MOORE WALLACE INC - 10-Q Quarterly Report

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

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

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.

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

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

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


				SEPTEMBER 30,			DECEMBER 31,
				2003			2002

				(UNAUDITED)
ASSETS
Current Assets
	Cash and cash equivalents			$	117,104		$	139,630
	Accounts receivable, less allowance for doubtful accounts of $18,392 (2002 - $19,538)				588,032			341,383
	Inventories (Note 2)				236,853			129,889
	Prepaid expenses				34,375			17,317
	Deferred income taxes				25,008			31,912

Total Current Assets					1,001,372			660,131

Property, plant and equipment — net					611,979			255,722
Investments					29,305			32,256
Prepaid pension cost					224,723			221,520
Goodwill (Note 4)					804,085			106,254
Other intangibles — net (Note 4)					155,770			6,434
Deferred income taxes					4,425			53,938
Other assets					189,017			103,504

Total Assets				$	3,020,676		$	1,439,759

LIABILITIES
Current Liabilities
	Bank indebtedness			$	66,449		$	18,158
	Accounts payable and accrued liabilities				604,926			486,507
	Short-term debt				2,383			2,135
	Income taxes				57,316			58,562
	Deferred income taxes				380			3,184

Total Current Liabilities					731,454			568,546

Long-term debt (Note 5)					920,872			187,463
Postretirement benefits					261,481			241,344
Deferred income taxes					50,213			9,482
Other liabilities					101,114			43,776
Minority interest					4,669			6,652

Total Liabilities					2,069,803			1,057,263

SHAREHOLDERS’ EQUITY
	Share Capital
		Authorized:
			Unlimited number of preference (none outstanding for 2003 and 2002) and common shares without par value
		Issued:
			158,007,398 common shares in 2003
			111,842,348 common shares in 2002		886,741			403,800
	Unearned restricted shares				(2,669	)		(2,572	)
	Retained earnings				188,648			114,601
	Cumulative translation adjustments				(121,847	)		(133,333	)

	Total Shareholders’ Equity				950,873			382,496

Total Liabilities and Shareholders’ Equity				$	3,020,676		$	1,439,759

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 Ended
		September 30,						September 30,

		2003			2002			2003			2002

Net sales		$	828,895		$	486,767		$	1,990,111		$	1,516,059

Cost of sales			585,234			333,900			1,416,325			1,036,672
Selling, general and administrative expenses			143,728			103,370			373,999			340,717
Restructuring 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			65,578

Total operating expenses			777,888			458,186			1,894,712			1,442,967

Income from operations			51,007			28,581			95,399			73,092

Investment and other income (expense)			(82	)		5,581			(5,409	)		4,936
Interest expense — net			14,640			3,612			41,023			8,965
Debt settlement expense — net (Note 5)			—			16,746			7,493			16,746

Earnings before income taxes and minority interest			36,285			13,804			41,474			52,317

Income tax expense (benefit)			9,993			(3,777	)		(33,451	)		6,503
Minority interest			296			83			878			577

Net earnings		$	25,996		$	17,498		$	74,047		$	45,237

Net earnings per common share:
	Basic	$	0.16		$	0.16		$	0.55		$	0.41
	Diluted	$	0.16		$	0.15		$	0.54		$	0.40
Average shares outstanding (in thousands):
	Basic		157,702			111,392			135,189			111,568
	Diluted		158,475			113,403			135,977			113,885

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

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 Ended
			September 30,						September 30,

			2003			2002			2003			2002

OPERATING ACTIVITIES
Net earnings			$	25,996		$	17,498		$	74,047		$	45,237
Adjustments 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			16,746
	Deferred 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			10,891
	Inventories			(5,361	)		537			(3,257	)		3,926
	Prepaid 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			29,600
	Other			3,953			(3,066	)		(1,163	)		(4,765	)

Net cash provided by operating activities				61,362			16,690			114,038			90,160

INVESTING ACTIVITIES
Property, 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 ACTIVITIES
Net change in short-term debt				(17,150	)		(44,811	)		248			(14,828	)
Proceeds from issuance of long-term debt				—			200,000			1,010,280			200,000
Payments 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			49,222

Effect of exchange rate on cash resources				56			1,021			782			2,376
Net increase (decrease) in cash resources				16,002			39,965			(70,817	)		58,293
Cash resources at beginning of period (a)				34,653			47,002			121,472			28,674

Cash resources at end of period (a)			$	50,655		$	86,967		$	50,655		$	86,967

Supplemental disclosure of cash flow information:
	Interest paid — net		$	17,125		$	5,138		$	23,065		$	10,174
	Income taxes paid (refund) — net			(26,723	)		634			(20,396	)		3,073
Non-cash activity:
	Shares issued for acquisition of business			—			—			471,708			—

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

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.


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)


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


	September 30,		December 31,
	2003		2002

Raw materials	$	65,482	$	31,883
Work-in-process		30,720		10,303
<

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents


	2003		2002

Balance at beginning of period	$	114,601	$	51,666
Net earnings		74,047		45,237
Repurchase of common shares (1,069,700 shares in 2002)		—		(10,323	)

Balance at end of period	$	188,648	$	86,580