FILED BY MOORE CORPORATION LIMITED PURSUANT
TO RULE 425 UNDER THE SECURITIES ACT OF 1933
SUBJECT COMPANY: WALLACE COMPUTER SERVICES, INC.
COMMISSION FILE NO.: 333-103205
MOORE CORPORATION
MODERATOR: (ROB BURTON)
APRIL 29, 2003
9:00 AM CT
Operator: Good morning. My name is (Mandy) and I will be your
conference facilitator today. At this time I would like
to welcome everyone to the Moore first quarter
conference call.
All lines have been placed on mute to prevent any
background noise. After the speaker's remarks there will
be a question and answer period. If you would like to
ask a question during this meeting simply press star
then the number one on your telephone keypad. And
questions will be taken in the order they are received.
If you would like to withdraw your question press star
then the number two. Thank you.
The host of today's call is Mr. Mark Angelson, the
Company's Chief Executive Officer. (Rob Burton), the
company's Senior Vice President of Investor Relations
will begin the call with a quick disclosure.
Gentlemen you may begin your conference.
(Rob Burton): Good morning and welcome to the Moore Corporation
Limited first quarter 2003 conference call. Today's call
will be hosted by Mark Angelson, the company's Chief
Executive Officer and members of its senior management
team.
Before I turn the call over to Mr. Angelson I'd like to
remind everyone that certain materials covered on
today's call are considered forward-looking and covered
under the company's Safe Harbor provision of the United
States Private Securities Litigation Reform Act of 1995.
For further details regarding this provision please
reference page number four of the company's press
release that was issued last night.
And with that I'd like to turn the call over to Mr.
Angelson.
Mark Angelson: Thank you (Rob) and good morning ladies and gentlemen.
I'm here this morning with Mark Hiltwein who will join
me in making remarks to you and Tom Oliva, Dean Cherry,
Tom Quinlan and (Ted Theopolis). As usual I may direct
all or part of some of your questions to my colleagues.
Before we begin I have two housekeeping items. The first
is that our lawyers have asked me to limit my responses
to questions about the Wallace transaction to material
which is contained in our S4 where otherwise already a
matter of the public record.
The second is that we will not be presenting at a New
York Stock Exchange conference this Wednesday because we
held our annual shareholder's meeting in the Toronto
area last week. And everyone who's been to that part of
the world in the ten days preceding the conference has
been gently discouraged from attending.
I am pleased to report that we are well but of course we
respect the advice of the New York Stock Exchange. This
is actually good news for us because I was wondering
what I'd be able to say on Wednesday in light of the
legal
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restrictions on talking about Wallace and the fact that
we're talking about our first quarter in today's
conference call.
The Wallace shareholders are due to vote on the merger
on May 15 and we plan to close as soon as possible after
the vote in accordance with the terms of the merger
agreement. We propose to make ourselves available in a
substitute forum shortly after the closing when the
legal restrictions have been lifted. And when we
determine that forum and its date and time we will post
it on our Web site and will make other appropriate
disclosure.
In the face of a very tough economic environment we once
again delivered on our financial commitments and
continued to gain across all of our market segments. Our
results demonstrate that our continued focus on becoming
the low cost producer coupled with extensive one-stop
shopping cross-selling strategy continues to work.
Going into the year we budgeted for a soft print market
and overall weak economic environment. With that being
said we have continued to eliminate excess cost from our
operating structure as we fully leverage our purchasing
and technology expenditures and improve manufacturing
and operational efficiencies. This approach to managing
our business has allowed us to meet and exceed our
financial expectations yet again.
For the first quarter and speaking purely in GAAP
terminology, income from operations increased 64% from
the corresponding period last year and earnings per
share increased 136% from the corresponding period last
year.
Although we continue to focus on cost containment we
have also increased our sales effort. This hard work
resulted in across the board sales wins in each of our
segments. We have recently won or extended multi-year
contracts with
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telecommunications, data processing and financial
services companies and our sales pipeline remains
strong.
Our cross-selling approach continues to surpass our
expectations. (Bob Nelson) and his fine team have built
on their initial success in 2002 and are off to a solid
start to 2003. We continue to expand relationships with
existing work clients as we offer them a full pallet of
services.
We continue to see a changing environment for customer
relationships. Clients are consolidating vendors and
seeking strategic partners for all of their print needs.
We believe that this factor plays to the strength of our
organization and that the addition of the Wallace
platform will strengthen our sales organization, broaden
our already diverse product offering and give us access
to new customers.
Though the economy has been a challenge during the first
quarter of the year, our job is to manage the company
without excuses and to live up to the commitments that
we have made to customers, shareholders and employees. I
am proud of our team's performance in this very
challenging environment, particularly so in light of the
results announced recently by many of the leading
participants in our sector.
I believe that we have great opportunity before us and
the pending merger with Wallace will provide us with a
launching pad for future success. This is a very
exciting time for us and although we are still working
our tails off we are still having fun.
On the subject of Wallace I am allowed to say the
following. The money necessary to consummate the merger
was raised and in the bank before the bombs started
dropping in Iraq. The Hart-Scott-Rodino waiting period
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expired uneventfully without a second request. We had a
constructive dialogue with the SEC and our S4 has been
effective since mid-April.
The Wallace shareholder vote is scheduled for the
morning of May 15. To the best of my knowledge there
have been no material adverse changes. Seventeen days
and counting.
We are very pleased with the Wallace platform. We are
very pleased with Wallace's information technology. We
are very pleased with the best Wallace sales information
technology and manufacturing people, several of whom
will serve in senior roles in the combined company.
We have focused on integration issues constantly since
January 17. I am pleased to announce that Tom Quinlan
has been appointed Executive Vice President of Business
Integration and commencing at the closing will be the
Moore Wallace executive primarily responsible for us
achieving our synergy goals working closely with me, our
senior operating people, our information technology
facilities human resources and benefits executive and of
course our finance legal (unintelligible).
We will be ready to go on May 15 and we'll have a lot
more to report 90 days from now when we welcome you to
the first Moore Wallace Incorporated earnings call.
And with that I give you Mark Hiltwein.
Mark Hiltwein: Thank you Mark. Today I have three items to cover.
First, the general overview followed by a summary of the
financial statements. And then I would like to discuss
our business segment performance.
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The first quarter of 2003 extends to nine straight
quarters Moore's commitment to meeting and exceeding our
budget and to delivering positive results to our
investors.
Our first quarter GAAP performance reflected increase in
earnings per share of 15 cents from 11 cents last year
to a profit this year of 26 cents; an increase of 136%.
This strong financial performance illustrates our
continued control of our SG&A expenses as well as the
improvement of our cost of sales resulting from
purchasing synergies and our move toward best in class
manufacturing production. This discipline is in line
with our conservative, budgeting methodology.
When we put our 2003 plan together in the fourth quarter
of 2002 we anticipated a difficult economy as well as
the prospect of war. In doing so all of our plant and
business segments built contingency plan in each of
their budgets with the expectation that if revenue is
declined 5%, 10% or 15% specific cost actions would need
to be taken to ensure that their operating income number
would be achieved.
Although volumes declined in Q1 we feel that we're in a
good position to continue to deliver on our earnings
commitments to our investors. We also believe that our
diverse revenue base and our customer desire for us to
provide one-stop shopping through our cross-selling
effort has enabled us to withstand some of the revenue
contractions.
With this as a backdrop I'll provide a summary of the
financial statements. The balance sheet at March 31,
2003 reflects $900.2 million of restricted cash as well
as prepaid acquisition related debt. The balances relate
to the funds
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needed to finance the Wallace acquisition and the
company's desire to fund the transaction prior to the
war and prior to the dealing closing.
The cash and debt discussions to follow will not include
the balances related to the combination. Net cash of
$94.6 million versus $28.3 million for the first quarter
ended March 31, 2002 and $121.5 million for the year
ended March 31, 2002.
Total debt of $189.6 million compares to the balance of
$187.6 million at March 31, 2002 and $189.6 million at
December 31, 2002. Our net debt position at quarter end
was $95 million versus $159.3 million at the quarter
ended of 2002 and $68.1 million at December 31, 2002;
mainly the result of acquisition related fees and
prepaid interest.
Shareholder's equity increased by $43.3 million from
$382.5 million at December 31, 2002 to $425.8 million at
March 31, 2003. Our average cost of barring was 6.3% in
the first quarter of 2003. This compares to 6.2% in the
prior year quarter.
Next I would like to speak to the highlights of the cash
flow statement. The company's net cash from operations
for the quarter was the use of $22.4 million versus a
$1.1 million source provided last year mainly related to
the acquisition related fees and prepaid interest of $25
million. Our cap ex for the quarter was $9.2 million
versus $3.4 million in the prior year quarter.
In regards to the quarterly income statement the
corporation recorded three items that are unusual and
which are not expected to recur in the ordinary course
of our business.
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The three items are as follows; net gain on sale of
property to $1.2 million pretax, pre-acquisition
interest related to the pending combination of $3.2
million, again pretax. The tax adjustment relating to
the reduction of the deferred liability and the tax
adjustment to reflect the company's expected income tax
rate of 30%.
I'll now provide a summary of the income statement. Our
first quarter revenue of $511.1 million reflects a
revenue decrease of $18.4 million over the same period
last year or 3.5%. The 3.5% is reduced to 2.2% when
taking into account exiting on profitable accounts,
foreign currency fluctuations, debt vestitures and
acquisitions.
Gross profit margins improved from 31.8% in the first
quarter of last year to 32.4% this year. The increase is
a result of our continued leverage of our purchasing
spend as well as reductions in waste and errors in our
manufacturing facilities.
For the first quarter SG&A as a percentage of sales
decreased 23.5% last year to 21.3% this year. The main
reason is the continued cost containment initiatives
including back office consolidation and a reduction in
IT costs as well as a critical focus on discretionary
spending.
Our operating income increased from $21.9 million in the
first quarter of 2002 to $35.9 million this quarter; an
increase of 64%. Depreciation and amortization decreased
$1 million to $21.2 million for the first quarter.
(Unintelligible) expense increased $3.9 million quarter
over quarter which related to the acquisition debt.
Our earnings for the first quarter increased from $12.5
million in 2002 to $29.2 million in 2003. Our net
earnings as a percentage of sales increased
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from 2.4% to 5.7%. As indicated earlier our EPS for the
quarter increased from 11 cents to 26 cents. The EPS
calculation is based on 113 million shares for 2003
versus 114 in 2002.
Next I would like to provide some details on our
business segments. Regarding the forms and labels on an
organic basis sales fell 4% due to continued buying
declines across major print management customers, most
significantly in our 250 top customers.
Our top 250 customers are down $19.3 million or 18% year
over year. This is mainly the result of the current
economic conditions as well as the uncertainty related
to the war in Iraq. This was partially offset by new
customer wins as our effort to penetrate the middle
market continues to drive results and we continue to
gain market share and improve margins.
Despite the decline in sales operating income for the
quarter increased by $100,000 primarily due to the
continued realization of savings from our continued
focus on cost management.
In regards to outsourcing sales grew over 7% organically
factoring in the company's decision to exit an
unprofitable contract. Growth was achieved from new
customers as well as increases from existing customers
in the financial and telecommunication markets.
We continue to see significant opportunities in the
sales funnel and the pipeline continues to be strong.
Operating income grew $5.5 million or 27%. This was due
to savings achieved from cost containment initiatives
implemented during 2002 as we consolidated back office
functions.
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In addition, the methodology for driving manufacturing
best practices was put in place in the fourth quarter of
2002 and is beginning to show results.
In regards to commercial, overall sales increased by
$1.1 million primarily due to foreign currency exchange
and increased net sales of Nielsen. The increase of
Nielsen is attributable to an extra month of operations
which resulted from our January 31, 2002 acquisition
closing last year and strong increases in transactional
business achieved through cross-selling.
This was offset by volumes declines on our domestic
direct mail business as customers delayed in deferred
mailings due to the impending war with Iraq. Recently
however, we have seen bookings firm up and we feel
comfortable that we will an experience a normal run rate
in the second quarter.
Operating income increased 10% to $13.2 million as the
impact of a full quarter of Nielsen and increased
control of discretionary spending contributed
significantly.
As we discussed in our last conference call we are
accelerating our external financial filings with the
SEC. This timeline is a full year ahead of what is
required by the regulatory agency. In keeping with this
promise made to our investors we will be filing the 10Q
by the end of business today.
That completes the financial presentation. I'd like to
return the call to Mark Angelson.
Mark Angelson: Thank you Mark. We are ready for questions operator.
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Operator: At this time I would like to remind everyone if you
would like to ask a question press star then the number
one on your telephone keypad. Your first question sir
comes from (Charles Trauser) of CJS Security.
(Charles Trauser): Hi good morning and congratulations on delivering what
looks like some pretty solid results in a terrible
(unintelligible) environment.
Mark Angelson: Thank you (Charlie).
(Charles Trauser): A couple of questions for you. First of all, I know you
under current, you know, governance rules you can't give
out things like free cash flow and EBITDA anymore. But
I'm calculating roughly around $57 million of EBITDA.
Can you tell me what your cash interest, you know, was
in the quarter?
Mark Hiltwein: Cash interest was about 1.7.
(Charles Trauser): And cash taxes?
Mark Hiltwein: Approximately 1.3.
(Charles Trauser): And you said cap ex was 9.2 in the quarter?
Mark Hiltwein: That's right.
(Charles Trauser): All right so that's roughly around $44, $45 million of
free cash flow is what I'm calculating.
Mark Hiltwein: We can't comment on that (Charlie).
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(Charles Trauser): Okay that's fine. Mark if you could, Mark Angelson, if
you could maybe just comment. Now that you're closing
what appears to be about a month or so earlier than
original expectations on the deal and I know you can't
give specifics, is your, you know, quote action plan for
the integration, you know, ready to go, you know, now
that you're ahead of schedule here? Can you comment on
that a little bit?
Mark Angelson: I will comment briefly and then I'm going to ask Tom
Quinlan to make a remark. As I stated in my opening
remarks we will be ready to go on May 15 and in fact we
are ready to go now. I will remind Tom that we need to
be careful here about what we say in terms of what we've
been doing exactly between January 17 and now. But if
you could do that carefully Tom I would be grateful.
Tom Quinlan: Thanks Mark. (Charlie) I - just to go back a little bit,
expectations as far as closing May 15 has been the
timeline to where we've - we thought we would be since
we started this. So I wouldn't say that we're ahead.
We're excited to the fact that it's only a little bit
more than less than three weeks away.
But again May 15 is sort of where we've been geared up
for and as Mark said we were going to be ready to go
come May 15. So the last 90 plus days we've been working
diligently on both side. There's been great cooperation
on both sides in going through what probably other
companies would do on the date that they've closed.
We've obviously been mindful of antitrust laws and
regulations and have not violating any of those. But
we've done all the diligence from an operations
standpoint that we are allowed to do as well as from an
administrative standpoint. So we're excited about what
the next couple of weeks will bring and looking forward
to the 15 of May.
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(Charles Trauser): Great that's (unintelligible).
Operator: Your next question comes from (Craig Huber) with Morgan
Stanley.
(Craig Huber): Yes good morning. A couple of questions. First one has
to do with this 5%, 10%, 15% contingency plans. Could
you just kind of go over what your expectation is for
the second quarter (unintelligible) revenue bottom line
for just pure Moore Corp?
And if you saw a revenue decline similar to what you
just described at 5%, 10%, 15% (unintelligible) flush
out a little bit what your plans would be on the expense
side to help offset that and how quickly you could move
it? Can you almost do it almost day per day?
I mean it seems hard to believe you could reduce
expenses fast enough to offset revenue declines as fast
as 10% to 15% particularly with given, you know, that
you have a couple of other large printers out there
Consolidated Graphics and Quebecor World, you know, blow
up over the last couple months. Thanks.
Mark Angelson: I'm going to ask Mark Hiltwein to address that and
without endeavoring to characterize where either of the
organizations that you mentioned one way or another let
me say that having been around the...
(Craig Huber): I thought I was being gentle.
Mark Angelson: Understood and you were but just having been around the
industry to the full time for sort of eight years now
I've never seen a management team like this. And
although you're right it's (TAPE GOES BLANK)
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Mark Hiltwein: But to answer your question I mean we have put together
a detailed contingency plan on the expectation that we
would be entering into a very, very difficult year both
economically and also with the unrest in the Middle
East.
And what we've done is we have put together very, very
specific cost actions in relation to declines in revenue
of, you know, the 5% and 10% and 15% that we talked
about. And whether that's, you know, taking plants dark,
whether that's, you know, whether that's taking out all
overtime in the plants or whether its taking out all
temporary employees and, you know, we always focus on
discretionary spending.
So again we've put a very disciplined budget in place
throughout all of our plants, throughout all of the
business units and feel that we can react not on the day
that the quarter is over but act, you know, the first
week of the quarter or the third week of the quarter as
we see some softening in the environment.
(Craig Huber): Have you had to put any of those plans in place here so
far this quarter?
Mark Angelson: Let me ask Tom Oliva to respond to that please.
Tom Oliva: Yes and what we did in building our budgets and in
building our organizations we try to create a
manufacturing plant built on a variable basis. So as
revenue comes in we have the headcount in a temporary
labor force is supported. If the revenue does not come
in we have the ability to get that out.
On a number of occasions in the first quarter we have
had either blackouts which the entire plants have been
shutdown. We also force vacations during that period of
time. We've also had in a number of instances brownouts
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where we will shut down portions of the plant that is
not supported with the revenue.
So again, we put these plans in place and we act upon it
very quick. We also have the methodology to look at our
business and the incoming revenues, you know, in a short
period of time so we know what's going to happen next
week and we can react accordingly.
We give our employees plenty of notice that we are going
to shut the plant down which gives them some freedom,
long weekends, things like that to support our employee
base. But it allows us to really adjust our workflow
accordingly.
(Craig Huber): Okay and then finally about these sales wins I believe
roughly a year ago you won roughly a $200 million
contract from United Healthcare. Is there anything
similar like that - similarly like that on the horizon
here for your company? You mentioned that there was
small - I assume a smaller sales win financial servicing
telecom. Can you kind of (unintelligible) quantify any
of those? Thanks.
Mark Angelson: Tom Quinlan.
Tom Quinlan: There's a number of RFP's that are out there on the
street that would be good for us to go into. But the - a
number of the organizations in corporate America are
looking to go ahead and take the same steps that UHG
went through last year.
So as we sit here today companies are trying to take
costs out of their what we'll say are not their core
capabilities and are - and where hopefully our industry
is going to be the beneficiary of those.
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Mark Angelson: Tom Oliva:
Tom Oliva: Yes we have won a number of - not to the size of a UHG
but we have won a number of major contracts in our
outsourcing business. These deals were consummated in
the fourth quarter and early first quarter.
In this particular contract it takes awhile for the jobs
to get implemented. There's a lot of programming and
technology that needs to be developed and we will start
seeing the fruits of these contracts in the later part
of the second and early part of the third quarter.
Mark Angelson: Yeah (Craig) I said at the beginning that our sales
pipeline is strong and I mean for that to apply to small
deals, big deals across the board. We're, you know,
we're okay.
(Craig Huber): Okay great thank you.
Mark Angelson: Thank you.
Operator: Your next question comes from (David Jeffrey) with
Paradigm Capital.
(David Jeffrey): Good morning guys.
Mark Angelson: Good morning (David).
Man: Good morning.
(David Jeffrey): I'm wondering if you could classify in the forms and
labels segment that was down just 4% despite a pretty
hefty decline from some of your bigger
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customers. Can you characterize some of the customer
wins in that category maybe with a few examples? And
then talk about the prospects in that mid market for the
full year.
Mark Angelson: Tom.
Tom Oliva: Yes. We've had as Mark talked about in the financial
disclosure we had a number of our larger customers were
down in their total spending. But we've been able to
offset that partially by a number of wins in the middle
market. In the first quarter alone we had close to 900
new customers join us. And what we look at is to have
the ability to cross-sell these customers into higher
margin platforms such as commercial printing and things
like that.
So we've had a lot of success mostly in the middle
market and we think that that is the growth strategy.
The middle market today represents an opportunity of
about $1.4 billion. Most of this middle market is
serviced by smaller local printers and so we have
targeted those particular customers as opportunities. We
find them to be higher margin customers and we see that
there's substantial growth and on market share
opportunities, you know, with that particular segment.
(David Jeffrey): That's great. And then just finally do you have a
headcount at the end of the first quarter?
Mark Angelson: We have a headcount at the end of last year for both
Moore and Wallace together of 19,000 in round numbers, a
few more. I don't know that we yet have a detailed
headcount for the end of the first quarter.
(David Jeffrey): No that's great. Thank you very much.
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Man: About 11 and a half thousand on the Moore side.
(David Jeffrey): Eleven and a half thousand Moore. Okay very good. Thanks
guys. Congratulations on your quarter.
Mark Angelson: Thank you.
Operator: Your next question comes from (Glen Crudlin) with
Glenhill Capital.
(Glen Crudlin): Yeah good morning. I just had a clarification. I didn't
follow you Mark on this interest for the acquisition.
You had said that cash flow was down $22 million due to
fees and accrued interest and you said there was 20 some
odd million there. And then you later went on and said
there was a - on the - when you were going through
extraordinary items you talked about $3.2 million of
interest for the acquisition. So I must be mixing apples
and oranges.
Mark Hiltwein: Yeah the $3.2 million is the expenditure for interest
expense and discounts, amortized debt issuance costs in
the quarter. The $25 million that I talked about as far
as the cash flow relates to approximately $10 million of
underwriting fees and $15 million of prepaid interest.
Mark Angelson: This is all a function of the fact that we borrowed the
money before we did the deal which we would do again if
we had it to do over.
(Glen Crudlin): Right understood. But the $3.2 million related to
existing debt or that is also the acquisition debt?
Mark Hiltwein: No that's all acquisition related debt and it relates
to, you know, deferred issue cost amortization and
discount amortization related to the financing.
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(Glen Crudlin): Right. Second question is have you seen any change in
trend in any of your major businesses since the war has
concluded?
Mark Angelson: Not as of yet. I think there's still - our customers are
sitting on the sidelines right now. I think there's some
skepticism as to the overall economy and, you know,
there's a lot of inquiries but they haven't executed yet
the deals.
(Glen Crudlin): Okay. And then do you have some sense as you put the two
companies together your sales force just in terms of
numbers how that would look relative to the major
competitors in terms of number of people on the street?
Man: The combined sales force we will have roughly 1,200
sales people to 1,500 sales people again pre-synergies.
And we are going to evaluate how, you know, our
presence. We feel it's important to have feet on the
street especially in light of opportunities to go after
market share and we're analyzing our competitors as we
speak with the combined entity.
(Glen Crudlin): I see. You don't have a sense of how much Quebecor has
or anything like that just for basis?
Man: We're in really different markets than Quebecor and the
other major printers. They normally support the retail,
magazine and catalog arena. Ours is very heavily
transaction related in the forms and label side. So we
will have more sales executives on the street. Our
average order is much smaller than the large enterprise
printers at this point in time. So it will require us to
have substantially more sales executives out there.
Mark Angelson: And remember in the fact that we only compete with the
two companies that are larger than us sort of around the
periphery is a particularly good thing in
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these times. It doesn't matter to us whether for example
Time Magazine has 28 pages in it or 128 pages in it. We
are much less reliant on advertising related things in
the economy.
Mark Hiltwein.
Mark Hiltwein: Yeah in addition (Glen) we've got, you know, we do a
substantial amount of business with the Fortune 100, the
Fortune 500 and, you know, our game plan is to go into
those corporations and penetrate their print management
spending. And, you know, today we have a very small
market share in many of those customers and what we're
looking to do is grow that market share. And we believe
that our strategy is going to pay off and we believe
that our customers are embracing our one-stop shopping
concept.
(Glen Crudlin): Great thanks very much and good luck with the
transaction.
Mark Angelson: Thanks a lot (Glen).
Operator: Your next question comes from (Matt Gotling) with
Chesapeake Partners.
(Matt Gotling): Hi guys nice quarter.
Mark Angelson: Thank you.
(Matt Gotling): Just - I may have missed this but did you guys give a
D&A number for the quarter?
Mark Hiltwein: Yes we did. It's $21.2 million.
(Matt Gotling): Okay. And then did you say anything on guidance?
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Mark Hiltwein: We did. We said we were comfortable on a standalone
basis with what first call has which is 17 cents.
(Matt Gotling): Okay and then when can we expect to receive updated
guidance for Moore - for the Wallace transaction?
Mark Angelson: Give us a few minutes to get into Wallace before we
(unintelligible) please. We'll be back to you later and,
you know, as soon as we're comfortable.
(Matt Gotling): Okay great thanks a lot.
Operator: Your next question comes from (Robert Revits) with the
(David J. Green) & Company.
(Robert Revits): Yes good morning. A couple of clarifications. The term
loan - the $500 million term loan, what's the maturity
on that?
Man: Seven years.
(Robert Revits): Okay so in other words the next couple of years you have
very little debt principal payment?
Man: That is correct.
(Robert Revits): Okay.
Man: Well very little mandatory debt principal
(unintelligible).
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(Robert Revits): Right, right. Next question is when - are you going to
after the merger report - I notice in your press release
everything is in U.S. dollars except earnings per share.
Right?
Man: No.
Mark Hiltwein: No that's (unintelligible).
Mark Angelson: It's all U.S. dollars and it will continue to be all
U.S. dollars.
(Robert Revits): The footnote - the footnote says that under the caption
Moore Corporation Limited (unintelligible) statement of
operations with quarters ended March 31, etc., U.S.
currency except shares and earnings per share.
Man: Because those numbers are - they're numbers as opposed
to dollar amounts.
(Robert Revits): Okay. So in other words your U.S. - your per share
earnings in U.S. dollars were 26 cents?
Man: On a GAAP basis yes.
(Robert Revits): Okay, okay. So why are you so garish about the second
quarter?
Mark Hiltwein: (Robert) we - this - our financial statements are in
Canadian generally accepted standards. So that 26 cents
in a Canadian generally accepted accounting principal if
you look at it from a U.S. basis it's actually 30 cents.
(Robert Revits): Okay.
Mark Hiltwein: But that's why the footnote is there. Its U.S. dollars,
its Canadian GAAP.
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(Robert Revits): Okay. And going forward how are you going to - what's
the - what's it going to be? Are we going to...
Mark Hiltwein: It's going to be Canadian GAAP until the time - until
such time that the Canadian OSC allows us to file in
U.S. GAAP. So it will be Canadian GAAP until that
occurs. We're a Canadian company and therefore we file
under Canadian GAAP.
(Robert Revits): I mean and the surviving company will be Canadian - the
Canadian company?
Mark Hiltwein: That's right.
Mark Angelson: Nothing's changing.
(Robert Revits): Okay. What's the big difference anymore between Canadian
GAAP and U.S. GAAP? Is it pensions and things like that?
Mark Hiltwein: Yeah I mean it's basically timing of our post-retirement
benefits as well as pension expense. I mean those are
the two big items, you know, and it's really more
retroactive than anything else.
(Robert Revits): Okay.
Mark Angelson: Thank you.
(Robert Revits): Thank you.
Operator: At this time you have a follow up question from (Charles
Trauser) with CJS Security.
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(Charles Trauser): Just two quick questions. Mark Hiltwein, D&A down again
sequentially quarter over quarter. Can you talk about,
you know, the dynamic there?
Mark Hiltwein: Yeah I think it's, you know, some of it is just, you
know, reduced cap ex spending and you've got levels
rolling off. But, you know, it's probably more impacted
by our, you know, reduced cap ex since we've joined the
organization back in 2000. Yeah we did, you know, $40
million first year, $43 second year and that was on the
heals of doing 130 in the two or three years prior to us
coming.
(Charles Trauser): (Unintelligible) great. And Mark Angelson you mentioned
about a - an appropriate form post closing. Have you
considered maybe doing an analyst day maybe in New York
or something to kind of, you know, refresh everyone what
the combined company is going to look like?
Mark Angelson: Yes.
(Charles Trauser): That's short and to the point. I like it. Thank you very
much guys.
Mark Angelson: Thanks (Charlie).
Let's take a couple more questions.
Operator: Your next question comes from (David Curdell) with
(Raman) Capital.
(David Curdell): Yes can you just remind me what the pro forma net debt
will be if that's been filed in the S4?
Mark Hiltwein: Yeah we've talked about a billion fifty.
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(David Curdell): Okay. Great, thanks very m - and that's the net debt?
Mark Hiltwein: That is - that's growth debt actually. It's probably
more like a billion.
Man: Figure a billion.
(David Curdell): Okay great.
Man: In round numbers.
(David Curdell): Great, thanks a lot.
Mark Angelson: You're welcome.
Operator: We are pausing. One moment.
Your next question comes form (Craig Huber) with Morgan
Stanley.
(Craig Huber): Yes just a quick follow on, just flush out the corporate
expense line, what it did in the quarter and what the
major changes there were versus giving the fourth
quarter and also a year ago. This is - I view that as a
big opportunity for you guys to putting that down in the
next couple of years. Thanks.
Mark Angelson: Yeah thanks (Craig). It was down sequentially both, you
know, quarter over quarter and year over year. And again
what we've done is we've, you know, we've focused all of
our cost center owners on, you know, discipline,
budgeting and, you know, we have continued to go back at
each one of the cost center owners on a monthly basis to
continue the reduction there. And year over year we're
down about 17% or about $7 million.
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(Craig Huber): Where do you guys kind of think your corporate expense
how you guys allocate it which is much different than
other companies do, where corporate expense should be
ideally as a percent of your revenues?
Mark Hiltwein: You know that's a tough question to answer (Craig)
because imbedded in that corporate expense number is,
you know, some IT costs that we've been working down
since we got here. Remember we've always talked about
the corporation having about a 10% spend of IT prior to
us joining between expenditures and some deferred
software. We continue to ratchet that down.
That's probably somewhere in the area of $105 to $110
million. Today we believe that we can take that down
another 15 to 25 to, you know, even $30 million. And,
you know, we believe that there's some additional room
elsewhere for us to take costs out throughout the
corporate function.
(Craig Huber): Great thank you.
Mark Hiltwein: Okay.
Operator: Ladies and gentlemen we have reached the allotted time
for questions and answers. Mr. Angelson are there any
closing remarks?
Mark Angelson: No. We'll be back to you as soon as we have more to say.
We are very keen to get into Wallace and get going.
We've done our homework, we're ready and we will back to
you with further reports in due course. And we thank all
of you for your questions this morning and for listening
to us and we wish you all the best.
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END
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