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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, 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, 2003
COMMISSION FILE NUMBER 1-8014

MOORE WALLACE INCORPORATED

(Exact name of registrant as specified in its charter)

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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PART I. FINANCIAL INFORMATION

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

(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)

(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)

(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)

(See notes to the consolidated financial statements)

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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

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

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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:

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.

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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MOORE WALLACE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.  GOODWILL AND OTHER INTANGIBLES

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:

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:

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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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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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:

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:

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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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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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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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.

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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: