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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 APRIL 30, 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
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The number of shares outstanding of Registrant's Common Stock, par value $.01,
on June 10, 1994 was 7,541,258.
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PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Included herein is the following unaudited financial information:
Consolidated Balance Sheets as of April 30, 1994 and January 31,
1994.
Consolidated Statements of Operations for the three-month periods
ended April 30, 1994 and 1993.
Consolidated Statements of Cash Flows for the three-month periods
ended April 30, 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>
APRIL 30, JANUARY 31,
1994 1994
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<S> <C> <C>
Current assets
Cash and cash equivalents.......................................................... $ 4,864 $ 2,558
Trade receivables, less allowance for doubtful accounts of $3,544 and $2,294
respectively...................................................................... 42,218 38,777
Work in process inventories........................................................ 16,490 11,821
Other inventories.................................................................. 3,359 3,935
Other.............................................................................. 3,123 2,344
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Total current assets............................................................. 70,054 59,435
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Property, plant and equipment, net................................................... 26,920 26,678
Goodwill, net........................................................................ 11,409 11,616
Other assets......................................................................... 2,410 2,394
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Total assets..................................................................... $ 110,793 $ 100,123
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank............................................................... $ 3,700 $ 2,600
Current maturities of long-term debt............................................... 1,321 1,325
Current maturities of capital lease obligations.................................... 365 365
Accounts payable................................................................... 17,708 15,939
Accrued expenses................................................................... 13,289 13,145
Income taxes payable............................................................... 3,221 115
Deferred income taxes.............................................................. 2,982 3,418
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Total current liabilities........................................................ 42,586 36,907
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Long-term debt, net of current maturities............................................ 6,040 6,040
Capital lease obligations, net of current maturities................................. 2,470 2,616
Deferred income taxes................................................................ 669 669
Other................................................................................ 385 294
Shareholders' equity
Common stock, $.01 par value: 25,000,000 shares authorized; 7,533,458 shares and
7,492,922 shares, respectively, issued and outstanding............................ 75 75
Undesignated stock: 500,000 shares authorized; no shares issued....................
Additional paid-in capital......................................................... 13,568 12,996
Retained earnings.................................................................. 45,000 40,526
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Total shareholders' equity....................................................... 58,643 53,597
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Total liabilities and shareholders' equity....................................... $ 110,793 $ 100,123
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</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
APRIL 30,
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1994 1993
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<S> <C> <C>
Revenue......................................................................... $61,463 $41,244
Cost of sales................................................................... 38,447 25,437
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Gross profit.................................................................. 23,016 15,807
Selling, general and administrative expenses.................................... 14,882 10,360
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Operating income.............................................................. 8,134 5,447
Interest expense................................................................ (233) (92)
Other income.................................................................... 63 85
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Income before provision for income taxes and cumulative effect of change in
accounting for income taxes.................................................. 7,964 5,440
Provision for income taxes...................................................... 3,265 2,158
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Income before cumulative effect of change in accounting for income taxes........ 4,699 3,282
Cumulative effect of change in accounting for income taxes...................... 177
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Net income.................................................................... $ 4,699 $ 3,459
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Income per common and common equivalent share:
Before cumulative effect of change in accounting for income taxes............. $ .58 $ .42
Cumulative effect of change in accounting for income taxes.................... .02
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Net income.................................................................... $ .58 $ .44
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Dividends per common share...................................................... $ .03 $ .025
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Weighted average number of common and common equivalent shares outstanding...... 8,070,595 7,866,352
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</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>
THREE MONTHS ENDED
APRIL 30,
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1994 1993
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<S> <C> <C>
Operating activities
Net income............................................................................. $ 4,699 $ 3,459
Adjustments to reconcile net income to net cash used in operating activities
Depreciation......................................................................... 2,021 1,203
Amortization......................................................................... 282 73
Provision for losses on trade receivables............................................ 1,115 341
Tax benefit realized upon exercise of stock options.................................. 355 226
Deferred compensation expense........................................................ 91
Cumulative effect of change in accounting for income taxes........................... (177)
Increase (decrease) from changes in operating assets and liabilities
Trade receivables.................................................................. (4,556) (3,385)
Work in process inventories........................................................ (4,669) (4,363)
Other inventories.................................................................. 576 (301)
Other current assets............................................................... (779) (70)
Accounts payable................................................................... 1,769 1,478
Accrued expenses................................................................... 144 460
Accrued and deferred income taxes.................................................. 2,670 (41)
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Net cash provided by (used in) operating activities.............................. 3,718 (1,097)
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Investing activities
Purchase of property, plant and equipment.............................................. (2,263) (917)
Other.................................................................................. (91) 10
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Net cash used in investing activities............................................ (2,354) (907)
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Financing activities
Borrowings on note payable to bank..................................................... 12,900 600
Repayments on note payable to bank..................................................... (11,800) (600)
Principal payments on long-term debt and capital lease obligations..................... (150) (20)
Dividends paid......................................................................... (226) (185)
Other equity transactions, net......................................................... 218 143
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Net cash provided by (used in) financing activities.............................. 942 (62)
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Increase (decrease) in cash and cash equivalents......................................... 2,306 (2,066)
Cash and cash equivalents, beginning of period........................................... 2,558 9,562
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Cash and cash equivalents, end of period................................................. $ 4,864 $ 7,496
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Supplemental cash flow disclosure
Income taxes paid...................................................................... $ 187 $ 1,974
Interest paid.......................................................................... 113 89
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</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 April 30, 1994 and January 31,
1994, and for the periods ended April 30, 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>
APRIL 30, JANUARY 31,
1994 1994
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<S> <C> <C>
Property, plant and equipment
At cost......................................................... $ 48,343 $ 46,352
Less accumulated depreciation and amortization.................. (21,423) (19,674)
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$ 26,920 $ 26,678
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</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
three months ended April 30, 1993 as though the acquisition had been effective
at the beginning of fiscal 1994 are as follows:
(000's except per share amounts)
<TABLE>
<S> <C>
Revenue................................................. $ 48,504
Net Income.............................................. 3,728
Net Income Per Share.................................... $.47
</TABLE>
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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
periods ended April 30, 1994 and 1993, and the percentage change in such items
between the two periods.
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE INCREASE
OF REVENUE ----------
---------------- 1994 VS.
1994 1993 1993
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<S> <C> <C> <C>
Revenue......................................................................... 100.0% 100.0% 49%
Cost of sales................................................................... 62.6 61.7 51
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Gross profit................................................................ 37.4 38.3 46
Selling, general and administrative expenses.................................... 24.2 25.1 44
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Operating income............................................................ 13.2 13.2 49
Interest expense................................................................ (0.4) (0.2) 153
Other income.................................................................... 0.1 0.2 (26)
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Income before taxes and cumulative effect of change in accounting for income
taxes...................................................................... 12.9 13.2 46
Provision for income taxes...................................................... 5.3 5.2 51
Cumulative effect of change in accounting for income taxes...................... 0.4
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Net income.................................................................. 7.6% 8.4% 36
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</TABLE>
The operating results for the three months ended April 30, 1994, were a
record for any quarter in the Company's history. These results were
revenue-driven, reflecting double-digit percentage increases in each of the
three traditional revenue categories complemented by approximately $9 million in
revenue from May Printing Company, acquired in December 1993. Revenue was also
well balanced between the three categories with Financial representing 34
percent of consolidated revenue, Corporate 33 percent, and Commercial and Other,
including May Printing, 33 percent. The revenue breakdown in last year's quarter
was Financial 34 percent, Corporate 44 percent, and Commercial and other 22
percent. The improvement in Financial revenue reflected strong markets for most
of the quarter. Interest rate concerns caused increased market volatility late
in the quarter, resulting in a slowing in typesetting production volume to
levels only modestly above last year. The increase in Corporate revenue
reflected the high level of proxy activity typical of the first calendar
quarter.
The reduction in gross margin in the quarter was anticipated and reflected
the traditionally lower level of gross margin at May Printing. Selling, general
and adminstrative expenses, as a percentage of revenue, were lower in the
current quarter due to the large increase in revenue and the fixed nature of a
portion of these expenses, together with a traditionally lower ratio of those
expenses at May Printing.
The effective income tax rate in the current quarter was 41 percent,
compared to 39.7 percent a year ago, and reflects the estimated effective rate
for fiscal year 1995. The increase in the estimated 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 $4.9 million in the current quarter reflecting
strong earnings and operating cash flows. Capital expenditures for the quarter
were $2.3 million, principally for production equipment and office remodeling
and furnishing. Cash and cash equivalent balances, net of current bank
borrowings, increased approximately $1.2 million. The balance of the increase in
working capital reflected significant increases in receivables and work in
process inventories which were partially offset by increased trade accounts and
taxes payable.
The Company has outstanding purchase commitments for capital equipment of
approximately $1.5 million as of April 30, 1994.
7
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PART II. -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Schedule of Computation of Per Share Earnings
(b) Reports on Form 8-K
None
8
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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> <C>
(REGISTRANT) MERRILL CORPORATION
BY (SIGNATURE) /s/ John W. Castro
(NAME AND TITLE) John W. Castro, President and Chief Executive Officer
(DATE) June 14, 1994
BY (SIGNATURE) /s/ John B. McCain
(NAME AND TITLE) John B. McCain, Chief Financial Officer
(DATE) June 14, 1994
</TABLE>
9
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT METHOD OF FILING
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<C> <S> <C>
11. Schedule of Computation of Per Share Earnings........................ Filed herewith electronically
</TABLE>
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EXHIBIT 11
MERRILL CORPORATION
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 30,
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1994 1993
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<S> <C> <C>
Primary:
Net income........................................................................ $ 4,698,842 $ 3,458,496
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Weighted average number of common shares outstanding during the period............ 7,517,817 7,345,716
Add common equivalent shares relating to outstanding options to purchase common
stock using, the treasury stock method........................................... 552,778 520,636
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Weighted average number of common and common equivalent
shares outstanding........................................................... 8,070,595 7,866,352
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Primary income per common share..................................................... $.58 $.44
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Fully diluted:
Net income........................................................................ $ 4,698,842 $ 3,458,496
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Weighted average number of common shares outstanding during the period............ 7,517,817 7,345,716
Add common equivalent shares relating to outstanding options to purchase common
stock using, the treasury stock method........................................... 552,542 538,978
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Weighted average number of common and common equivalent
shares outstanding........................................................... 8,070,359 7,884,694
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Fully diluted income per common share............................................... $.58 $.44
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</TABLE>
