|
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 14, 1999
MERRILL CORPORATION
(Exact name of registrant
as specified in its charter)
Minnesota | 0-14082 | 41-0946258 | ||
(State or other jurisdiction | (Commission File Number) | (I.R.S. Employer | ||
of Incorporation) | Identification No.) |
One Merrill Circle, St. Paul, Minnesota 55108
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (651) 646-4501
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.
MERRILL CORPORATION (Registrant) |
|||
Date: October 22, 1999 | By: | /s/ STEVEN J. MACHOV Steven J. Machov Vice President and General Counsel |
Item 7. Financial Statements and Exhibits
A. | Financial Statements of Business Acquired | ||
(1) | Financial statements of Daniels Printing, Limited Partnership (consisting of balance sheets as of December 31, 1998 and 1997 and the related statements of operations, partners' equity and cash flows for the years then ended including the accountants' reports thereon) are included in this Report. | ||
(2) | Interim financial statements of Daniels Printing, Limited Partnership (consisting of balance sheets as of April 14, 1999 and December 31, 1998 and the related statements of operations and cash flows for the period January 1, 1999 through April 14, 1999 and for the three months ended March 31, 1998. | ||
B. | Pro Forma Financial Information. | ||
Unaudited combined pro forma statements of operations for the three month period ended April 30, 1999 and for the year ended January 31, 1999 are included in this report. A pro forma balance sheet is not included as all applicable purchase transactions are reflected in Merrill Corporation's consolidated balance sheet filed as part of its' April 30, 1999 Form 10-Q. | |||
C. | Exhibits. | ||
2.1 | Asset Purchase Agreement, dated as of March 11, 1999, by and among the Purchaser, the Seller and the partners of the Seller (Incorporated by reference into our Form 8-K dated April 14, 1999) | ||
23.1 | Consent of Arthur Andersen LLP., Independent Accountants (previously filed) |
Item 7. A. (1) Financial Statements of Business Acquired
DANIELS PRINTING, LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Daniels Printing, Limited Partnership:
We have audited the accompanying balance sheets of Daniels Printing, Limited Partnership (a Massachusetts limited partnership) (the Partnership) as of December 31, 1998 and 1997, and the related statements of operations, partners' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Daniels Printing, Limited Partnership as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles.
Boston, Massachusetts
/s/
Arthur Andersen, LLP.
February 8, 1999 (except with
respect to the matter discussed
in Note 11, as to which the
date is March 11, 1999)
DANIELS PRINTING, LIMITED PARTNERSHIP
BALANCE SHEETSDECEMBER 31, 1998 AND 1997
|
1998 |
1997 |
||
---|---|---|---|---|
ASSETS | ||||
CURRENT ASSETS: | ||||
Cash | $661,932 | $ | ||
Marketable securities | 46,551 | 42,357 | ||
Accounts receivable, net of reserve of $75,000 at December 31, 1998 and 1997 | 7,655,177 | 11,749,824 | ||
Due from employees and officers | 19,233 | 95,693 | ||
Inventories | 1,645,653 | 2,737,629 | ||
Prepaid expenses and other current assets | 599,031 | 477,865 | ||
Total current assets | 10,627,577 | 15,103,368 | ||
PROPERTY, PLANT AND EQUIPMENT, AT COST: | ||||
Land | 345,000 | 345,000 | ||
Building and building improvements | 3,754,108 | 3,754,107 | ||
Machinery and equipment | 24,885,186 | 24,543,848 | ||
Furniture and fixtures | 1,180,821 | 1,180,821 | ||
30,165,115 | 29,823,776 | |||
LessAccumulated depreciation | 22,366,971 | 20,869,456 | ||
7,798,144 | 8,954,320 | |||
OTHER ASSETS: | ||||
Deposits on equipment | 15,980 | 10,928 | ||
Financing and organizational costs, net of accumulated amortization of $313,601 and $243,911 at December 31,1998 and 1997, respectively | 232,718 | 302,408 | ||
Other | 656,310 | 146,446 | ||
905,008 | 459,782 | |||
$19,330,729 | $24,517,470 | |||
LIABILITIES AND PARTNERS' EQUITY |
||||
CURRENT LIABILITIES: | ||||
Current portion of senior long-term debt | $5,300,000 | $1,200,000 | ||
Current portion of subordinated notes | 1,151,770 | 347,098 | ||
Accrued compensation and benefits | 2,442,740 | 1,998,463 | ||
Accounts payable and accrued expenses | 3,330,606 | 6,048,393 | ||
Total current liabilities | 12,225,116 | 9,593,954 | ||
SENIOR LONG-TERM DEBT, NET OF CURRENT PORTION | | 9,366,000 | ||
SUBORDINATED NOTES, NET OF CURRENT PORTION | 4,615,778 | 5,473,134 | ||
COMMITMENTS (NOTE 8) | ||||
PARTNERS' EQUITY | 2,489,835 | 84,382 | ||
$19,330,729 | $24,517,470 | |||
The accompanying notes are an integral part of these financial statements.
DANIELS PRINTING, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
|
1998 |
1997 |
|||
---|---|---|---|---|---|
NET SALES | $66,760,872 | $65,498,889 | |||
COST OF SALES | 49,180,052 | 51,482,268 | |||
Gross profit | 17,580,820 | 14,016,621 | |||
OPERATING EXPENSES: | |||||
General and administrative | 4,048,341 | 4,067,579 | |||
Selling and marketing | 9,713,538 | 9,453,733 | |||
Total operating expenses | 13,761,879 | 13,521,312 | |||
Income from operations | 3,818,941 | 495,309 | |||
OTHER EXPENSE | (84,996 | ) | (85,297 | ) | |
INTEREST EXPENSE, NET | (1,333,476 | ) | (1,401,619 | ) | |
Net income (loss) | $2,400,469 | $(991,607 | ) | ||
The accompanying notes are an integral part of these financial statements.
DANIELS PRINTING, LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
|
General Partners' Capital |
Limited Partners' Capital |
Unrealized Gain/(Loss) |
Total Partners' Equity
|
|||||
---|---|---|---|---|---|---|---|---|---|
BALANCE, DECEMBER 31, 1996 | $12,071 | $1,195,145 | $(3,105 | ) | $1,204,111 | ||||
Partner distributions | (1,424 | ) | (140,986 | ) | | (142,410 | ) | ||
Realized gain on sale of marketable securities | | | 2,326 | 2,326 | |||||
Unrealized gain on marketable securities | | | 11,962 | 11,962 | |||||
Net loss | (9,916 | ) | (981,691 | ) | | (991,607 | ) | ||
BALANCE, DECEMBER 31, 1997 | 731 | 72,468 | 11,183 | 84,382 | |||||
Realized loss on sale of marketable securities | | | (1,911 | ) | (1,911 | ) | |||
Unrealized gain on marketable securities | | | 6,895 | 6,895 | |||||
Net income | 24,005 | 2,376,464 | | 2,400,469 | |||||
BALANCE, DECEMBER 31, 1998 | $24,736 | $2,448,932 | $16,167 | $2,489,835 | |||||
The accompanying notes are an integral part of these financial statements.
DANIELS PRINTING, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
|
1998 |
1997 |
|||
---|---|---|---|---|---|
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||
Net income (loss) | $2,400,469 | $(991,607 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities | |||||
Depreciation and amortization | 2,337,083 | 2,451,661 | |||
Loss on sale of equipment | 8,429 | 13,606 | |||
Realized loss (gain) on sale of marketable securities | 1,911 | (2,326 | ) | ||
Payment-in-kind interest | 294,414 | 277,756 | |||
Changes in current assets and liabilities | |||||
Accounts receivable | 4,094,647 | (278,063 | ) | ||
Due from employees and officers | (433,404 | ) | 52,692 | ||
Inventories | 1,091,976 | 288,945 | |||
Prepaid expenses and other current assets | (121,166 | ) | 181,633 | ||
Accrued compensation and benefits | 444,277 | (109,901 | ) | ||
Accounts payable and accrued expenses | (2,717,787 | ) | 538,971 | ||
Net cash provided by operating activities | 7,400,849 | 2,423,367 | |||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||
Purchases of marketable securities | (4,321 | ) | (11,629 | ) | |
Proceeds from sale of marketable securities | 3,200 | 12,066 | |||
Purchases of property, plant and equipment | (1,139,646 | ) | (2,327,159 | ) | |
Deposits towards property, plant and equipment additions | (5,052 | ) | (10,928 | ) | |
Proceeds from sale of equipment | 20,000 | 45,000 | |||
Net cash used in investing activities | (1,125,819 | ) | (2,292,650 | ) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||
Repayment of equipment note | | (1,019,650 | ) | ||
Proceeds from senior long-term debt | | 2,356,000 | |||
Repayment of senior long-term debt | (5,266,000 | ) | (1,000,000 | ) | |
Repayment of subordinated notes | (347,098 | ) | (324,657 | ) | |
Partner distributions | | (142,410 | ) | ||
Net cash used in financing activities | (5,613,098 | ) | (130,717 | ) | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 661,932 | | |||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | | | |||
CASH AND CASH EQUIVALENTS, END OF YEAR | $661,932 | $ | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||
Cash paid during the year for | |||||
Interest | $862,737 | $803,577 | |||
The accompanying notes are an integral part of these financial statements.
DANIELS PRINTING, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) | OPERATIONS |
Daniels Printing, Limited Partnership (the
Partnership) is in the printing business, in which it generates revenue
from commercial and financial printing and digital services. The Partnership
provides a wide variety of print and print-related products and services. |
|
(2) | FORMATION AND REORGANIZATION |
The Partnership was formed on June 30, 1994. Daniels Printing Corp., a Massachusetts corporation, is the General Partner and maintains a 1% partnership interest in the Partnership. The Partnership was formed to purchase certain operating assets and assume certain liabilities of Daniels Printing Company. Under the terms of the Partnership Agreement, the majority stockholder of Daniels Printing Company has retained a significant interest in the Partnership and participates in certain management decisions of the Partnership. Accordingly, the purchase was accounted for as a reorganization of entities under common control, and the assets acquired and liabilities assumed have been reflected at their historical or predecessor cost, which reflected their acquisition cost on the date of transfer. | |
(3) | SIGNIFICANT ACCOUNTING POLICIES |
The accompanying financial statements reflect the application of the following significant accounting policies. The preparation of these financial statements required the use of certain estimates by management in determining the entity's assets, liabilities, revenues and expenses. |
(a) | Revenue Recognition | |
Substantially all sales are produced to customer specifications. In accordance with trade practices of the printing industry, revenue is recognized upon shipment or after production has been completed in accordance with the terms of customer orders. | ||
(b) | Cash and Cash Equivalents | |
Cash and cash equivalents are stated at cost, which approximates market, and consist of short-term, highly liquid investments with original maturities of less than three months. | ||
(c) | Marketable Securities | |
The Partnership accounts for its marketable securities under the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Partnership classifies its marketable securities as available-for-sale and, therefore, records unrealized gains or losses on marketable securities as a separate component of partners' equity, until realized. | ||
The amortized cost and fair market values of the Partnership's marketable securities at December 31, 1998 and 1997 are presented below. |
|
1998 |
|||||||
---|---|---|---|---|---|---|---|---|
|
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Market Value
|
||||
Securities available-for-sale | $30,384 | $16,829 | $(662 | ) | $46,551 |
|
1997 |
|||||||
---|---|---|---|---|---|---|---|---|
|
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Market Value
|
||||
Securities available-for-sale | $31,174 | $14,284 | $(3,101 | ) | $42,357 |
(d) | Inventories | |
Inventories include material, labor and overhead and are stated at the lower of cost (first-in, first-out) or market. | ||
The components of inventories are as follows at December 31, 1998 and 1997: |
|
1998
|
1997
|
||
---|---|---|---|---|
Raw materials
|
$175,506 | $127,534 | ||
Work-in-process
|
1,470,147 | 2,610,095 | ||
|
|
|||
$1,645,653 | $2,737,629 | |||
|
|
(e) | Depreciation and Amortization | |
The Partnership provides for depreciation and amortization using the straight-line method by charges to operations in amounts that allocate the cost of the assets over their estimated useful lives as follows: |
Asset Classification
|
Estimated Useful Life
|
|
---|---|---|
Buildings and building improvements
|
40 years | |
Machinery and equipment
|
3-7 years | |
Furniture and fixtures
|
7 years |
(f) | Financing and Organizational Costs | |
Financing costs, consisting of banking and professional fees incurred to obtain financing, are being amortized over eight years, the average life of the notes. Organizational costs, consisting of professional fees incurred with the formation of the Partnership, are being amortized over five years. The Partnership incurred $69,689 of amortized expense related to these costs during both years ended December 31, 1998 and 1997. |
(4)
|
DUE FROM EMPLOYEES AND OFFICERS | |
In general, amounts due from employees and officers represent notes and are paid through payroll withholdings; however, at the discretion of the Partnership, these amounts are due on demand. The Partnership recognized interest income on these notes of $12,505 and $17,742 during the years ended December 31, 1998 and 1997, respectively. | ||
Included in other assets is a loan receivable of $650,000, plus accrued interest of $6,310, from a limited partner of the Partnership. The loan receivable bears interest at 4.24% at December 31, 1998. | ||
(5)
|
LONG-TERM DEBT | |
The Partnership has a senior long-term credit agreement with a bank (the Credit Agreement), which includes a revolving credit facility and a term loan. |
(a) | Senior Long-Term Debt | |
Senior long-term debt consisted of the following at December 31, 1998 and 1997: |
|
1998
|
1997
|
|||
---|---|---|---|---|---|
Senior revolving credit facility of $9,000,000,
maturing June 30, 1999
|
$ | $4,066,000 | |||
|
|||||
Senior term loan, payable in principal
quarterly installments of $300,000, maturing June 30, 1999, with a weighted
average rate of interest of 7.27% at December 31, 1998
|
5,300,000 | 6,500,000 | |||
|
|
|
|||
|
5,300,000 | 10,566,000 | |||
LessCurrent maturities
|
5,300,000 | 1,200,000 | |||
|
|
||||
$ | $9,366,000 | ||||
|
|
The debt described above is collateralized by substantially all of the assets of the Partnership and bears an interest rate equal to prime rate or LIBOR plus 1.0%. The outstanding borrowings under these facilities shall not exceed the lesser of $17,000,000 or $8,000,000 plus a percentage of eligible accounts receivable and inventory, as defined in the Credit Agreement. | ||
|
The Agreement contains certain covenants and restrictions, including limitations on the aggregate amount of capital expenditures, indebtedness, distributions and the maintenance of certain financial levels. The Company received a waiver from the bank for default of a debt covenant at December 31, 1998. | |
|
The senior revolving credit facility is subject to a commitment fee, payable quarterly at an annual rate of .125%, on the unused portion of the credit line. | |
|
Under the revolving credit facility, the bank issues letters of credit provided that the maximum exposure under letters of credit plus the revolving loan does not exceed the lesser of the borrowing base or $9,000,000. As of December 31, 1998, the Partnership has three letters of credit outstanding, two in the amount of $133,690, which expire in January 2000, and one in the amount of $140,000, which expires in July 1999. |
(b) | Subordinated Debt | |
|
Subordinated debt consists of the following at December 31, 1998 and 1997: |
|
1998
|
1997
|
||
---|---|---|---|---|
Subordinated note, interest at 10.5%, maturing
June 30, 2002 (Year 2002
note) |
$5,049,908 | $4,764,064 | ||
|
||||
Subordinated note, interest at 6.74%, maturing June 30,
2000 (Year 2000
note) |
566,146 | 913,244 | ||
|
||||
Subordinated note, payment-in-kind interest, interest
at
6%, due 1996
through 2002 |
151,494 | 142,924 | ||
|
|
|
||
|
5,767,548 | 5,820,232 | ||
LessCurrent portion |
1,151,770 | 347,098 | ||
|
|
|
||
|
$4,615,778 | $5,473,134 | ||
|
|
|
The subordinated notes are payable to DPC Disposition Corp. and its majority stockholder and are collateralized by a nonrecourse pledge of the principal partner's interests in the Partnership. These notes are subordinated to the Partnership's senior long-term debt. | ||
|
The Year 2002 note is payable in quarterly installments of $527,950, commencing September 30, 1999, until maturity on June 30, 2002. Interest on the note is 10.5%. For the first five years of the note, no principal payments are required, and interest payments have been or will be made in cash in an amount equal to 4.5% of the outstanding principal balance, with the remaining 6% interest portion accruing annually, in arrears, as an addition to the principal balance. | |
|
The Year 2000 note is payable in fixed quarterly installments of $100,000, commencing September 30, 1995, until maturity on June 30, 2000. Interest on the note is 6.74%. For the first year of the note, no principal payment was required, and interest accrued quarterly, in arrears, as an addition to the principal balance. |
(6) | INCOME TAXES | |
The Partnership does not provide for federal or state income taxes because no income taxes are payable by the Partnership. Each partner is liable for income taxes on their share of the Partnership's taxable income. The Partnership makes distributions of pretaxable income to its partners based on each partner's equity interest percentage. There were no partner distributions in 1998 and $142,410 of partner distributions in 1997. | ||
(7) | PARTNERSHIP AGREEMENT | |
The Partnership agreement provides for the termination of the Partnership on June 30, 2034. | ||
In addition, the Partnership Agreement also provides for the General Partner or the Partnership to purchase the limited partnership interest of a partner under certain circumstances at a purchase price, as defined in the Partnership Agreement. The Partnership Agreement also contains certain rights, as defined in the agreement. | ||
Upon the earlier of the fifth anniversary of the formation of the Partnership or the date the subordinated notes are paid in full, certain limited partners can put to the Partnership their partnership equity interests based on valuations, as defined in the Partnership Agreement. | ||
The partners of the Partnership have agreed to certain transfer restrictions not to sell, assign, pledge or transfer shares except under defined instances, as described in the Partnership Agreement. | ||
(8) | COMMITMENTS | |
The Partnership leases certain facilities and various office equipment under noncancelable operating leases with terms in excess of one year. Rent expense charged to operations was approximately $858,000 and $793,000 for the years ended December 31, 1998 and 1997, respectively. Future minimum lease payments under these leases as of December 31, 1998 are approximately as follows: |
Fiscal Year
|
Amount
|
|
---|---|---|
1999
|
$987,000 | |
2000
|
931,000 | |
2001
|
458,000 | |
2002
|
301,000 | |
2003
|
295,000 | |
Thereafter
|
517,000 | |
|
|
|
|
$3,489,000 | |
|
|
(9) | EMPLOYEE BENEFIT PLAN | |
The Partnership maintains the Daniels Printing Employees' Savings Plan (the Plan) under Section 401(k) of the Internal Revenue Code, which covers all eligible employees, as defined. All participant contributions vest immediately. The Partnership's contribution is determined annually by and at the discretion of the partners. In 1998 and 1997, the Partnership contributed $376,346 and $200,260, respectively, to the Plan. | ||
(10) | SIGNIFICANT CUSTOMERS | |
During fiscal 1998, revenues from one customer represented 11% of total revenues. | ||
During fiscal 1997, revenues from one customer represented 12% of total revenues. | ||
(11) | SUBSEQUENT EVENT | |
On March 11, 1999, the Partnership entered into a definitive agreement to be wholly acquired by Merrill Corporation. |
Item 7. A. (2) Interim Financial Statements of Business Acquired
DANIELS PRINTING, LIMITED PARTNERSHIP
INTERIM FINANCIAL STATEMENTS
AS OF APRIL 14, 1999 AND DECEMBER 31,1998
AND FOR THE PERIOD JANUARY 1, 1999 THROUGH
APRIL 14, 1999 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998
DANIELS PRINTING, LIMITED PARTNERSHIP
BALANCE SHEETS
(UNAUDITED)
ASSETS | April 14, 1999 |
December 31, 1998 |
|
CURRENT ASSETS: | |||
Cash | $24,468 | $661,932 | |
Marketable securities | 36,718 | 46,551 | |
Accounts receivable, net of reserve of $75,000 as of | 14,136,141 | 7,655,177 | |
April 14, 1999 and December 31, 1998 | |||
Due from employees and officers | 20,329 | 19,233 | |
Inventories | 3,968,344 | 1,645,653 | |
Prepaid expenses and other current assets | 534,691
|
599,031
|
|
Total current assets | 18,720,691
|
10,627,577
|
|
PROPERTY, PLANT AND EQUIPMENT, AT COST: | |||
Land | 345,000 | 345,000 | |
Building and building improvements | 3,754,108 | 3,754,108 | |
Machinery and equipment | 25,089,776 | 24,885,186 | |
Furniture and fixtures | 1,180,821
|
1,180,821
|
|
30,369,705 | 30,165,115 | ||
LessAccumulated depreciation | 22,947,401
|
22,366,971
|
|
7,422,304
|
7,798,144
|
||
OTHER ASSETS: | |||
Deposits on equipment | | 15,980 | |
Financing and organizational costs, net of accumulated | |||
amortization of $333,927 and $313,601 at April 14,1999 | |||
and December 31, 1998, respectively |
212,392 |
232,718 |
|
Other |
|
656,310
|
|
212,392
|
905,008
|
||
$26,355,387
|
$19,330,729
|
||
LIABILITIES AND PARTNERS EQUITY | |||
CURRENT LIABILITIES: | |||
Current portion of senior long-term debt | $5,000,000 | $5,300,000 | |
Current portion of subordinated notes | 1,151,770 | 1,151,770 | |
Accrued compensation and benefits | 1,998,369 | 2,442,740 | |
Accounts payable and accrued expenses | 5,632,253
|
3,330,606
|
|
Total current liabilities | 13,782,392 | 12,225,116 | |
SENIOR LONG-TERM DEBT, NET OF CURRENT PORTION | 5,575,000 | | |
SUBORDINATED NOTES, NET OF CURRENT PORTION | 4,702,113 | 4,615,778 | |
PARTNERS EQUITY | 2,295,882
|
2,489,835
|
|
$26,355,387
|
$19,330,729
|
The accompanying notes are an integral part of the financial statements.
DANIELS PRINTING, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
January 1 , 1999 through | Three months ended | ||
April 14, 1999
|
March 31, 1998
|
||
NET SALES | $19,807,293 | $19,913,804 | |
COST OF SALES | 14,804,591
|
14,588,393
|
|
Gross profit | 5,002,702 | 5,325,411 | |
OPERATING EXPENSES: | |||
General and administrative | 964,932 | 908,071 | |
Selling and marketing | 2,773,772
|
2,524,508
|
|
Total operating expenses | 3,738,704
|
3,432,579
|
|
Income from operations | 1,263,998 | 1,892,832 | |
OTHER EXPENSE | (33,893) | (8,370) | |
INTEREST EXPENSE, NET | (305,226)
|
(377,381)
|
|
Net income | $924,879
|
$1,507,081
|
The accompanying notes are an integral part of the financial statements.
DANIELS PRINTING, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
January 1, 1999 through | Three months ended | ||
April 14, 1999
|
March 31, 1998
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||
Net income | $924,879 | $1,507,081 | |
Adjustments to reconcile net income to net cash used in operating | |||
activities | |||
Depreciation and amortization | 600,755 | 602,648 | |
Payment-in-kind interest | 86,335 | 71,460 | |
Changes in current assets and liabilities | |||
Accounts receivable | (6,480,964) | (4,971,814) | |
Due from employees and officers | 655,214 | 117,078 | |
Inventories | (2,322,691) | (1,537,156) | |
Prepaid expenses and other current assets | 64,340 | (28,570) | |
Accrued compensation and benefits | (444,371) | (79,039) | |
Accounts payable and accrued expenses | 2,301,647
|
3,323,766
|
|
Net cash used in operating activities | (4,614,856) | (994,546) | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |||
Purchases of property, plant, and equipment | (204,588) | (545,842) | |
Deposits towards property, plant and equipment additions | 15,980
|
|
|
Net cash used in investing activities | (188,608) | (545,842) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |||
Proceeds from senior long-term debt | 5,575,000 | 1,925,000 | |
Principal payments on senior long-term debt | (300,000) | (300,000) | |
Repayment on subordinated notes | (84,612) | ||
Partner distributions | (1,109,000)
|
|
|
Net cash provided by financing activities | 4,166,000 | 1,540,388 | |
NET DECREASE IN CASH AND CASH EQUIVALENTS | (637,464) | | |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 661,932
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD | $24,468
|
$
|
The accompanying notes are an integral part of the financial statements.
DANIELS PRINTING, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. | ACCOUNTING POLICIES |
The financial statements as of April 14, 1999 and December 31, 1998, and for the period January 1, 1999 to April 14, 1999 and the three months ended March 31, 1998, have been prepared by Daniels Printing, Limited Partnership, without audit, pursuant the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments, consisting of normal recurring accruals, which Daniels Printing, Limited Partnership 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. The year end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with the financial statements and notes thereto included herein (Item 7.A.(1)) |
2. | SELECTED BALANCE SHEET DATA |
April 14, | December 31, | |||
1999
|
1998
|
|||
Inventory | ||||
Work in progress | $3,558,300 | $1,470,147 | ||
Raw materials | 410,044
|
175,506
|
||
$3,968,344
|
$1,645,653
|
3. | SUBSEQUENT EVENT |
On April 14, 1999, Merrill Corporation purchased substantially all assets and assumed certain liabilities of Daniels Printing, Limited Partnership for approximately $44.0 million in cash, assumption and payment of existing lines of credit obligations totaling approximately $5.6 million and the assumption of certain ordinary course liabilities of $7.7 million. Due to the impending acquisition, Daniels Printing, Limited Partnership chose not to prepare financial statements at its customary month end. The financial statements were prepared at the closing date (April 14, 1999) and for the period January 1, 1999 through April 14, 1999. |
Item 7.B. Pro Forma Financial Information
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
The following unaudited pro forma combined statements of operations for the three-month period ended April 30, 1999, and for the year ended January 31, 1999 were prepared to illustrate the effects on the results of continuing operations of Merrill Corporation (the Company), and Daniels Printing, Limited Partnership, using the purchase method of accounting and the assumptions described in the accompanying notes, and assuming the acquisition occurred on February 1, 1998. The unaudited pro forma combined statements of operations are not necessarily indicative of the combined results of operations as they may be in the future or as they might have been for the periods presented had the acquisition been effective at February 1, 1998. The unaudited pro forma combined statements of operations and accompanying notes are based on the historical consolidated financial statements of the Company and the historical financial statements of Daniels Printing, Limited Partnership. The results of operations for Daniels Printing, Limited Partnership included in the pro forma combined statement of operations for the three-month period ended April 30, 1999, are those for the period February 1, 1999 to April 14, 1999. Revenues of $4.1 million and net loss of $0.3 million for the one month period ended January 31, 1999 have been excluded from this presentation. The pro forma adjustments are based upon our estimates, available information and certain assumptions that the Company believes are reasonable in the circumstances. The unaudited pro forma combined financial statements should be read in conjunction with the historical financial statements and notes thereto of the Company and Daniels Printing, Limited Partnership (included under Item 7.A. in this filing).
PRO FORMA COMBINED STATEMENT OF OPERATIONS
for the three month period ended April 30, 1999
(Unaudited)
(In thousands, except share and per share data) |
Merrill Corporation
|
Daniels Printing
|
Total
|
Adjustments
|
Pro Forma Combined |
|||||
---|---|---|---|---|---|---|---|---|---|---|
Revenue | $131,836 | $15,725 | $147,561 | $147,561 | ||||||
Cost of revenue | 84,564 | 10,622 | 95,186 | $116 | (1) | 95,021 | ||||
(281) | (2) | |||||||||
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|
|
|
|
||||||
Gross profit | 47,272 | 5,103 | 52,375 | 165 | 52,540 | |||||
Selling, general and administrative expenses | 37,728 | 2,814 | 40,542 | 243 | (3) | 40,168 | ||||
(617) | (2) | |||||||||
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|
|
|
|
||||||
Operating income | 9,544 | 2,289 | 11,833 | 539 | 12,372 | |||||
Interest (expense) | (1,103 | ) | (231 | ) | (1,334 | ) | (748) | (4) | (1,851) | |
231 | (5) | |||||||||
Other expense, net | (206 | ) | (37 | ) | (243 | ) | (243) | |||
|
|
|
|
|
||||||
Income before provision for income taxes | 8,235 | 2,021 | 10,256 | 22 | 10,278 | |||||
Provision for income taxes | 3,714 | 3,714 | 921 | (6) | 4,635 | |||||
|
|
|
|
|
||||||
Net income (loss) | $4,521 | $2,021 | $6,542 | $(899) | $5,643 | |||||
|
|
|
|
|
||||||
Net income per share: | ||||||||||
Basic | $0.28 | $0.36 | ||||||||
Diluted | $0.27 | $0.34 | ||||||||
Weighted average number of shares outstanding: | ||||||||||
Basic | 15,881,177 | 15,881,177 | | 15,881,177 | ||||||
Diluted | 16,470,066 | 16,470,066 | 1,332 | (7) | 16,471,398 |
See accompanying notes to the Unaudited Pro Forma Combined Statements of Operations.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
for the year ended January 31, 1999
(Unaudited)
(In thousands, except share and per share data) |
Merrill Corporation
|
Daniels Printing
|
Total
|
Adjustments
|
Pro Forma Combined
|
|||||
---|---|---|---|---|---|---|---|---|---|---|
Revenue | $509,543 | $66,159 | $575,702 | $575,702 | ||||||
Cost of revenue | 330,632 | 49,081 | 379,713 | $556 | (1) | 379,144 | ||||
(1,125) | (2) | |||||||||
|
|
|
|
|
||||||
Gross profit | 178,911 | 17,078 | 195,989 | 569 | 196,558 | |||||
Selling, general and administrative expenses | 127,705 | 13,670 | 141,375 | 1,165 | (3) | 141,185 | ||||
(1,355) | (2) | |||||||||
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|
|
|
|
||||||
Operating income | 51,206 | 3,408 | 54,614 | 759 | 55,373 | |||||
Interest (expense) | (3,961 | ) | (1,281 | ) | (5,242 | ) | (3,589) | (4) | (7,550) | |
1,281 | (5) | |||||||||
Other income (expense), net | 426 | (75 | ) | 351 | 351 | |||||
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|
|
|
|
||||||
Income (loss) before provision for income taxes | 47,671 | 2,052 | 49,723 | (1,549) | 48,174 | |||||
Provision for income taxes | 21,214 | 21,214 | 223 | (6) | 21,437 | |||||
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|
|
|
|
||||||
Net income (loss) | $26,457 | $2,052 | $28,509 | $(1,772) | $26,737 | |||||
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|
|
|
||||||
Net income per share: | ||||||||||
Basic | $1.63 | $1.65 | ||||||||
Diluted | $1.55 | $1.57 | ||||||||
Weighted average number of shares outstanding: | ||||||||||
Basic | 16,253,148 | 16,253,148 | | 16,253,148 | ||||||
Diluted | 17,020,673 | 17,020,673 | 1,102 | (7) | 17,021,775 |
See accompanying notes to the Unaudited Pro Forma Combined Statements of Operations.
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
(1) | Represents adjustments to depreciation and amortization resulting from fair value adjustments to fixed assets recorded in connection with the acquisition |
(2) | Represents the elimation of historical operating costs in conjunction with the transaction. |
(in thousands) |
Three Months Ended |
Year Ended |
|
Contractual executive | |||
compensation (a) |
$442 |
$867 |
|
Services and Facilities (b) |
231 |
713 |
|
Reduced employee compensation | |||
and benefits (c) |
225
|
900 |
|
|
$898 |
$2,480 |
(a) | Represents contractually reduced compensation for retained executives. |
(b) | Represents contractual reduction in service costs and the elimination of redundant facilities and related expenses. |
(c) | Represents personnel and benefit costs obligations not assumed by the Company. |
(3)
|
Represents the amortization of goodwill on a straight line basis over 20 years. |
(4) | Represents additional interest expense resulting from increased borrowings under the Company's revolving credit agreement in order to finance the acquisition. Computed using historical interest rates available under the Company's revolving credit agreement. |
A one-eighth of one percent change in interest rate would impact interest expense for borrowings under the revolving credit agreement in the amount of $15,000 and $62,000 for the three months ended April 30, 1999 and the year end January 31, 1999, respectively. | |
(5) | Represents reduced interest expense related to Subordinated Debt and the Senior Term Loan of Daniels Printing Limited Partnership not assumed by the Company. |
(6) | Represents the income tax effect of the unaudited pro forma consolidated statement of operations adjustments based on the expected effective tax rate in effect for the periods shown. |
(7) | Represents additional common equivalent shares as a result of granting stock options in connection with the acquisition. |
|