
    
    2002
    
    2003
    
    2002Forms and Labels
    
    $
    440.5
    
    
    $
    269.4
    
    
    $
    52.3
    
    
    $
    35.7Outsourcing
    
    
    80.7
    
    
    
    67.3
    
    
    
    14.8
    
    
    
    11.0Commercial
    
    
    307.7
    
    
    
    150.1
    
    
    
    25.8
    
    
    
    11.0Corporate
    
    
    
    
    
    
    
    
    
    
    (41.9
    )
    
    
    (29.1
    )Total
    
    $
    828.9
    
    
    $
    486.8
    
    
    $
    51.0
    
    
    $
    28.6


FORMS AND LABELS

Net sales for the three months ended September 30, 2003 increased $171.1
million or 63.5% versus 2002 to $440.5 million. The inclusion of the
Acquisition ($197.1 million) more than offset the volume declines at major
print management customers and the secular declines in the North American Forms
and Labels business. The Corporation believes the business activity levels at
these
major print management customers will continue to be adversely affected until
economic conditions impacting the printing industry improve.

Operating income for the three months ended September 30, 2003 increased $16.6
million or 46.5% versus 2002 to $52.3 million,





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##### Table of Contents



MOORE WALLACE INCORPORATED
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2002

FORMS AND LABELS(continued)

primarily due to the inclusion of the operating results of Wallace ($28.9
million), partially offset by a restructuring charge of $5.0 million,
acquisition and integration related expenses of $5.9 million, an asset
impairment charge of $1.4 million, depreciation on the fair market value
adjustment for the property, plant and equipment acquired ($0.3 million) and
volume declines in the North American Forms and Labels business, as previously
discussed.

OUTSOURCING

Net sales increased $13.4 million or 19.9% to $80.7 million for the three
months ended September 30, 2003 from the same prior year period. Growth was
achieved from new customers and sales increases with certain existing customers
in the financial and telecommunications markets, partially offset by volume
declines as a result of the economic conditions affecting the printing
industry.

Operating income for the three months ended September 30, 2003 increased $3.8
million or 34.5% to $14.8 million versus 2002, due to increased sales activity
and to savings achieved from cost containment initiatives implemented during
2002, which included the consolidation of administrative functions and focus on
production efficiencies, partially offset by increased start-up costs
associated with new customers.

COMMERCIAL

Net sales increased by $157.6 million or 105.0% to $307.7 million for the three
months ended September 30, 2003 from the same prior year period, primarily due
to the Acquisition ($154.1 million), increased commercial print transaction
business at Nielsen ($5.1 million) achieved through the Corporations
cross-selling initiatives, favorable foreign currency exchange ($3.2 million)
and increased volumes at the domestic direct mail business ($4.4 million).
These increases were partially offset by volume declines in the Corporations
technical publications group ($5.9 million) due to lower demand by certain
healthcare customers.

Operating income for the three months ended September 30, 2003 increased $14.8
million, to $25.8 million versus 2002, primarily due to the Acquisition ($11.3
million), improved operating results over last year ($9.5 million), partially
offset by restructuring and acquisition related charges of $5.5 million.

CORPORATE

Corporate operating expenses increased $12.8 million or 44.0% to $41.9 million
for the quarter ended September 30, 2003 versus the same period in 2002,
primarily due to the inclusion of Wallace corporate costs, a provision for
restructuring for duplicative administrative functions and increased healthcare
benefit costs, partially offset by information technology cost containment
efforts and synergies achieved through workforce reductions following the
Acquisition.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2002

CONSOLIDATED

Net sales for the nine months ended September 30, 2003 increased $474.0 million
to $1,990.1 million, representing a 31.3% increase versus the same period last
year. The inclusion of the Acquisition ($525.6 million) more than offset the
sales declines in the U.S. and Canadian Forms and Labels business ($88.2
million) as customers continued to defer spending decisions as a result of
economic conditions affecting the printing industry.

Cost of sales increased $379.6 million to $1,416.3 million or 71.2% of
consolidated net sales for the period ended September 30, 2003 versus 68.4% for
the same period in the prior year. Cost of sales margins were adversely
affected by continued pricing pressure in the forms and labels industry and
lower volumes in the U.S. and Canadian Forms and Labels business. Also
included in cost of sales was an acquisition related charge for the fair value
of the inventory and backlog ($38.6 million), $2.9 million of acquisition and
integration related expenses associated primarily with moving equipment and
inventory from vacated facilities, consulting, travel, training and retention
pay.

Selling, general and administrative expenses increased $33.3 million to $374.0
million or 18.8% of consolidated net sales for the nine months ended September
30, 2003, compared to $340.7 million or 22.5% of consolidated net sales the
same period last year. The margin improvement is primarily due to benefits
achieved from the Corporations prior restructuring activities, continued focus
on cost containment of discretionary spending and benefits recognized as a
result of reducing duplicative employee functions subsequent to the Acquisition. Also included in selling, general and administrative costs
are $9.2 million of acquisition and integration related expenses related to
sales and use taxes, consulting, travel, training and retention pay.





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##### Table of Contents



MOORE WALLACE INCORPORATED
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2002

CONSOLIDATED(continued)

During the nine months ended September 30, 2003, the Corporation recorded a
restructuring provision of $13.9 million for workforce reductions (330
positions), lease terminations and other costs primarily related to the closure
of Moore plants and the elimination of certain redundant administrative and
corporate functions. These charges were partially offset by the reversal of a
portion of its 2001 restructuring reserve ($1.6 million) resulting from
favorable settlements in 2003 as compared to estimates used by management at
the
time the charge was recorded. There was no restructuring provision recorded
during the nine months ended September 30, 2002.

Depreciation and amortization increased $26.5 million or 40.4% to $92.1 million
for the nine months ended September 30, 2003, compared to the same period in
2002, primarily as a result of the Acquisition ($29.8 million). Acquisition
related depreciation includes $3.3 million of amortization of purchased
intangibles and $3.5 million of asset impairments associated with the disposal
of machinery and equipment from vacated facilities and the abandonment of
certain redundant enterprise software systems.

Income from operations increased $22.3 million to $95.4 million for the nine
months ended September 30, 2003 versus September 30, 2002. The increase is
primarily due to improved operating results versus the prior year and the
incremental increase from the Acquisition ($36.9 million), unfavorably affected
by acquisition related items ($50.7 million) and net restructuring and
restructuring related actions ($15.8 million) as previously discussed.

Included in investment and other income (expense) for the nine months ended
September 30, 2003 is the net write-off of the fair value of interest rate
swaps ($4.4 million) as a result of extinguishing Moores historical debt on
the date of Acquisition (see Note 5).

Net interest and debt settlement expense increased by $22.8 million to $48.5
million for the nine months ended September 30, 2003 compared to the same
period in 2002, primarily due to $9.4 million (pre-acquisition interest
expense, deferred issue cost amortization and discount amortization) related to
the financing of the Acquisition. Additionally, the Corporation paid $4.0
million of bridge financing commitment fees related to the Acquisition. The
Corporation also recorded a charge ($7.5 million) to write off the deferred
financing fees related to the Corporations historical debt in connection with
the financing of the Acquisition.

The difference between the statutory rate and the effective rate relates to
lower tax rates in non-U.S. jurisdictions combined with a reduction of the
deferred tax valuation allowance, which is based on managements best estimate
of the amount of deferred tax assets that will more likely than not be
realized. The 2003 rate was also affected by a loss generated in the U.S. as a
result of expenses incurred from the Acquisition. For the nine months ended
September 30, 2003, the valuation allowance was reduced $41.6 million. For the
nine months ended September 30, 2002, the valuation allowance was reduced by
$42.8 million.

Net earnings for the nine months ended September 30, 2003 increased $28.9
million over the prior year to $74.1 million, or $0.54 per diluted share.
Included in net income for the nine months ended September 30, 2003 were
acquisition related charges of $76.0 million ($44.1 million net of taxes) or
$0.32 per diluted share, restructuring and restructuring related charges of
$15.8 million ($9.6 million net of taxes) or $0.07 per diluted share, a gain on
the disposition of real estate of $1.2 million ($0.8 million net of taxes) or
$0.01 per diluted share and the $41.6 million ($0.31 per diluted share)
reduction in the deferred tax valuation allowance. The following table below
summarizes the acquisition related and restructuring and restructuring related
charges (credits):





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##### Table of Contents



MOORE WALLACE INCORPORATED
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2002

CONSOLIDATED(continued)

Nine Months EndedSeptember 30, 2003(In millions of U.S. dollars)Fair value of acquired inventory and backlog
    
    $
    38.6Acquisition and integration expenses
    
    
    12.1Pre-acquisition interest  net
    
    
    9.4Deferred financing fees
    
    
    7.5Fair value of interest rate swaps
    
    
    4.4Bridge financing fees
    
    
    4.0Total acquisition related charges
    
    $
    76.0Restructuring
    
    $
    13.9Reversal of prior restructuring
    
    
    (1.6
    )Asset impairment
    
    
    3.5Total
restructuring and restructuring related charges
    
    $
    15.8Gain on disposition of property
    
    $
    1.2


For the same period in 2002, the Corporation reported net earnings of $45.2
million, or $0.40 per diluted share. The increase relates to improved operating
results, partially offset by acquisition related charges and restructuring and
restructuring related charges.

OPERATING RESULTS BY SEGMENT

The following table and management discussion summarizes the operating results
of the Corporations operating segments:

Operating incomeNet sales
    
    (loss)Nine months ended September 30,(In millions of U.S. dollars)
    
    2003
    
    2002
    
    2003
    
    2002Forms and Labels
    
    $
    1,057.8
    
    
    $
    842.5
    
    
    $
    93.5
    
    
    $
    98.0Outsourcing
    
    
    254.5
    
    
    
    234.5
    
    
    
    53.7
    
    
    
    40.5Commercial
    
    
    677.8
    
    
    
    439.1
    
    
    
    47.1
    
    
    
    33.7Corporate
    
    
    
    
    
    
    
    
    
    
    (98.9
    )
    
    
    (99.1
    )Total
    
    $
    1,990.1
    
    
    $
    1,516.1
    
    
    $
    95.4
    
    
    $
    73.1


FORMS AND LABELS

Net sales for the nine months ended September 30, 2003 increased $215.3 million
or 25.6% to $1,057.8 million versus 2002. The inclusion of the results of
Wallace ($292.5 million) more than offset the volume declines at major print
management customers in the
North American Forms and Labels business. The Corporation believes the business
activity levels at these major print management customers will continue to be
adversely affected until economic conditions impacting the printing industry
improve.

Operating income for the nine months ended September 30, 2003 decreased $4.5
million or 4.6% to $93.5 million versus 2002, primarily due to the fair market
value charge for inventory and backlog acquired from Wallace ($27.2 million), a
restructuring charge of $6.0 million, an asset impairment charge of $3.5
million, depreciation on the fair market value adjustment for the property,
plant and equipment acquired ($0.9 million) and the volume declines in the
North American Forms and Labels business, as previously discussed, partially
offset by operating results of Wallace ($40.6 million).





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##### Table of Contents



MOORE WALLACE INCORPORATED
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2002

OUTSOURCING

Net sales increased $20.0 million or 8.5% to $254.5 million for the nine months
ended September 30, 2003 from the same prior year period. Growth was achieved
from new customers and sales increases with certain existing customers in the
financial and telecommunications markets, partially offset by volume declines
as a result of the economic conditions affecting the printing industry.

Operating income for the nine months ended September 30, 2003 increased $13.2
million or 32.6% to $53.7 million versus 2002, due to increased sales activity
and to savings achieved from cost containment initiatives implemented during
2002 which included the consolidation of administrative functions and focus on
production efficiencies, partially offset by increased start-up costs
associated with new customers.

COMMERCIAL

Net sales increased by $238.7 million or 54.4% to $677.8 million for the nine
months ended September 30, 2003, primarily due to the inclusion of the results
of Wallace ($233.1 million), increased commercial print transaction business at
Nielsen ($20.1 million) achieved through the Corporations cross-selling
initiatives and favorable foreign currency exchange ($12.4 million). These
increases were partially offset by volume declines in the Corporations
technical publications group ($13.1 million) due to lower demand by certain
healthcare customers and the exiting of non-core businesses ($10.2 million).

Operating income for the nine months ended September 30, 2003 increased $13.4
million or 39.8%, to $47.1 million versus 2002, primarily due to the inclusion
of the results of Wallace ($16.7 million), the reversal of a prior
restructuring reserve in its European operations and increased volumes at
Nielsen ($2.1 million), partially offset by an acquisition related expense of
$4.3 million, the fair market value charge for inventory and backlog acquired
from Wallace ($11.4 million), a restructuring charge of $1.2 million, and
depreciation on the fair market value adjustment for the property, plant and
equipment acquired ($1.2 million).

CORPORATE

Corporate operating expenses decreased by $0.2 million or 0.2% to $98.9 million
for the nine months ended September 30, 2003 versus the same period in 2002,
primarily due to cost containment efforts in information technology and
synergies achieved through workforce reductions following the Acquisition,
offset by the inclusion of Wallace corporate costs and a provision for
restructuring for elimination of duplicative administrative functions.

LIQUIDITY AND CAPITAL RESOURCES

In March 2003, the Corporation entered into an $850.0 million senior secured
credit facility (the New Facility) in connection with the Acquisition. The
New Facility consists of a seven-year $500.0 million B Term Loan, which was
funded in escrow until the Acquisition and a five-year $350.0 million Revolving
Credit Facility, each of which are subject to a number of restrictive and
financial covenants that, in part, limit additional indebtedness and the
ability of the Corporation to engage in certain transactions with affiliates,
create liens on assets, engage in mergers and consolidations, or dispose of
assets. The financial covenants are calculated quarterly and include, in part,
tests of leverage and interest coverage.
The loans under the New Facility bear interest based on a variable index
(LIBOR), plus an applicable margin.
The New Facility replaced the
Corporations $400.0 million senior secured credit facility (the Existing
Facility). At September 30, 2003, $498.8 million is outstanding under the B
Term loan.

Also, in March 2003, the Corporation issued $403.0 million of 7 7/8 % senior
unsecured notes (the Senior Notes) due 2011 at a $2.8 million discount to the
principal amount. Interest on the Senior Notes is payable semiannually on
January 15 and July 15 of each year, and commenced on July 15, 2003. The
proceeds from the Senior Notes, along with $16.0 million in prepaid interest
through September 15, 2003, were held in escrow until the Acquisition. The
indenture governing the Senior Notes contains certain restrictive covenants
that, among other things, limit additional indebtedness and the Corporations
ability to engage in certain transactions with affiliates, create liens on
assets, engage in mergers and consolidations, or dispose of assets. The
Corporation, at its option, may redeem up to 40% of the Senior Notes prior to
January 15, 2006, at a predetermined redemption price with the proceeds of
certain equity offerings. In addition, subsequent to January 15, 2007, the
Senior Notes may be redeemed at predetermined redemption prices. On or prior
to January 15, 2007, the Corporation may also redeem the Senior Notes upon a
change of control, at a price equal to 100% of the principal plus an applicable premium.





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##### Table of Contents



MOORE WALLACE INCORPORATED
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2002

LIQUIDITY AND CAPITAL RESOURCES(continued)

In August 2002, the Corporation entered into the Existing Facility which was
comprised of a five-year $125.0 million Revolving Credit Facility, a five-year
$75.0 million Delayed Draw Term Loan A Facility, and a six-year $200.0 million
Term Loan B Facility. On September 4, 2002, with proceeds from the Term Loan B
Facility, the Corporation redeemed $100.0 million of senior guaranteed notes
and incurred a net prepayment charge of $16.7 million. At December 31, 2002,
$179.5 million was outstanding under this facility.

For the nine months ended September 30, 2003, interest expense includes the
following acquisition related items: pre-acquisition interest expense of $10.7
million; the write-off of deferred financing fees of $7.5 million; interest
income of $1.3 million on aforementioned proceeds held in escrow; and $4.0
million of bridge financing fees.

As a result of replacing the Existing Facility, the Corporation recorded a
charge of $5.2 million during the second quarter of 2003 for the fair value on
$150.0 million notional amount fixed rate interest rate swaps that were
designated as cash flow hedges of the variable interest on the Existing
Facility. The $5.2 million liability resulting from this charge will be ratably
reduced and recorded as income over the remaining term of the swaps. For the
nine months ended September 30, 2003, investment and other income (expense)
includes $0.7 million of income, related to the reduction of this liability.
These swap agreements exchange the variable interest rates (LIBOR) for fixed
interest rates over the terms of the agreements. The Corporation has
designated these swaps as cash flow hedges of the interest rate risk
attributable to forecasted variable interest payments. The Corporation entered
into an additional $250.0 million notional amount fixed rate interest rate
swaps that are designated as cash flow hedges of the interest rate risk
attributable to forecasted variable interest payments. These swaps, which
begin accruing interest on October 7, 2003, exchange the LIBOR interest on the
New Facility to fixed rate interest over the term of the swaps. At September
30, 2003, the $400.0 million notional amount fixed interest rate swaps
outstanding had a weighted average fixed interest rate of 2.29% and their fair
market value was a $5.8 million liability.

The Corporation has also entered into $250.0 million notional amount interest
rate swaps that exchange the fixed rate interest on the Senior Notes to
floating rate six-month LIBOR plus a basis point spread. The swaps are
designated as a fair value hedge against $250.0 million of principal on the
Senior Notes and mature January 2011. At September 30, 2003, the fair market
value of these floating rate swaps was an $11.1 million liability.

The Corporation also maintains uncommitted bank operating lines in the majority
of the domestic markets in which it operates. These lines of credit are
maintained to cover temporary cash shortfalls. Maximum allowable borrowings
under these uncommitted facilities amounted to $43.7 million at September 30,
2003 ($0.6 million outstanding), and may be terminated at any time at the
banks or the Corporations option. Total availability under these facilities
at September 30, 2003, was $43.1 million.

The Corporation had approximately $43.0 million in outstanding letters of
credit at September 30, 2003, of which $23.7 million were issued against the
$350.0 million Revolving Credit Facility.

An additional source of liquidity at September 30, 2003 was the Corporations
short-term investments in the amount of $88.3 million, which primarily consist
of certificate and term deposits, treasury bills and bank notes. These
investments are with financial institutions of sound credit rating and are
highly liquid as the majority mature within one to seven days and are
classified as cash and cash equivalents.

At September 30, 2003, the Corporation was in compliance with its debt
covenants. The Corporation believes it has sufficient liquidity to complete the
remaining restructuring activities and effectively manage the operating needs
of the businesses.

On December 28, 2001, the $70.5 million subordinated convertible debentures
held by Chancery Lane/GSC Investors L.P. (the Partnership) were converted
into 21,692,311 common shares. The Corporation issued 1,650,000 additional
common shares (additional shares) as an inducement to the Partnerships Class
A limited partners to convert prior to December 22, 2005, the date the
Corporation could have redeemed the debentures. The right to receive the
additional shares was assigned by the Partnership to its Class A limited
partners. Under the terms of the partnership agreement, the Class A limited
partners were entitled to all the interest paid on the subordinated convertible
debentures. As part of the inducement agreement, the Corporation has agreed
that if at December 31, 2003, the 20-day weighted average trading price of the
common shares on the NYSE is less than $10.83, the Corporation must make a
payment equal to the lesser of $9.0 million or the value of 6,000,000 of its
common shares at such date. The $9.0 million payment may be reduced under
certain circumstances. At the option of the Corporation, this payment may be
made in common shares, subject to regulatory approval. To the extent that
shares or cash is paid, it will be recorded as a charge to retained earnings.
The Corporation has no indication that the 20-day weighted average share price
will trade below the measurement price. Certain officers of
the Corporation, including the Chairman and the Chief Executive Officer, and
the former Chairman, President and Chief Executive
Officer, were investors in the Partnership.





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##### Table of Contents



MOORE WALLACE INCORPORATED
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2002

LIQUIDITY AND CAPITAL RESOURCES(continued)

In February 2002, the Corporation announced a program to repurchase up to $50.0
million of its common shares. The program allows for shares to be purchased on
the NYSE from time to time depending upon market conditions, market price of
the common shares and the assessment of the cash flow needs by the
Corporations management. Since the inception of the program, the Corporation
has repurchased $14.1 million of its common shares (no shares were repurchased
during the nine months ended September 30, 2003). The New Facility and Senior
Notes related to the Acquisition do not prohibit the Corporation from
continuing the repurchase program.

Net cash provided by operating activities was $114.0 million for the nine
months ended September 30, 2003, compared to net cash provided of $90.2 million
for the same period last year. The change was due to better operating results
offset by net changes in working capital.

Net cash used by investing activities for the nine months ended September 30,
2003 was $879.4 million, primarily related to the Acquisition (see Note 3),
versus $83.5 million used in 2002, of which $57.2 million relates to the
acquisition of Nielsen.

Net cash provided by financing activities for the nine months ended September
30, 2003 was $693.7 million compared to $49.2
million for the same period in 2002. The increase relates to the net increase
in long-term debt resulting from the Aquisition.

As of September 30, 2003, the aggregate amount of outstanding forward foreign
currency contracts was $16.0 million. Unrealized gains and losses from these
foreign currency contracts were not significant at September 30, 2003. The
Corporation does not use derivative financial instruments for trading purposes.

During 2000, the Corporation amended the United States pension plan ( the
Plan) to cease all benefit accruals and announced its intention to terminate
and wind-up the Plan. In April 2001, the Plan was further amended to terminate
effective June 2001. Upon termination the Corporation sought a determination
letter from the Internal Revenue Service (IRS) as to the Plans tax
qualification status. The terms of the April 2001 Plan amendment made the
receipt of the IRS determination letter a prerequisite to the wind-up of the
Plan and the distribution of the Plan assets. The IRS has imposed a moratorium
on issuing such determination letters. Due to the uncertainty regarding the
receipt of the determination letter and the effect such uncertainty has on the
Corporations ability to effectively manage the Plans assets, on October 15,
2003, the Board of Directors of the Corporation resolved to take the steps
necessary to revoke the amendment terminating the Plan. The Plan, as restored,
remains frozen and will continue with no further benefit accruals.

FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this quarterly report on Form 10-Q
that are subject to risks and uncertainties. These statements are based on the
beliefs and assumptions of the Corporations management. Generally,
forward-looking statements include information concerning possible or assumed
future actions, events or results of operations of the Corporation.
Forward-looking statements may include, among other things, statements
regarding:



| |  | management forecasts;
|- |  | ---------------------



| |  | efficiencies, cost avoidance and cost savings;
|- |  | ----------------------------------------------



| |  | income and margins;
|- |  | -------------------



| |  | earnings per share;
|- |  | -------------------



| |  | growth;
|- |  | -------



| |  | the economy;
|- |  | ------------



| |  | future economic performance;
|- |  | ----------------------------



| |  | future acquisitions and dispositions;
|- |  | -------------------------------------



| |  | litigation;
|- |  | -----------



| |  | potential and contingent liabilities;
|- |  | -------------------------------------



| |  | managements plans;
|- |  | -------------------



| |  | business portfolios;
|- |  | --------------------



| |  | new and pending accounting standards;
|- |  | -------------------------------------



| |  | taxes; and
|- |  | ----------



| |  | merger and integration-related expenses.
|- |  | ----------------------------------------





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##### Table of Contents



MOORE WALLACE INCORPORATED
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS(continued)

These statements may include, or be proceeded or followed by, the words may,
will, should, potential, possible, believe, expect, anticipate,
intend, plan, estimate, hope or similar expressions. We claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 for all forward-looking
statements.

Forward-looking statements are not guarantees of performance. You should
understand that the following important factors, in addition to those Risk
Factors set forth in documents we have filed with the Securities and Exchange
Commission, could affect the future results of the Corporation, and could cause
those results or other outcomes to differ materially from those expressed or
implied in our forward-looking statements:



| |  | the effect of economic and political conditions on a regional, national
or international basis;
|- |  | -----------------------------------------------------------------------------------------------



| |  | the possibility of future terrorist activities or the possibility of an
outbreak of hostilities in the Middle East or elsewhere;
|- |  | --------------------------------------------------------------------------------------------------------------------------------



| |  | the effect of inflation, changes in currency exchange rates and change in
interest rates;
|- |  | -----------------------------------------------------------------------------------------



| |  | the effect of changes in laws and regulations, including changes in
accounting standards, trade, tax, price controls and other regulatory
matters;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the performance of the Corporations businesses following the acquisition
of Wallace and the ability of the companies to integrate their operations
successfully and achieve synergies;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the financial resources of, and products available to, the Corporations
competitors;
|- |  | -------------------------------------------------------------------------------------



| |  | competitive pressures in the commercial printing, forms and labels,
electronic print management, business marketing, business communications,
office supplies, imaging, digital printing and computer software
industries;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the ability to secure and defend intellectual property rights and, when
appropriate, license required technology;
|- |  | -----------------------------------------------------------------------------------------------------------------



| |  | customers budgetary constraints;
|- |  | ---------------------------------



| |  | customer changes in short-range and long-range plans;
|- |  | -----------------------------------------------------



| |  | the ability to gain customer acceptance of the Corporations new products
and technologies;
|- |  | -------------------------------------------------------------------------------------------



| |  | product performance and customer expectations;
|- |  | ----------------------------------------------



| |  | performance issues with key suppliers;
|- |  | --------------------------------------



| |  | changes in the availability or costs of key supplies (such as ink and
paper);
|- |  | -----------------------------------------------------------------------------



| |  | the ability to generate cash flows or obtain financing to fund growth;
|- |  | ----------------------------------------------------------------------



| |  | contingencies related to actual or alleged environmental contamination;
and
|- |  | ---------------------------------------------------------------------------



| |  | adverse outcomes of pending or threatened litigation.
|- |  | -----------------------------------------------------

Because forward-looking statements are subject to assumptions and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Shareholders are cautioned not to
place undue reliance on such statements, which speak only as of the date of
this document or the date of any document incorporated by reference.

Consequently, readers of this Quarterly Report should consider these
forward-looking statements only as our current plans, estimates and beliefs. We
do not undertake and specifically decline any obligation to publicly release
the results of any revisions to these forward-looking statements that may be
made to reflect future events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.
We undertake no obligation to update or revise any forward-looking statements
in this Quarterly Report to reflect any new events or any change in conditions
or circumstances. Even if these plans, estimates or beliefs change because of
future events or circumstances after the date of these statements, or because
anticipated or unanticipated events occur, we decline and cannot be required to
accept an obligation to publicly release the results of revisions to these
forward-looking statements.




ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Liquidity and Capital Resources.




ITEM 4.  CONTROLS AND PROCEDURES

(a) Disclosure controls and procedures.

As required by new Rule 13a-15 under the Securities Exchange Act of 1934, as
amended (the Exchange Act), the Corporations management carried out an
evaluation, with the participation of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and
procedures, as of the end of the last fiscal quarter. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports we file or submit
under the Exchange Act is recorded, processed, summarized





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MOORE WALLACE INCORPORATED
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CONTROLS AND PROCEDURES(continued)

and reported, within the time periods specified in the Securities and Exchange
Commissions rules and forms. We intend to continue to review and document our
disclosure controls and procedures, including our internal controls and
procedures for financial reporting, and may from time to time make changes
aimed at enhancing their effectiveness and to ensure that our systems evolve
with our business.

(b) Changes in internal control over financial reporting.

There have not been any changes in the Corporations internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act) that occurred during the Corporations last fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the
Corporations internal control over financial reporting.




PART II  OTHER INFORMATION




ITEM 1.  LEGAL PROCEEDINGS

At September 30, 2003, certain lawsuits and other claims and assessments were
pending against the Corporation. While the outcome of these matters is subject
to future resolution, managements evaluation and analysis of such matters
indicate that, individually and in the aggregate, the probable ultimate
resolution of such matters will not have a material effect on the Corporations
consolidated financial statements.

The Corporation is subject to laws and regulations relating to the protection
of the environment. The Corporation provides for expenses associated with
environmental remediation obligations when such amounts are probable and can be
reasonably estimated. Such accruals are adjusted as new information develops or
circumstances change and are not discounted. While it is not possible to
quantify with certainty the potential impact of actions regarding environmental
matters, particularly remediation and other compliance efforts that the
Corporations subsidiaries may undertake in the future, in the opinion of
management, compliance with the present environmental protection laws, before
taking into account estimated recoveries from third parties, will not have a
material adverse effect upon the results of operations or consolidated
financial condition of the Corporation.

The Corporation has been identified as a Potentially Responsible Party (PRP)
at the Dover, New Hampshire Municipal Landfill, a United States Environmental
Protection Agency Superfund Site. The Corporation has been participating with a
group of approximately 26 other PRPs to fund the study of and implement
remedial activities at the site. Remediation at the site has been ongoing and
is anticipated to continue for at least several years. The total cost of the
remedial activity was estimated to be approximately $26.0 million. The
Corporations share is not expected to exceed $1.5 million. The Corporation
believes that its reserves are sufficient based on the present facts and recent
tests performed at this site.




ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

None.




ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

None.




ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.

None.





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##### Table of Contents



MOORE WALLACE INCORPORATED
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PART II  OTHER INFORMATION(continued)




ITEM 5.  OTHER INFORMATION

None.




ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

31. Rule 13a  14a/15d  14a Certifications
32. Section 1350 Certifications

(b) Reports on Form 8-K

On July 23, 2003, the Corporation filed a Current Report on Form 8-K, dated
July 23, 2003, announcing its financial results for the quarter ended June 30,
2003.

On July 29, 2003, the Corporation filed a Current Report on Form 8-K/A, dated
May 15, 2003 to amend the 8-K filed on May 15, 2003 announcing the Acquisition
to include the financial statements and pro forma financial information related
to the Merger.

On September 26, 2003, the Corporation filed a Current Report on Form 8-K,
dated September 25, 2003, to provide historical unaudited interim financial
statements of Wallace for the nine months ended April 30, 2003.

On September 26, 2003, the Corporation filed a Current Report on Form 8-K,
dated September 25, 2003, to restate the Corporations Management Discussion
and Analysis included in its 2002 Annual Report.

On September 29, 2003, the Corporation filed a Current Report on Form 8-K,
dated September 29, 2003, to file (i.) the historical consolidated financial
statements of Moore Corporation Limited as at December 31, 2002 and 2001 and
for the years ended December 31, 2002, 2001 and 2000 and (ii..) the interim
consolidated financial statements of the Corporation as at June 30, 2003 and
for the three and six months ended June 30, 2003 and 2002 were provided.





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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

MOORE WALLACE INCORPORATEDDate: November 10, 2003
    
    by:
    
    /s/ Mark S. HiltweinMark S. HiltweinExecutive Vice President, Chief Financial Officerby:
    
    /s/ Richard T. SansoneRichard T. SansoneSenior Vice President and Controller(Chief Accounting Officer)