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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, 1995
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 offices) (Zip Code)
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 June 8, 1995 was 7,747,841.
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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, 1995 and January 31,
1995.
Consolidated Statements of Operations for the three-month periods
ended April 30, 1995 and 1994.
Consolidated Statements of Cash Flows for the three-month periods
ended April 30, 1995 and 1994.
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,
1995 1995
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents.......................................................... $ 1,876 $ 9,967
Trade receivables, less allowance for doubtful accounts of $3,181 and $2,830,
respectively...................................................................... 47,366 39,284
Work in process inventories........................................................ 11,440 7,007
Other inventories.................................................................. 4,855 4,526
Refundable income tax.............................................................. 265
Other current assets............................................................... 2,643 2,421
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Total current assets............................................................. 68,180 63,470
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Property, plant and equipment, net................................................... 28,345 28,918
Goodwill, net........................................................................ 11,207 11,423
Other assets, net.................................................................... 3,445 2,659
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Total assets..................................................................... $ 111,177 $ 106,470
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----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt............................................... $ 745 $ 745
Current maturities of capital lease obligations.................................... 663 738
Accounts payable................................................................... 18,798 16,004
Accrued expenses................................................................... 12,642 12,809
Income taxes payable............................................................... 1,157
Deferred income taxes.............................................................. 951 1,651
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Total current liabilities........................................................ 34,956 31,947
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Long-term debt, net of current maturities............................................ 5,295 5,295
Capital lease obligations, net of current maturities................................. 2,150 2,227
Deferred income taxes................................................................ 46 46
Other liabilities.................................................................... 919 894
Shareholders' equity
Common stock, $.01 par value: 25,000,000 shares authorized; 7,729,841 shares and
7,605,076 shares, respectively, issued and outstanding............................ 77 76
Undesignated stock: 500,000 shares authorized; no shares issued....................
Additional paid-in capital......................................................... 14,286 14,384
Retained earnings.................................................................. 53,448 51,601
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Total shareholders' equity....................................................... 67,811 66,061
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Total liabilities and shareholders' equity....................................... $ 111,177 $ 106,470
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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
--------------------
1995 1994
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<S> <C> <C>
Revenue......................................................................... $ 57,432 $ 61,463
Cost of sales................................................................... 38,816 38,447
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Gross profit.................................................................. 18,616 23,016
Selling, general and administrative expenses.................................... 14,932 14,882
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Operating income.............................................................. 3,684 8,134
Interest expense................................................................ (212) (233)
Other income.................................................................... 134 63
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Income before provision for income taxes...................................... 3,606 7,964
Provision for income taxes...................................................... 1,530 3,265
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Net income.................................................................... $ 2,076 $ 4,699
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Net income per common and common equivalent share............................... $ .26 $ .58
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Dividends per common share...................................................... $ .03 $ .03
--------- ---------
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Weighted average number of common and common equivalent shares outstanding...... 7,903,269 8,070,595
--------- ---------
--------- ---------
</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
--------------------
1995 1994
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<S> <C> <C>
Operating activities
Net income............................................................................. $ 2,076 $ 4,699
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization........................................................ 2,380 2,021
Amortization of intangibles.......................................................... 287 282
Provision for losses on trade receivables............................................ 372 1,115
Tax benefit realized upon exercise of stock options.................................. 355
Deferred compensation................................................................ (849) 91
Changes in operating assets and liabilities
Trade receivables.................................................................. (8,454) (4,556)
Work in process inventories........................................................ (4,433) (4,669)
Other inventories.................................................................. (329) 576
Refundable income tax.............................................................. 265
Other current assets............................................................... (222) (779)
Accounts payable................................................................... 2,794 1,769
Accrued expenses................................................................... (167) 144
Accrued and deferred income taxes.................................................. 457 2,670
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Net cash (used in) provided by operating activities.............................. (5,823) 3,718
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Investing activities
Purchase of property, plant and equipment.............................................. (1,807) (2,263)
Other assets, net...................................................................... 34 (91)
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Net cash used in investing activities............................................ (1,773) (2,354)
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Financing activities
Borrowings on note payable to bank..................................................... 12,900
Repayments on note payable to bank..................................................... (11,800)
Principal payments on long-term debt and capital lease obligations..................... (152) (150)
Dividends paid......................................................................... (229) (226)
Other equity transactions, net......................................................... (114) 218
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Net cash (used in) provided by financing activities.............................. (495) 942
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(Decrease) increase in cash and cash equivalents......................................... (8,091) 2,306
Cash and cash equivalents, beginning of period........................................... 9,967 2,558
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Cash and cash equivalents, end of period................................................. $ 1,876 $ 4,864
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Supplemental cash flow disclosure
Income taxes paid...................................................................... $ 727 $ 187
Interest paid.......................................................................... 164 113
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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, 1995 and for the
periods ended April 30, 1995 and 1994 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. The preparation of the financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities and
the reported amounts of revenue and expenses during the reported periods. Actual
results could differ from those estimates.
2. SELECTED BALANCE SHEET DATA (IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1995 1995
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<S> <C> <C>
Property, plant and equipment
At cost......................................................... $ 57,519 $ 55,884
Less accumulated depreciation and amortization.................. (29,174) (26,966)
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$ 28,345 $ 28,918
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</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
periods ended April 30, 1995 and 1994, and the percentage change in such items
between the two periods.
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE
PERCENTAGE (DECREASE)
OF REVENUE ----------
---------------- 1995 VS.
1995 1994 1994
------ ------ ----------
<S> <C> <C> <C>
Revenue
Financial..................................................................... 25.8% 33.7% (28)%
Corporate..................................................................... 38.2 33.5 7
Commercial and other.......................................................... 36.0 32.8 2
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Total revenue............................................................... 100.0 100.0 (7)
Cost of sales................................................................... 67.6 62.6 1
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Gross profit................................................................ 32.4 37.4 (19)
Selling, general and administrative expenses.................................... 26.0 24.2
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Operating income............................................................ 6.4 13.2 (55)
Interest expense................................................................ (0.4) (0.4) (9)
Other income.................................................................... 0.3 0.1 113
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Income before taxes......................................................... 6.3 12.9 (55)
Provision for income taxes...................................................... 2.7 5.3 (53)
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Net income.................................................................. 3.6% 7.6% (56)
------ ------
------ ------
</TABLE>
The decrease in earnings in the current quarter was expected and reflected
the continued slowdown in financial market transactions. These market factors
are similar to those we have experienced since mid-1994, which have resulted in
more competitive pricing for available work and have adversely affected
Financial category revenue, certain Corporate work and gross margins. Gross
margins were also negatively impacted by underutilization of typesetting
production facilities due to the lower level of revenue. The modest increase in
Corporate revenue reflected the high level of proxy activity typical of the
first calendar quarter. Commercial and other revenue was up slightly as strong
growth in Document Management Services was offset by reductions in Commercial
printing revenue and slower than anticipated growth at Merrill/May. Increased
marketing efforts at Merrill/May have resulted in the recent addition of several
new customers, but it will take at least six months for these programs to begin
generating meaningful revenue.
Selling, general and administrative expenses remained consistent with the
previous period. As a percentage of revenue these expenses increased in the
current period due to the revenue decrease and the fixed nature of certain of
these expenses.
The effective income tax rate in the current quarter was 42.4 percent,
compared to 41 percent a year ago, and reflects the estimated effective rate for
fiscal year 1996. The increase in the estimated rate is caused by an increase in
non-deductible business entertainment expenses as a percentage of income before
taxes.
FINANCIAL CONDITION
Working capital increased $1.7 million in the current quarter reflecting
moderate earnings and operating cash flows. Capital expenditures for the quarter
were $1.8 million, principally for production equipment and office remodeling
and furnishing. Cash and cash equivalent balances decreased $8.1 million in the
period. In addition to capital expenditures, cash flows were utilized to support
a
7
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$8.4 million increase in trade receivables and a $4.4 million increase in work
in process inventories. These increases were offset by an increase in accounts
payable of $2.8 million which reflects the increase in production activity in
the latter part of the period.
The Company has outstanding purchase commitments for capital equipment of
approximately $1.5 million as of April 30, 1995.
8
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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
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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, 1995
BY (SIGNATURE) /s/ John B. McCain
(NAME AND TITLE) John B. McCain, Chief Financial Officer
(DATE) June 14, 1995
</TABLE>
10
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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
27. Financial Data Schedules............................................. 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,
----------------------------
1995 1994
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<S> <C> <C>
Primary:
Net income........................................................................ $ 2,075,544 $ 4,698,842
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Weighted average number of common shares outstanding during the period............ 7,641,635 7,517,817
Add common equivalent shares relating to outstanding options to purchase common
stock using, the treasury stock method........................................... 261,634 552,778
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Weighted average number of common and common equivalent
shares outstanding........................................................... 7,903,269 8,070,595
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Primary income per common share..................................................... $.26 $.58
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Fully diluted:
Net income........................................................................ $ 2,075,544 $ 4,698,842
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Weighted average number of common shares outstanding during the period............ 7,641,635 7,517,817
Add common equivalent shares relating to outstanding options to purchase common
stock using, the treasury stock method........................................... 261,155 552,542
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Weighted average number of common and common equivalent
shares outstanding........................................................... 7,902,790 8,070,359
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Fully diluted income per common share............................................... $.26 $.58
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> APR-30-1995
<CASH> 1,876
<SECURITIES> 0
<RECEIVABLES> 50,547
<ALLOWANCES> 3,181
<INVENTORY> 16,295
<CURRENT-ASSETS> 68,180
<PP&E> 57,519
<DEPRECIATION> 29,174
<TOTAL-ASSETS> 111,177
<CURRENT-LIABILITIES> 34,956
<BONDS> 8,853
<COMMON> 77
0
0
<OTHER-SE> 67,734
<TOTAL-LIABILITY-AND-EQUITY> 111,177
<SALES> 57,432
<TOTAL-REVENUES> 57,432
<CGS> 38,816
<TOTAL-COSTS> 38,816
<OTHER-EXPENSES> 14,932
<LOSS-PROVISION> 372
<INTEREST-EXPENSE> 212
<INCOME-PRETAX> 3,606
<INCOME-TAX> 1,530
<INCOME-CONTINUING> 2,076
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,076
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
