UNITED STATES
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):
October 9, 2001
MERRILL CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota (State or other jurisdiction of incorporation) |
333-30732 (Commission File Number) |
41-0946258 (I.R.S. Employer Identification No.) |
One Merrill Circle, St. Paul, Minnesota 55108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (651) 646-4501
Item 5. Other Events.
This Form 8-K contains forward-looking statements that are based on management's expectations, estimates, discussions with lenders, and assumptions. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guaranties of future performance and involve certain risks and uncertainties that are difficult to predict. Therefore, actual, future results and trends may differ materially from what we have forecasted due to a variety of factors, including without limitation, the results of our continuing discussions with our lenders, our future capital requirements, current economic conditions and trends in our industry.
Attached to this Form 8-K are our unaudited consolidated financial statements as of and for the three and six months ended July 31, 2001. By this time in prior years, we would have filed our Annual Report on Form 10-K and our first and second quarter Form 10-Qs with the SEC. Because we have not cured the default discussed below, we have been unable to issue our audited financial statements with an unqualified opinion.
As previously disclosed in our Form 8-Ks filed on May 1, 2001 and May 31, 2001, the lenders under our senior credit facility declared an event of default under that facility because of our previously disclosed failure to comply with certain financial covenants. As a result of that default, the lenders also prohibited us from making any payment on our 12% Senior Subordinated Notes due 2009 (the "Subordinated Notes") until the earlier of the date on which the event of default under the credit facility is cured or waived or 179 days after the date on which the payment blockage notice was received. Accordingly, we did not make the interest payment on the Subordinated Notes that was due on May 1, 2001 and are in default under the terms of the Subordinated Notes.
As previously disclosed, we are continuing our discussions with our lenders under our senior credit facility on the principal terms of a consensual restructuring of our outstanding debt obligations. We are also holding discussions with an ad hoc committee of holders of the Subordinated Notes with a view toward reaching a consensual restructuring with these holders. We are having ongoing negotiations and believe we will be able to reach an agreement with these lenders, although there can be no assurance that we will be successful in doing so. As with any restructuring, no assurance can be given that we will be successful in reaching an agreement with any of our lenders. In the event that negotiations are not successful, we will consider all of our alternatives.
The unaudited consolidated financial statements in Item 7 include the classification of long-term debt in accordance with the terms of the original agreements. In the event that we are unable to resolve the outstanding defaults described above, current maturities would increase $351 million to $355 million. These unaudited consolidated financial statements also do not include adjustments, if any, that may arise from these continued discussions described in the previous paragraph. Assuming the issues with our long-term debt are satisfactorily resolved and properly reflected in our consolidated financial statements, we do not believe our final audited fiscal year end accounts and unaudited quarterly accounts will otherwise vary materially from the unaudited accounts presented in Item 7.
Item 7. Financial Statements and Exhibits.
Description |
Page Number |
|
---|---|---|
Unaudited Consolidated Balance Sheet as of January 31, 2001 and July 31, 2001 | F-1 | |
Unaudited Consolidated Statement of Operations for the three and six months ended July 31, 2000 and 2001 | F-2 | |
Unaudited Consolidated Statement of Cash Flows for the six months ended July 31, 2000 and 2001 | F-3 |
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations," which addresses accounting and financial reporting for business combinations. This statement is effective in its entirety for the Company on February 1, 2002. Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which addresses accounting and financial reporting for intangible assets acquired individually or with a group of other assets, except for those acquired in a business combination. This statement is effective in its entirety for the Company on February 1, 2002. The Company is reviewing the requirements of this new guidance and has not yet determined the impact on its consolidated financial statements.
Item 9. Regulation FD Disclosure.
The following is an overview of our unaudited financial position and operating results as of and for the three and six months ended July 31, 2001. These unaudited consolidated financial statements do not include adjustments, if any, that may arise from the continued discussions described in Item 5. of this filing. These results are subject to change based on further review, if required, of these unaudited results and the unaudited results for the fiscal year ended January 31, 2001 and the three months ended April 30, 2001. We anticipate filing our second quarter Form 10-Q along with our financial statements as of and for the three and six months ended July 31, 2001 after completion of our Form 10-K for the year ended January 31, 2001 and our first quarter Form 10-Q for the three months ended April 30, 2001.
Our revenue for the three months ended July 31, 2001 was approximately $177 million, and our gross profit for the three months ended July 31, 2001 approximated $59 million. For the six months ended July 31, 2001, our revenue was approximately $344 million, and our gross profit approximated $116 million. Our operating profit was approximately $14 million and $26 million for the three and six months ended July 31, 2001, respectively. EBITDA, which reflects earnings before interest, taxes, depreciation and amortization, exclusive of merger and other non-recurring costs and restructuring costs, approximated $22 million and $42 million for the three and six months ended July 31, 2001, respectively.
Our cash and cash equivalents as of July 31, 2001 was approximately $34 million. Total assets were approximately $366 million as of July 31, 2001, and our total liabilities were approximately $463 million as of July 31, 2001.
Our long term debt is classified as non-current in accordance with the original terms of the debt agreement. In the event that we are unable to resolve the outstanding defaults, described in Item 5., current maturities would increase $351 million to $355 million.
Merrill Corporation
Unaudited Consolidated Balance Sheet
(dollars in thousands)
|
January 31, 2001 |
July 31, 2001 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Assets | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 22,896 | $ | 34,319 | |||||
Trade receivables, less allowance for doubtful accounts of $6,760 and $8,556, respectively |
119,156 | 137,615 | |||||||
Work-in-process inventories | 14,686 | 13,298 | |||||||
Other inventories | 9,486 | 8,108 | |||||||
Other current assets | 19,294 | 19,966 | |||||||
Total current assets | 185,518 | 213,306 | |||||||
Property, plant and equipment, net | 58,034 | 53,125 | |||||||
Goodwill, net | 72,469 | 69,547 | |||||||
Other assets | 34,424 | 29,612 | |||||||
Total assets |
$ |
350,445 |
$ |
365,590 |
|||||
Liabilities and Shareholders' Deficit |
|||||||||
Current liabilities | |||||||||
Current maturities of long-term debt | $ | 3,988 | $ | 3,988 | |||||
Current maturities of capital lease obligations | 274 | 274 | |||||||
Accounts payable | 31,131 | 31,566 | |||||||
Accrued expenses | 46,288 | 65,739 | |||||||
Total current liabilities |
81,681 |
101,567 |
|||||||
Long-term debt, net of current maturities | 353,227 | 350,993 | |||||||
Capital lease obligations, net of current maturities | 3,069 | 2,820 | |||||||
Other liabilities | 12,652 | 7,618 | |||||||
Total liabilities |
450,629 |
462,998 |
|||||||
Minority interest |
272 |
297 |
|||||||
Preferred stock | 41,962 | 45,105 | |||||||
Shareholders' deficit | (142,418 | ) | (142,810 | ) | |||||
Total liabilities and shareholders' deficit |
$ |
350,445 |
$ |
365,590 |
|||||
Long-term debt is classified as non-current in accordance with the original terms of the debt agreement. In the event that we are unable to resolve the outstanding defaults, described in Item 5., current maturities would increase $351 million to $355 million.
F1
Merrill Corporation
Unaudited Consolidated Statement of Operations
(dollars in thousands)
|
Three Months Ended July 31, |
Six Months Ended July 31, |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2000 |
2001 |
2000 |
2001 |
||||||||||
Revenue | $ | 181,478 | $ | 176,556 | $ | 350,890 | $ | 343,766 | ||||||
Cost of revenue | 117,827 | 117,931 | 232,609 | 228,121 | ||||||||||
Gross profit | 63,651 | 58,625 | 118,281 | 115,645 | ||||||||||
Selling, general and administrative expenses | 43,553 | 42,065 | 89,807 | 84,809 | ||||||||||
Merger and other non-recurring costs | 21 | 1,481 | 215 | 3,398 | ||||||||||
Restructuring costs | | 937 | | 1,059 | ||||||||||
Operating income | 20,077 | 14,142 | 28,259 | 26,379 | ||||||||||
Interest expense | (11,951 | ) | (11,917 | ) | (21,890 | ) | (23,916 | ) | ||||||
Other income, net | 976 | 1,571 | 2,140 | 1,880 | ||||||||||
Income before provision for income taxes | 9,102 | 3,796 | 8,509 | 4,343 | ||||||||||
Provision for income taxes | 3,200 | 89 | 4,040 | 839 | ||||||||||
Net income before minority interest | 5,902 | 3,707 | 4,469 | 3,504 | ||||||||||
Minority interest | 36 | 10 | 86 | 26 | ||||||||||
Net income | 5,866 | 3,697 | 4,383 | 3,478 | ||||||||||
Accreted preferred stock dividend | 1,565 | 1,573 | 3,129 | 3,143 | ||||||||||
Net income available for common shareholders |
$ |
4,301 |
$ |
2,124 |
$ |
1,254 |
$ |
335 |
||||||
F2
Merrill Corporation
Unaudited Statement of Cash Flow
(dollars in thousands)
|
Six Months Ended July 31, |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
2000 |
2001 |
|||||||||
Operating activities: | |||||||||||
Net income available for common shareholders | $ | 1,254 | $ | 335 | |||||||
Adjustment to reconcile net income available for common shareholders to net cash (used in) provided by operating activities: | |||||||||||
Depreciation and amortization | 8,812 | 8,107 | |||||||||
Amortization of intangible and other assets | 3,201 | 3,735 | |||||||||
Deferred income taxes | (2,200 | ) | 419 | ||||||||
Provision for losses on trade receivables | 2,121 | 4,454 | |||||||||
Change in deferred compensation | 532 | 423 | |||||||||
Non-cash interest expense | 1,146 | 1,242 | |||||||||
Minority interest in earnings of subsidiary | 86 | 26 | |||||||||
Accreted preferred stock dividend | 3,129 | 3,143 | |||||||||
Other, net | (424 | ) | (602 | ) | |||||||
Changes in operating assets and liabilities, net of effects from business acquisitions: | |||||||||||
Trade receivables | (38,188 | ) | (23,006 | ) | |||||||
Work-in-process inventories | (3,622 | ) | 1,361 | ||||||||
Other inventories | (1,089 | ) | 1,378 | ||||||||
Other current assets | 517 | (494 | ) | ||||||||
Accounts payable | (993 | ) | 710 | ||||||||
Accrued expenses and other liabilities | 8,722 | 17,235 | |||||||||
Net cash (used in) provided by operating activities | (16,996 | ) | 18,466 | ||||||||
Investing activities: | |||||||||||
Purchase of property, plant and equipment | (4,079 | ) | (3,881 | ) | |||||||
Business acquisitions, net of cash acquired | (4,053 | ) | | ||||||||
Other investing activities, net | (3,183 | ) | | ||||||||
Net cash used in investing activities | (11,315 | ) | (3,881 | ) | |||||||
Financing activities: | |||||||||||
Borrowings on notes payable to banks | 117,350 | | |||||||||
Repayments on notes payable to banks | (81,150 | ) | | ||||||||
Principal payments on long-term debt and capital lease obligations | (5,580 | ) | (2,649 | ) | |||||||
Issuance of Class B common stock | 11,445 | | |||||||||
Repurchase of common stock | (5,693 | ) | (60 | ) | |||||||
Other equity transactions, net | | (90 | ) | ||||||||
Net cash provided by (used in) financing activities | 36,372 | (2,799 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (785 | ) | (363 | ) | |||||||
Increase in cash and cash equivalents | 7,276 | 11,423 | |||||||||
Cash and cash equivalents, beginning of year | 14,458 | 22,896 | |||||||||
Cash and cash equivalents, end of period | $ | 21,734 | $ | 34,319 | |||||||
F3
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 hereunto duly authorized on this 9th day of October, 2001.
MERRILL CORPORATION | ||||
By: |
/s/ ROBERT H. NAZARIAN Robert H. Nazarian Executive Vice President, Chief Financial Officer |