<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 JULY 31, 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 September 8, 1995 was 7,776,641.
--------------------------------------------------------------------------------
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<PAGE>
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Included herein is the following unaudited financial information:
Consolidated Balance Sheets as of July 31, 1995 and January 31,
1995.
Consolidated Statements of Operations for the three-month and
six-month periods ended July 31, 1995 and 1994.
Consolidated Statements of Cash Flows for the six-month periods
ended July 31, 1995 and 1994.
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,
1995 1995
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents.......................................................... $ 930 $ 9,967
Trade receivables, less allowance for doubtful accounts of $3,285 and $2,830,
respectively...................................................................... 50,744 39,284
Work in process inventories........................................................ 8,252 7,007
Other inventories.................................................................. 7,231 4,526
Refundable income tax.............................................................. 1,459 265
Other current assets............................................................... 2,594 2,421
----------- -----------
Total current assets............................................................. 71,210 63,470
----------- -----------
Property, plant and equipment, net................................................... 33,677 28,918
Goodwill, net........................................................................ 10,979 11,423
Other assets, net.................................................................... 3,341 2,659
----------- -----------
Total assets..................................................................... $ 119,207 $ 106,470
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank............................................................... $ 6,900
Current maturities of long-term debt............................................... 745 $ 745
Current maturities of capital lease obligations.................................... 687 738
Accounts payable................................................................... 15,793 16,004
Accrued expenses................................................................... 14,426 12,809
Deferred income taxes.............................................................. 676 1,651
----------- -----------
Total current liabilities........................................................ 39,227 31,947
----------- -----------
Long-term debt, net of current maturities............................................ 5,295 5,295
Capital lease obligations, net of current maturities................................. 2,094 2,227
Deferred income taxes................................................................ 46 46
Other liabilities.................................................................... 1,166 894
Shareholders' equity
Common stock, $.01 par value: 25,000,000 shares authorized; 7,760,641 shares and
7,605,076 shares, respectively, issued and outstanding............................ 78 76
Undesignated stock: 500,000 shares authorized; no shares issued....................
Additional paid-in capital......................................................... 15,371 14,384
Retained earnings.................................................................. 55,930 51,601
----------- -----------
Total shareholders' equity....................................................... 71,379 66,061
----------- -----------
Total liabilities and shareholders' equity....................................... $ 119,207 $ 106,470
----------- -----------
----------- -----------
</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
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue......................................................................... $ 62,703 $ 63,679 $ 120,135 $ 125,142
Cost of sales................................................................... 43,815 41,917 82,631 80,364
--------- --------- --------- ---------
Gross profit.................................................................. 18,888 21,762 37,504 44,778
Selling, general and administrative expenses.................................... 14,039 14,162 28,971 29,044
--------- --------- --------- ---------
Operating income.............................................................. 4,849 7,600 8,533 15,734
Interest expense................................................................ (234) (269) (446) (502)
Other income.................................................................... 182 130 316 193
--------- --------- --------- ---------
Income before provision for income taxes...................................... 4,797 7,461 8,403 15,425
Provision for income taxes...................................................... 2,083 3,065 3,613 6,330
--------- --------- --------- ---------
Net income.................................................................... $ 2,714 $ 4,396 $ 4,790 $ 9,095
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per common and common equivalent share............................... $ .34 $ .55 $ .60 $ 1.13
--------- --------- --------- ---------
--------- --------- --------- ---------
Dividends per common share...................................................... $ .03 $ .03 $ .06 $ .06
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of common and common equivalent shares outstanding...... 7,967,817 8,043,226 7,935,543 8,056,911
--------- --------- --------- ---------
--------- --------- --------- ---------
</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
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Operating activities
Net income.......................................................................... $ 4,790 $ 9,095
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization..................................................... 4,820 4,141
Amortization of intangibles....................................................... 553 520
Provision for losses on trade receivables......................................... 610 1,309
Tax benefit realized upon exercise of stock options............................... 896 715
Deferred compensation............................................................. (602) 431
Changes in operating assets and liabilities
Trade receivables............................................................... (12,070) (6,963)
Work in process inventories..................................................... (1,245) (355)
Other inventories............................................................... (2,705) 480
Refundable income tax........................................................... (1,194) (487)
Other current assets............................................................ (173) 137
Accounts payable................................................................ (211) (4,302)
Accrued expenses................................................................ 1,617 717
Accrued and deferred income taxes............................................... (975) (1,252)
---------- ----------
Net cash (used in) provided by operating activities........................... (5,889) 4,186
---------- ----------
Investing activities
Purchase of property, plant and equipment........................................... (9,579) (4,629)
Other assets, net................................................................... 83 (88)
---------- ----------
Net cash used in investing activities......................................... (9,496) (4,717)
---------- ----------
Financing activities
Borrowings on note payable to bank.................................................. 18,000 27,700
Repayments on note payable to bank.................................................. (11,100) (28,500)
Principal payments on long-term debt and capital lease obligations.................. (184) (181)
Dividends paid...................................................................... (461) (452)
Other equity transactions, net...................................................... 93 423
---------- ----------
Net cash (used in) provided by financing activities........................... 6,348 (1,010)
---------- ----------
(Decrease) increase in cash and cash equivalents...................................... (9,037) (1,541)
Cash and cash equivalents, beginning of period........................................ 9,967 2,558
---------- ----------
Cash and cash equivalents, end of period.............................................. $ 930 $ 1,017
---------- ----------
---------- ----------
Supplemental cash flow disclosure
Income taxes paid................................................................... $ 4,820 $ 7,359
Interest paid....................................................................... 321 267
---------- ----------
---------- ----------
</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, 1995 and for the
periods ended July 31, 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>
JULY 31, JANUARY 31,
1995 1995
--------- -----------
<S> <C> <C>
Property, plant and equipment
At cost......................................................... $ 65,019 $ 55,884
Less accumulated depreciation and amortization.................. (31,342) (26,966)
--------- -----------
$ 33,677 $ 28,918
--------- -----------
--------- -----------
</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, 1995 and 1994, and the percentage change in
such items between the 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 ----------
------------- 1995 VS. --------------- 1995 VS.
1995 1994 1994 1995 1994 1994
----- ----- ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Financial............................................................. 33.7% 34.9% (5)% 29.9 34.3 (16)%
Corporate............................................................. 31.3 34.1 (9) 34.6 33.8 (2)
Commercial and other.................................................. 35.0 31.0 11 35.5 31.9 7
----- ----- ------ ------
Total revenue....................................................... 100.0 100.0 (2) 100.0 100.0 (4)
Cost of sales........................................................... 69.9 65.8 5 68.8 64.2 3
----- ----- ------ ------
Gross profit........................................................ 30.1 34.2 (13) 31.2 35.8 (16)
Selling, general and administrative expenses............................ 22.4 22.3 (1) 24.1 23.2
----- ----- ------ ------
Operating income.................................................... 7.7 11.9 (36) 7.1 12.6 (46)
Interest expense........................................................ (0.4) (0.4) (13) (0.4) (0.4) (11)
Other income............................................................ 0.3 0.2 40 0.3 0.2 64
----- ----- ------ ------
Income before taxes................................................. 7.6 11.7 (36) 7.0 12.4 (46)
Provision for income taxes.............................................. 3.3 4.8 (32) 3.0 5.1 (43)
----- ----- ------ ------
Net income.......................................................... 4.3% 6.9% (38) 4.0 7.3 (47)
----- ----- ------ ------
----- ----- ------ ------
</TABLE>
The decrease in earnings in the current periods compared to the same periods
last year was expected based on the reduced level of financial transactions
experienced since mid-1994. Second quarter earnings were off less than first
quarter earnings as Financial category revenue showed improvement following an
increased number of new transactions in the market. Industry capacity remains
high, so competitive pricing for available financial work continues to adversely
affect gross margins. Corporate revenue is down slightly compared to the same
periods a year ago reflecting price competition and lower print volume.
Commercial and other revenue was up slightly as strong growth in Document
Management Services was offset by reductions in election-related printing (as
this is not a general election year) and slower than anticipated growth at
Merrill/May. Increased marketing efforts at Merrill/May have resulted in the
addition of several new customers, which should increase revenues late in the
third quarter. Selling, general and administrative expenses remained consistent
with the previous period.
The effective income tax rate was 43.4 percent in the current quarter and 43
percent for the current six-month period. This compares to a tax rate of 41
percent for both the three-month and six-month period last year. The tax rate
for the current six-month period represents the estimated rate for the current
fiscal year. 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 slightly for the current six-month period
reflecting lower net income and increased capital expenditures. Capital
expenditures for this period were $9.6 million, of which $5.5 million
represented the purchase of two administration buildings in St. Paul which were
previously partially leased. Other capital expenditures were principally for
production equipment and
7
<PAGE>
office remodeling and furnishings. Cash and cash equivalents decreased $9
million in the current period and borrowings under the Company's bank line of
credit were $6.9 million. These funds were used to support a $12 million
increase in trade receivables.
The Company has outstanding purchase commitments for capital equipment of
approximately $1 million as of July 31, 1995.
8
<PAGE>
PART II. -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On May 23, 1995, the Registrant held its Annual Meeting of Shareholders and
elected its incumbent Board of Directors, each for a one year term. The vote
totals for the election of the Board of Directors were as follows: Rick R.
Atterbury received 6,441,795 shares voted for and 168,067 withheld; James R.
Campbell received 6,439,835 shares voted for and 170,027 withheld; John W.
Castro received 6,441,445 shares voted for and 168,417 withheld; Ronald N. Hoge
received 6,443,795 shares voted for and 166,067 withheld; Richard G. Lareau
received 5,993,795 shares voted for and 616,067 withheld; Kenneth F. Merrill
received 6,441,345 shares voted for and 168,517 withheld; Paul G. Miller
received 6,443,055 shares voted for and 166,807 withheld; and Robert F.
Nienhouse received 6,442,584 shares voted for and 167,278 withheld.
The shareholders also approved an increase by 500,000 the number of shares
reserved for issuance under the Company's 1993 Stock Incentive Plan by a vote of
3,835,510 shares in favor, 1,407,717 shares against, 630,950 shares abstain, and
735,685 shares as broker non-votes.
The shareholders also ratified the selection of Coopers & Lybrand L.L.P. as
the independent accountants of the Company by a vote of 6,591,161 shares in
favor, 5,011 shares against, and 13,690 shares abstain.
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
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> <C>
(REGISTRANT) MERRILL CORPORATION
BY (SIGNATURE) /s/ John W. Castro
(NAME AND TITLE) John W. Castro, President and Chief Executive Officer
(DATE) September 14, 1995
BY (SIGNATURE) /s/ John B. McCain
(NAME AND TITLE) John B. McCain, Chief Financial Officer
(DATE) September 14, 1995
</TABLE>
10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT METHOD OF FILING
--------- ---------------------------------
<C> <S> <C>
11. Schedule of Computation of Per Share Earnings........................ Filed herewith electronically
27. Financial Data Schedules............................................. Filed herewith electronically
</TABLE>
<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,
---------------------------- ----------------------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Primary:
Net income......................................... $ 2,714,290 $ 4,396,071 $ 4,789,834 $ 9,094,913
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of common shares
outstanding during the period..................... 7,743,790 7,569,496 7,692,713 7,543,657
Add common equivalent shares relating to
outstanding options to purchase common stock using
the treasury stock method......................... 224,027 473,730 242,830 513,254
------------- ------------- ------------- -------------
Weighted average number of common and common
equivalent
shares outstanding............................ 7,967,817 8,043,226 7,935,543 8,056,911
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Primary income per common share...................... $.34 $.55 $.60 $1.13
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fully diluted:
Net income......................................... $ 2,714,290 $ 4,396,071 $ 4,789,834 $ 9,094,913
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of common shares
outstanding during the period..................... 7,743,790 7,569,496 7,692,713 7,543,657
Add common equivalent shares relating to
outstanding options to purchase common stock using
the treasury stock method......................... 241,824 473,689 251,489 513,115
------------- ------------- ------------- -------------
Weighted average number of common and common
equivalent
shares outstanding............................ 7,985,614 8,043,185 7,944,202 8,056,772
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fully diluted income per common share................ $.34 $.55 $.60 $1.13
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JUL-31-1995
<CASH> 930
<SECURITIES> 0
<RECEIVABLES> 54,029
<ALLOWANCES> 3,285
<INVENTORY> 15,483
<CURRENT-ASSETS> 71,210
<PP&E> 65,019
<DEPRECIATION> 31,342
<TOTAL-ASSETS> 119,207
<CURRENT-LIABILITIES> 39,227
<BONDS> 8,821
<COMMON> 78
0
0
<OTHER-SE> 71,301
<TOTAL-LIABILITY-AND-EQUITY> 71,379
<SALES> 120,135
<TOTAL-REVENUES> 120,135
<CGS> 82,631
<TOTAL-COSTS> 82,631
<OTHER-EXPENSES> 28,971
<LOSS-PROVISION> 610
<INTEREST-EXPENSE> 446
<INCOME-PRETAX> 8,403
<INCOME-TAX> 3,613
<INCOME-CONTINUING> 4,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,790
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
