-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, tDddpmVukCgEN6iZOEcxiGwEiuQFqrMUf+Q85sTcOAERc3bgGpvALYM1VN64SHkq B+CRo9bTh5jy9FwPnfpTow== 0000912057-94-000988.txt : 19940322 0000912057-94-000988.hdr.sgml : 19940322 ACCESSION NUMBER: 0000912057-94-000988 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19931231 ITEM INFORMATION: 7 FILED AS OF DATE: 19940321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL CORP CENTRAL INDEX KEY: 0000790406 STANDARD INDUSTRIAL CLASSIFICATION: 2750 IRS NUMBER: 410946258 STATE OF INCORPORATION: MN FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 34 SEC FILE NUMBER: 000-14082 FILM NUMBER: 94517090 BUSINESS ADDRESS: STREET 1: ONE MERRILL CIRCLE STREET 2: ENERGY PARK CITY: ST PAUL STATE: MN ZIP: 55108 BUSINESS PHONE: 6126464501 FORMER COMPANY: FORMER CONFORMED NAME: MERRILL CORP/FA DATE OF NAME CHANGE: 19930915 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________ Form 8-K/A Amendment No. 1 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 __________________ Date of Report (Date of earliest event reported): December 31, 1993 __________________ MERRILL CORPORATION (Exact name of registrant as specified in its charter) Minnesota 0-14082 41-0946258 --------- ------- ---------- (State of Incorporation) (Commission (I.R.S. Employer File Number) 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 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS A. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Financial statements of May Printing Company (consisting of balance sheets as of September 30, 1993 and December 31, 1992 and the related statements of operations, stockholders' equity and cash flows for the nine month period ended September 30, 1993 and for the year ended December 31, 1992, respectively, including the accountants' reports thereon) are included in this Report. B. PRO FORMA FINANCIAL INFORMATION. Unaudited condensed consolidated pro forma financial statements (consisting of a balance sheet as of October 31, 1993 and statements of operations for the nine month period ended October 31, 1993 and for the year ended January 31, 1993) are included in this Report. C. EXHIBITS. 2.1 Asset Purchase Agreement, dated as of December 31, 1993, by and among the Purchaser, Registrant, the Company and the Shareholders of the Company. 23.1 Consent of Coopers & Lybrand, Independent Accountants 23.2 Consent of Kern, DeWenter, Viere, Ltd., Independent Accountants 99.1 Press Release of Registrant, dated January 3, 1994. 2 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. Dated: March 21, 1994 MERRILL CORPORATION (Registrant) By /s/ Steven J. Machov --------------------------------- Steven J. Machov Vice President and General Counsel 3 Coopers & Lybrand Certified Public Accountants MAY PRINTING COMPANY --------------- REPORT ON AUDIT OF FINANCIAL STATEMENTS for the nine-month period ended September 30, 1993 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of May Printing Company: We have audited the accompanying balance sheet of May Printing Company as of September 30, 1993, and the related statements of operations, changes in stockholders' equity and cash flows for the nine-month period then ended. These financial statements are the responsibility of May Printing Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides 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 May Printing Company as of September 30, 1993, and the results of its operations and its cash flows for the nine-month period then ended in conformity with generally accepted accounting principles. /s/COOPERS AND LYBRAND Minneapolis, Minnesota November 22, 1993, except as to Notes 8 and 10, for which the date is December 31, 1993. MAY PRINTING COMPANY BALANCE SHEET, as of September 30, 1993
ASSETS Current assets: Cash and cash equivalents $ 667,775 Bond reserves 93,816 Trade accounts receivable, less allowance for doubtful accounts of $110,000 2,148,592 Inventories 2,920,091 Other 286,241 ------------- Total current assets 6,116,515 ------------- Property, plant and equipment, net 6,632,197 Other assets: Bond reserves 572,541 Debt issuance costs, net of accumulated amortization of $70,355 173,992 Other 45,217 ------------- Total assets $13,540,462 ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt and capital lease obligations 474,143 Accounts payable 1,736,375 Accrued expenses 1,186,259 Customer deposits 334,643 ------------- Total current liabilities 3,731,420 Long-term debt and capital lease obligations, less current maturities 4,703,481 Deferred compensation 776,255 ------------- Total liabilities 9,211,156 ------------- Stockholders' equity: Common stock, $100 par value, 500 shares authorized, 300 shares issued and out- standing at September 30, 1993 30,000 Retained earnings 5,681,972 ------------- 5,711,972 Less notes receivable, related parties (1,382,666) ------------- Total stockholders' equity 4,329,306 ------------- Total liabilities and stock- holders' equity $13,540,462 =============
The accompanying notes are an integral part of the financial statements. 2 MAY PRINTING COMPANY STATEMENT OF OPERATIONS for the nine-month period ended September 30, 1993 Net sales $21,461,859 Cost of sales 14,256,881 ------------ Gross profit 7,204,978 Selling, general and administrative 5,705,760 ------------ Income from operations 1,499,218 Interest expense (382,277) Other income, net 279,437 ------------ Net income $ 1,396,378 ----------- -----------
The accompanying notes are an integral part of the financial statements. 3 MAY PRINTING COMPANY STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY for the nine-month period ended September 30, 1993
Notes Common Stock Receivable, -------------------- Retained Related Shares Amount Earnings Parties Total ------ ------ -------- ----------- ----- Balance, January 1, 1993 300 $30,000 $ 5,317,914 $(1,358,547) $ 3,989,367 Distributions to stockholders (1,032,320) (1,032,320) Net increase in notes receiv- able, related parties (24,119) (24,119) Net income 1,396,378 1,396,378 --- ------- ----------- ----------- ----------- Balance, September 30, 1993 300 $30,000 $ 5,681,972 $(1,382,666) $ 4,329,306 --- ------- ----------- ----------- ----------- --- ------- ----------- ----------- -----------
The accompanying notes are an integral part of the financial statements. 4 MAY PRINTING COMPANY STATEMENT OF CASH FLOWS for the nine-month period ended September 30, 1993 Cash flows from operating activities: Net income $ 1,396,378 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 561,412 Provision for losses on accounts receivable 71,483 Gain on disposal of equipment (45,457) Deferred compensation 236,000 Change in operating assets and liabilities: Trade receivables 111,833 Inventories (595,474) Other current assets (93,417) Accounts payable 300,623 Accrued expenses 233,885 Customer deposits (28,570) ----------- Net cash provided by operating activities 2,148,696 ----------- Cash flows from investing activities: Proceeds from sale of equipment 51,500 Expenditures for property, plant and equipment (461,881) Other 430 ----------- Net cash used in investing activities (409,951) ----------- Cash flows for financing activities: Principal repayment on long-term debt and capital lease obligations (499,146) Repayments on notes payable, related parties (357,500) Bond reserves 158,411 Distributions paid to stockholders (1,032,320) Other (24,119) ------------ Net cash used in financing activities (1,754,674) ------------ Decrease in cash and cash equivalents (15,929) Cash and cash equivalents, beginning of period 683,704 ------------ Cash and cash equivalents, end of period $ 667,775 ------------ ------------ Supplemental cash flow disclosure: Interest paid $ 479,705 ------------ ------------
At September 30, 1993, there was $412,546 of accounts payable related to property, plant and equipment expenditures. The accompanying notes are an integral part of the financial statements. 5 MAY PRINTING COMPANY NOTES TO FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: NATURE OF BUSINESS: The Company specializes in demand printing of corporate identity and marketing program materials sold primarily to franchised organizations, large corporations and associations. The Company's fiscal year end is December 31. CASH EQUIVALENTS: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. INVENTORIES: Inventories, consisting primarily of paper and printed materials, are stated at the lower of cost or market, with cost determined on a last-in, first-out (LIFO) basis. At September 30, 1993, inventories, valued on the LIFO method, approximated $185,000 less than the amount of such inventories valued on the first-in, first-out (FIFO) method. Net income would have been $17,800 less than reported for the nine-month period ended September 30, 1993, had the FIFO method been used. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. Significant additions or improvements extending asset lives are capitalized; normal maintenance and repair costs are expensed as incurred. Depreciation and amortization are recorded using the straight-line method over the estimated useful lives of the assets. When assets are sold or retired, related gains or losses are included in the results of operations. INCOME TAXES: The Company's stockholders have elected to be taxed as an S Corporation under the provisions of the Internal Revenue Code and comparable Minnesota income tax law. Under those provisions, the Company's net income or loss is reported on the individual tax returns of the Company's stockholders. Therefore, no provision or liability for income taxes is reflected in the Company's financial statements. Continued 6 MAY PRINTING COMPANY NOTES TO FINANCIAL STATEMENTS, Continued 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, continued: DEFERRED FINANCING COSTS: Costs incurred in obtaining long-term debt have been capitalized and are being amortized over the term of the related debt on a method that approximates the interest method. 2. Selected Financial Statement Data:
September 30, 1993 ------------------ Inventories: Raw materials $ 683,024 Work-in-progress 596,618 Semi-finished goods 1,640,449 ----------- $ 2,920,091 ----------- ----------- Property, plant and equipment: Land 148,500 Building 2,334,009 Equipment 7,989,902 Construction-in-progress 634,758 ----------- 11,107,169 Less accumulated depreciation and amortization (4,474,972) ----------- $ 6,632,197 ----------- ----------- Accrued expenses: Commissions and compensation 562,371 Profit-sharing and retirement 315,000 Taxes, other than income taxes 223,629 Other 85,259 ----------- $ 1,186,259 ----------- ----------- For the Nine- Month Period Ended September 30, 1993 ------------------ Other income, net: Interest income $125,789 Gain on sale of equipment 45,457 Other, net 108,191 -------- $279,437 -------- --------
Continued 7 3. BOND RESERVES: Bond reserves at September 30, 1993, consist of the following: Bond principal and interest funds $ 93,816 Business loan reserves 572,541 -------- $666,357 -------- --------
The Company makes monthly deposits to accounts, established with the bond trustee, for the purpose of repaying principal and interest on industrial development bonds outstanding (Note 4). The amount of the required monthly deposits vary from year to year and are adjusted for interest earned on the business loan reserve accounts, which were established from the proceeds of the bond issues. The business loan reserve accounts are held in trust in the event of default on the bond issues. It is expected that the business loan reserve accounts will be used to make the final payments due on the bonds. 4. FINANCIAL AGREEMENTS: BANK FINANCING: The Company has a financing arrangement with a bank in an amount not to exceed $2 million that expires on May 31, 1994. This arrangement is personally guaranteed by the Company's stockholders and is collateralized by accounts receivable, inventories and a second lien on equipment. The arrangement consists of the following: - A $2 million revolving line of credit payable upon demand that bears interest at the prime rate (6% at September 30, 1993). Borrowings on the revolving line of credit are limited to $2 million less the aggregate undrawn face amount of all outstanding letters of credit. At September 30, 1993, no borrowings were outstanding. - A $155,000 letter of credit agreement which bears a credit fee of 1% per annum on the undrawn face amount. At September 30, 1993, no letters of credit were outstanding. Continued 8 4. FINANCIAL AGREEMENTS, continued: LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS: Long-term debt and capital lease obligations at September 30, 1993, consisted of the following: Industrial development bonds, due in semi- annual installments including interest ranging from 7.0% to 8.375% over the life of the bonds with the remaining unpaid balance due on August 1, 2010; collateralized by land, building and equipment with a carrying value of $5,454,655 at September 30, 1993 $3,900,000 Industrial development bonds, due in semi- annual installments including interest ranging from 6.75% to 10.0% over the life of the bonds with the remaining unpaid balance due on August 1, 1996; collateralized by land, building and equipment with a carrying value of $5,454,655 at September 30, 1993 365,000 Capital lease obligation payable in monthly installments of $16,796 through July 1995 with final payment of $297,250 due August 1996 bearing imputed interest at 10.6%, collateralized by leased equipment with a carrying value of $840,000 at September 30, 1993 578,495 Other capital lease obligations payable in various monthly installments with imputed interest ranging from 9.5% to 12.3% to December 1996, collateralized by leased equipment with a carrying value of $337,542 at September 30, 1993 334,129 ---------- 5,177,624 Less current maturities (474,143) ---------- $4,703,481 ---------- ----------
Continued 9 4. FINANCIAL AGREEMENTS, continued: LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, continued: All long-term debt and capital lease obligations are personally guaranteed by the stockholders of the Company. The aggregate maturities of long-term debt and capital lease obligations are as follows:
Year Ending December 31 ----------------------- 1993 (remaining three months) $ 60,844 1994 484,848 1995 754,713 1996 340,374 1997 156,845 1998 155,000 Thereafter 3,225,000 ---------- $5,177,624 ---------- ----------
5. LEASES: CAPITAL LEASES: The Company leases a portion of its plant and office equipment under capital leases. The leases range in terms from 3 to 7 years. The cost and accumulated amortization of capital leases at September 30, 1993, are as follows: Plant equipment $1,759,098 Office equipment 256,651 ---------- 2,015,749 Less accumulated amortization (838,207) ---------- $1,177,542 ---------- ----------
OPERATING LEASES: The Company also leases warehouse space and plant and office equipment under noncancellable operating leases which expire at various dates through April 1998. Rent expense for the nine-month period ended September 30, 1993, was approximately $227,000. Continued 10 5. LEASES, continued: OPERATING LEASES, continued: Future minimum rental commitments under noncancellable operating leases are as follows:
Year Ending December 31 Operating Leases 1993 (remaining three months) $ 106,953 1994 427,824 1995 348,353 1996 213,766 1997 173,220 1998 133,866 Thereafter 116,160 ---------- $1,520,142 ---------- ----------
6. RELATED PARTY TRANSACTIONS: Notes receivable, related parties are reflected as a reduction of stockholders' equity. At September 30, 1993, notes receivable, related parties, consisted of the following: Promissory notes receivable from the stockholders, due on demand, bearing interest at 6.5%, including $131,078 of accrued interest at September 30, 1993 $1,283,416 Promissory notes receivable from May Development Company, an affiliate of the Company, due on demand, bearing interest at 10.0%, including $21,313 of accrued interest at September 30, 1993 99,250 ---------- $1,382,666 ---------- ----------
The Company leases a warehouse from May Development Company on a month-to-month basis. Total rent expense under this arrangement for the nine-month period ended September 30, 1993 was $97,245. Continued 11 7. PROFIT SHARING AND RETIREMENT PLANS: The Company has a noncontributory profit-sharing plan which covers substantially all employees. Contributions to the plans are at the discretion of the Company's stockholders. The total amount charged to operations for this plan for the nine-month period ended September 30, 1993, was $270,000. The Company also sponsors a 401(k) defined contribution benefit plan for substantially all employees. Employer contributions are discretionary. The total amount charged to operations for this plan for the nine-month period ended September 30, 1993, was $45,000. 8. DEFERRED COMPENSATION: The Company has entered into deferred compensation agreements with certain officers of the Company. These agreements provide that the officers will receive a portion of the increase in net book value of the Company, as defined, as deferred compensation. The officers vest in such amount over a five-year period at varying rates. The total amount charged to operations under these deferred compensation agreements for the nine-month period ended September 30, 1993 was $236,000. The agreement also provides that the officers will receive a certain percentage of the excess purchase price over the book value if the Company sells its assets or stock prior to or up to one year after termination or retirement of the officers. As a result of the transaction described in Note 10, deferred compensation increased by approximately $1.4 million as a result of the sale. 9. SIGNIFICANT CUSTOMERS: The Company is licensed by three companies to sell to their franchisees. During the nine-month period ended September 30, 1993, the Company had net sales to these three companies and their franchisees totaling 28%, 20% and 16%, respectively, of net sales. Continued 12 10. SUBSEQUENT EVENT: On December 31, 1993, the Company sold substantially all of its operating assets and the purchaser assumed $5.1 million of the Company's liabilities in exchange for $15.4 million in cash and a promissory note receivable for $2.5 million. The agreement also calls for an additional contingent amount, not to exceed $2 million, which is based on pre-tax earnings for the twelve months ending January 31, 1995, as defined in the purchase agreement, generated from the sold assets. 13 MAY PRINTING COMPANY St. Cloud, Minnesota AUDITED FINANCIAL STATEMENTS As of December 31, 1992 CONTENTS Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 2 Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Statement of Income. . . . . . . . . . . . . . . . . . . . . . . . . . 4 Statement of Changes in Stockholders' Equity . . . . . . . . . . . . . 5 Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . 6 Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . 7 Independent Auditors' Report on Additional Information . . . . . . . . 13 Schedule of Selling, General and Administrative Expenses . . . . . . . 14 Schedule of Property and Equipment . . . . . . . . . . . . . . . . . . 15 January 28, 1993, except for Note L, as to which the date is March 15, 1994 INDEPENDENT AUDITORS' REPORT Board of Directors May Printing Company St. Cloud, Minnesota We have audited the accompanying balance sheet of May Printing Company as of December 31, 1992, and the related statements of income, changes in stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of May Printing Company as of December 31, 1992, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. As discussed in Note L to the financial statements, the Company's Balance Sheet has been reclassified to reflect the amounts due from related parties as a reduction in stockholders' equity. This format has been presented to facilitate a filing with the Securities and Exchange Commission in association with the sale of the Company's assets and liabilities to a publicly held company. /s/ KERN, DEWENTER, VIERE, LTD. --------------------------------- KERN, DEWENTER, VIERE, LTD. MAY PRINTING COMPANY BALANCE SHEET December 31, 1992 ASSETS CURRENT ASSETS: Cash and Cash Equivalents $ 683,704 Restricted Cash (Note A) 252,227 Accounts Receivable, Less Allowance for Doubtful Accounts of $ 57,355 (Note A) 2,331,908 Inventories (Notes B and C) 2,324,617 Other Receivables 123,362 Prepaid Expenses 69,462 ---------- Total Current Assets 5,785,280 PROPERTY AND EQUIPMENT (NOTES A, C and D): Land 148,500 Building 2,326,365 Plant Equipment 6,836,505 Office Equipment 985,645 Leasehold Improvements 12,301 Vehicles 91,059 ---------- 10,400,375 Less: Accumulated Depreciation (4,093,695) ---------- Net Property and Equipment 6,306,680 OTHER ASSETS: Covenant not to Compete, Less Accumulated Amortization of $ 10,842 (Note A) 19,158 Debt Issue Costs, Less Accumulated Amortization of $ 59,317 (Note A) 185,030 Loan Reserve Account (Note A) 572,541 Cash Surrender Value of Officers' Life Insurance 29,677 Lease Deposits 4,319 ---------- Total Other Assets 810,725 ---------- TOTAL ASSETS $ 12,902,685 ==========
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes Payable (Note C) $ 357,500 Current Maturities of Long-Term Debt (Note D) 555,963 Deposits on Orders 363,213 Accounts Payable 1,023,206 Accrued Payroll 120,680 Property Taxes Payable 175,104 Accrued Interest 160,721 Accrued Profit-Sharing Contributions 377,458 Other Current Liabilities 118,411 ---------- Total Current Liabilities 3,252,256 DEFERRED COMPENSATION (NOTE I) 540,255 LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE D) 5,120,807 ---------- Total Liabilities 8,913,318 STOCKHOLDERS' EQUITY: Common Stock, $ 100 Par Value, 500 Shares Authorized, 300 Shares Issued and Outstanding 30,000 Retained Earnings 5,317,914 ---------- Total Stockholders' Equity 5,347,914 Due from Related Parties (Notes E and L) (1,358,547) ---------- 3,989,367 ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,902,685 ==========
The notes to the financial statements are an integral part of this statement. 3 MAY PRINTING COMPANY STATEMENT OF INCOME For the Year Ended December 31, 1992 NET SALES (NOTE H) $ 27,215,064 COST OF SALES 17,588,283 ---------- GROSS PROFIT 9,626,781 OPERATING EXPENSES: Selling Expenses 5,078,198 General and Administrative Expenses 1,974,209 ---------- Total Operating Expenses 7,052,407 ---------- NET INCOME FROM OPERATIONS 2,574,374 OTHER INCOME (EXPENSE): Interest Expense (603,696) Other Expenses (30,739) Interest Income 134,886 Miscellaneous Income 36,360 Gain on Disposal of Equipment 18,746 ---------- Total Other Income (Expense) (444,443) ---------- NET INCOME $ 2,129,931 ==========
The notes to the financial statements are an integral part of this statement. 4 MAY PRINTING COMPANY STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock ---------------- Retained Shares Amount Earnings Total ------ -------- ----------- ----------- BALANCE - December 31, 1991 300 $ 30,000 $ 4,363,247 $ 4,393,247 Distributions - - (1,175,264) (1,175,264) Net Income - - 2,129,931 2,129,931 ------ -------- ----------- ---------- BALANCE - December 31, 1992 300 $ 30,000 $ 5,317,914 $ 5,347,914 ====== ======== =========== ==========
The notes to the financial statements are an integral part of this statement. 5 MAY PRINTING COMPANY STATEMENT OF CASH FLOWS For the Year Ended December 31, 1992 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 2,129,931 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 834,508 Change in Allowance for Doubtful Accounts 11,510 (Gain) on Disposal of Equipment (18,746) Deferred Compensation 176,171 Change in Assets and Liabilities: (Increase) in Receivables (690,545) Decrease in Inventories 65,377 Decrease in Prepaid Expenses and Other Receivables 15,352 (Decrease) in Accounts Payable (12,501) (Decrease) in Accrued Payroll (206,007) Increase in Accrued Profit Sharing Contributions 229,036 Increase in Other Liabilities 178,849 ----------- Total Adjustments 583,004 ----------- Net Cash Provided by Operating Activities 2,712,935 CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) in Cash Surrender Value (3,674) Lease Deposits (3,619) Proceeds from Sale of Equipment 55,300 Capital Expenditures (98,059) Net Change in Loan Reserve and Restricted Cash 177,826 ----------- Net Cash Provided by Investing Activities 127,774 CASH FLOWS FOR FINANCING ACTIVITIES: Principal Payments on Long-Term Debt (1,017,928) Due from Related Parties 194,819 Payments on Notes Payable (207,500) Stockholder Distributions (1,175,264) ----------- Net Cash Used by Financing Activities (2,205,873) ----------- Net Increase in Cash and Cash Equivalents 634,836 Cash and Cash Equivalents, Beginning of Year 48,868 ----------- Cash and Cash Equivalents, End of Year $ 683,704 ===========
The notes to the financial statements are an integral part of this statement. 6 MAY PRINTING COMPANY NOTE TO THE FINANCIAL STATEMENTS December 31, 1992 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RESTRICTED CASH Restricted cash represents funds on deposit for principle and interest payments on the bonds payable to First National Bank of Minneapolis - as trustee. (See Note D). CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers cash in banks and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents. Supplemental disclosure of cash flow information:
For the Year Ended December 31, 1992 ------------------ Cash Paid For: Interest $ 614,654 Income Taxes -
During the year, the Company acquired $ 262,670 of equipment with a capital lease and sold equipment via $60,000 of receivables. RECEIVABLES Accounts receivable are shown net of an allowance for doubtful accounts. Allowance for losses arising from uncollectible customer accounts receivable is based on historical bad debt experience and an evaluation of periodic agings of the accounts. The accounts receivable of the Company are as a result of the Company extending credit to its customers. INVENTORIES Inventories are valued at cost (last-in, first out method), which does not exceed market. (See Note B). PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation is recognized using the straight-line method for financial reporting purposes. For income tax purposes, assets are depreciated using the straight-line and accelerated methods. Charges to income for the year ended December 31, 1992 were $ 809,783. DEBT ISSUE COSTS Debt issue costs are associated with the issue of long-term debt and are being amortized on a straight-line basis over 10 and 20 years. Amortization expense for the year ended December 31, 1992 was $ 14,717. 7 MAY PRINTING COMPANY NOTES TO THE FINANCIAL STATEMENTS December 31, 1992 (Continued) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) COVENANT NOT TO COMPETE The covenant not to compete is being amortized over 36 months using the straight-line method. Charges to income for the year ended December 31, 1992, amounted to $ 10,008. LOAN RESERVE ACCOUNT The loan reserve account represents funds on deposit to secure long-term debt repayment. S-CORPORATION ELECTION The Company, with the consent of its stockholders, has elected, under Subchapter 'S' of the Internal Revenue Code, to be treated substantially as a partnership for income tax purposes. As a result, the stockholders will report the entire corporate taxable income or loss on their individual tax returns. NOTE B - LIFO INVENTORY VALUATION Inventories are valued at cost using the last-in, first-out method. If the first-in, first-out (FIFO) method of inventory accounting had been used by the Company, inventories would have been $ 204,616 higher than reported at December 31, 1992. NOTE C - NOTES PAYABLE Thomas L. May - 12% demand note, interest payable monthly unsecured $ 150,000 J. Scott May - 12% demand note, interest payable monthly, unsecured 207,500 ------- $ 357,500 =======
The Company also has a $ 2,000,000 line-of-credit with First American National Bank due May, 1993. Interest is payable at a variable rate (7% at December 31, 1992). No amounts were drawn upon the line at December 31, 1992. 8 MAY PRINTING COMPANY NOTES TO THE FINANCIAL STATEMENTS December 31, 1992 (Continued) NOTE D - LONG-TERM DEBT First National Bank of Minneapolis - As Trustee - Payable in variable annual installments at interest rates varying from 6 3/4% to 10%, secured by property and equipment and stockholder guarantees, due August, 1996 $ 470,000 Payable in variable annual installments of interest rates varying from 7% to 8.375%, secured by property and equipment and stockholder guarantees, due August, 2010 4,010,000 Fleet Credit Corporation - Payable in variable monthly installments of $ 16,796 at a rate of 10.597% due August, 1995 in a balloon payment, secured by 6 color press 679,867 Payable in monthly installments of $ 1,928, including interest at 11.2%, secured by a computer, due May, 1995 in a balloon payment 62,681 Payable in monthly installments of $ 553, including interest at 11.2%, secured by a computer due May, 1995 in a balloon payment 17,967 Payable in monthly installments of $ 548, including interest at 12.362%, secured by a computer, due May, 1995 in a balloon payment 16,689 First Bank System - Equipment leases, payable in monthly payment of $6,222, at interest of 9.915%, the final lease due June, 1993, when a balloon of $ 67,395 is due, secured by the leased equipment 110,562 Merchants Capital Resources - Various equipment leases, payable in an aggregate monthly payment of $ 2,135, at interest rates of 11.952% and 12.071%, the final lease due March, 1996, secured by the leased equipment 67,759
9 MAY PRINTING COMPANY NOTES TO THE FINANCIAL STATEMENTS December 31, 1992 (Continued) NOTE D - LONG-TERM DEBT (Continued) Eastman Kodak Credit Corporation - Equipment lease payable in a monthly installment of $ 575, including interest at 9.456%, due September, 1996, secured by the leased equipment $ 21,706 Equipment lease payable in a monthly installment of $ 5,511, including interest at 9.456%, due December, 1996, secured by the leased equipment 219,539 --------- 5,676,770 Less: Current Maturities 555,963 --------- Total Long-Term Debt $ 5,120,807 =========
The following is a schedule of the maturities of the long-term debt as of December 31, 1992:
YEAR ENDING DECEMBER 31: 1993 $ 555,963 1994 485,254 1995 765,565 1996 344,988 1997 145,000 Thereafter 3,380,000 --------- Total $ 5,676,770 =========
NOTE E - RELATED PARTY TRANSACTIONS The Company's common stock is equally owned by Thomas L. May and J. Scott May, who are partners in May Development. The following summarizes the material payable to/receivable from each as of December 31, 1992: THOMAS L. MAY Receivable $ 20,212 Note Payable (Note C) 150,000 J. SCOTT MAY Receivable 14,855 Note Payable (Note C) 207,500 MAY DEVELOPMENT Receivable 96,240 THOMAS L. and J. SCOTT MAY Note Receivable and Accrued Interest 1,227,240
10 MAY PRINTING COMPANY NOTES TO FINANCIAL STATEMENTS December 31, 1992 (Continued) NOTE E - RELATED PARTY TRANSACTIONS (Continued) The Company's former operating facility is rented from an entity related through common ownership and management (May Development). Total rentals paid to this entity for the year ended December 31, 1992 was $ 111,660. The Company will continue to pay rent of $ 10,805 per month to May Development until the facility is sold. NOTE F - SALARY CONTINUATION PLAN In 1974, the Company entered into agreements with the two senior officers to provide, for ten years after retirement, a salary continuation of $ 25,000 per year for each. The amounts are subject to annual increases based on the consumer price index. Total expenses under this agreement for the year ended December 31, 1992 was $ 42,994. NOTE G - PROFIT SHARING The Company has a profit sharing plan covering all employees 21 years of age with one year of service and not covered by a collective bargaining agreement. Contributions made for the year ended December 31, 1992 were $ 308,593. The Company also contributes to a 401(k) plan based on a percentage of employee contributions. Contributions for the year ended December 31, 1992 were $68,865. NOTE H - MAJOR CUSTOMERS During the year ended December 31, 1992, the Company was licensed by three companies to sell to their member affiliates (there are several thousand independently owned and operated affiliates). Sales to these affiliates were of a substantial nature in relation to the Company's total sales. Aggregate sales to these affiliates were $ 16,504,188. NOTE I - DEFERRED COMPENSATION The Company has entered into deferred compensation agreements with certain of its key employees. The agreements call for the employees to receive a certain percentage of the income of the Company. The deferred compensation vests in varying percentages. The total expense charged to income for the year ended December 31, 1992 was $ 176,171. 11 MAY PRINTING COMPANY NOTES TO THE FINANCIAL STATEMENTS December 31, 1992 (Continued) NOTE J - OPERATING LEASES The Company leases certain of its equipment and vehicles under leases classified as operating leases, the last of which expires in 1996. Total lease expenses under these leases for 1992 were $ 95,969. Minimum future rental payments under non-cancelable operating leases having initial or remaining terms in excess of one year as of December 31, 1992 are:
YEAR ENDING DECEMBER 31: 1993 $ 193,142 1994 181,706 1995 151,351 1996 34,841 1997 - ------- Total minimum future rental payments $ 561,040 =======
NOTE K - SUBSEQUENT EVENT Subsequent to year-end, the Company entered into an equipment lease classified as an operating lease. The lease is for five years and requires payments of $1,522. NOTE L - BALANCE SHEET PRESENTATION In 1993 the Company sold substantially all of its assets and liabilities. As a result of this sale, the Company's Balance Sheet is being reclassified to comply with SEC regulations for an 8-K filing which will include the Company's financial statements. The amounts due from related parties, originally classified as assets (Note E), have been presented in the reclassified Balance Sheet as a reduction in stockholders' equity. This presentation is one of format only as a distribution to the stockholders had not occurred as of the date of the Balance Sheet. Certain of the Company's long-term debt obligations contain covenants which would prohibit the actual distributions of these amounts. 12 MERRILL CORPORATION AND MAY PRINTING COMPANY PRO FORMA COMBINED CONDENSED BALANCE SHEET AND STATEMENTS OF OPERATIONS (Unaudited) ---------------------- The following unaudited pro forma combined condensed balance sheet at October 31, 1993 and statements of operations for the nine-months ended October 31, 1993 and the year ended January 31, 1993 were prepared to illustrate the effects on the financial position and the results of continuing operations of Merrill Corporation and May Printing Company, using the purchase method of accounting and the assumptions described in the accompanying notes and assuming the acquisition had occurred on February 1, 1992. The unaudited pro forma combined condensed balance sheet and statements of operations are not necessarily indicative of the combined financial position or 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, 1992. The unaudited pro forma combined condensed balance sheet and statements of operations and accompanying notes should be read in conjunction with the historical consolidated financial statements of Merrill Corporation and the historical financial statements of May Printing Company, including the notes to such financial statements. The pro forma adjustments are based upon available information and upon certain assumptions that Merrill Corporation believes are reasonable in the circumstances. MERRILL CORPORATION AND MAY PRINTING COMPANY PRO FORMA COMBINED CONDENSED BALANCE SHEET as of October 31, 1993 (Unaudited) (in thousands)
Merrill May Printing Pro Forma Corporation Company Adjustments Combined Current assets: Cash and cash equivalents $12,626 $667 ($13,293)(A) $0 Trade receivable, net 34,633 2,149 36,782 Inventories 12,614 2,920 580 (D) 16,114 Other 2,020 380 2,400 --------- -------- -------- -------- Total current assets 61,893 6,116 (12,713) 55,296 Property, plant and equipment, net 16,575 6,632 1,322 (D) 24,529 Goodwill 1,027 10,872 (E) 11,899 Other 1,310 791 2,101 --------- -------- -------- -------- Total assets $80,805 $13,539 ($519) $93,825 ========= ======== ======== ======== Current liabilities: Notes payable 4,796 (A) 4,796 Accounts payable 14,226 1,736 15,962 Accrued expenses 11,079 1,187 (500)(C) 11,766 Other 2,821 809 3,630 --------- -------- -------- -------- Total current liabilities 28,126 3,732 4,296 36,154 Other 2,927 5,479 (487)(C) 7,919 Shareholders' equity Common stock 74 30 (30)(B) 74 Additional paid in capital 12,303 12,303 Retained earnings 37,375 4,298 (4,298)(B) 37,375 --------- -------- -------- -------- Total Shareholders' equity 49,752 4,328 (4,328) 49,752 --------- -------- -------- -------- Total liabilities and shareholders' equity $80,805 $13,539 ($519) $93,825 ========= ======== ======== ========
MERRILL CORPORATION NOTES TO THE PRO FORMA COMBINED CONDENSED BALANCE SHEET AT OCTOBER 31, 1993 (A) The Pro Forma Financial Statements assume a purchase price of $26,313. The pro forma Financial Statements assume the purchase price is funded as follows (in thousands of dollars): Utilization of cash and cash equivalents $13,293 Proceeds from notes payable 4,796 Assumption of May Printing Company's liabilities 8,224 ------- $26,313 =======
(B) To eliminate May Printing Company's historical equity. (C) To eliminate liabilities not assumed by Merrill Corporation. (D) To adjust to estimated fair market value. (E) To record purchase price in excess of estimated fair market value of net assets acquired. MERRILL CORPORATION AND MAY PRINTING COMPANY PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS for the nine month period ended October 31, 1993 (Unaudited) (in thousands, except per share data)
Merrill May Printing Pro Forma Corporation Company Adjustments Combined Revenue $128,697 $21,462 $150,159 Cost of sales 81,912 14,257 $ 254 (2) 96,423 -------- ------- ------ -------- Gross profit 46,785 7,205 (254) 53,736 Selling, general and administrative expenses 30,393 5,706 524 (3) 36,323 (300)(4) -------- ------- ------ -------- Operating income 16,392 1,499 (478) 17,413 Other income (expense) 37 (382) (195)(5) (726) (186)(6) -------- ------- ------ -------- Income before provision for income taxes and cumulative effect of change in accounting for income taxes 16,429 1,117 (859) 16,687 Provision for income taxes 6,595 0 133 (7) 6,728 -------- ------- ------- -------- Income before cumulative effect of change in accounting for income taxes 9,834 1,117 (992) 9,959 Cumulative effect of change in accounting for income taxes 177 0 177 -------- ------- ------- -------- Net income $10,011 $1,117 $ (992) $10,136 ======== ======= ======= ======== Income per common and common equivalent share: Before cumulative effect of change in accounting for income taxes $1.24 $1.25 Cumulative effect of change in accounting for income taxes 0.02 0.02 -------- -------- Net income $1.26 $1.27 ======== ======== Dividends per common share $0.075 $0.075 ======== ======== Weighted average number of common and common equivalent shares outstanding: 7,945,756 30,034 (8) 7,975,790 ========= ======= =========
MERRILL CORPORATION AND MAY PRINTING COMPANY PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS for the year ended Janaury 31, 1993 (Unaudited) (in thousands, except per share data)
Merrill May Printing Pro Forma Corporation Company Adjustments Combined Revenue $147,716 $27,215 $174,931 Cost of sales 98,119 17,588 $ 339 (1)(2) 116,046 -------- ------- ------ -------- Gross profit 49,597 9,627 (339) 58,885 Selling, general and administrative expens 35,474 7,053 699 (3) 42,826 (400)(4) -------- ------- ------ -------- Operating income 14,123 2,574 (638) 16,059 Other income (expense) 41 (444) (260)(5) (912) (249)(6) -------- ------- ------ -------- Income before provision for income taxes 14,164 2,130 (1,147) 15,147 Provision for income taxes 5,565 0 393 (7) 5,958 -------- ------- ------ -------- Net income $8,599 $2,130 $(1,540) $9,189 ======== ======= ====== ======== Income per common and common equivalent $1.12 $1.19 share: ======== ===== Weighted average number of common and 7,695,113 760 (8) 7,695,873 common equivalent shares outstanding: ========= ====== =========
MERRILL CORPORATION NOTES TO THE PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS For The Nine-Month Period Ended October 31, 1993 And The Year Ended January 31, 1993. (1) Additional costs of approximately $580,000 annually and in the period following the acquisitions associated with the increase in estimated fair market value of inventories have been omitted in determining pro forma results of operations. (2) To reflect additional depreciation of $339,000 annually and $254,000 for the nine months ended October 31, 1993, related to the increase in the fair market value of property, plant and equipment. (3) To reflect additional amortization of $669,000 annually and $524,000 for the nine months ended October 31, 1993, related to goodwill. (4) Reduction in expenses of $400,000 annually and $300,000 for the nine months ended October 31, 1993, for the elimination of executive positions that will not be incurred in the consolidated entity. (5) To reflect estimated increase in interest expense of $260,000 annually and $195,000 for the nine months ended October 31, 1993 resulting from increased borrowings under notes payable to purchase the assets of May Printing Company. (6) To reflect estimated decrease in interest income of $249,000 annually and $186,000 for the nine months ended October 31, 1993 resulting from decrease in cash and cash equivalents to purchase the assets of May Printing Company. (7) To reflect income taxes at a rate of 40% on the pro forma combined results of operations. (8) To reflect additional common equivalent shares as a result of granting stock options at fair market value in conjunction with the purchase of assets of May Printing Company. EXHIBIT INDEX
Exhibit Method No. Description of Filing - ------ ----------- --------- 2.1 Asset Purchase Agreement, dated as of December 31, 1993, by and among the Purchaser, Registrant, the Company and the Shareholders of the Company. . . . Incorporated by reference herein to Exhibit 2.1 to the Registrant's Form 8-K filed January 18, 1994. 23.1 Consent of Coopers & Lybrand, Independent Accountants. . . . . . . . . . . . . . Filed electronically with this Direct Transmission 23.2 Consent of Kern, DeWenter, Viere, Ltd., Independent Accountants. . . . . . . . . . . . . . Filed electronically with this Direct Transmission 99.1 Press Release of Registrant, dated January 3, 1994 . . . . . . . . . . . . . . . . . . . . . . . Incorporated by reference herein to Exhibit 99.1 to the Registrant's Form 8-K filed January 18, 1994.
EX-23.1 2 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Merrill Corporation on Forms S-8 (File No. 33-46275 and File No. 33-52623) of our report dated November 22, 1993, except as to Notes 8 and 10, for which the date is December 31, 1993, on our audit of the financial statements of May Printing Company as of September 30, 1993, and for the nine-month period ended September 30, 1993, which report is included in Form 8-K/A. Coopers & Lybrand Minneapolis, MN March 21, 1994 EX-23.2 3 EXHIBIT 23.2 [KDV LETTERHEAD] March 18, 1994 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Merrill Corporation on Form S-8 of our report dated January 28, 1993, on our audit of the financial statements of May Printing Company as of December 31, 1992, and for the year ended December 31, 1992, which report is included on Form 8-K/A. /s/ Kern, DeWenter, Viere, Ltd. ----------------------------------- Kern, DeWenter, Viere, Ltd. -----END PRIVACY-ENHANCED MESSAGE-----