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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 8, 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) |
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Date: November 8, 1999 |
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By: |
/s/ KAY A. BARBER Kay A. Barber Vice President of Finance, Chief Financial Officer and Treasurer |
Item 5. Other Events
THIRD QUARTER OUTLOOK
Estimated operating results for the fiscal quarter ending October 31, 1999 are strong. In addition, net debt was reduced by over $15 million between July 31, 1999 and November 2, 1999. The following table sets forth our revenue and the number of composition pages processed for the two months ended September 30, 1998 and 1999, respectively:
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Two Months Ended September 30, |
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1998 |
1999 |
Growth |
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Revenue (in millions) | $ | 70.3 | $ | 91.6 | 30.4 | % | |||
Composition pages (1) | 244,748 | 294,330 | 20.3 |
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data of our company are based on our historical consolidated financial statements adjusted to give effect to the transactions described below and our proposed merger with Viking Merger Sub, Inc., the related merger financing and the application of the proceeds from the merger financing.
The unaudited pro forma consolidated balance sheet gives effect to the merger, the related merger financing and the application of the proceeds thereof, as if it had occurred on July 31, 1999. The unaudited pro forma consolidated statement of operations for the year ended January 31, 1999 and the six month period ended July 31, 1999 give effect to the following as if each had occurred at the beginning of the period presented:
The pro forma adjustments are described in the accompanying notes to the financial statements and were applied to the respective historical consolidated financial statements of our company to reflect and account for the merger as a recapitalization consisting of an equity investment by investors, debt financing and the redemption of shares in the merger. As a recapitalization, the historical basis of our assets and liabilities will be carried forward to the surviving company with the aggregate cost of repurchasing our shares accounted for as a reduction of shareholders' equity. Accordingly, the historical basis of our assets and liabilities has not been impacted by the merger.
The unaudited pro forma consolidated financial data are based upon estimates, available information and certain assumptions that management believes are reasonable under the circumstances and may be revised as additional information becomes available. The unaudited pro forma consolidated financial data should be read in conjunction with our historical financial statements, including the notes thereto, our "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the other financial information appearing in our 1999 Annual Report and in our Form 10-Q for the quarter ended July 31, 1999. The unaudited pro forma consolidated financial data do not purport to represent what our actual results or financial position would have been if the merger and the other transactions described above had actually occurred on the dates indicated and are not necessarily representative of our results for any future period.
MERRILL CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
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As of July 31, 1999 |
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Historical |
Merger Adjustments |
Pro Forma |
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(dollars in thousands) |
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ASSETS | ||||||||||
Current assets |
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Cash and cash equivalents | $ | 11,001 | $ | (11,001 | )(1) | $ | | |||
Trade receivables, net | 145,796 | | 145,796 | |||||||
Work-in-process inventories | 16,848 | | 16,848 | |||||||
Other inventories | 8,785 | | 8,785 | |||||||
Other current assets | 15,369 | 11,489 | (2) | 26,858 | ||||||
Total current assets | 197,799 | 488 | 198,287 | |||||||
Property, plant and equipment, net | 58,122 | | 58,122 | |||||||
Goodwill, net | 78,296 | | 78,296 | |||||||
Other assets | 12,944 | 10,238 | (3) | 31,808 | ||||||
9,020 | (1) | |||||||||
(394 | )(4) | |||||||||
Total assets | $ | 347,161 | $ | 19,352 | $ | 366,513 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) |
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Current liabilities |
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Notes payable to banks | $ | 68,000 | $ | (68,000 | )(1) | $ | | |||
Current maturities of long-term debt | 960 | (210 | )(1) | 750 | ||||||
Current maturities of capital lease obligations | 204 | | 204 | |||||||
Accounts payable | 35,600 | | 35,600 | |||||||
Accrued expenses | 37,993 | (835 | )(1) | 37,158 | ||||||
Total current liabilities | 142,757 | (69,045 | ) | 73,712 | ||||||
Revolving credit facility |
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20,559 |
(1) |
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20,559 |
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Term loans | | 205,000 | (1) | 205,000 | ||||||
Notes | | 150,000 | (1) | 150,000 | ||||||
Long term debt, net of current maturities | 38,110 | (38,110 | )(1) | | ||||||
Capital lease obligations, net of current maturities | 1,292 | | 1,292 | |||||||
Other liabilities | 10,266 | | 10,266 | |||||||
Total liabilities | 192,425 | 268,404 | 460,829 | |||||||
Preferred stock | | 35,265 | (1) | 35,265 | ||||||
Shareholders' equity (deficit) | 154,736 | (284,317 | )(5) | (129,581 | ) | |||||
Total liabilities and shareholders' equity (deficit) | $ | 347,161 | $ | 19,352 | $ | 366,513 | ||||
MERRILL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
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(dollars in thousands) |
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Sources: | |||
Existing cash | $ | 11,001 | |
Revolving credit facility (a) | 20,559 | ||
Term loans | 205,000 | ||
Notes | 150,000 | ||
Preferred stock and warrants (b) | 40,000 | ||
Management rollover (c) | 21,540 | ||
Common stock purchased by DLJMB funds | 70,683 | ||
Total Sources | $ | 518,783 | |
Uses: | |||
Cash purchase of outstanding shares and options | $ | 359,236 | |
Management rollover | 21,540 | ||
Repayment of existing debt | 106,320 | ||
Fees and expenses | 23,888 | ||
Funding of other obligations (d) | 7,799 | ||
Total Uses | $ | 518,783 | |
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(dollars in thousands) |
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Option cash proceeds | $ | 25,740 | ||||
Non-capitalized transaction fees and expenses | 13,650 | |||||
Less: estimated non-deductible portion | (10,250 | ) | ||||
Deductible non-capitalized transaction fees and expenses | 3,400 | |||||
Write-off of existing deferred debt issuance costs | 394 | |||||
Total deductible expenses | 29,534 | |||||
Statutory tax rate | 38.9 | % | ||||
Tax benefit | $ | 11,489 | ||||
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(dollars in thousands) |
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Cash to purchase shares (a) | $ | (333,496 | ) | |
Option cash proceeds (b) | (25,740 | ) | ||
Non-capitalized transaction fees and expenses (c) | (13,650 | ) | ||
Write-off of existing deferred debt issuance costs | (394 | ) | ||
Common stock purchased by DLJMB funds | 70,683 | |||
Value ascribed to warrants | 4,735 | |||
Receivable related to management loans | 2,056 | |||
Tax benefit of expense adjustments | 11,489 | |||
Total change in stockholders' equity (deficit) | $ | (284,317 | ) | |
MERRILL CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended January 31, 1999
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Acquisitions |
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Company Historical |
Net Acqusition Adjustments |
Superstar Computing |
Merger Adjustments |
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Daniels |
Executech |
Alternatives |
Pro Forma |
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(dollars in thousands) |
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Revenue | $ | 509,543 | $ | 66,159 | $ | 2,367 | $ | 20,879 | $ | | $ | (1,524 | ) | $ | | $ | 597,424 | ||||||||
Cost of revenue | 330,632 | 49,081 | 1,122 | 15,802 | 569 | (1) | (1,227 | ) | | 394,854 | |||||||||||||||
(1,125 | )(2) | ||||||||||||||||||||||||
Gross profit | 178,911 | 17,078 | 1,245 | 5,077 | 556 | (297 | ) | | 202,570 | ||||||||||||||||
Selling, general and administrative expenses | 127,705 | 13,670 | 713 | 4,671 | 1,453 | (3) | (2,839 | ) | (667 | )(4) | 142,961 | ||||||||||||||
(1,981 | )(2) | 236 | (5) | ||||||||||||||||||||||
Operating income | 51,206 | 3,408 | 532 | 406 | 1,084 | 2,542 | 431 | 59,609 | |||||||||||||||||
Interest expense | 3,961 | 1,281 | | 270 | | | 35,996 | (6) | 41,508 | ||||||||||||||||
Other (income) expense, net | (426 | ) | 75 | (1 | ) | | | | | (352 | ) | ||||||||||||||
Income (loss) before provision for income taxes | 47,671 | 2,052 | 533 | 136 | 1,084 | 2,542 | (35,565 | ) | 18,453 | ||||||||||||||||
Provision for (benefit from) income taxes | 21,214 | | | | | | (11,528 | )(7) | 9,686 | ||||||||||||||||
Income (loss) from continuing operations | 26,457 | 2,052 | 533 | 136 | 1,084 | 2,542 | (24,037 | ) | 8,767 | ||||||||||||||||
Preferred stock dividends | | | | | | | 6,052 | (8) | 6,052 | ||||||||||||||||
Income (loss) from continuing operations available to common | $ | 26,457 | $ | 2,052 | $ | 533 | $ | 136 | $ | 1,084 | $ | 2,542 | $ | (30,089 | ) | $ | 2,715 | ||||||||
Other Data: | |||||||||||||||||||||||||
EBITDA (9) | $ | 71,069 | $ | 5,734 | $ | 550 | $ | 443 | $ | 3,106 | $ | 677 | $ | 367 | $ | 81,946 | |||||||||
Adjusted EBITDA (9) | | 85,064 | |||||||||||||||||||||||
Depreciation and amortization of intangibles | 19,863 | 2,326 | 18 | 37 | 2,022 | (1,865 | ) | (64 | ) | 22,337 | |||||||||||||||
Capital expenditures | 16,479 | 985 | 267 | 342 | | | | 18,073 | |||||||||||||||||
Cash interest expense | 3,961 | 40,232 | |||||||||||||||||||||||
Ratio of earnings to fixed charges | 7.8 | x | 1.4 | x |
MERRILL CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the six month period ended July 31, 1999
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Acquisitions |
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Company Historical |
Net Acquisition Adjustments |
Superstar Computing |
Merger Adjustments |
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Daniels |
Alternatives |
Pro Forma |
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(dollars in thousands) |
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Revenue | $ | 298,073 | $ | 15,725 | $ | 6,837 | $ | | $ | (292 | ) | $ | | $ | 320,343 | |||||||
Cost of revenue | 193,962 | 10,622 | 4,954 | 116 | (1) | (178 | ) | 208,863 | ||||||||||||||
(613 | )(2) | | ||||||||||||||||||||
Gross profit | 104,111 | 5,103 | 1,883 | 497 | (114 | ) | | 111,480 | ||||||||||||||
Selling, general and administrative expenses | 76,009 | 2,814 | 2,295 | 326 | (3) | (226 | ) | (425 | )(4) | 80,064 | ||||||||||||
(852 | )(2) | 123 | (5) | |||||||||||||||||||
Merger costs |
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1,130 |
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(1,130 |
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Operating income | 26,972 | 2,289 | (412 | ) | 1,023 | 112 | 1,432 | 31,416 | ||||||||||||||
Interest expense | 3,167 | 231 | 63 | 17,299 | (6) | 20,760 | ||||||||||||||||
Other expense, net |
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596 |
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37 |
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633 |
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Income (loss) before provision for income taxes | 23,209 | 2,021 | (475 | ) | 1,023 | 112 | (15,867 | ) | 10,023 | |||||||||||||
Provision for (benefit from) income taxes | 10,467 | | | | | (5,006 | )(7) | 5,461 | ||||||||||||||
Income (loss) from continuing operations | 12,742 | 2,021 | (475 | ) | 1,023 | 112 | (10,861 | ) | 4,562 | |||||||||||||
Preferred stock dividends | | | | | | 2,925 | (8) | 2,925 | ||||||||||||||
Income (loss) from continuing operations available to common | $ | 12,742 | $ | 2,021 | $ | (475 | ) | $ | 1,023 | $ | 112 | $ | (13,786 | ) | $ | 1,637 | ||||||
Other Data: | ||||||||||||||||||||||
EBITDA (9) | $ | 39,189 | $ | 2,694 | $ | (382 | ) | $ | 1,465 | $ | 100 | $ | 275 | $ | 43,341 | |||||||
Adjusted EBITDA (9) | | 44,223 | ||||||||||||||||||||
Depreciation and amortization of intangibles | 11,087 | 405 | 30 | 442 | (12 | ) | (27 | ) | 11,925 | |||||||||||||
Capital expenditures | 5,125 | 37 | 93 | | | | 5,255 | |||||||||||||||
Cash interest expense | 3,167 | 20,122 | ||||||||||||||||||||
Ratio of earnings to fixed charges | 5.9 | x | 1.4 | x |
MERRILL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
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Year Ended January 31, 1999 |
Six Months Ended July 31, 1999 |
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Daniels |
Alternatives |
Total |
Daniels |
Alternatives |
Total |
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(dollars in thousands) |
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Contractual executive compensation | $ | 867 | $ | 626 | $ | 1,493 | $ | 442 | $ | 202 | $ | 644 | ||||||
Services and facilities (a) | 713 | | 713 | 371 | | 371 | ||||||||||||
Reduced employee compensation and benefits |
900 | | 900 | 450 | | 450 | ||||||||||||
$ | 2,480 | $ | 626 | $ | 3,106 | $ | 1,263 | $ | 202 | $ | 1,465 | |||||||
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Year Ended January 31, 1999 |
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Daniels |
Executech |
Alternatives |
Total |
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(dollars in thousands) |
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Goodwill | $ | 23,300 | $ | 2,682 | $ | 3,313 | ||||||
Amortization period in years | 20 | 15 | 15 | |||||||||
Annual goodwill amortization | $ | 1,165 | $ | 179 | $ | 221 | ||||||
Months to include in pro forma | 12 | 4.5 | 12 | |||||||||
Incremental pro forma amortization | $ | 1,165 | $ | 67 | $ | 221 | $ | 1,453 |
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Six Months Ended July 31, 1999 |
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Daniels |
Alternatives |
Total |
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(dollars in thousands) |
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Goodwill | $ | 23,300 | $ | 3,313 | |||||
Amortization period in years | 20 | 15 | |||||||
Annual goodwill amortization | $ | 1,165 | $ | 221 | |||||
Months to include in pro forma | 2.5 | 4.5 | |||||||
Incremental pro forma amortization | $ | 243 | $ | 83 | $ | 326 |
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Year Ended January 31, 1999 |
Six Months Ended July 31, 1999 |
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(dollars in thousands) |
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Increase in interest expense | |||||||
Revolving credit facility (a) | $ | 1,893 | $ | 947 | |||
Term loan A (a) | 5,987 | 2,993 | |||||
Term loan B (b) | 13,944 | 6,972 | |||||
Notes (c) | 18,000 | 9,000 | |||||
Commitment fees on undrawn revolving credit facility | 147 | 74 | |||||
Amortization of deferred financing costs | 1,276 | 638 | |||||
Total | 41,247 | 20,624 | |||||
Elimination of historical interest expense associated with repaid indebtedness | (5,251 | ) | (3,325 | ) | |||
Net increase in interest expense | $ | 35,996 | $ | 17,299 | |||
A one-eighth of one percent change in interest rates would impact interest expense for borrowings under the revolving credit facility and the term loans A and B, collectively, in the amount of approximately $282,000 for the year ended January 31, 1999 and $141,000 for the six months ended July 31, 1999.
The following table sets forth a reconciliation of Pro Forma EBITDA to Adjusted EBITDA.
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Year Ended January 31, 1999 |
Six Months Ended July 31, 1999 |
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(dollars in thousands) |
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Pro Forma EBITDA | $ | 81,946 | $ | 43,341 | ||
Severance and outplacement costs (a) | 896 | | ||||
Acquisition costs (b) | 158 | 17 | ||||
Non-cash compensation (c) | 96 | | ||||
Expected cost savings (d) | 1,968 | 700 | ||||
Non-recurring legal and employment costs | | 165 | ||||
Adjusted EBITDA | $ | 85,064 | $ | 44,223 | ||
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