<PAGE>
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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 OCTOBER 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 December 12, 1994 was 7,594,426.
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<PAGE>
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial information:
Consolidated Balance Sheets as of October 31, 1994 and January 31,
1994.
Consolidated Statements of Operations for the three-month and
nine-month
periods ended October 31, 1994 and 1993.
Consolidated Statements of Cash Flows for the nine-month periods
ended October 31, 1994 and 1993.
Notes to Consolidated Financial Statements.
2
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MERRILL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1994 1994
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents.......................................................... $ 8,926 $ 2,558
Trade receivables, less allowance for doubtful accounts of $3,473 and $2,294
respectively...................................................................... 41,868 38,777
Work in process inventories........................................................ 8,926 11,821
Other inventories.................................................................. 3,798 3,935
Refundable income taxes............................................................ 309
Other.............................................................................. 2,653 2,344
----------- -----------
Total current assets............................................................. 66,480 59,435
----------- -----------
Property, plant and equipment, net................................................... 27,503 26,678
Goodwill, net........................................................................ 11,363 11,616
Other assets......................................................................... 2,053 2,394
----------- -----------
Total assets..................................................................... $ 107,399 $ 100,123
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank............................................................... $ $ 2,600
Current maturities of long-term debt............................................... 744 1,325
Current maturities of capital lease obligations.................................... 661 365
Accounts payable................................................................... 16,191 15,939
Accrued expenses................................................................... 13,161 13,145
Income taxes payable............................................................... 115
Deferred income taxes.............................................................. 1,851 3,418
----------- -----------
Total current liabilities........................................................ 32,608 36,907
----------- -----------
Long-term debt, net of current maturities............................................ 5,795 6,040
Capital lease obligations, net of current maturities................................. 2,065 2,616
Deferred income taxes................................................................ 669 669
Other................................................................................ 750 294
Shareholders' equity
Common stock, $.01 par value: 25,000,000 shares authorized; 7,594,476 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......................................................... 14,287 12,996
Retained earnings.................................................................. 51,149 40,526
----------- -----------
Total shareholders' equity....................................................... 65,512 53,597
----------- -----------
Total liabilities and shareholders' equity....................................... $ 107,399 $ 100,123
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
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MERRILL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------- ------------------------
1994 1993 1994 1993
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue......................................................... $ 57,474 $ 42,541 $ 182,616 $ 128,697
Cost of sales................................................... 40,553 27,358 120,917 81,912
--------- --------- ----------- -----------
Gross profit.................................................. 16,921 15,183 61,699 46,785
Selling, general and administrative expenses.................... 12,943 10,153 41,988 30,393
--------- --------- ----------- -----------
Operating income.............................................. 3,978 5,030 19,711 16,392
Interest expense................................................ (241) (64) (742) (218)
Other income.................................................... 102 107 295 255
--------- --------- ----------- -----------
Income before provision for income taxes and cumulative effect
of change in accounting for income taxes..................... 3,839 5,073 19,264 16,429
Provision for income taxes...................................... 1,634 2,039 7,964 6,595
--------- --------- ----------- -----------
Income before cumulative effect of change in accounting for
income taxes................................................... 2,205 3,034 11,300 9,834
Cumulative effect of change in accounting for income taxes...... 177
--------- --------- ----------- -----------
Net income.................................................... $ 2,205 $ 3,034 $ 11,300 $ 10,011
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Income per common and common equivalent share:
Before cumulative effect of change in accounting for income
taxes........................................................ $ .28 $ .38 $ 1.41 $ 1.24
Cumulative effect of change in accounting for income taxes.... .02
--------- --------- ----------- -----------
Net income.................................................... $ .28 $ .38 $ 1.41 $ 1.26
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Dividends per common share...................................... $ .03 $ .025 $ .09 $ .075
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Weighted average number of common and common equivalent shares
outstanding.................................................... 7,972,277 8,033,904 8,028,699 7,945,756
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
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MERRILL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
---------------------
1994 1993
---------- ---------
<S> <C> <C>
Operating activities
Net income........................................................................... $ 11,300 $ 10,011
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization...................................................... 6,357 3,867
Amortization of intangible assets.................................................. 845 213
Provision for losses on trade receivables.......................................... 1,485 263
Tax benefit realized upon exercise of stock options................................ 795 610
Deferred compensation expense...................................................... 456
Cumulative effect of change in accounting for income taxes......................... (177)
Changes in operating assets and liabilities
Trade receivables................................................................ (4,576) (4,316)
Work in process inventories...................................................... 2,895 (5,900)
Other inventories................................................................ 137 262
Refundable income taxes.......................................................... (309)
Other current assets............................................................. (309) (639)
Accounts payable................................................................. 252 2,606
Accrued expenses................................................................. 16 2,586
Accrued and deferred income taxes................................................ (1,682) (479)
---------- ---------
Net cash provided by operating activities...................................... 17,662 8,801
---------- ---------
Investing activities
Purchase of property, plant and equipment............................................ (7,182) (4,407)
Business acquisitions, net of cash acquired.......................................... (346) (849)
Purchase of minority interest........................................................ (302)
Other................................................................................ (95) 86
---------- ---------
Net cash used in investing activities.......................................... (7,433) (5,472)
---------- ---------
Financing activities
Borrowings on note payable to bank................................................... 28,400 600
Repayments on note payable to bank................................................... (31,000) (600)
Principal payments on long-term debt and capital lease obligations................... (1,081) (66)
Dividends paid....................................................................... (677) (555)
Other equity transactions, net....................................................... 497 356
---------- ---------
Net cash used in financing activities.......................................... (3,861) (265)
---------- ---------
Increase in cash and cash equivalents.................................................. 6,368 3,064
Cash and cash equivalents, beginning of period......................................... 2,558 9,562
---------- ---------
Cash and cash equivalents, end of period............................................... $ 8,926 $ 12,626
---------- ---------
---------- ---------
Supplemental cash flow disclosure
Income taxes paid.................................................................... $ 9,169 $ 6,572
Interest paid........................................................................ 632 208
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
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MERRILL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ACCOUNTING POLICIES
The consolidated financial statements as of October 31, 1994 and for the
periods ended October 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>
OCTOBER 31, JANUARY 31,
1994 1994
----------- -----------
<S> <C> <C>
Property, plant and equipment
At cost........................................................ $ 52,912 $ 46,352
Less accumulated depreciation and amortization................. (25,409) (19,674)
----------- -----------
$ 27,503 $ 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 October 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>
THREE MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1993 1993
--------------- ---------------
<S> <C> <C>
Revenue.................................................... $ 49,558 $ 150,159
Net Income................................................. 2,856 10,333
Net Income Per Share....................................... $.36 $1.30
</TABLE>
6
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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
nine-month periods October 31, 1994 and 1993, and the percentage change in such
items between the two periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER NINE MONTHS ENDED OCTOBER
31, 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.................................. 30.2% 46.6% (12)% 33.0% 39.8% 18%
Corporate.................................. 35.7 28.5 69 34.4 37.3 31
Commercial & other......................... 34.1 24.9 85 32.6 22.8 102
----- ----- --- ----- ----- ---
Total revenue............................ 100.0 100.0 35 100.0 100.0 42
Cost of sales................................ 70.6 64.3 48 66.2 63.6 48
----- ----- ----- -----
Gross profit............................. 29.4 35.7 11 33.8 36.4 32
Selling, general and administrative
expenses.................................... 22.5 23.9 28 23.0 23.6 38
----- ----- ----- -----
Operating income......................... 6.9 11.8 (21) 10.8 12.8 20
Interest expense............................. (0.4) (0.2) 275 (0.4) (0.2) 240
Other income................................. 0.2 0.3 (5) 0.2 0.2 16
----- ----- ----- -----
Income before taxes and cumulative effect
of change in accounting for income
taxes................................... 6.7 11.9 (24) 10.6 12.8 17
Provision for income taxes................... 2.8 4.8 (20) 4.4 5.1 21
Cumulative effect of change in accounting for
income taxes................................ 0.1
----- ----- ----- -----
Net income............................... 3.9% 7.1% (27)% 6.2% 7.8% 13%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
The decrease in earnings in the current quarter was expected and reflected
the slowdown in financial market transactions which began in mid-summer. These
market conditions resulted in more competitive pricing for available work, which
adversely affected both financial category revenue and gross margins. Gross
margins were also negatively impacted by underutilization of typesetting
production facilities due to the reduction in revenue from the level of the
first two fiscal quarters. Revenue in the corporate and commercial and other
categories was well ahead of year-ago levels for both the quarter and the
nine-month period. The increase in corporate revenue reflected continued growth
in mutual fund documentation through the addition of new clients and increases
in business with existing clients. The increase in commercial and other revenue
was principally due to the impact of May Printing Company, acquired in December,
1993, but also resulted from increased election-related printing and growth in
the number of facilities management installations. Operating results for the
nine-month period remained ahead of the previous year's levels although both
gross and operating margins were well below those levels due to the third
quarter weakness and the change in the balance of our business mix.
Selling, general and administrative expenses increased significantly with
about half of the increase reflecting the addition of May Printing. As a
percentage of revenue, these expenses decreased somewhat in both of the current
periods due to the significant revenue increase and the fixed nature of certain
of these expenses.
The effective income tax rates were 42.6 percent and 41.3 percent,
respectively, for the current three and nine month periods, compared to 40.2
percent and 40.1 percent, respectively, for the same
7
<PAGE>
periods a year ago. The tax rate for the nine-month periods represents the
estimated effective rate for the respective fiscal years. The increase in the
effective rate reflects higher state income taxes and the reduction in the
portion of business entertainment expenses deductible under the new tax laws.
FINANCIAL CONDITION
Working capital at October 31, 1994 was $33.9 million, an increase of $11.3
million from January 31, 1994. The increase reflected strong earnings and cash
flow which was partially offset by $7.2 million in capital expenditures. The
capital expenditures were primarily for production equipment, office remodeling
and furnishings. In addition to capital expenditures, cash flows were utilized
to support a $4 million increase in trade receivables, reflecting the strong
revenue increase in the period, and a reduction in current debt of $3.2 million.
The Company had outstanding purchase commitments for capital equipment of
approximately $1.1 million as of October 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
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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) December 15, 1994
BY (SIGNATURE) /s/ John B. McCain
(NAME AND TITLE) John B. McCain, Chief Financial Officer
(DATE) December 15, 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 NINE MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
---------------------------- ------------------------------
1994 1993 1994 1993
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Primary:
Net income....................................... $ 2,204,864 $ 3,034,274 $ 11,299,777 $ 10,011,477
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
Weighted average number of common shares
outstanding during the period................... 7,590,856 7,428,987 7,559,390 7,390,537
Add common equivalent shares relating to
outstanding options to purchase common stock
using the treasury stock method................. 381,421 604,917 469,309 555,219
------------- ------------- -------------- --------------
Total common and common equivalent shares
outstanding................................... 7,972,277 8,033,904 8,028,699 7,945,756
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
Primary income per common share.................... $.28 $.38 $1.41 $1.26
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
Fully diluted:
Net income....................................... $ 2,204,864 $ 3,034,274 $ 11,299,777 $ 10,011,477
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
Weighted average number of common shares
outstanding during the period................... 7,590,856 7,428,987 7,559,390 7,390,537
Add common equivalent shares relating to
outstanding options to purchase common stock
using the treasury stock method................. 381,380 606,372 469,203 585,663
------------- ------------- -------------- --------------
Total common and common equivalent shares
outstanding................................... 7,972,236 8,035,359 8,028,593 7,976,200
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
Fully diluted income per common share.............. $.28 $.38 $1.41 $1.26
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> OCT-31-1994
<CASH> 8,926
<SECURITIES> 0
<RECEIVABLES> 45,341
<ALLOWANCES> 3,473
<INVENTORY> 12,724
<CURRENT-ASSETS> 66,480
<PP&E> 52,912
<DEPRECIATION> 25,409
<TOTAL-ASSETS> 107,399
<CURRENT-LIABILITIES> 32,608
<BONDS> 9,265
<COMMON> 76
0
0
<OTHER-SE> 65,512
<TOTAL-LIABILITY-AND-EQUITY> 107,399
<SALES> 182,616
<TOTAL-REVENUES> 182,616
<CGS> 120,917
<TOTAL-COSTS> 120,917
<OTHER-EXPENSES> 41,988
<LOSS-PROVISION> 1,485
<INTEREST-EXPENSE> 742
<INCOME-PRETAX> 19,264
<INCOME-TAX> 7,964
<INCOME-CONTINUING> 11,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,300
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.41
</TABLE>
