<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
Form 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
__________________
Date of Report (Date of earliest event reported): December 31, 1993
__________________
MERRILL CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 0-14082 41-0946258
--------- ------- ----------
(State of Incorporation) (Commission (I.R.S. Employer
File Number) Identification No.)
One Merrill Circle, St. Paul, Minnesota 55108
----------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (612) 646-4501
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
A. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Financial statements of May Printing Company (consisting of
balance sheets as of September 30, 1993 and December 31, 1992
and the related statements of operations, stockholders' equity
and cash flows for the nine month period ended September 30,
1993 and for the year ended December 31, 1992, respectively,
including the accountants' reports thereon) are included in this
Report.
B. PRO FORMA FINANCIAL INFORMATION.
Unaudited condensed consolidated pro forma financial statements
(consisting of a balance sheet as of October 31, 1993 and
statements of operations for the nine month period ended October
31, 1993 and for the year ended January 31, 1993) are included
in this Report.
C. EXHIBITS.
2.1 Asset Purchase Agreement, dated as of December 31,
1993, by and among the Purchaser, Registrant, the
Company and the Shareholders of the Company.
23.1 Consent of Coopers & Lybrand, Independent Accountants
23.2 Consent of Kern, DeWenter, Viere, Ltd., Independent
Accountants
99.1 Press Release of Registrant, dated January 3, 1994.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: March 21, 1994 MERRILL CORPORATION
(Registrant)
By /s/ Steven J. Machov
---------------------------------
Steven J. Machov
Vice President and General Counsel
3
<PAGE>
Coopers & Lybrand Certified Public Accountants
MAY PRINTING COMPANY
---------------
REPORT ON AUDIT OF FINANCIAL STATEMENTS
for the nine-month period ended September 30, 1993
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
May Printing Company:
We have audited the accompanying balance sheet of May Printing Company as
of September 30, 1993, and the related statements of operations, changes in
stockholders' equity and cash flows for the nine-month period then ended. These
financial statements are the responsibility of May Printing Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of May Printing Company as of
September 30, 1993, and the results of its operations and its cash flows for the
nine-month period then ended in conformity with generally accepted accounting
principles.
/s/COOPERS AND LYBRAND
Minneapolis, Minnesota
November 22, 1993, except as to
Notes 8 and 10, for which the date
is December 31, 1993.
<PAGE>
MAY PRINTING COMPANY
BALANCE SHEET, as of September 30, 1993
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 667,775
Bond reserves 93,816
Trade accounts receivable, less allowance
for doubtful accounts of $110,000 2,148,592
Inventories 2,920,091
Other 286,241
-------------
Total current assets 6,116,515
-------------
Property, plant and equipment, net 6,632,197
Other assets:
Bond reserves 572,541
Debt issuance costs, net of
accumulated amortization of $70,355 173,992
Other 45,217
-------------
Total assets $13,540,462
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
and capital lease obligations 474,143
Accounts payable 1,736,375
Accrued expenses 1,186,259
Customer deposits 334,643
-------------
Total current liabilities 3,731,420
Long-term debt and capital lease obligations,
less current maturities 4,703,481
Deferred compensation 776,255
-------------
Total liabilities 9,211,156
-------------
Stockholders' equity:
Common stock, $100 par value, 500 shares
authorized, 300 shares issued and out-
standing at September 30, 1993 30,000
Retained earnings 5,681,972
-------------
5,711,972
Less notes receivable, related parties (1,382,666)
-------------
Total stockholders' equity 4,329,306
-------------
Total liabilities and stock-
holders' equity $13,540,462
=============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
2
<PAGE>
MAY PRINTING COMPANY
STATEMENT OF OPERATIONS
for the nine-month period ended September 30, 1993
<TABLE>
<S> <C>
Net sales $21,461,859
Cost of sales 14,256,881
------------
Gross profit 7,204,978
Selling, general and administrative 5,705,760
------------
Income from operations 1,499,218
Interest expense (382,277)
Other income, net 279,437
------------
Net income $ 1,396,378
-----------
-----------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
3
<PAGE>
MAY PRINTING COMPANY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the nine-month period ended September 30, 1993
<TABLE>
<CAPTION>
Notes
Common Stock Receivable,
-------------------- Retained Related
Shares Amount Earnings Parties Total
------ ------ -------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1,
1993 300 $30,000 $ 5,317,914 $(1,358,547) $ 3,989,367
Distributions to
stockholders (1,032,320) (1,032,320)
Net increase in
notes receiv-
able, related
parties (24,119) (24,119)
Net income 1,396,378 1,396,378
--- ------- ----------- ----------- -----------
Balance, September 30,
1993 300 $30,000 $ 5,681,972 $(1,382,666) $ 4,329,306
--- ------- ----------- ----------- -----------
--- ------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
4
<PAGE>
MAY PRINTING COMPANY
STATEMENT OF CASH FLOWS
for the nine-month period ended September 30, 1993
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 1,396,378
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 561,412
Provision for losses on accounts receivable 71,483
Gain on disposal of equipment (45,457)
Deferred compensation 236,000
Change in operating assets and liabilities:
Trade receivables 111,833
Inventories (595,474)
Other current assets (93,417)
Accounts payable 300,623
Accrued expenses 233,885
Customer deposits (28,570)
-----------
Net cash provided by operating activities 2,148,696
-----------
Cash flows from investing activities:
Proceeds from sale of equipment 51,500
Expenditures for property, plant and equipment (461,881)
Other 430
-----------
Net cash used in investing activities (409,951)
-----------
Cash flows for financing activities:
Principal repayment on long-term debt and
capital lease obligations (499,146)
Repayments on notes payable, related parties (357,500)
Bond reserves 158,411
Distributions paid to stockholders (1,032,320)
Other (24,119)
------------
Net cash used in financing activities (1,754,674)
------------
Decrease in cash and cash equivalents (15,929)
Cash and cash equivalents, beginning of period 683,704
------------
Cash and cash equivalents, end of period $ 667,775
------------
------------
Supplemental cash flow disclosure:
Interest paid $ 479,705
------------
------------
</TABLE>
At September 30, 1993, there was $412,546 of accounts payable related to
property, plant and equipment expenditures.
The accompanying notes are an integral
part of the financial statements.
5
<PAGE>
MAY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS:
The Company specializes in demand printing of corporate identity and
marketing program materials sold primarily to franchised organizations,
large corporations and associations.
The Company's fiscal year end is December 31.
CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES:
Inventories, consisting primarily of paper and printed materials, are
stated at the lower of cost or market, with cost determined on a last-in,
first-out (LIFO) basis. At September 30, 1993, inventories, valued on the
LIFO method, approximated $185,000 less than the amount of such inventories
valued on the first-in, first-out (FIFO) method. Net income would have
been $17,800 less than reported for the nine-month period ended
September 30, 1993, had the FIFO method been used.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Significant additions or
improvements extending asset lives are capitalized; normal maintenance and
repair costs are expensed as incurred. Depreciation and amortization are
recorded using the straight-line method over the estimated useful lives of
the assets. When assets are sold or retired, related gains or losses are
included in the results of operations.
INCOME TAXES:
The Company's stockholders have elected to be taxed as an S Corporation
under the provisions of the Internal Revenue Code and comparable Minnesota
income tax law. Under those provisions, the Company's net income or loss
is reported on the individual tax returns of the Company's stockholders.
Therefore, no provision or liability for income taxes is reflected in the
Company's financial statements.
Continued
6
<PAGE>
MAY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, continued:
DEFERRED FINANCING COSTS:
Costs incurred in obtaining long-term debt have been capitalized and are
being amortized over the term of the related debt on a method that
approximates the interest method.
2. Selected Financial Statement Data:
<TABLE>
<CAPTION>
September 30, 1993
------------------
<S> <C>
Inventories:
Raw materials $ 683,024
Work-in-progress 596,618
Semi-finished goods 1,640,449
-----------
$ 2,920,091
-----------
-----------
Property, plant and equipment:
Land 148,500
Building 2,334,009
Equipment 7,989,902
Construction-in-progress 634,758
-----------
11,107,169
Less accumulated depreciation and
amortization (4,474,972)
-----------
$ 6,632,197
-----------
-----------
Accrued expenses:
Commissions and compensation 562,371
Profit-sharing and retirement 315,000
Taxes, other than income taxes 223,629
Other 85,259
-----------
$ 1,186,259
-----------
-----------
<CAPTION>
For the Nine-
Month Period Ended
September 30, 1993
------------------
<S> <C>
Other income, net:
Interest income $125,789
Gain on sale of equipment 45,457
Other, net 108,191
--------
$279,437
--------
--------
</TABLE>
Continued
7
<PAGE>
3. BOND RESERVES:
Bond reserves at September 30, 1993, consist of the following:
<TABLE>
<S> <C>
Bond principal and interest funds $ 93,816
Business loan reserves 572,541
--------
$666,357
--------
--------
</TABLE>
The Company makes monthly deposits to accounts, established with the bond
trustee, for the purpose of repaying principal and interest on industrial
development bonds outstanding (Note 4). The amount of the required monthly
deposits vary from year to year and are adjusted for interest earned on the
business loan reserve accounts, which were established from the proceeds of
the bond issues. The business loan reserve accounts are held in trust in
the event of default on the bond issues. It is expected that the business
loan reserve accounts will be used to make the final payments due on the
bonds.
4. FINANCIAL AGREEMENTS:
BANK FINANCING:
The Company has a financing arrangement with a bank in an amount not to
exceed $2 million that expires on May 31, 1994. This arrangement is
personally guaranteed by the Company's stockholders and is collateralized
by accounts receivable, inventories and a second lien on equipment. The
arrangement consists of the following:
- A $2 million revolving line of credit payable upon demand that bears
interest at the prime rate (6% at September 30, 1993). Borrowings on
the revolving line of credit are limited to $2 million less the
aggregate undrawn face amount of all outstanding letters of credit.
At September 30, 1993, no borrowings were outstanding.
- A $155,000 letter of credit agreement which bears a credit fee of 1%
per annum on the undrawn face amount. At September 30, 1993, no
letters of credit were outstanding.
Continued
8
<PAGE>
4. FINANCIAL AGREEMENTS, continued:
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
Long-term debt and capital lease obligations at September 30, 1993,
consisted of the following:
<TABLE>
<S> <C>
Industrial development bonds, due in semi-
annual installments including interest
ranging from 7.0% to 8.375% over the life
of the bonds with the remaining unpaid
balance due on August 1, 2010;
collateralized by land, building and
equipment with a carrying value of
$5,454,655 at September 30, 1993 $3,900,000
Industrial development bonds, due in semi-
annual installments including interest
ranging from 6.75% to 10.0% over the life
of the bonds with the remaining unpaid
balance due on August 1, 1996;
collateralized by land, building and
equipment with a carrying value of
$5,454,655 at September 30, 1993 365,000
Capital lease obligation payable in monthly
installments of $16,796 through July 1995
with final payment of $297,250 due August
1996 bearing imputed interest at 10.6%,
collateralized by leased equipment with a
carrying value of $840,000 at September 30,
1993 578,495
Other capital lease obligations payable in
various monthly installments with imputed
interest ranging from 9.5% to 12.3% to
December 1996, collateralized by leased
equipment with a carrying value of
$337,542 at September 30, 1993 334,129
----------
5,177,624
Less current maturities (474,143)
----------
$4,703,481
----------
----------
</TABLE>
Continued
9
<PAGE>
4. FINANCIAL AGREEMENTS, continued:
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, continued:
All long-term debt and capital lease obligations are personally guaranteed
by the stockholders of the Company.
The aggregate maturities of long-term debt and capital lease obligations
are as follows:
<TABLE>
<CAPTION>
Year Ending December 31
-----------------------
<S> <C>
1993 (remaining three months) $ 60,844
1994 484,848
1995 754,713
1996 340,374
1997 156,845
1998 155,000
Thereafter 3,225,000
----------
$5,177,624
----------
----------
</TABLE>
5. LEASES:
CAPITAL LEASES:
The Company leases a portion of its plant and office equipment under
capital leases. The leases range in terms from 3 to 7 years.
The cost and accumulated amortization of capital leases at September 30,
1993, are as follows:
<TABLE>
<S> <C>
Plant equipment $1,759,098
Office equipment 256,651
----------
2,015,749
Less accumulated amortization (838,207)
----------
$1,177,542
----------
----------
</TABLE>
OPERATING LEASES:
The Company also leases warehouse space and plant and office equipment
under noncancellable operating leases which expire at various dates through
April 1998. Rent expense for the nine-month period ended September 30,
1993, was approximately $227,000.
Continued
10
<PAGE>
5. LEASES, continued:
OPERATING LEASES, continued:
Future minimum rental commitments under noncancellable operating leases are
as follows:
<TABLE>
<CAPTION>
Year Ending December 31 Operating Leases
<S> <C>
1993 (remaining three months) $ 106,953
1994 427,824
1995 348,353
1996 213,766
1997 173,220
1998 133,866
Thereafter 116,160
----------
$1,520,142
----------
----------
</TABLE>
6. RELATED PARTY TRANSACTIONS:
Notes receivable, related parties are reflected as a reduction of
stockholders' equity. At September 30, 1993, notes receivable, related
parties, consisted of the following:
<TABLE>
<S> <C>
Promissory notes receivable from the stockholders,
due on demand, bearing interest at 6.5%,
including $131,078 of accrued interest at
September 30, 1993 $1,283,416
Promissory notes receivable from May Development
Company, an affiliate of the Company, due
on demand, bearing interest at 10.0%,
including $21,313 of accrued interest at
September 30, 1993 99,250
----------
$1,382,666
----------
----------
</TABLE>
The Company leases a warehouse from May Development Company on a
month-to-month basis. Total rent expense under this arrangement for the
nine-month period ended September 30, 1993 was $97,245.
Continued
11
<PAGE>
7. PROFIT SHARING AND RETIREMENT PLANS:
The Company has a noncontributory profit-sharing plan which covers
substantially all employees. Contributions to the plans are at the
discretion of the Company's stockholders. The total amount charged to
operations for this plan for the nine-month period ended September 30,
1993, was $270,000.
The Company also sponsors a 401(k) defined contribution benefit plan for
substantially all employees. Employer contributions are discretionary.
The total amount charged to operations for this plan for the nine-month
period ended September 30, 1993, was $45,000.
8. DEFERRED COMPENSATION:
The Company has entered into deferred compensation agreements with certain
officers of the Company. These agreements provide that the officers will
receive a portion of the increase in net book value of the Company, as
defined, as deferred compensation. The officers vest in such amount over a
five-year period at varying rates.
The total amount charged to operations under these deferred compensation
agreements for the nine-month period ended September 30, 1993 was $236,000.
The agreement also provides that the officers will receive a certain
percentage of the excess purchase price over the book value if the Company
sells its assets or stock prior to or up to one year after termination or
retirement of the officers. As a result of the transaction described in
Note 10, deferred compensation increased by approximately $1.4 million as a
result of the sale.
9. SIGNIFICANT CUSTOMERS:
The Company is licensed by three companies to sell to their franchisees.
During the nine-month period ended September 30, 1993, the Company had net
sales to these three companies and their franchisees totaling 28%, 20% and
16%, respectively, of net sales.
Continued
12
<PAGE>
10. SUBSEQUENT EVENT:
On December 31, 1993, the Company sold substantially all of its operating
assets and the purchaser assumed $5.1 million of the Company's liabilities
in exchange for $15.4 million in cash and a promissory note receivable for
$2.5 million.
The agreement also calls for an additional contingent amount, not to exceed
$2 million, which is based on pre-tax earnings for the twelve months ending
January 31, 1995, as defined in the purchase agreement, generated from the
sold assets.
13
<PAGE>
MAY PRINTING COMPANY
St. Cloud, Minnesota
AUDITED FINANCIAL STATEMENTS
As of
December 31, 1992
<PAGE>
CONTENTS
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 2
Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statement of Income. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statement of Changes in Stockholders' Equity . . . . . . . . . . . . . 5
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . 7
Independent Auditors' Report on Additional Information . . . . . . . . 13
Schedule of Selling, General and Administrative Expenses . . . . . . . 14
Schedule of Property and Equipment . . . . . . . . . . . . . . . . . . 15
<PAGE>
January 28, 1993, except for Note L,
as to which the date is March 15, 1994
INDEPENDENT AUDITORS' REPORT
Board of Directors
May Printing Company
St. Cloud, Minnesota
We have audited the accompanying balance sheet of May Printing Company as of
December 31, 1992, and the related statements of income, changes in
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of May Printing
Company as of December 31, 1992, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
As discussed in Note L to the financial statements, the Company's Balance Sheet
has been reclassified to reflect the amounts due from related parties as a
reduction in stockholders' equity. This format has been presented to
facilitate a filing with the Securities and Exchange Commission in association
with the sale of the Company's assets and liabilities to a publicly held
company.
/s/ KERN, DEWENTER, VIERE, LTD.
---------------------------------
KERN, DEWENTER, VIERE, LTD.
<PAGE>
MAY PRINTING COMPANY
BALANCE SHEET
December 31, 1992
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 683,704
Restricted Cash (Note A) 252,227
Accounts Receivable, Less Allowance for Doubtful
Accounts of $ 57,355 (Note A) 2,331,908
Inventories (Notes B and C) 2,324,617
Other Receivables 123,362
Prepaid Expenses 69,462
----------
Total Current Assets 5,785,280
PROPERTY AND EQUIPMENT
(NOTES A, C and D):
Land 148,500
Building 2,326,365
Plant Equipment 6,836,505
Office Equipment 985,645
Leasehold Improvements 12,301
Vehicles 91,059
----------
10,400,375
Less: Accumulated Depreciation (4,093,695)
----------
Net Property and Equipment 6,306,680
OTHER ASSETS:
Covenant not to Compete, Less Accumulated
Amortization of $ 10,842 (Note A) 19,158
Debt Issue Costs, Less Accumulated Amortization
of $ 59,317 (Note A) 185,030
Loan Reserve Account (Note A) 572,541
Cash Surrender Value of Officers' Life Insurance 29,677
Lease Deposits 4,319
----------
Total Other Assets 810,725
----------
TOTAL ASSETS $ 12,902,685
==========
</TABLE>
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Notes Payable (Note C) $ 357,500
Current Maturities of Long-Term Debt (Note D) 555,963
Deposits on Orders 363,213
Accounts Payable 1,023,206
Accrued Payroll 120,680
Property Taxes Payable 175,104
Accrued Interest 160,721
Accrued Profit-Sharing Contributions 377,458
Other Current Liabilities 118,411
----------
Total Current Liabilities 3,252,256
DEFERRED COMPENSATION (NOTE I) 540,255
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE D) 5,120,807
----------
Total Liabilities 8,913,318
STOCKHOLDERS' EQUITY:
Common Stock, $ 100 Par Value, 500 Shares
Authorized, 300 Shares Issued and Outstanding 30,000
Retained Earnings 5,317,914
----------
Total Stockholders' Equity 5,347,914
Due from Related Parties (Notes E and L) (1,358,547)
----------
3,989,367
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,902,685
==========
</TABLE>
The notes to the financial statements are an integral part of this statement.
3
<PAGE>
MAY PRINTING COMPANY
STATEMENT OF INCOME
For the Year Ended December 31, 1992
<TABLE>
<S> <C>
NET SALES (NOTE H) $ 27,215,064
COST OF SALES 17,588,283
----------
GROSS PROFIT 9,626,781
OPERATING EXPENSES:
Selling Expenses 5,078,198
General and Administrative Expenses 1,974,209
----------
Total Operating Expenses 7,052,407
----------
NET INCOME FROM OPERATIONS 2,574,374
OTHER INCOME (EXPENSE):
Interest Expense (603,696)
Other Expenses (30,739)
Interest Income 134,886
Miscellaneous Income 36,360
Gain on Disposal of Equipment 18,746
----------
Total Other Income (Expense) (444,443)
----------
NET INCOME $ 2,129,931
==========
</TABLE>
The notes to the financial statements are an integral part of this statement.
4
<PAGE>
MAY PRINTING COMPANY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------- Retained
Shares Amount Earnings Total
------ -------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE - December 31, 1991 300 $ 30,000 $ 4,363,247 $ 4,393,247
Distributions - - (1,175,264) (1,175,264)
Net Income - - 2,129,931 2,129,931
------ -------- ----------- ----------
BALANCE - December 31, 1992 300 $ 30,000 $ 5,317,914 $ 5,347,914
====== ======== =========== ==========
</TABLE>
The notes to the financial statements are an integral part of this statement.
5
<PAGE>
MAY PRINTING COMPANY
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1992
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,129,931
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 834,508
Change in Allowance for Doubtful Accounts 11,510
(Gain) on Disposal of Equipment (18,746)
Deferred Compensation 176,171
Change in Assets and Liabilities:
(Increase) in Receivables (690,545)
Decrease in Inventories 65,377
Decrease in Prepaid Expenses and Other
Receivables 15,352
(Decrease) in Accounts Payable (12,501)
(Decrease) in Accrued Payroll (206,007)
Increase in Accrued Profit Sharing
Contributions 229,036
Increase in Other Liabilities 178,849
-----------
Total Adjustments 583,004
-----------
Net Cash Provided by Operating Activities 2,712,935
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) in Cash Surrender Value (3,674)
Lease Deposits (3,619)
Proceeds from Sale of Equipment 55,300
Capital Expenditures (98,059)
Net Change in Loan Reserve and Restricted Cash 177,826
-----------
Net Cash Provided by Investing Activities 127,774
CASH FLOWS FOR FINANCING ACTIVITIES:
Principal Payments on Long-Term Debt (1,017,928)
Due from Related Parties 194,819
Payments on Notes Payable (207,500)
Stockholder Distributions (1,175,264)
-----------
Net Cash Used by Financing Activities (2,205,873)
-----------
Net Increase in Cash and Cash Equivalents 634,836
Cash and Cash Equivalents, Beginning of Year 48,868
-----------
Cash and Cash Equivalents, End of Year $ 683,704
===========
</TABLE>
The notes to the financial statements are an integral part of this statement.
6
<PAGE>
MAY PRINTING COMPANY
NOTE TO THE FINANCIAL STATEMENTS
December 31, 1992
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RESTRICTED CASH
Restricted cash represents funds on deposit for principle and interest payments
on the bonds payable to First National Bank of Minneapolis - as trustee. (See
Note D).
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers cash in banks
and all highly liquid debt instruments purchased with a maturity of three months
or less to be cash and cash equivalents.
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1992
------------------
<S> <C>
Cash Paid For:
Interest $ 614,654
Income Taxes -
</TABLE>
During the year, the Company acquired $ 262,670 of equipment with a capital
lease and sold equipment via $60,000 of receivables.
RECEIVABLES
Accounts receivable are shown net of an allowance for doubtful accounts.
Allowance for losses arising from uncollectible customer accounts receivable is
based on historical bad debt experience and an evaluation of periodic agings of
the accounts.
The accounts receivable of the Company are as a result of the Company extending
credit to its customers.
INVENTORIES
Inventories are valued at cost (last-in, first out method), which does not
exceed market. (See Note B).
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is recognized using
the straight-line method for financial reporting purposes. For income tax
purposes, assets are depreciated using the straight-line and accelerated
methods. Charges to income for the year ended December 31, 1992 were $ 809,783.
DEBT ISSUE COSTS
Debt issue costs are associated with the issue of long-term debt and are being
amortized on a straight-line basis over 10 and 20 years. Amortization expense
for the year ended December 31, 1992 was $ 14,717.
7
<PAGE>
MAY PRINTING COMPANY
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1992
(Continued)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
COVENANT NOT TO COMPETE
The covenant not to compete is being amortized over 36 months using the
straight-line method. Charges to income for the year ended December 31, 1992,
amounted to $ 10,008.
LOAN RESERVE ACCOUNT
The loan reserve account represents funds on deposit to secure long-term debt
repayment.
S-CORPORATION ELECTION
The Company, with the consent of its stockholders, has elected, under Subchapter
'S' of the Internal Revenue Code, to be treated substantially as a partnership
for income tax purposes. As a result, the stockholders will report the entire
corporate taxable income or loss on their individual tax returns.
NOTE B - LIFO INVENTORY VALUATION
Inventories are valued at cost using the last-in, first-out method. If the
first-in, first-out (FIFO) method of inventory accounting had been used by the
Company, inventories would have been $ 204,616 higher than reported at December
31, 1992.
NOTE C - NOTES PAYABLE
<TABLE>
<S> <C>
Thomas L. May -
12% demand note, interest payable monthly
unsecured $ 150,000
J. Scott May -
12% demand note, interest payable monthly,
unsecured 207,500
-------
$ 357,500
=======
</TABLE>
The Company also has a $ 2,000,000 line-of-credit with First American National
Bank due May, 1993. Interest is payable at a variable rate (7% at December 31,
1992). No amounts were drawn upon the line at December 31, 1992.
8
<PAGE>
MAY PRINTING COMPANY
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1992
(Continued)
NOTE D - LONG-TERM DEBT
<TABLE>
<S> <C>
First National Bank of Minneapolis - As Trustee -
Payable in variable annual installments
at interest rates varying from 6 3/4% to 10%,
secured by property and equipment and
stockholder guarantees, due August, 1996 $ 470,000
Payable in variable annual installments of
interest rates varying from 7% to 8.375%,
secured by property and equipment and stockholder
guarantees, due August, 2010 4,010,000
Fleet Credit Corporation -
Payable in variable monthly installments of $ 16,796
at a rate of 10.597% due August, 1995 in a balloon
payment, secured by 6 color press 679,867
Payable in monthly installments of $ 1,928,
including interest at 11.2%, secured by a computer,
due May, 1995 in a balloon payment 62,681
Payable in monthly installments of $ 553,
including interest at 11.2%, secured by a computer
due May, 1995 in a balloon payment 17,967
Payable in monthly installments of $ 548,
including interest at 12.362%, secured by a computer,
due May, 1995 in a balloon payment 16,689
First Bank System -
Equipment leases, payable in monthly payment of $6,222,
at interest of 9.915%, the final lease due June, 1993,
when a balloon of $ 67,395 is due, secured by the leased
equipment 110,562
Merchants Capital Resources -
Various equipment leases, payable in an aggregate
monthly payment of $ 2,135, at interest rates
of 11.952% and 12.071%, the final lease due
March, 1996, secured by the leased equipment 67,759
</TABLE>
9
<PAGE>
MAY PRINTING COMPANY
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1992
(Continued)
NOTE D - LONG-TERM DEBT (Continued)
<TABLE>
<S> <C>
Eastman Kodak Credit Corporation -
Equipment lease payable in a monthly installment
of $ 575, including interest at 9.456%, due
September, 1996, secured by the leased equipment $ 21,706
Equipment lease payable in a monthly installment
of $ 5,511, including interest at 9.456%, due
December, 1996, secured by the leased equipment 219,539
---------
5,676,770
Less: Current Maturities 555,963
---------
Total Long-Term Debt $ 5,120,807
=========
</TABLE>
The following is a schedule of the maturities of the long-term debt as of
December 31, 1992:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C>
1993 $ 555,963
1994 485,254
1995 765,565
1996 344,988
1997 145,000
Thereafter 3,380,000
---------
Total $ 5,676,770
=========
</TABLE>
NOTE E - RELATED PARTY TRANSACTIONS
The Company's common stock is equally owned by Thomas L. May and J. Scott May,
who are partners in May Development. The following summarizes the material
payable to/receivable from each as of December 31, 1992:
<TABLE>
<S> <C>
THOMAS L. MAY
Receivable $ 20,212
Note Payable (Note C) 150,000
J. SCOTT MAY
Receivable 14,855
Note Payable (Note C) 207,500
MAY DEVELOPMENT
Receivable 96,240
THOMAS L. and J. SCOTT MAY
Note Receivable and Accrued Interest 1,227,240
</TABLE>
10
<PAGE>
MAY PRINTING COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1992
(Continued)
NOTE E - RELATED PARTY TRANSACTIONS (Continued)
The Company's former operating facility is rented from an entity related through
common ownership and management (May Development). Total rentals paid to this
entity for the year ended December 31, 1992 was $ 111,660. The Company will
continue to pay rent of $ 10,805 per month to May Development until the facility
is sold.
NOTE F - SALARY CONTINUATION PLAN
In 1974, the Company entered into agreements with the two senior officers to
provide, for ten years after retirement, a salary continuation of $ 25,000 per
year for each. The amounts are subject to annual increases based on the
consumer price index. Total expenses under this agreement for the year ended
December 31, 1992 was $ 42,994.
NOTE G - PROFIT SHARING
The Company has a profit sharing plan covering all employees 21 years of age
with one year of service and not covered by a collective bargaining agreement.
Contributions made for the year ended December 31, 1992 were $ 308,593. The
Company also contributes to a 401(k) plan based on a percentage of employee
contributions. Contributions for the year ended December 31, 1992 were
$68,865.
NOTE H - MAJOR CUSTOMERS
During the year ended December 31, 1992, the Company was licensed by three
companies to sell to their member affiliates (there are several thousand
independently owned and operated affiliates). Sales to these affiliates were of
a substantial nature in relation to the Company's total sales. Aggregate sales
to these affiliates were $ 16,504,188.
NOTE I - DEFERRED COMPENSATION
The Company has entered into deferred compensation agreements with certain of
its key employees. The agreements call for the employees to receive a certain
percentage of the income of the Company. The deferred compensation vests in
varying percentages. The total expense charged to income for the year ended
December 31, 1992 was $ 176,171.
11
<PAGE>
MAY PRINTING COMPANY
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1992
(Continued)
NOTE J - OPERATING LEASES
The Company leases certain of its equipment and vehicles under leases classified
as operating leases, the last of which expires in 1996. Total lease expenses
under these leases for 1992 were $ 95,969.
Minimum future rental payments under non-cancelable operating leases having
initial or remaining terms in excess of one year as of December 31, 1992 are:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C>
1993 $ 193,142
1994 181,706
1995 151,351
1996 34,841
1997 -
-------
Total minimum future rental payments $ 561,040
=======
</TABLE>
NOTE K - SUBSEQUENT EVENT
Subsequent to year-end, the Company entered into an equipment lease classified
as an operating lease. The lease is for five years and requires payments of
$1,522.
NOTE L - BALANCE SHEET PRESENTATION
In 1993 the Company sold substantially all of its assets and liabilities. As a
result of this sale, the Company's Balance Sheet is being reclassified to comply
with SEC regulations for an 8-K filing which will include the Company's
financial statements.
The amounts due from related parties, originally classified as assets (Note E),
have been presented in the reclassified Balance Sheet as a reduction in
stockholders' equity. This presentation is one of format only as a distribution
to the stockholders had not occurred as of the date of the Balance Sheet.
Certain of the Company's long-term debt obligations contain covenants which
would prohibit the actual distributions of these amounts.
12
<PAGE>
MERRILL CORPORATION
AND
MAY PRINTING COMPANY
PRO FORMA COMBINED CONDENSED BALANCE SHEET AND STATEMENTS OF OPERATIONS
(Unaudited)
----------------------
The following unaudited pro forma combined condensed balance sheet at October
31, 1993 and statements of operations for the nine-months ended October 31, 1993
and the year ended January 31, 1993 were prepared to illustrate the effects on
the financial position and the results of continuing operations of Merrill
Corporation and May Printing Company, using the purchase method of accounting
and the assumptions described in the accompanying notes and assuming the
acquisition had occurred on February 1, 1992. The unaudited pro forma combined
condensed balance sheet and statements of operations are not necessarily
indicative of the combined financial position or results of operations as they
may be in the future or as they might have been for the periods presented had
the acquisition been effective at February 1, 1992. The unaudited pro forma
combined condensed balance sheet and statements of operations and accompanying
notes should be read in conjunction with the historical consolidated financial
statements of Merrill Corporation and the historical financial statements of
May Printing Company, including the notes to such financial statements. The
pro forma adjustments are based upon available information and upon certain
assumptions that Merrill Corporation believes are reasonable in the
circumstances.
<PAGE>
MERRILL CORPORATION AND
MAY PRINTING COMPANY
PRO FORMA COMBINED CONDENSED BALANCE SHEET
as of October 31, 1993
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Merrill May Printing Pro Forma
Corporation Company Adjustments Combined
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $12,626 $667 ($13,293)(A) $0
Trade receivable, net 34,633 2,149 36,782
Inventories 12,614 2,920 580 (D) 16,114
Other 2,020 380 2,400
--------- -------- -------- --------
Total current assets 61,893 6,116 (12,713) 55,296
Property, plant and equipment, net 16,575 6,632 1,322 (D) 24,529
Goodwill 1,027 10,872 (E) 11,899
Other 1,310 791 2,101
--------- -------- -------- --------
Total assets $80,805 $13,539 ($519) $93,825
========= ======== ======== ========
Current liabilities:
Notes payable 4,796 (A) 4,796
Accounts payable 14,226 1,736 15,962
Accrued expenses 11,079 1,187 (500)(C) 11,766
Other 2,821 809 3,630
--------- -------- -------- --------
Total current liabilities 28,126 3,732 4,296 36,154
Other 2,927 5,479 (487)(C) 7,919
Shareholders' equity
Common stock 74 30 (30)(B) 74
Additional paid in capital 12,303 12,303
Retained earnings 37,375 4,298 (4,298)(B) 37,375
--------- -------- -------- --------
Total Shareholders' equity 49,752 4,328 (4,328) 49,752
--------- -------- -------- --------
Total liabilities and shareholders' equity $80,805 $13,539 ($519) $93,825
========= ======== ======== ========
</TABLE>
<PAGE>
MERRILL CORPORATION
NOTES TO THE PRO FORMA COMBINED CONDENSED BALANCE SHEET AT OCTOBER 31, 1993
(A) The Pro Forma Financial Statements assume a purchase price of $26,313. The
pro forma Financial Statements assume the purchase price is funded as
follows (in thousands of dollars):
<TABLE>
<S> <C>
Utilization of cash and cash equivalents $13,293
Proceeds from notes payable 4,796
Assumption of May Printing Company's liabilities 8,224
-------
$26,313
=======
</TABLE>
(B) To eliminate May Printing Company's historical equity.
(C) To eliminate liabilities not assumed by Merrill Corporation.
(D) To adjust to estimated fair market value.
(E) To record purchase price in excess of estimated fair market value of net
assets acquired.
<PAGE>
MERRILL CORPORATION AND
MAY PRINTING COMPANY
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
for the nine month period ended October 31, 1993
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Merrill May Printing Pro Forma
Corporation Company Adjustments Combined
<S> <C> <C> <C> <C>
Revenue $128,697 $21,462 $150,159
Cost of sales 81,912 14,257 $ 254 (2) 96,423
-------- ------- ------ --------
Gross profit 46,785 7,205 (254) 53,736
Selling, general and administrative expenses 30,393 5,706 524 (3) 36,323
(300)(4)
-------- ------- ------ --------
Operating income 16,392 1,499 (478) 17,413
Other income (expense) 37 (382) (195)(5) (726)
(186)(6)
-------- ------- ------ --------
Income before provision for income taxes and
cumulative effect of change in accounting for
income taxes 16,429 1,117 (859) 16,687
Provision for income taxes 6,595 0 133 (7) 6,728
-------- ------- ------- --------
Income before cumulative effect of change in
accounting for income taxes 9,834 1,117 (992) 9,959
Cumulative effect of change in accounting for
income taxes 177 0 177
-------- ------- ------- --------
Net income $10,011 $1,117 $ (992) $10,136
======== ======= ======= ========
Income per common and common equivalent
share:
Before cumulative effect of change in
accounting for income taxes $1.24 $1.25
Cumulative effect of change in accounting
for income taxes 0.02 0.02
-------- --------
Net income $1.26 $1.27
======== ========
Dividends per common share $0.075 $0.075
======== ========
Weighted average number of common and
common equivalent shares outstanding: 7,945,756 30,034 (8) 7,975,790
========= ======= =========
</TABLE>
<PAGE>
MERRILL CORPORATION AND
MAY PRINTING COMPANY
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
for the year ended Janaury 31, 1993
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Merrill May Printing Pro Forma
Corporation Company Adjustments Combined
<S> <C> <C> <C> <C>
Revenue $147,716 $27,215 $174,931
Cost of sales 98,119 17,588 $ 339 (1)(2) 116,046
-------- ------- ------ --------
Gross profit 49,597 9,627 (339) 58,885
Selling, general and administrative expens 35,474 7,053 699 (3) 42,826
(400)(4)
-------- ------- ------ --------
Operating income 14,123 2,574 (638) 16,059
Other income (expense) 41 (444) (260)(5) (912)
(249)(6)
-------- ------- ------ --------
Income before provision for income taxes 14,164 2,130 (1,147) 15,147
Provision for income taxes 5,565 0 393 (7) 5,958
-------- ------- ------ --------
Net income $8,599 $2,130 $(1,540) $9,189
======== ======= ====== ========
Income per common and common equivalent $1.12 $1.19
share: ======== =====
Weighted average number of common and 7,695,113 760 (8) 7,695,873
common equivalent shares outstanding: ========= ====== =========
</TABLE>
<PAGE>
MERRILL CORPORATION
NOTES TO THE PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
For The Nine-Month Period Ended October 31, 1993 And
The Year Ended January 31, 1993.
(1) Additional costs of approximately $580,000 annually and in the period
following the acquisitions associated with the increase in estimated fair
market value of inventories have been omitted in determining pro forma
results of operations.
(2) To reflect additional depreciation of $339,000 annually and $254,000 for
the nine months ended October 31, 1993, related to the increase in the
fair market value of property, plant and equipment.
(3) To reflect additional amortization of $669,000 annually and $524,000 for
the nine months ended October 31, 1993, related to goodwill.
(4) Reduction in expenses of $400,000 annually and $300,000 for the nine months
ended October 31, 1993, for the elimination of executive positions that will
not be incurred in the consolidated entity.
(5) To reflect estimated increase in interest expense of $260,000 annually and
$195,000 for the nine months ended October 31, 1993 resulting from
increased borrowings under notes payable to purchase the assets of May
Printing Company.
(6) To reflect estimated decrease in interest income of $249,000 annually and
$186,000 for the nine months ended October 31, 1993 resulting from
decrease in cash and cash equivalents to purchase the assets of May
Printing Company.
(7) To reflect income taxes at a rate of 40% on the pro forma combined
results of operations.
(8) To reflect additional common equivalent shares as a result of granting
stock options at fair market value in conjunction with the purchase of
assets of May Printing Company.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Method
No. Description of Filing
- ------ ----------- ---------
<S> <C> <C>
2.1 Asset Purchase Agreement, dated as of December 31,
1993, by and among the Purchaser, Registrant, the
Company and the Shareholders of the Company. . . . Incorporated by reference
herein to Exhibit 2.1 to the
Registrant's Form 8-K filed
January 18, 1994.
23.1 Consent of Coopers & Lybrand,
Independent Accountants. . . . . . . . . . . . . . Filed electronically with
this Direct Transmission
23.2 Consent of Kern, DeWenter, Viere, Ltd.,
Independent Accountants. . . . . . . . . . . . . . Filed electronically with
this Direct Transmission
99.1 Press Release of Registrant, dated January 3,
1994 . . . . . . . . . . . . . . . . . . . . . . . Incorporated by reference
herein to Exhibit 99.1 to the
Registrant's Form 8-K filed
January 18, 1994.
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Merrill Corporation on Forms S-8 (File No. 33-46275 and File No. 33-52623) of
our report dated November 22, 1993, except as to Notes 8 and 10, for which the
date is December 31, 1993, on our audit of the financial statements of May
Printing Company as of September 30, 1993, and for the nine-month period ended
September 30, 1993, which report is included in Form 8-K/A.
Coopers & Lybrand
Minneapolis, MN
March 21, 1994
<PAGE>
[KDV LETTERHEAD]
March 18, 1994
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Merrill Corporation on Form S-8 of our report dated January 28, 1993, on our
audit of the financial statements of May Printing Company as of December 31,
1992, and for the year ended December 31, 1992, which report is included on
Form 8-K/A.
/s/ Kern, DeWenter, Viere, Ltd.
-----------------------------------
Kern, DeWenter, Viere, Ltd.
