<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-14082
MERRILL CORPORATION
(Exact name of Registrant as specified in its charter)
MINNESOTA 41-0946258
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
One Merrill Circle
St. Paul, Minnesota 55108
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 612-646-4501
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 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 filing requirements
for the past 90 days.
Yes X No
-------- --------
The number of shares outstanding of Registrant's Common Stock, par value $.01,
on September 12, 1994 was 7,594,476.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial information:
Consolidated Balance Sheets as of July 31, 1994 and January 31,
1994.
Consolidated Statements of Operations for the three-month and
six-month
periods ended July 31, 1994 and 1993.
Consolidated Statements of Cash Flows for the six-month periods
ended July 31, 1994 and 1993.
Notes to Consolidated Financial Statements.
2
<PAGE>
MERRILL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1994 1994
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents.......................................................... $ 1,017 $ 2,558
Trade receivables, less allowance for doubtful accounts of $3,456 and $2,294
respectively...................................................................... 44,431 38,777
Work in process inventories........................................................ 12,176 11,821
Other inventories.................................................................. 3,455 3,935
Refundable income taxes............................................................ 487
Other.............................................................................. 2,207 2,344
----------- -----------
Total current assets............................................................. 63,773 59,435
----------- -----------
Property, plant and equipment, net................................................... 27,166 26,678
Goodwill, net........................................................................ 11,221 11,616
Other assets......................................................................... 2,357 2,394
----------- -----------
Total assets..................................................................... $ 104,517 $ 100,123
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank............................................................... $ 1,800 $ 2,600
Current maturities of long-term debt............................................... 1,318 1,325
Current maturities of capital lease obligations.................................... 365 365
Accounts payable................................................................... 11,637 15,939
Accrued expenses................................................................... 13,862 13,145
Income taxes payable............................................................... 115
Deferred income taxes.............................................................. 2,281 3,418
----------- -----------
Total current liabilities........................................................ 31,263 36,907
----------- -----------
Long-term debt, net of current maturities............................................ 6,040 6,040
Capital lease obligations, net of current maturities................................. 2,442 2,616
Deferred income taxes................................................................ 669 669
Other................................................................................ 725 294
Shareholders' equity
Common stock, $.01 par value: 25,000,000 shares authorized; 7,580,176 shares and
7,492,922 shares, respectively, issued and outstanding............................ 76 75
Undesignated stock: 500,000 shares authorized; no shares issued....................
Additional paid-in capital......................................................... 14,126 12,996
Retained earnings.................................................................. 49,176 40,526
----------- -----------
Total shareholders' equity....................................................... 63,378 53,597
----------- -----------
Total liabilities and shareholders' equity....................................... $ 104,517 $ 100,123
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE>
MERRILL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
-------------------- ----------------------
1994 1993 1994 1993
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue........................................................... $ 63,679 $ 44,912 $ 125,142 $ 86,156
Cost of sales..................................................... 41,917 29,117 80,364 54,554
--------- --------- ----------- ---------
Gross profit.................................................... 21,762 15,795 44,778 31,602
Selling, general and administrative expenses...................... 14,162 9,880 29,044 20,240
--------- --------- ----------- ---------
Operating income................................................ 7,600 5,915 15,734 11,362
Interest expense.................................................. (269) (62) (502) (154)
Other income...................................................... 130 63 193 148
--------- --------- ----------- ---------
Income before provision for income taxes and cumulative effect
of change in accounting for income taxes....................... 7,461 5,916 15,425 11,356
Provision for income taxes........................................ 3,065 2,398 6,330 4,556
--------- --------- ----------- ---------
Income before cumulative effect of change in accounting for income
taxes............................................................ 4,396 3,518 9,095 6,800
Cumulative effect of change in accounting for income taxes........ 177
--------- --------- ----------- ---------
Net income...................................................... $ 4,396 $ 3,518 $ 9,095 $ 6,977
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Income per common and common equivalent share:
Before cumulative effect of change in accounting for income
taxes.......................................................... $.55 $.44 $1.13 $.86
Cumulative effect of change in accounting for income taxes...... .02
--------- --------- ----------- ---------
Net income...................................................... $.55 $.44 $1.13 $.88
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Dividends per common share........................................ $.03 $.025 $.06 $.05
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Weighted average number of common and common equivalent shares
outstanding...................................................... 8,043,226 7,937,011 8,056,911 7,901,682
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE>
MERRILL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Operating activities
Net income............................................................................ $ 9,095 $ 6,977
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization....................................................... 4,141 2,489
Amortization of intangible assets................................................... 520 144
Provision for losses on trade receivables........................................... 1,309 389
Tax benefit realized upon exercise of stock options................................. 715 466
Deferred compensation expense....................................................... 431
Cumulative effect of change in accounting for income taxes.......................... (177)
Increase (decrease) from changes in operating assets and liabilities
Trade receivables................................................................. (6,963) (2,918)
Work in process inventories....................................................... (355) (2,323)
Other inventories................................................................. 480 65
Refundable income taxes........................................................... (487)
Other current assets.............................................................. 137 (327)
Accounts payable.................................................................. (4,302) (836)
Accrued expenses.................................................................. 717 2,111
Accrued and deferred income taxes................................................. (1,252) 1,023
--------- ---------
Net cash provided by operating activities....................................... 4,186 7,083
--------- ---------
Investing activities
Purchase of property, plant and equipment............................................. (4,629) (2,542)
Business acquisitions, net of cash acquired........................................... (849)
Other................................................................................. (88) 35
--------- ---------
Net cash used in investing activities........................................... (4,717) (3,356)
--------- ---------
Financing activities
Borrowings on note payable to bank.................................................... 27,700 600
Repayments on note payable to bank.................................................... (28,500) (600)
Principal payments on long-term debt and capital lease obligations.................... (181) (42)
Dividends paid........................................................................ (452) (369)
Other equity transactions, net........................................................ 423 290
--------- ---------
Net cash used in financing activities........................................... (1,010) (121)
--------- ---------
Increase (decrease) in cash and cash equivalents........................................ (1,541) 3,606
Cash and cash equivalents, beginning of period.......................................... 2,558 9,562
--------- ---------
Cash and cash equivalents, end of period................................................ $ 1,017 $ 13,168
--------- ---------
--------- ---------
Supplemental cash flow disclosure
Income taxes paid..................................................................... $ 7,359 $ 3,067
Interest paid......................................................................... 267 148
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
<PAGE>
MERRILL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ACCOUNTING POLICIES
The consolidated financial statements as of July 31, 1994 and for the
periods ended July 31, 1994 and 1993 have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The consolidated financial statements reflect all adjustments,
consisting of normal recurring accruals, which the Company considers necessary
for a fair presentation of the results for the indicated periods. Certain
information and accounting policies and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's latest annual report on Form 10-K.
2. SELECTED BALANCE SHEET DATA (IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1994 1994
--------- -----------
<S> <C> <C>
Property, plant and equipment
At cost......................................................... $ 50,442 $ 46,352
Less accumulated depreciation and amortization.................. (23,276) (19,674)
--------- -----------
$ 27,166 $ 26,678
--------- -----------
--------- -----------
</TABLE>
3. ACQUISITION
On December 31, 1993, the Company completed the acquisition of substantially
all of the assets of May Printing Company. Pro forma (unaudited) results for the
periods ended July 31, 1993 as though the acquisition had been effective at the
beginning of fiscal 1994 are as follows:
(000's except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS
THREE MONTHS ENDED
ENDED JULY 31,
JULY 31, 1993 1993
------------- ------------
<S> <C> <C>
Revenue.......................................................... $ 52,097 $ 100,601
Net Income....................................................... 3,748 7,476
Net Income Per Share............................................. $.47 $.94
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to revenue of
certain items in the Company's statements of operations for the three-month and
six-month periods ended July 31, 1994 and 1993, and the percentage change in
such items between the two periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY
31, SIX MONTHS ENDED JULY 31,
-------------------------- --------------------------
PERCENTAGE PERCENTAGE
INCREASE INCREASE
PERCENTAGE (DECREASE) PERCENTAGE (DECREASE)
OF REVENUE ---------- OF REVENUE ----------
------------- 1994 VS. ------------- 1994 VS.
1994 1993 1993 1994 1993 1993
----- ----- ---------- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Financial.................................. 34.9% 38.6% 28% 34.3% 36.5% 37%
Corporate.................................. 34.1 39.3 23 33.8 41.7 18
Commercial & other......................... 31.0 22.1 99 31.9 21.8 112
----- ----- --- ----- ----- ---
Total revenue............................ 100.0 100.0 42 100.0 100.0 45
Cost of sales................................ 65.8 64.8 44 64.2 63.3 47
----- ----- ----- -----
Gross profit............................. 34.2 35.2 38 35.8 36.7 42
Selling, general and administrative
expenses.................................... 22.3 22.0 43 23.2 23.5 44
----- ----- ----- -----
Operating income......................... 11.9 13.2 29 12.6 13.2 39
Interest expense............................. (0.4) (0.1) 334 (0.4) (0.2) 226
Other income................................. 0.2 0.1 106 0.2 0.2 30
----- ----- ----- -----
Income before taxes and cumulative effect
of change in accounting for income
taxes................................... 11.7 13.2 26 12.4 13.2 36
Provision for income taxes................... 4.8 5.3 28 5.1 5.3 39
Cumulative effect of change in accounting for
income taxes................................ 0.2
----- ----- ----- -----
Net income............................... 6.9% 7.9% 25% 7.3% 8.1% 30%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
The operating results for both the three-month and six-month periods ended
July 31, 1994 were records for those periods. These results were again revenue
driven, reflecting double-digit revenue increases, compared to the same periods
of the prior year, in each of the Company's three traditional revenue
categories, complemented by the results of May Printing Company, acquired in
December, 1993. Revenue continued to be well balanced among the three categories
in the current periods. The increase in Financial revenue reflected the high
level of activity in the financial markets which existed into late June.
Increased corporation proxy activity, EDGAR filings and mutual fund
documentation were responsible for the improvement in Corporate revenue. The
doubling of revenue in the Commercial and Other category was primarily due to
the inclusion of May Printing Company, but also reflected increased
election-related printing in this general election year, and revenue from
additional facilities management installations.
Since June, interest rate and other concerns have caused financial markets
to become very uncertain and limiting to new financings. This has resulted in
the level of activity in the Company's Financial revenue category being below
previous levels for the past two months. For this reason, despite good activity
in the Corporate and Commercial and Other categories, management has announced
that it does not believe that third quarter operating results will meet market
expectations that existed prior to the announcement.
As anticipated, gross margins were lower in both current periods,
principally due to the traditionally lower level of margins generated by May
Printing Company. Selling, general and administrative
7
<PAGE>
expenses increased significantly again reflecting the inclusion of May Printing.
Exclusive of May, these expenses grew somewhat less than the growth in revenue
due to the fixed nature of a portion of these expenses.
The effective income tax rate was 41 percent in both current periods,
compared to 40.5 percent for the second quarter and 40.1 percent for the
six-month period last year. The tax rate for the six-month periods represents
the estimated rates for the respective fiscal years. The increase in the
effective rate is caused by higher state income taxes and the reduction in the
portion of business entertainment expenses deductible under the new tax laws.
FINANCIAL CONDITION
Working capital increased $10 million in the six-month period, reflecting
strong earnings and operating cash flows. Capital expenditures for the period
were $4.6 million, principally for production equipment, office remodeling and
furnishings. Cash and cash equivalents, net of current bank borrowings,
decreased $741,000 in the period. In addition to capital expenditures, cash
flows were utilized to support a $7 million increase in trade receivables,
reflecting the 42 percent revenue increase in the period, and a $4.3 reduction
in accounts payable due to the slowing of production activity in the latter part
of the period as discussed above.
The Company had outstanding purchase commitments for capital equipment of
approximately $1.5 million as of July 31, 1994.
8
<PAGE>
PART II. -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Schedule of Computation of Per Share Earnings
27. Financial Data Schedules
(b) Reports on Form 8-K
None
9
<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.
<TABLE>
<S> <C>
(REGISTRANT) MERRILL CORPORATION
BY (SIGNATURE) /s/ John W. Castro
(NAME AND TITLE) John W. Castro, President and Chief Executive Officer
(DATE) September 14, 1994
BY (SIGNATURE) /s/ John B. McCain
(NAME AND TITLE) John B. McCain, Chief Financial Officer
(DATE) September 14, 1994
</TABLE>
10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT METHOD OF FILING
- ----------- ---------------------------------
<S> <C> <C>
11. Schedule of Computation of Per Share Earnings........................ Filed herewith electronically
27. Financial Data Schedules............................................. Filed herewith electronically
</TABLE>
11
<PAGE>
EXHIBIT 11
MERRILL CORPORATION
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JULY 31, ENDED JULY 31,
---------------------------- ----------------------------
1994 1993 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Primary:
Net income......................................... $ 4,396,071 $ 3,518,707 $ 9,094,913 $ 6,977,203
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of common shares
outstanding during the period..................... 7,569,496 7,396,907 7,543,657 7,371,312
Add common equivalent shares relating to
outstanding options to purchase common stock using
the treasury stock method......................... 473,730 540,104 513,254 530,370
------------- ------------- ------------- -------------
Total common and common equivalent shares
outstanding..................................... 8,043,226 7,937,011 8,056,911 7,901,682
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Primary income per common share...................... $.55 $.44 $1.13 $.88
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fully diluted:
Net income......................................... $ 4,396,071 $ 3,518,707 $ 9,094,913 $ 6,977,203
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of common shares
outstanding during the period..................... 7,569,496 7,396,907 7,543,657 7,371,312
Add common equivalent shares relating to
outstanding options to purchase common stock using
the treasury stock method......................... 473,689 612,219 513,115 575,399
------------- ------------- ------------- -------------
Total common and common equivalent shares
outstanding..................................... 8,043,185 8,009,126 8,056,772 7,946,711
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fully diluted income per common share................ $.55 $.44 $1.13 $.88
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND
ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JUL-31-1994
<CASH> 1,017
<SECURITIES> 0
<RECEIVABLES> 47,887
<ALLOWANCES> 3,456
<INVENTORY> 15,631
<CURRENT-ASSETS> 63,773
<PP&E> 50,442
<DEPRECIATION> 23,276
<TOTAL-ASSETS> 104,517
<CURRENT-LIABILITIES> 31,263
<BONDS> 10,165
<COMMON> 76
0
0
<OTHER-SE> 63,378
<TOTAL-LIABILITY-AND-EQUITY> 104,517
<SALES> 125,142
<TOTAL-REVENUES> 125,142
<CGS> 80,364
<TOTAL-COSTS> 80,364
<OTHER-EXPENSES> 29,044
<LOSS-PROVISION> 1,309
<INTEREST-EXPENSE> 502
<INCOME-PRETAX> 15,425
<INCOME-TAX> 6,330
<INCOME-CONTINUING> 9,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,095
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
</TABLE>
