-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I1TtIanLopB0E3JA1OTMtyebTy5Y3Kg5G6lojaNPN2PditzHTE/tbduidlgNFT3F wCQVJLVMo5PgTiwtEzZ/tQ== 0001047469-98-017743.txt : 19980504 0001047469-98-017743.hdr.sgml : 19980504 ACCESSION NUMBER: 0001047469-98-017743 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980501 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL CORP CENTRAL INDEX KEY: 0000790406 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 410946258 STATE OF INCORPORATION: MN FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14082 FILM NUMBER: 98608650 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 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________________ TO ____________________ COMMISSION FILE NUMBER: 0-14082 MERRILL CORPORATION (Exact name of Registrant as specified in its charter) MINNESOTA 41-0946258 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) ONE MERRILL CIRCLE ST. PAUL, MINNESOTA 55108 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 646-4501 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01 PER SHARE ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / As of April 23, 1998, 16,392,386 shares of Common Stock of the Registrant were outstanding, and the aggregate market value of the Common Stock of the Registrant as of that date (based upon the last reported sale price of the Common Stock at that date by the Nasdaq National Market) excluding outstanding shares owned beneficially by officers and directors, was approximately $305,310,000. DOCUMENTS INCORPORATED BY REFERENCE This Report does not repeat important information that you can find in selected pages of our Annual Report to Shareholders for the year ended January 31, 1998 (Annual Report) and in our Proxy Statement for our Annual Meeting on May 28, 1998 (Proxy Statement). The SEC allows us to "incorporate by reference" portions of these documents, which means that we can disclose important information to you by referring you to other documents which are legally considered to be a part of this Report. We encourage you to read the referenced pages in the Annual Report and Proxy Statement for a more thorough understanding of our company and business. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS PART I.......................................................................... 1 ITEM 1. BUSINESS.......................................................... 1 ITEM 2. PROPERTIES........................................................ 7 ITEM 3. LEGAL PROCEEDINGS................................................. 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 8 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.............................. 8 PART II......................................................................... 9 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................................................... 9 ITEM 6. SELECTED FINANCIAL DATA........................................... 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................. 9 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........ 9 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 9 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............................................. 9 PART III........................................................................ 10 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................ 10 ITEM 11. EXECUTIVE COMPENSATION............................................ 10 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.... 10 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 10 PART IV......................................................................... 11 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K............................................................... 11 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE............................................... 13 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS................................ 14 SIGNATURES...................................................................... 15 EXHIBIT INDEX................................................................... 16
PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS Merrill Corporation provides a full range of typesetting, printing, document management and reproduction, distribution and marketing communication services to financial, legal, investment companies and corporate markets. Our headquarters are in St. Paul, Minnesota and we have 31 other locations in major cities across the United States, including six regional printing plants and two distribution centers. We also service financial and corporate printing clients internationally with partners in Canada, Europe and Asia, and through arrangements with printing companies in many cities around the world. Since February 1, 1997, we have acquired two businesses. On February 21, 1997, we bought most of the assets of Roald Marth Learning Systems, Inc. which used the name Superstar Computing. It is now called Merrill Training and Technology. Merrill Training and Technology provides computer systems and training to the real estate industry. On September 30, 1997, we bought some of the assets of Total Management Support Services, LLC, a document management services company. Merrill Corporation is a Minnesota corporation that was organized in 1968 under the name "K.F. Merrill Company." Our main offices are at One Merrill Circle, Energy Park, St. Paul, Minnesota 55108, telephone (612) 646-4501. Unless it does not make sense in the sentence, when we use "Company," "Merrill," "our" or "we," those terms also include our subsidiaries, Merrill/New York Company, Merrill/Magnus Publishing Corporation, Merrill Corporation, Canada, Merrill/May, Inc., Merrill International, Inc., Merrill Real Estate Company, FMC Resource Management Corporation and Merrill Training & Technology, Inc. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Since we started in 1968, Merrill's revenues, operating profits and assets have come from one business segment: we have provided document typesetting, printing, management and reproduction, distribution and marketing communication services for the financial, legal, investment company and corporate markets. Please refer to pages 13 to 27 of our 1998 Annual Report to Shareholders for more information. That information is part of our disclosure in this Report. (c) NARRATIVE DESCRIPTION OF BUSINESS We are a document management and services company; we use advanced computer and telecommunication technology to provide a full range of services to our customers. These services include typesetting, printing, electronic document formation, reproduction, facilities management, distribution and marketing communication services. We market these services through the following product sectors: Financial Document Services, Investment Company Services, Document Management Services, and Managed Communications Programs. CATEGORIES OF SERVICE We divide our revenue into four groups: Financial, Corporate, Document Management Services and Commercial and Other work. The following table shows the percentage of revenue Merrill has produced in each of those groups for our past three fiscal years:
YEAR ENDED JANUARY 31, ------------------------------------- CATEGORY OF SERVICE 1998 1997 1996 - ------------------------ ----------- ----------- ----------- Financial............... 38.2% 40.6% 36.1% Corporate............... 31.6% 27.6% 29.5% Document Management Services............... 11.7% 11.2% 12.9% Commercial and Other.... 18.5% 20.6% 21.5% ----- ----- ----- Total............... 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- -----
FINANCIAL AND CORPORATE GENERAL The Financial revenue category includes the production and distribution of time-sensitive, transactional financial documents, such as registration statements, prospectuses and other printed 1 materials that are part of business financings and acquisitions. Our Corporate revenue category includes the production and distribution of corporate documents that our clients provide at regular intervals. Corporate revenue includes documents marketed through both our Financial Document Services and Investment Company Services product sectors. Some examples are annual and quarterly reports and proxy materials for companies. Other examples are registration statements, compliance and marketing materials for unit investment trusts and mutual funds. We use the same technology and people to provide both Financial and Corporate printing services. We are a service-oriented company. The production of financial and corporate documents requires rapid typesetting, printing and electronic conversion services that are available twenty-four hours per day and tailored to the exacting demands of our customers. We receive information directly from our customers in various forms, including typed or handwritten pages, tapes, faxes, disks, Internet-based files, and direct links from customers' computers. The information may come into one of our offices, which will transmit it by fax or direct electronic connection (modem) to our centralized production facilities for processing into a typeset or electronic document. Each document typically goes through many cycles of proofreading and editing. Each version of a document is typeset or converted to an electronic format required by the SEC (EDGAR), and distributed to the people drafting it, including corporate executives, investment bankers, attorneys and accountants. If the drafters are in different cities, the proofs must be delivered simultaneously to different parts of the country. Proofs are delivered to our customers on paper or electronically using our E-PROOF-TM- proprietary system. e:Proof provides secure, on-screen versions of documents that look like the originals and can be viewed, printed or e-mailed anywhere in the world, from almost any computer. Just before the final version of a financial or corporate document is completed, the drafting group will usually meet in one of our conference rooms in our offices. These "in-houses" are one of the most time-critical services that we provide. In-house sessions require the accurate and rapid turnaround of the edited pages and expert knowledge of the documents and filing requirements of the SEC. We also need to provide a comfortable and pleasant environment for the many hours of drafting. After the customers have made their final changes, we quickly prepare an electronic submission for filing through EDGAR. We also may create paper copies of the document and exhibits for filing with the SEC and other regulatory authorities. The document is then printed, collated, bound and distributed in booklet form. We can also produce material electronically for distribution via the Internet in PDF or HTML formats (computer coding that makes it possible to look at pages of text on a computer screen). "HUB AND SPOKE" NETWORK We use computers and telecommunication technology to create a "hub and spoke" network for Merrill's financial and corporate services, linking our typesetting centers in St. Paul and suburban Baltimore (the hubs) with our 23 service facilities in the United States (the spokes). We also have the technology to link the hubs directly to our customers and to our international partners and affiliates. CENTRAL COMPUTERIZED PRODUCTION FACILITY. Merrill has computer systems in our central production facility located in St. Paul that work with communication technology and software we have developed. We use computers, communication controllers, text entry and editing stations, laser typesetting equipment, and a number of special purpose computer subsystems for data conversion and information management. Each critical piece of equipment in the system has at least one back-up device. We designed the computer systems to be high- performance, reliable, and secure. The concentration of equipment and typesetting personnel in a central facility has been a key Merrill strategy to reduce overhead and labor costs, train people more effectively, and use our resources efficiently. In addition, with the growth of the Company, a second hub in suburban Baltimore has given us regional focus and stronger backup in case of a disaster to the St. Paul hub. We believe we benefit more quickly from new technologies that have decreased costs and improved the quality of our service, since new technologies and methods in the hub facilities immediately benefit the spoke facilities. We also 2 believe that we are better able to allocate our typesetting resources when and where our customers need them. NATIONAL COMMUNICATIONS NETWORK. Merrill has a self-contained telecommunication network connecting our service facilities with the hubs. We transmit documents and production control information electronically among our offices. The network consists of digital lines connecting each of our service facilities with the hubs, automated data switching and routing equipment and the software that controls the communications. Designed to operate continuously, the network is highly efficient and reliable. We have back-up service for each section of the network, in case any of it fails to operate. SERVICE FACILITIES. Merrill staffs service facilities with sales, administrative, customer service, production, duplication and distribution personnel. The service facilities have conference rooms with support staff, office equipment and amenities to give our customers a comfortable work environment in which to meet, write and revise their documents. The service facilities have photo-imaging equipment to produce high quality images using the electronic information received from the hubs. Within minutes of completion, we can transmit documents to one or more service facilities for distribution. MERRILLLINK-TM-. We developed the MERRILLLINK system to connect our hubs to other locations through the use of portable printing devices in the client's office or at our smaller sales offices. We can edit typeset pages and provide proof distribution to remote locations throughout the world. MERRILLLINK lets us do business almost anywhere. The system is particularly helpful in our financial work where our customers require a quick turnaround . INTERNATIONAL SERVICE. Merrill and Burrups, Ltd., a London-based financial printing company, jointly market international financial transaction business worldwide. Both companies work together to give customers integrated document typesetting, printing and distribution services wherever the document originates or needs to be delivered. Besides London, Burrups has full service facilities in Frankfurt, Luxembourg, Paris, and Tokyo and Merrill/Burrups has additional facilities in Hong Kong, Singapore, Melbourne and Tel Aviv for use in our joint international service. We also market and service financial and corporate documents in Canada through a joint venture with Quebecor Printing, Inc., a large commercial printer based in Montreal. Quebecor Merrill Canada, Inc. has full service facilities in Calgary, Montreal, Toronto, and Vancouver. We have also established relationships with financial printing companies in 44 countries who provide services to us on an "as needed" basis. We have the software and hardware for electronic communications between our production hubs and the international service facilities. With this electronic connection and the MERRILLLINK system, we can transmit high-quality typeset documents for printing and distribution throughout the world without the time delays and costs of air shipment. THE JOB CONTROL SYSTEM. We coordinate the activities of our service facilities through our own Job Control System (JCS). This system tracks each document from the time we receive it through production and billing. Information can be sent to and retrieved from the JCS by any service facility and can be immediately read in the hubs. During the production phase, the JCS assigns job numbers and tracks information about the document, such as dates and the times at which proofs are due, style and job specifications, messages regarding the job and last-minute changes. Distribution of drafts is a critical task in the preparation of financial documents, and the JCS simplifies this task. It keeps a current address list for each job, the history of the distribution, and the method of delivery for each proof. We also use the production information collected in the JCS for billing. EDGAR AND SEDAR-REGISTERED TRADEMARK- The SEC requires public companies or their agents to file most disclosure information in an electronic format through EDGAR, rather than in paper. This electronic format, usually in ASCII, includes additional submission information and coding "tags" embedded in the document. The SEC uses this embedded information to analyze the document and to help the public retrieve these disclosures. EDGAR filings are generally delivered by modem on a telephone line, but may be delivered on magnetic computer tape or by 3 diskette. We convert SEC forms and exhibit documents from standard word processing and other computer formats to the EDGAR format and we then assemble these documents for electronic filing with the SEC. Merrill has been involved in all stages of EDGAR's development. We wrote software that enables us to prepare documents in single source files and file the electronic version of financial and corporate documents quickly. "Single source files" mean we make only one set of corrections to alter both the electronic and print files -- reducing the chance of inconsistency. We have a dedicated data line directly to the SEC's computers, which avoids busy signals and other tie-ups. In addition, we have trained our staff extensively to coordinate the preparation of these EDGAR filings. We keep participants informed of EDGAR developments by publishing quarterly Merrill's EDGAR ADVISOR-TM-, a newsletter distributed to lawyers, corporate executives and other readers. We conduct seminars throughout the country on EDGAR. Customers may call our toll-free EDGAR information line. We also publish a variety of reference materials on EDGAR rules, forms, and procedures. We have experienced high demand levels for EDGAR filing services in both our financial and corporate categories of services. Many public companies choose not to manage their own EDGAR filings and use outside services to meet EDGAR filing requirements. We believe that our full array of EDGAR services will continue to enhance the need for our other time-sensitive document services. SEDAR-Registered Trademark- (System for Electronic Document Analysis and Retrieval) is Canada's system for electronic disclosure by public companies. We offer a full range of SEDAR services, including a section on SEDAR in the EDGAR ADVISOR. SEDAR IS A REGISTERED TRADEMARK OF THE CANADIAN SECURITIES ADMINISTRATORS. DOCUMENT MANAGEMENT SERVICES Merrill provides comprehensive document management services for our customers. We work both on an ongoing basis, which can include management of the client's entire photocopying, typesetting, imaging and/or mailroom facilities, and on a transactional basis, which includes photocopying and electronic imaging services on an as needed basis. We offer comprehensive office photocopying, typesetting and mailroom facility management services to our customers in Document Service Centers (DSCs) within their offices. These services involve providing for a client's document management needs, including on-site employees, equipment and management of the operation. We typically enter into three-year agreements with our clients to provide a range of services at their location. We help our customers determine their needs, and provide the equipment, staff, and management to meet those needs. Since most of our DSCs are located in cities where we have our own service facilities, we can provide back-up capacity and personnel to our DSC customers as needed. The transactional business includes document reproduction for projects that are time-sensitive or otherwise require special service, such as photocopying documents for large litigation matters. We produce the photocopies at our own service facilities or we place photocopying equipment and personnel at the client's office. Document reproduction services require rapid turnaround and availability twenty-four hours per day. Our document reproduction customers typically have several boxes of documents that may be in file folders, stapled or on varying sizes of paper. We take apart, photocopy and reassemble the original documents as instructed by the client. We also provide sequential numbering, binding and imaging services for these documents, if requested. Photocopying projects range from single copies of short documents to very complicated tasks. Our service facilities include document management equipment and personnel. Each service facility is equipped with high-performance photocopying equipment. We make efficient use of this equipment by performing project photocopying during times when the equipment would otherwise be idle. We also operate document reproduction facilities in Century City (Los Angeles area) and Union, New Jersey. 4 COMMERCIAL AND OTHER SERVICES GENERAL The Commercial and Other revenue category includes document services performed by our Merrill/May, Inc. (Merrill/May), FMC Resource Management Corporation (FMC) and Merrill Training & Technology, Inc. (MTT) subsidiaries, as well as revenue from the production of other commercial documents, including health care provider directories, price catalogs, insurance industry annual reports, sample ballots, directories, and technical manuals from electronic information supplied by customers. Merrill/May provides custom marketing communication services to corporate customers and demand printing and distribution services designed to promote the corporate identity of large, national customers with multiple franchisees, members, divisions or affiliated organizations, including real estate companies, fast food restaurants, and credit card companies. FMC provides manufacturing, distribution, and inventory management services of marketing items for large, geographically diverse companies, such as department stores. MTT provides computer systems and training to the real estate industry. MANAGED COMMUNICATIONS PROGRAMS We provide demand printing and fulfillment of "corporate identity" materials - -- brochures, business cards, even clothing that carries the distinctive marks and symbols of those corporations. We call this Managed Communications Programs. Our customers are usually large, national customers with multiple franchisees, members, divisions or affiliated organizations (member organizations). We also provide manufacturing, fulfillment, and inventory management services, such as commercial printing, business forms, digital printing, display items, collateral materials, (i.e., hangers, pricetags, and point of purchase signage), and gift certificates for large companies with multiple locations and departments that are seeking consistency throughout the organization. We can produce multi-color, highly technical, commercial quality printed materials. We develop, produce, and prepare a catalog of the printed products, which includes other promotional merchandise produced by third parties. We also distribute the client-specific catalogs to the client's member organizations. To our real estate customers, we also offer computer hardware, training and technology services. We develop direct relationships with the individual member organizations, which are often independently owned and operated and make their own print purchasing decisions. We use a sophisticated order entry system, including a large inbound telemarketing staff, to receive and process orders. A member organization or an individual can place an order by mail, fax or toll free number. Our customer service representative processing the order will have access to the client's purchase history (if an existing client) and can suggest reordering certain items, cross-sell complementary items or alert the client to current specials. We produce printed materials in large quantities, which we warehouse pending receipt of an order. Products ordered from a catalog typically require additional "personalizing" for the ordering member organization. They are checked for quality, packaged and shipped. Promotional merchandise (point of purchase, advertising specialty, premiums and incentives) included in a catalog that are produced by third parties are generally shipped directly by the manufacturer to the ordering member organization. We use a materials handling system with automated handling, order consolidation and shipping. Most orders are filled within four days of receipt. Our centralized production and fulfillment center in St. Cloud, Minnesota benefits both the national account client and its member organizations. The national account client can control the use of its trademarks and enjoy the economies of mass production. The members, the ultimate consumers of our services, receive quality products, fast delivery and prices that we believe are competitive with prices charged by local print shops. Mutual fund and other investment companies also use our suite of fulfillment services, including MERRILLCONNECT-TM- software. MERRILLCONNECT tracks client contacts, marketing materials, and responses in a closed-loop system. Our Managed Communications Programs customers are located in all fifty states and Canada, with limited shipments to Mexico, Puerto Rico, France, Germany, England, Guam, the Virgin Islands, Italy, Spain, Singapore and the Cayman Islands. 5 We also provide custom marketing communications and publishing services, primarily to financial services companies, media organizations, retailers and the health care industry. The types of custom publications we produce include magazines, tabloids, newsletters, booklets and catalogs used by customers for their marketing purposes. We work with customers in the design, editorial content and mailing lists for these publications. We typeset, print and mail the publications. Most often, we operate on annual contracts for this work. Our commercial typesetting business provides full document services, including camera, pre-press and printing services for one- or multi-color publications. These commercial printing projects, like financial and corporate printing, require a high level of attention to detail, quick turnaround times, and responsive customer service. We believe that offering a high level of specialty service is a competitive advantage in certain niches of the commercial printing business. PRINTING SERVICES We currently operate printing plants in St. Paul, Los Angeles, Chicago, Dallas and New Jersey. We have found it advantageous to operate printing presses at these locations to service our Financial Document Services customers, and service a portion of our recurring corporate and commercial printing business. Corporate and commercial printing is generally more predictable in volume and less time-sensitive in nature than financial printing. Because we use the presses for both types of printing, we retain the flexibility to meet the immediate demands of financial printing. In all markets, we have identified several printers capable of meeting our production needs on an "as required" basis. We use associated printers when we need additional capacity in markets where we do not own presses, when special printing equipment is needed, or when we have overflow work. We generally select associated printers on a job-by-job basis, based upon considerations of price, availability and suitability of press equipment. We also operate a printing plant in St. Cloud, Minnesota, for our specialized color printing services. SEE BUSINESS -- COMMERCIAL AND OTHER SERVICES -- MANAGED COMMUNICATIONS PROGRAMS ABOVE. MARKETING AND CUSTOMERS We market our services through the following product sectors: - Financial Document Services (includes transaction and compliance documents) - Investment Company Services - Document Management Services - Managed Communications Programs We sell our products and services nationwide through a direct sales organization operating from our service facilities and sales offices. We market in Canada through employees of our joint venture, Quebecor Merrill Canada Inc. Internationally, we sell with Burrups, Ltd. through the direct sales by employees of each company. We direct our Financial Document Services to executives of corporations whose securities are or are about to be publicly traded. We also sell to the advisers to those companies -- corporate finance underwriters, municipal bond underwriters, and attorneys, as well as others who require fast and accurate typesetting. Investment Company Services are marketed to mutual fund and unit investment trust managers. Our Document Management Services are marketed primarily to lawyers, paralegals, law office administrators, and legal departments of corporations. We market Managed Communications Programs through direct sales teams based in several major markets throughout the United States. We market our demand printing and distribution services to large, national customers with multiple franchisees, members, divisions or affiliated organizations and our custom publication services to financial service companies (such as banks, credit unions and insurance companies), television and radio stations and networks, trade associations, manufacturers and vacation travel industries. We sell our commercial printing services primarily to corporations, associations, insurance companies and legal, institutional and governmental publishers. We sell computer training and technology services to real estate agents through industry networking, telemarketing and other direct marketing methods. 6 As of April 15, 1998, we employed 288 full-time salespeople to market typesetting, printing, publishing, distribution, document management, reproduction and managed communication services. Our salespeople solicit business from existing and prospective customers. Together with the customer service representatives, the sales team helps coordinate our services and provides advice and assistance to customers. COMPETITION Merrill competes with many domestic and international companies in the financial and compliance printing industries, including two principal U.S.-based competitors, Bowne & Co., Inc. and R.R. Donnelley & Sons Company. Both Bowne and Donnelley are major competitors in most of our financial and compliance printing markets. We also compete for complex, large-run typesetting work with a number of other computer typesetting firms, and we compete for medium-run printing work with a number of commercial web press printers. In the Managed Communications Programs business, we believe our primary competitors are local print shops and marketing service firms, including advertising agencies, custom publication printers, direct mail firms, and television, radio, newspapers, magazine and other media organizations. We also compete with computer training organizations and computer retailers. In our Document Management Services businesses, we compete with three nationwide service companies -- Xerox Corporation, Pitney Bowes and IKON -- and a number of smaller local companies. We also compete with litigation support services vendors and a large number of photocopying and imaging shops, including privately-owned shops as well as franchise operations. Competition in this part of our business is intense and is based principally on service, price, speed, accuracy, technological capability and established relationships. We believe that Merrill competes favorably with its competitors. EMPLOYEES As of April 15, 1998, we had 3,626 full-time employees and 212 part-time employees. None of our employees are covered by a collective bargaining agreement. We consider our employee relations to be good. Merrill's senior management and certain technical personnel have substantial experience and expertise in the document services industry. We consider the retention of these employees to be important to our continued success. We compete intensely with others in the industry to attract and retain qualified salespeople. However, we believe that we are able to provide incentives sufficient to minimize the loss of key salespeople and to attract productive new salespeople for both replacement and expansion of our sales team. Many salespeople are under employment contracts of varying terms with us. (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Substantially all of our revenue, operating profit and identifiable assets are based in the United States. ITEM 2. PROPERTIES We lease all of our facilities, except two. We own Merrill/May's main facility in St. Cloud that includes approximately 123,000 square feet. We also own the Energy Park Business Center in St. Paul. This space consists of approximately 150,000 square feet in two buildings adjacent to our principal production and administrative office facility. We maintain several of our corporate and administration departments in these buildings along with reprographics operations. Substantially all of the approximately 85,000 square feet of space remaining available for lease is currently leased to other businesses. We believe that owning these buildings allows us to plan our expansion more efficiently. Our main office in St. Paul includes 47,000 square feet and is leased from the Port Authority of the City of St. Paul. The terms of our agreements with the Port Authority are in a facilities lease and land lease, both dated October 1, 1985, which require us to pay rent to the Port Authority in the amounts of $24,069 per month and $3,431 per month, respectively, for terms expiring on November 30, 2005. Each lease grants us the 7 option to purchase the property at the end of the term. Under the facilities lease, we may purchase the building for $254,500 and the land for $167,140 at the end of the lease terms. Our New York City service facility consists of approximately 102,000 square feet of leased space on three floors of a building in Greenwich Village. We are required to pay rent in the amount of $57,385 per month for a term expiring on October 31, 2014. We also lease service facilities, sales offices and warehouse space in other cities, with space ranging from 150 square feet to 77,000 square feet. These leases have expiration dates ranging from June 30, 1998 to October 31, 2018 under which we make monthly payments aggregating approximately $460,000, including rental fees, real estate taxes and operating expenses. We make a continuing effort to keep all of our properties and facilities modern, efficient and adequate for our operating needs. ITEM 3. LEGAL PROCEEDINGS We do not know of any important legal, governmental, administrative or other matters that would significantly affect Merrill's business or property. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We did not ask our shareholders to vote on anything during the fourth quarter of fiscal year 1998. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of Merrill, their ages, the year they became executive officers and the offices held as of April 28, 1998 are as follows:
YEAR FIRST ELECTED OR APPOINTED AS AN NAME AGE EXECUTIVE OFFICER TITLE - ----------------------- --- ----------------- ------------------------------------------ John W. Castro 49 1980 President and Chief Executive Officer Rick R. Atterbury 44 1981 Executive Vice President Steven J. Machov 47 1987 Vice President, General Counsel and Secretary Kathleen A. Larkin 38 1993 Vice President -- Human Resources Kay A. Barber 47 1995 Vice President -- Finance, Chief Financial Officer, Treasurer
Our executive officers are elected by the Board of Directors. The officers serve one-year terms that begin with their election at the first meeting of the Board of Directors after the annual meeting of shareholders. Their terms end at the same meeting the following year. The President and Chief Executive Officer appoints other officers who serve at his discretion. There are no family relationships between any of the executive officers or directors. There has been no change in position of any of the executive officers during the past five years, except as we explain below: Mr. Atterbury was elected Executive Vice President in 1996. He previously served as Vice President -- Operations. Mr. Machov was elected Vice President in May 1993 in addition to his positions as General Counsel and Secretary. Ms. Larkin joined Merrill in April 1993 as Manager of Human Resources and was appointed Vice President -- Human Resources in December 1993. 8 Ms. Barber joined Merrill in August 1995 as Vice President -- Finance, Chief Financial Officer and Treasurer. From January 1993 to August 1995, Ms. Barber was Vice President, Finance and Controller for Growing Healthy, Inc., a frozen baby food company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Please refer to the section called "Quarterly Stock Price Information" on page 12 of our 1998 Annual Report for additional important information about Merrill's stock price. That information is part of our disclosure in this Report. You should review this information carefully. Merrill did not sell any unregistered equity securities from February 1, 1997 through January 31, 1998. ITEM 6. SELECTED FINANCIAL DATA The financial information in the table on page 27 of our 1998 Annual Report should be reviewed. It is part of our disclosure in this Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Please review the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 8 to 12 of our 1998 Annual Report. It is part of our disclosure in this Report and analyzes our financial performance over the last few years. You should review this information carefully. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company regularly invests excess operating cash in overnight repurchase agreements that are subject to changes in short-term interest rates. Accordingly, the Company believes that the market risk arising from its holding of these financial instruments is minimal. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our "Consolidated Financial Statements" on pages 13 to 26 (including the unaudited information in the "Quarterly Data" section on page 26) and the Report of Independent Accountants on page 28 of our 1998 Annual Report are part of our disclosure in this Report. You should review this information carefully. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were none. 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) DIRECTORS OF THE REGISTRANT. Please review the information under the captions "Election of Directors -- Information About Nominees" and "Other Information About Nominees" on pages 5 and 6 of our 1998 Proxy Statement. It is part of our disclosure in this Report. You should review this information carefully. (b) EXECUTIVE OFFICERS OF THE REGISTRANT. Information concerning Merrill's Executive Officers is included in this Report under Item 4A, "Executive Officers of the Registrant." (c) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 16 of our 1998 Proxy Statement is part of our disclosure in this Report. You should review this information carefully. ITEM 11. EXECUTIVE COMPENSATION The information under the captions "Election of Directors -- Directors' Compensation" on pages 7 and 8 and "Executive Compensation" on pages 8 to 16, (excluding the "Comparative Stock Performance" graph on page 14), of our 1998 Proxy Statement is part of our disclosure in this Report. You should review this information carefully. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the captions "Security Ownership of Certain Beneficial Owners and Management" on pages 3 and 4, and "Election of Directors -- Information About Nominees" on page 5 of our 1998 Proxy Statement is part of our disclosure in this Report. You should review this information carefully. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the caption "Certain Transactions" on page 16 of our 1998 Proxy Statement is part of our disclosure in this Report. You should review this information carefully. 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial statements: The following financial statements are part of our disclosure in this Report and are found on the following pages in our 1998 Annual Report: Consolidated Balance Sheets as of January 31, 1998 and 1997 -- page 13. Consolidated Statements of Operations for the years ended January 31, 1998, 1997 and 1996 -- page 14. Consolidated Statements of Cash Flows for the years ended January 31, 1998, 1997 and 1996 -- page 15. Consolidated Statements of Changes in Shareholders' Equity for the years ended January 31, 1998, 1997 and 1996 -- page 16. Notes to Consolidated Financial Statements -- pages 17-26. Report of Independent Accountants -- page 28. 2. Financial statement schedule: The following supplemental schedule and report of independent accountants are part of our disclosure in this Report and should be read together with the consolidated financial statements in the 1998 Annual Report we refer to above (page numbers refer to pages in this Report):
PAGE ----- Report of Independent Accountants................................................... 13 Supplemental Schedule: II Valuation and Qualifying Accounts........................................................................ 14
We are omitting all other schedules either because the information does not apply or the information is in the consolidated financial statements or related notes. 3. Exhibits: The exhibits to this Report are listed in the Exhibit Index on pages 16 to 19 of this Report. If you were a shareholder on April 1, 1998, you may request copies of any of these exhibits by writing to: Investor Relations, Merrill Corporation, One Merrill Circle, St. Paul, Minnesota 55108. We may charge a small handling fee for the copies. The following is a list of each management contract or compensatory plan or arrangement we need to file as an exhibit to this Report: A. Employment Agreement between John W. Castro and the Company (this was made part of our disclosure in Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1989 (File No. 0-14082)). 11 B. First Amendment to Employment Agreement between John W. Castro and the Company (this was made part of our disclosure in Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1994 (File No. 0-14082)). C. Second Amendment to Employment Agreement between John W. Castro and the Company (this is included with this filing). D. Deferred Compensation Agreement between John W. Castro and the Company (this is included with this filing). E. Employment Agreement between Rick R. Atterbury and the Company (this was made part of our disclosure in Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1991 (File No. 0-14082)). F. First Amendment to Employment Agreement between Rick R. Atterbury and the Company (this was made part of our disclosure in Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1994 (File No. 0-14082)). G. Second Amendment to Employment Agreement between Rick R. Atterbury and the Company (this is included with this filing). H. 1987 Omnibus Stock Plan, as amended (this was made part of our disclosure in Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1991 (File No. 0-14082)). I. 1993 Stock Incentive Plan, as amended (this was made part of our disclosure in Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1997 (File No. 0-14082)). J. Option Agreement between Ronald N. Hoge and the Company (this was made part of our disclosure in Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1993 (File No. 0-14082)). K. 1996 Non-Employee Director Plan (this was made part of our disclosure in Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1997 (File No. 0-14082)). (b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed during the fourth quarter of the fiscal year ended January 31, 1998. 12 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE Our report on the consolidated financial statements of Merrill Corporation and Subsidiaries has been incorporated by reference in this Form 10-K from page 28 of the 1998 Annual Report to Shareholders of Merrill Corporation. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14(a)2. of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. St. Paul, Minnesota March 30, 1998 13 SCHEDULE II MERRILL CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 (IN THOUSANDS)
COLUMN C -------------------- COLUMN B ADDITIONS COLUMN D ---------- -------------------- ---------- COLUMN E COLUMN A BALANCE AT CHARGED DEDUCTIONS ----------- - -------------------------------------------------- BEGINNING CHARGED TO OTHER FROM BALANCE AT DESCRIPTION OF YEAR TO INCOME ACCOUNTS RESERVES END OF YEAR - -------------------------------------------------- ---------- --------- -------- ---------- ----------- Year Ended January 31, 1996 Valuation account deducted from assets to which it applies -- Allowance for doubtful accounts............... $2,830 $1,486 $ 26(A) $ 797(B) $3,545 ---------- --------- --- ---------- ----------- ---------- --------- --- ---------- ----------- Allowance for unbillable inventories.......... $ 312 $ 250 $ 562 ---------- --------- ----------- ---------- --------- ----------- Year Ended January 31, 1997 Valuation account deducted from assets to which it applies -- Allowance for doubtful accounts............... $3,545 $2,861 $ 61(A) $ 440(B) $6,027 ---------- --------- --- ---------- ----------- ---------- --------- --- ---------- ----------- Allowance for unbillable inventories.......... $ 562 $2,678 $3,240 ---------- --------- ----------- ---------- --------- ----------- Year Ended January 31, 1998 Valuation account deducted from assets to which it applies -- Allowance for doubtful accounts............... $6,027 $2,064 $ 55(A) $1,154(B) $6,992 ---------- --------- --- ---------- ----------- ---------- --------- --- ---------- ----------- Allowance for unbillable inventories.......... $3,240 $1,063(C) $2,177 ---------- ---------- ----------- ---------- ---------- -----------
- ------------------------ (A) Recoveries on accounts previously written off. (B) Uncollectible accounts written off and adjustments to the allowance. (C) Adjustments to the allowance account to reflect estimated net realizable value at year-end. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. (REGISTRANT) MERRILL CORPORATION BY (SIGNATURE) /s/ JOHN W. CASTRO (NAME AND TITLE) John W. Castro, President and Chief Executive Officer (DATE) April 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. BY (SIGNATURE) /s/ JOHN W. CASTRO (NAME AND TITLE) John W. Castro, President and Chief Executive Officer (Principal Executive Officer) and Director (DATE) April 30, 1998 BY (SIGNATURE) /s/ KAY A. BARBER (NAME AND TITLE) Kay A. Barber, Vice President -- Finance, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) (DATE) April 30, 1998 BY (SIGNATURE) /s/ ROBERT F. NIENHOUSE (NAME AND TITLE) Robert F. Nienhouse, Director (DATE) April 30, 1998 BY (SIGNATURE) /s/ RICHARD G. LAREAU (NAME AND TITLE) Richard G. Lareau, Director (DATE) April 30, 1998 BY (SIGNATURE) /s/ PAUL G. MILLER (NAME AND TITLE) Paul G. Miller, Director (DATE) April 30, 1998 BY (SIGNATURE) /s/ RICK R. ATTERBURY (NAME AND TITLE) Rick R. Atterbury, Director (DATE) April 30, 1998 BY (SIGNATURE) /s/ RONALD N. HOGE (NAME AND TITLE) Ronald N. Hoge, Director (DATE) April 30, 1998 BY (SIGNATURE) /s/ JAMES R. CAMPBELL (NAME AND TITLE) James R. Campbell, Director (DATE) April 30, 1998 BY (SIGNATURE) /s/ FREDERICK W. KANNER (NAME AND TITLE) Frederick W. Kanner, Director (DATE) April 30, 1998 BY (SIGNATURE) /s/ MICHAEL S. SCOTT MORTON (NAME AND TITLE) Michael S. Scott Morton, Director (DATE) April 30, 1998
15 MERRILL CORPORATION EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED JANUARY 31, 1998
ITEM NO. DESCRIPTION METHOD OF FILING - ----------- -------------------------------------------------- -------------------------------------------------- 3.1 Articles of Incorporation of the Company This was made part of our disclosure in Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File No. 33-4062) 3.2 Amendments to Articles of Incorporation as of June This was made part of our disclosure in Exhibit 20, 1986 and March 27, 1987 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1987 3.3 Restated Bylaws of the Company This was made part of our disclosure in Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1990 10.1 Employment Agreement between Rick R. Atterbury and This was made part of our disclosure in Exhibit the Company, dated as of February 1, 1987, as 10.2 to the Company's Annual Report on Form 10-K amended for the fiscal year ended January 31, 1991 10.2 First Amendment to Employment Agreement between This was made part of our disclosure in Exhibit Rick R. Atterbury and the Company, dated as of 10.3 to the Company's Annual Report on Form 10-K April 29, 1994. for the fiscal year ended January 31, 1994 10.3 Second Amendment to Employment Agreement between Included with this filing electronically Rick R. Atterbury and the Company, dated as of April 8, 1998. 10.4 Facilities Lease dated October 1, 1985 between the This was made part of our disclosure in Exhibit Port Authority of the City of Saint Paul as 10.17 to the Company's Registration Statement on lessor and the Company as lessee Form S-1 (File No. 33-4062) 10.5 Land Lease dated October 1, 1985 between the Port This was made part of our disclosure in Exhibit Authority of the City of Saint Paul as lessor and 10.18 to the Company's Registration Statement on the Company as lessee Form S-1 (File No. 33-4062) 10.6 Credit Agreement dated as of November 25, 1996 This was made part of our disclosure in Exhibit among First Bank, N.A., as Agent and as a Bank, 10.2 to the Company's Quarterly Report on Form Norwest Bank Minnesota, N.A., and the Company. 10-Q for the fiscal quarter ended October 31, 1996 10.7 Note Purchase Agreement, dated as of October 25, This was made part of our disclosure in Exhibit 1996 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1996 10.8 1987 Omnibus Stock Plan, as amended This was made part of our disclosure in Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1991
16
ITEM NO. DESCRIPTION METHOD OF FILING - ----------- -------------------------------------------------- -------------------------------------------------- 10.9 Employment Agreement between John W. Castro and This was made part of our disclosure in Exhibit 10 the Company dated as of February 1, 1989 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1989 10.10 Amendment to Employment Agreement between John W. This was made part of our disclosure in Exhibit Castro and the Company dated as of April 29, 10.9 to the Company's Annual Report on Form 10-K 1994. for the fiscal year ended January 31, 1994 10.11 Second Amendment to Employment Agreement between Included with this filing electronically John W. Castro and the Company, dated as of April 8, 1998. 10.12 Deferred Compensation Plan for John W. Castro, Included with this filing electronically dated as of March 30, 1998. 10.13 1993 Incentive Stock Plan, as amended This was made part of our disclosure in Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1997 10.14 Option Agreement dated as of July 1, 1991 between This was made part of our disclosure in Exhibit Ronald N. Hoge and the Company 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1993 10.15 Asset Purchase Agreement, dated as of December 31, This was made part of our disclosure in Exhibit 1993 among the Company, Merrill Acquisition 2.1 to the Company's Current Report on Form 8-K Corporation, May Printing Company and dated December 31, 1993. Shareholders of May Printing Company. 10.16 Loan Agreement, dated as of July 1, 1990 between This was made part of our disclosure in Exhibit May Printing Company and Minnesota Agricultural 10.13 to the Company's Annual Report on Form 10-K and Economic Development Board, amended as of for the fiscal year ended January 31, 1994 December 31, 1993. 10.17 Guaranty of Loan Obligations of May Printing This was made part of our disclosure in Exhibit Company by the Company in favor of Minnesota 10.14 to the Company's Annual Report on Form 10-K Agricultural and Economic Development Board, for the fiscal year ended January 31, 1994 dated as of December 31, 1993. 10.18 Guaranty Agreement of the obligations of Merrill This was made part of our disclosure in Exhibit Acquisition Corporation by the Company in favor 10.15 to the Company's Annual Report on Form 10-K of May Printing Company, and Thomas May and James for the fiscal year ended January 31, 1994 Scott May, dated as of December 31, 1993. 10.19 Stock Purchase Agreement, dated March 28, 1996, by This was made part of our disclosure in Exhibit and among the Company and the Shareholders of FMC 2.1 to the Company's Current Report on Form 8-K Resource Management Corporation dated April 15, 1996
17
ITEM NO. DESCRIPTION METHOD OF FILING - ----------- -------------------------------------------------- -------------------------------------------------- 10.20 Asset Purchase Agreement, dated April 15, 1996, by This was made part of our disclosure in Exhibit and among the Company, Merrill/New York Company 10.22 to the Company's Annual Report on Form 10-K and The Corporate Printing Company, Inc., CPC for the fiscal year ended January 31, 1996. Communications, Inc., CPC Reprographics, Inc., The Corporate Printing Company International, Ltd., CP International Holdings, Inc., CPC Management Services, Inc., The Corporate Printing Company International SNC, The Corporate Printing Company International PTE Ltd., Oakland Composition Limited Partnership, and the Shareholders of the above Affiliated Companies. (Omitted from this Agreement, as filed, are the exhibits listed in the List of Exhibits included at the beginning of the Agreement. The Company will furnish supplementally a copy of any such omitted exhibits to the Commission upon request.) 10.21 1996 Non-Employee Director Plan This was made part of our disclosure in Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1997. 10.22 Lease dated as of May 1, 1994 between The Rector, This was made part of our disclosure in Exhibit Church-Wardens, and Vestrymen of Trinity Church 10.20 to the Company's Annual Report on Form 10-K in the City of New York, as landlord and The for the fiscal year ended January 31, 1997. Corporate Printing Company, Inc, as lessee, assignor to Merrill/New York Company. (Omitted from this Lease, as filed, are the floor plan exhibits listed in the Exhibits and Other Attachments included at the beginning of the Agreement. The Company will furnish supplementally a copy of any such omitted exhibits to the Commission upon request.) 13.1 Portions of Annual Report to Shareholders Included with this filing electronically 21.1 Subsidiaries of the Company Included with this filing electronically 23.1 Consent of Independent Accountants Included with this filing electronically 27.1 Financial Data Schedule for the year ended January Included with this filing electronically 31, 1998 27.2 Restated Financial Data Schedule for the quarter Included with this filing electronically ending October 31, 1997 27.3 Restated Financial Data Schedule for the quarter Included with this filing electronically ending July 31, 1997 27.4 Restated Financial Data Schedule for the quarter Included with this filing electronically ending April 30, 1997
18
ITEM NO. DESCRIPTION METHOD OF FILING - ----------- -------------------------------------------------- -------------------------------------------------- 27.5 Restated Financial Data Schedule for the year Included with this filing electronically ending January 31, 1997 27.6 Restated Financial Data Schedule for the quarter Included with this filing electronically ending October 31, 1996 27.7 Restated Financial Data Schedule for the quarter Included with this filing electronically ending July 31, 1996 27.8 Restated Financial Data Schedule for the quarter Included with this filing electronically ending April 30, 1996 27.9 Restated Financial Data Schedule for the year Included with this filing electronically ending January 31, 1996
19 EX-10.3 2 EXHIBIT 10.3 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment to the Employment Agreement (the "Amendment"), dated as of April 8, 1998, is between Merrill Corporation, a Minnesota corporation (the "Company"), and Rick R. Atterbury (the "Executive"). A. The Company and the Executive entered into an Employment Agreement pursuant to which the Company employs the Executive, dated as of February 1, 1987 as amended as of April 29, 1994 (the "Employment Agreement"). B. Company and the Executive desire to further amend the Employment Agreement. Accordingly, the parties hereto, intending to be legally bound, agree as follows: 1. SECTION 3.1 (a) AND (b). Paragraphs (a) and (b) of Section 3.1 of the Employment Agreement are amended in their entirety to read as follows: (b) ANNUAL SALARY: Effective beginning April 15, 1998, an annual salary at the rate of $275,000 per annum, payable in equal semi-monthly installments. (c) ADDITIONAL COMPENSATION: Effective for any bonus payable after February 1,1998, an annual bonus for each fiscal year equal to: (i) $2,400.00 for each one cent of the Company's net income per share for such year up to and including the net income per share for the prior fiscal year, plus (ii) $6,000.00 for each one cent of the Company's net income per share for such year in excess of the net income per share for the prior fiscal year; which annual bonus shall be payable on or before 75 days after the close of each fiscal year. 2. NO OTHER AMENDMENTS. Except as amended pursuant to this Amendment the Employment Agreement shall remain in full force and effect in accordance with its original terms. The Company and the Executive have caused this Amendment to be duly executed as of the date first above written. MERRILL CORPORATION /s/ Rick R. Atterbury By /s/ Kathleen A. Larkin - ---------------------------------- ----------------------------------- Rick R. Atterbury Its Vice President-Human Resources ----------------------------------- EX-10.11 3 EXHIBIT 10.11 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment to the Employment Agreement (the "Amendment"), dated as of April 8, 1998, is between Merrill Corporation, a Minnesota corporation (the "Company"), and John W. Castro (the "Executive"). A. The Company and the Executive entered into an Employment Agreement pursuant to which the Company employs the Executive, dated as of February 1, 1989 as amended as of April 29, 1994 (the "Employment Agreement"). B. Company and the Executive desire to further amend the Employment Agreement. Accordingly, the parties hereto, intending to be legally bound, agree as follows: 1. SECTION 3.1 (a) AND (b). Paragraphs (a) and (b) of Section 3.1 of the Employment Agreement are amended in their entirety to read as follows: (a) ANNUAL SALARY: Effective beginning April 15, 1998, an annual salary at the rate of $375,000 per annum, payable in equal semi-monthly installments. (b) ADDITIONAL COMPENSATION: Effective for any bonus payable after February 1,1998, an annual bonus for each fiscal year equal to: (i) $ 4,000.00 for each one cent of the Company's net income per share for such year up to and including the net income per share for the prior fiscal year, plus (ii) $ 10,000.00 for each one cent of the Company's net income per share for such year in excess of the net income per share for the prior fiscal year; which annual bonus shall be payable on or before 75 days after the close of each fiscal year. 2. NO OTHER AMENDMENTS. Except as amended pursuant to this Amendment the Employment Agreement shall remain in full force and effect in accordance with its original terms. The Company and the Executive have caused this Amendment to be duly executed as of the date first above written. MERRILL CORPORATION /s/ John W. Castro By /s/ Kathleen A. Larkin - ---------------------------------- ----------------------------------- John W. Castro Its Vice President-Human Resources ----------------------------------- EX-10.12 4 EXHIBIT 10.12 EXHIBIT 10.12 DEFERRED COMPENSATION AGREEMENT This Deferred Compensation Agreement is entered into this 30th day of March, 1998, by and between MERRILL CORPORATION, a Minnesota corporation located at One Merrill Circle, St. Paul, Minnesota (the "Company") and JOHN W. CASTRO, an individual residing at 3825 Bridgewater Drive, Eagan, Minnesota (the "Executive"). RECITALS FIRST: The Executive is an employee of the Company. SECOND: The Executive and the Company have entered into an Employment Agreement. THIRD: The Employment Agreement provides that the Company will pay the Executive a Bonus. FOURTH: The Company and the Executive wish to provide for the automatic deferral of any portion of the Bonus that would cause the Executive's compensation for any fiscal year of the Company not to be deductible for the fiscal year pursuant to Code section 162(m). NOW, THEREFORE, the Company and the Executive agree as follows: ARTICLE 1. DEFINITIONS, CONSTRUCTION AND INTERPRETATION The definitions and rules of construction and interpretation set forth in this article apply in construing this Agreement unless the context otherwise indicates. 1.1. ACCOUNT. "Account" means the bookkeeping account maintained with respect to the Executive pursuant to Section 2.1. 1.2. AGREEMENT. "Agreement" means this Deferred Compensation Agreement as it may be amended from time to time. 1.3. BONUS. "Bonus" means the annual cash bonus to which Executive is entitled pursuant to the Employment Agreement. 1.4. BENEFICIARY. "Beneficiary" is the person designated or otherwise determined under the provisions of Section 3.5 as the distributee of benefits payable after the Executive's death. 1.5. CHANGE IN CONTROL. "Change in Control" means a change in control of the Company within the meaning of the Employment Agreement. 1.6. CODE. "Code" means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code includes a reference to that provision as it may be amended from time to time and to any successor provision. 1.7. COMPANY. "Company" means Merrill Corporation or any successor thereto. 1.8. CROSS REFERENCES. References within a section of this Agreement to a particular subsection refer to that subsection within the same section and references within a section or subsection to a particular clause refer to that clause within the same section or subsection, as the case may be. 1.9. EMPLOYMENT AGREEMENT. "Employment Agreement" means the Employment Agreement made as of February 1, 1989 between the Company and the Executive, as amended by the Amendment to Employment Agreement dated as of April 29, 1994, and as it may be further amended from time to time. 1.10. EXECUTIVE. "Executive" means John W. Castro. 1.11. GOVERNING LAW. To the extent that state law is not preempted by the provisions of the Employee Retirement Income Security Act of 1974, as amended, or any other laws of the United States, all questions arising in connection with this Agreement, including, without limitation, those pertaining to construction, validity, effect, enforcement and remedies, will be determined in accordance with the internal, substantive laws of the State of Minnesota without regard to the conflict of laws rules of the State of Minnesota or any other jurisdiction. 1.12. HEADINGS. The headings of articles and sections are included solely for convenience of reference; if there exists any conflict between such headings and the text of this Agreement, the text will control. 1.13. TERMINATION OF EMPLOYMENT. "Termination of Employment" means (a) a complete termination of the employment relationship between the Company and the Executive as determined in accordance with generally applicable Company policies as in effect from time to time or (b) an absence from active employment with the Company due to accident, injury or illness if and when the Executive becomes entitled to receive benefits under the Company's long-term disability plan in connection with the absence. For purposes of determining whether the Executive has experienced a Termination of Employment, the term "Company" includes all entities, whether or not incorporated, that together with the Company are treated as a single employer pursuant to Code sections 414(b) and (c). 1.14. TRUST. "Trust" means the trust established pursuant to Section 4.1 of this Agreement, as it may be amended from time to time. 1.15. TRUSTEE. "Trustee" means the one or more banks or trust companies that at the relevant time has or have been appointed by the Company to act as Trustee of the Trust. ARTICLE 2. BENEFITS 2.1. ACCOUNT. The Company will establish and maintain an Account for the Executive to evidence amounts credited pursuant to Sections 2.2 and 2.3. 2.2. DEFERRAL CREDITS. (A) If payment of the Bonus for any fiscal year of the Company in accordance with the terms of the Employment Agreement would cause any portion of the Executive's compensation to not be deductible by the Company for the fiscal year pursuant to Code section 162(m), the amount of the Bonus that would otherwise be paid to the Executive 2 in accordance with the terms of the Employment Agreement will be reduced until no portion of the Executive's compensation is not deductible pursuant to Code section 162(m) and the amount of the reduction will be deferred pursuant to this Agreement. (B) The amount of any deferral pursuant to this Section 2.2 will be credited to the Executive's Account as of the date on which the Executive would have otherwise received the Bonus with respect to which such credit relates. 2.3. EARNINGS. As of the last day of each month, the Administrator will adjust the Account by multiplying the average daily balance of the Account for the month by the decimal equivalent of the percentage increase or decrease in the Standard & Poors 500 index for the month, determined by comparing the value of the index on the first business day of the month to the value of the index on the last business day of the month. The Company and the Executive may from time to time agree to an alternative methodology for calculating earnings. The agreement must be in writing and signed by the Company and the Executive. 2.4. VESTING. The Executive always has a fully vested nonforfeitable interest in his Account. ARTICLE 3. DISTRIBUTION 3.1. DISTRIBUTION BEFORE TERMINATION OF EMPLOYMENT. Prior to the Executive's Termination of Employment, if, taking into account all other compensation that the Executive has or will receive for a fiscal year of the Company, the Company determines that the Executive may receive additional compensation without exceeding the maximum amount deductible by the Company for the fiscal year pursuant to Code section 162(m), not later than the last day of the fiscal year distribution of the Executive's Account will be made, in the form of a single lump sum payment, in an amount equal to the lesser of (a) the balance of the Account and (b) the amount of additional compensation that the Executive may receive for the fiscal year without exceeding the maximum amount deductible by the Company for the fiscal year pursuant to Code section 162(m). 3.2. DISTRIBUTION AFTER TERMINATION OF EMPLOYMENT. (A) Distribution of the Executive's Account after his Termination of Employment will be made or begin, as the case may be, as soon as administratively practicable after the fifteenth day of the third month following the last day of the Company's fiscal year that includes the Executive's Termination of Employment. (B) The balance of the Executive's Account will be distributed to the Executive after his Termination of Employment in the form of a single lump sum payment, unless (1) the Executive makes an irrevocable written election, on a form provided by the Company, to receive his distribution in the form of annual installment payments for either five or ten years and (2) the date of his Termination of Employment is at least two years after the date on which the written election is provided to the Company. (C) The balance of the Executive's Account will be distributed to his Beneficiary as soon as administratively practicable after the Executive's death in the form of a single lump sum payment. 3 (D) If the distribution is made in the form of a lump sum payment, the amount of the payment will be equal to the balance of the Executive's Account as of the last day of the month immediately preceding the distribution. (E) If the distribution is made in the form of installment payments, the undistributed portion of the Account balance will continue to be credited with earnings pursuant to Section 2.3. The first annual payment will be made on a date determined in accordance with Subsection A and subsequent annual payments will be made on or around the same date in each of the following four or nine years, as the case may be. The amount of the payment each year will be determined by dividing the Account balance as of the last day of the month immediately preceding the payment date by the total number of remaining payments (including the payment in question). 3.3. SPECIAL RULES. (A) ACCELERATED DISTRIBUTION. Notwithstanding Sections 3.1 and 3.2, subject to Section 3.3(C) the Executive may elect an immediate distribution in an amount equal to 90 percent of the amount of the lump sum distribution to which he would then be entitled pursuant to Section 3.2(C) and the remaining 10 percent of his Account balance will be permanently forfeited. The distribution will be made in the form of a lump sum payment within the 10-day period following the receipt by the Company of the Executive's written request for the distribution. (B) UNFORESEEABLE EMERGENCY. Notwithstanding Sections 3.1 and 3.2, subject to Section 3.3(C) a distribution will be made to the Executive if the Company determines that he has experienced an "unforeseeable emergency." The amount of the distribution may not exceed the lesser of (1) the amount necessary to satisfy the emergency, as determined by the Company or (2) the amount of the lump sum distribution to which he would then be entitled pursuant to Section 3.2(D). The distribution will be made in the form of a lump sum payment within the 10-day period following the Company's determination that the Executive has experienced an unforeseeable emergency. For purposes of this section, an "unforeseeable emergency" is an unanticipated emergency that is caused by an event beyond the control of the Executive and that would result in severe financial hardship to the Executive if the hardship withdrawal was not permitted. (C) NONDEDUCTIBILITY. (1) If the Company determines in good faith prior to a Change in Control that there is a reasonable likelihood that any compensation paid to the Executive for a taxable year of the Company would not be deductible by the Company solely by reason of the limitation under Code section 162(m), solely to the extent deemed necessary by the Company to ensure that the entire amount of any distribution to the Executive pursuant to this Section 3.3 prior to the Change in Control is deductible, the Company may defer all or any portion of the distribution. Any amounts deferred pursuant to this subsection will continue to be credited with earnings in accordance with Section 2.3. The deferred amounts and earnings thereon will be distributed to the Executive or to his Beneficiary in the case of his death at the earliest possible date, as determined by the Company in good faith, on which the deductibility of compensation paid or payable to the Executive for the taxable year of the Company during which the distribution is 4 made will not be limited by Code section 162(m) or, if earlier, the effective date of a Change in Control. (2) In lieu of a deferral of a distribution pursuant to Subsection (A), the Executive may make a written election to receive the distribution and reimburse the Company for the value of the deduction lost by operation of Code section 162(m) as a result of the distribution, as determined by the Company. The Company's good faith determination based on assumptions determined by the Company to be reasonable will be final and binding on the Company and the Executive and no adjustments will be made to reflect differences between assumptions and actual facts and circumstances. The amount of any reimbursement pursuant to this Subsection (B) in connection with a distribution pursuant to Subsection (A) will reduce, dollar for dollar, the amount of any forfeiture pursuant to Subsection (A). The Company may subtract the amount of any reimbursement due to the Company pursuant to this Subsection (B) from the amount of any distribution pursuant to this Agreement. 3.4. DISTRIBUTION REDUCES ACCOUNT BALANCE. The balance of the Account will be reduced as of the date of any distribution by the gross amount of the distribution. 3.5. BENEFICIARY DESIGNATION. (A) Executive may designate, on a form furnished by the Company, one or more primary Beneficiaries or alternative Beneficiaries to receive all or a specified part of his Account after his death, and the Executive may change or revoke any such designation from time to time. No such designation, change or revocation is effective unless executed by the Executive and received by the Company during the Executive's lifetime. If the Executive is married, his spouse must consent to any designation, change or revocation which would result in any person other than the spouse being the Executive's primary Beneficiary. The consent must be in writing, signed by the spouse and witnessed by a notary public. The consent relates only to the specific Beneficiary or class of Beneficiaries designated and the spouse may not subsequently revoke the consent with respect to that Beneficiary or class of Beneficiaries unless the Executive makes a new designation. No change or revocation requires the consent of any person other than the Executive's spouse. (B) If the Executive - (1) fails to designate a Beneficiary, or (2) revokes a Beneficiary designation without naming another Beneficiary, or (3) designates one or more Beneficiaries none of whom survives the Executive, for all or any portion of his Account, such Account or portion will be payable to the Executive's surviving spouse or, if the Executive is not survived by a spouse, to the representative of the Executive's estate. (C) The automatic Beneficiaries specified above and, unless the designation otherwise specifies, the Beneficiaries designated by the Executive, become fixed as of the Executive's death so that, if a Beneficiary survives the Executive but dies before the 5 receipt of the payment due such Beneficiary, payment will be made to the representative of such Beneficiary's estate. Any designation of a Beneficiary by name that is accompanied by a description of relationship or only by statement of relationship to the Executive is effective only to designate the person or persons standing in such relationship to the Executive at the Executive's death. 3.6. PAYMENT IN EVENT OF INCAPACITY. If the Executive or any Beneficiary entitled to receive a payment under this Agreement is, in the judgment of the Company, physically, mentally or legally incapable of receiving or acknowledging receipt of the payment, and no legal representative has been appointed for the individual, the Company may (but is not required to) cause the payment to be made to any one or more of the following as may be chosen by the Company: the Beneficiary (in the case of the incapacity of the Executive); the institution maintaining the Executive or Beneficiary; a custodian under the Uniform Transfers to Minors Act of any state (in the case of the incapacity of a Beneficiary); or the Executive's or Beneficiary's spouse, children, parents or other relatives by blood or marriage. The Company is not required to see to the proper application of any payment so made, and any such payment completely discharges all claims under this Agreement against the Company to the extent of the payment. ARTICLE 4. ESTABLISHMENT OF TRUST; NATURE OF EXECUTIVE'S INTEREST 4.1. ESTABLISHMENT OF TRUST. (A) The Company may choose to provide benefits through a Trust with an independent corporate trustee. The Trust must (1) be a grantor trust with respect to which the Company is treated as grantor, (2) not cause the benefits under this Agreement to be funded for federal income tax purposes or for purposes of the Employee Retirement Income Security Act of 1974, as amended, and (3) provide that Trust assets will, upon the Company's insolvency, be used to satisfy claims of the Company's general creditors. The Company may from time to time transfer to the Trust cash, marketable securities or other property acceptable to the Trustee in accordance with the terms of the Trust. (B) Notwithstanding Subsection (A), not later than the effective date of a Change in Control, the Company must transfer to the Trust an amount not less than the amount by which (1) 125 percent of the balance of the Account as of the last day of the month immediately preceding the effective date of the Change in Control exceeds (2) the value of the Trust assets attributable to the Agreement. 4.2. SOURCE OF PAYMENTS. The Company may make payment of benefits directly to the Executive or his Beneficiary as they become due under the terms of this Agreement or may direct the Trustee to make such payments. If the Trust assets are not sufficient to make payments of benefits in accordance with the terms of this Agreement, the Company will make the balance of each such payment as it falls due. 4.3. NATURE OF EXECUTIVE'S INTEREST. Nothing contained in the Agreement is to be construed as providing for assets to be held for the benefit of the Executive or any other person or persons to whom benefits are to be paid pursuant to the terms of this Agreement, the Executive's only interest under the Agreement being the right to receive the benefits set forth herein. The Trust is established only for the convenience of the Company and the Executive, and the Executive has 6 no interest in the assets of the Trust prior to their distribution pursuant to the Agreement. To the extent the Executive or any other person acquires a right to receive benefits under this Agreement or the Trust, such right is no greater than the right of any unsecured general creditor of the Company. ARTICLE 5. MISCELLANEOUS 5.1. DETERMINATION OF BENEFITS. The Company will make all determinations as to rights to benefits under this Agreement. Subject to and in compliance with the specific procedures contained in the applicable regulations under the Employee Retirement Income Security Act of 1974, as amended. (A) Any decision by the Company denying a claim by the Executive or his Beneficiary for benefits under this Agreement will be stated in writing and delivered or mailed to the Executive or such Beneficiary. (B) Each such notice will set forth the specific reasons for the denial. (C) The Company will afford a reasonable opportunity to the Executive or Beneficiary for a full and fair review of the decision denying such claim. 5.2. ADMINISTRATION. (A) Prior to a Change in Control, the Company's Board of Directors has discretionary power and authority to interpret, construe, apply, enforce and otherwise administer this Agreement and to act on behalf of the Company. The Board of Directors may delegate such power and authority to any individual or committee. Any action taken by the Board of Directors or the Board of Directors' delegate in good faith is binding and conclusive upon all parties in interest and neither the Board of Directors nor any such delegate will be liable to any person for any action taken or omitted to be taken in connection with the interpretation, construction, application, enforcement or other administration of this Agreement, so long as such action or omission to act be made in good faith. (B) After a Change in Control, the Board of Directors of the Company will interpret, construe, apply, enforce and administer this Agreement on behalf of the Company and, other than with respect to ministerial acts, the Board's duties are not delegable. 5.3. STATEMENTS. The Company will provide the Executive, or his Beneficiary after the Executive's death, with written statements, indicating the balance of the Account as of each January 31 (a "statement date") until the Account has been distributed in full. The statement will indicate the balance of the Account as of the last statement date, deferrals credited to the Account since the last statement date pursuant to Section 2.2, earnings credited to the Account since the last statement date pursuant to Section 2.3 and the balance of the Account as of the current statement date. If the Executive or Beneficiary fails to object to the balance reflected on the statement within 90 days after receipt, the balance will be presumed to be correct and the Executive or Beneficiary may not thereafter object to the balance or the computation thereof. Statements will be provided within 30 days after the statement date. 7 5.4. AMENDMENT. This Agreement may not be amended, altered or modified, except by a written instrument signed on behalf of the Company by the Chair of the Compensation Committee of the Company's Board of Directors and the Executive, or their respective successors. 5.5. INUREMENT. This Agreement is binding upon and inures to the benefit of the Company and its successors and assigns, and the Executive, his successors, heirs, executors, administrators and Beneficiaries. 5.6. NON-ASSIGNABILITY OF BENEFITS. The benefits payable under this Agreement and the right to receive future benefits may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any charge or legal process. 5.7. WITHHOLDING AND OFFSETS. The Company and the Trustee retain the right to withhold from any benefit payment under this Agreement and from any other wages payable to the Executive, any and all income, employment, excise and other tax as the Company or Trustee deems necessary and, prior to a Change in Control, the Company may offset against amounts payable to the Executive or Beneficiary any amounts then owing to the Company by the Executive or Beneficiary. 5.8. NO EMPLOYMENT RIGHTS. Nothing in this Agreement either (a) confers on the Executive any right to continued employment with the Company, employment with the Company in any particular position or Bonus payments in any particular amount or (b) alters, impairs or modifies any such right arising under the Employment Agreement. 5.9. DISPUTES. (A) The Company and the Executive agree that any dispute regarding this Agreement that they are unable to resolve to their mutual satisfaction by negotiation will be resolved exclusively by arbitration, by a panel of three arbitrators, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Any arbitration proceeding that commences before a Change in Control will be held in St. Paul, Minnesota. Any arbitration proceeding that commences after a Change in Control will be held in a location within the continental United States specified by the Executive. (B) In connection with any dispute arising before a Change in Control, the Executive or Beneficiary is responsible for paying any costs he or she incurs, including attorney's fees and legal expenses, and the Company is responsible for paying any costs it incurs, including attorney's fees and legal expenses. In connection with any dispute arising after a Change in Control, the Company is responsible for paying all costs of both parties, including attorney's fees and expenses. 5.10. NO WAIVER. The waiver by either of the parties, express or implied, of any right under this Agreement or any failure to perform under this Agreement by the other party does not constitute a waiver of any other right under this Agreement or of any other failure to perform under this Agreement by the other party. 5.11. OTHER BENEFITS. (A) Except to the extent otherwise expressly provided under a specific benefit plan, practice, policy or procedure of the Company, neither amounts deferred pursuant to Section 2.2 8 nor amounts paid to the Executive pursuant to Article 3 constitute salary or compensation to the Executive for the purpose of computing benefits to which he may be entitled thereunder. (B) Amounts deferred pursuant to Section 2.2 will be considered "excess pensionable earnings" for purposes of the Merrill Corporation Supplemental Executive Retirement Plan for the plan year during which the amounts would have been paid to the Executive but for the deferral. (C) Deferrals pursuant to this Agreement will be made after any deferral of the Bonus pursuant to the Merrill Corporation Income Deferral Plan. 5.12. NO WARRANTIES REGARDING TAX TREATMENT. The Executive acknowledges that he has consulted independent counsel whose input has been incorporated in structuring this Agreement. The Company makes no warranties regarding the tax treatment to the Executive of any deferrals or payments made pursuant to this Agreement and the Executive will hold the Company and its officers, directors, employees, agents and advisors harmless from any liability resulting from any tax position taken by the Company in good faith in connection with this Agreement. 5.13. NOTICE. All notices, requests, elections, demands and all other communications required or permitted by either party to the other party by this Agreement must be in writing and will be deemed to have been duly given when delivered personally or received by certified or registered mail, return receipt requested, postage prepaid, at the address of the other party, as follows: If to the Company, to: Merrill Corporation Energy Park 1 Merrill Circle St. Paul, MN 55108 Attention: Chair of the Compensation Committee of the Board of Directors with a copy to the General Counsel If to Executive, to: John W. Castro 3825 Bridgewater Drive Eagan, MN 55123 Either party hereto may change its address for purposes of this section by giving 15 days' prior notice to the other party. 5.14. SEVERABILITY. If any term or provision of this Agreement or the application hereof to any person or circumstance is to any extent invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable will not be affected thereby, and each term and provision of this Agreement will be valid and enforceable to the fullest extent permitted by law. 9 5.15. COUNTERPARTS. This Agreement may be executed in several counterparts each of which will be deemed to be an original copy, and all of which together constitute one agreement binding on the Company and the Executive. To acknowledge and affirm their respective rights and obligations, the Company and the Participant have signed this Agreement as of the date first above written. EXECUTIVE MERRILL CORPORATION /s/ Kathleen A. Larkin, /s/ John W. Castro Vice President-Human Resources - ---------------------------- ------------------------------ March 30, 1998 March 30, 1998 10 EX-13.1 5 EXHIBIT 13.1 EXHIBIT 13.1 MANAGEMENT'S DISCUSSION AND ANALYSIS Certain statements in Management's Discussion and Analysis of Financial Condition and Results of Operations constitute FORWARD-LOOKING statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such FORWARD-LOOKING statements involve known and unknown risks, uncertainties or achievements of the Company which may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such FORWARD-LOOKING statements. These risks and uncertainties include, but are not limited to, the effect of economic and financial market conditions, government public reporting regulations, paper costs and the integration and performance of recent acquisitions. - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS The following table sets forth, for the years indicated, the percentage relationship to revenues of certain items in the Company's consolidated statements of operations and the percentage changes in the dollar amounts of such items in comparison to the prior years.
For the Years Ended January 31, -------------------------------------------------- % Increase (Decrease) --------------------- Percentage of Revenues 1998 1997 --------------------------- VS. vs. 1998 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- Revenues Financial 38.2% 40.6% 36.1% 22% 62% Corporate 31.6 27.6 29.5 49 35 Document management services 11.7 11.2 12.9 35 26 Commercial and other 18.5 20.6 21.5 17 38 - -------------------------------------------------------------------------- 100.0 100.0 100.0 30 44 Cost of revenues 64.3% 64.3% 67.6% 30% 37% Gross profit 35.7 35.7 32.4 30 59 Selling, general and administrative expenses 24.8 25.4 24.5 27 50 Operating income 10.9 10.3 7.9 37 87 Interest expense (0.9) (1.2) (0.4) 5 275 Other income, net 0.1 0.1 0.1 217 (23) Income before provision for income taxes 10.1 9.2 7.6 43 74 Provision for income taxes 4.4 4.1 3.3 40 82 Net income 5.7 5.1 4.3 46 67 - -------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------
8 1998 ANNUAL REPORT BUSINESS Merrill Corporation is engaged in one line of business--providing paper and electronic document services. The Company divides its revenues into four categories of service: financial, corporate, document management services, and commercial and other. The percentage of revenues attributable to each category of service is set forth in the chart below. Revenues in the financial category generally reflect the level of transactional activity in the capital markets. Financial encompasses many types of transactions, and some types of transactions tend to increase when others are out of favor. However, a prolonged reduction in the overall level of financial transactions could be expected to have a negative impact on this category. The corporate revenues category encompasses required regulatory compliance and mutual fund documentation and other repetitive work, and is typically not significantly affected by capital market fluctuations. Revenues in the document management services and commercial and other categories tend to follow general economic trends. FISCAL YEAR 1998 VS. FISCAL YEAR 1997 Revenues for fiscal year 1998 increased 30 percent over the previous year. Financial revenues increased 22 percent compared to last year. This increase was driven by continued strong mergers and acquisition transaction activity in financial markets throughout fiscal year 1998. The increase was also driven by the results of the Corporate Printing Company (CPC) business acquired in April 1996. International revenues, which are included in the financial revenue category, represented less than 10 percent of consolidated revenues and increased over fiscal year 1997 revenues. Management does not anticipate significant fluctuations in international revenues as a percentage of total revenues during fiscal year 1999. Corporate revenues increased 49 percent when compared to fiscal year 1997. This increase is attributed to strong corporate compliance business, continued solid demand for EDGAR services and strong growth in investment company services work. Document management services revenues grew 35 percent in fiscal year 1998, reflecting continued growth in the number of Document Service Centers which totaled 76 at January 31, 1998. This resulted from internal growth and the acquisition of selected assets of Total Management Support Services, LLC. The commercial and other category realized a 17 percent increase in revenues over fiscal year 1997. The growth is primarily the result of our managed communications programs which includes Merrill/May, FMC Resource Management Corporation (FMC) and the Superstar Computing acquisition. Fiscal year 1998 gross profit of approximately 36 percent remained level with fiscal year 1997. Continued strong margins in both financial and corporate activity along with high production utilization allowed us to maintain the same margins. REVENUES BY SERVICE YEARS ENDED JANARY 31, ---------------------- 1996 1997 1998 ---- ---- ---- IN PERCENT Commercial and other............... 21.5 20.6 18.5 Document management services....... 12.9 11.2 11.7 Corporate.......................... 29.5 27.6 31.6 Financial.......................... 36.1 40.6 38.2 MERRILL CORPORATION 9 Selling, general and administrative expenses increased, but as a percent of revenue, declined slightly in the last year. The increase in these expenses in fiscal year 1998 was principally a result of our continued expansion of sales and marketing activities and provisions for incentive compensation. Average short-term borrowings under the Company's line of credit arrangement were approximately $4,729,000, $30,117,000 and $2,221,000 in fiscal years 1998, 1997 and 1996, respectively. The significant decrease in the average short-term borrowings in fiscal year 1998 resulted from the issuance of $35 million in unsecured senior notes in October 1996. Interest expense for fiscal year 1998 remained relatively consistent compared to fiscal year 1997 which reflects stable interest rates and consistent overall amounts borrowed during the time periods. The effective tax rate for fiscal year 1998 was 44 percent compared to 45 percent for fiscal year 1997. The effective rates were higher than the statutory federal rate of 35 percent primarily because of state income taxes and the impact of increased non-deductible business entertainment expenses incurred in conjunction with the additional financial and corporate activity previously discussed. The effective tax rate in future years is expected to approximate 44 percent. Technology changes for potential year 2000 issues are not currently expected to have a material impact on the Company's operations, although the effectiveness of the Company's present efforts to address the Year 2000 issue cannot be assured. A detailed year 2000 project plan is in progress and includes review of internally developed software as well as outside developed software. A test plan has been initiated in fiscal year 1999 to ensure compliance with the year 2000 issues. The costs to address year 2000 issues will likely be material; the present estimate is approximately $900,000, to be incurred primarily during fiscal year 1999. The total costs may be higher, contingent upon additional review of the issues. It is currently unknown whether vendors and other third parties with which the Company conducts business will successfully address the Year 2000 issue with respect to their own computer software. If the Company's present efforts to address the Year 2000 issue are not successful, or if vendors and other third parties with which the Company conducts business do not successfully address the Year 2000 issue, the Company's business, financial condition and results of operations could be adversely affected. FISCAL YEAR 1997 VS. FISCAL YEAR 1996 Revenues for fiscal year 1997 increased 44 percent over the previous year. The financial revenues category experienced a 62 percent increase in revenues over fiscal year 1996. This increase was driven by the inclusion of nine months of operations from the CPC acquisition in April 1996, as well as strong financial market activity throughout fiscal year 1997. International revenues, which are included in the financial revenues category, represented less than 5 percent of consolidated revenues and approximated fiscal year 1996 international revenues. Corporate revenues increased 35 percent when compared to fiscal year 1996. This increase is attributed to a strong demand for EDGAR services and growth in mutual fund activity plus long-term mutual fund clients gained from the CPC acquisition. Document management services revenues grew 26 percent in fiscal year 1997, reflecting new service offerings and continued growth in the number of document service centers, which totaled 64 at January 31, 1997. The commercial and other revenues category experienced a 38 percent increase in revenues during fiscal year 1997. The growth is primarily the result of including 10 months of operations of FMC, which was acquired in March 1996, and election-related ballot work, which was lower in the off-election year of 1996. Merrill/May revenues were up slightly from fiscal year 1996 revenues. 10 1998 ANNUAL REPORT Fiscal year 1997 gross profit increased to approximately 36 percent compared to 32 percent in fiscal year 1996. The increase in gross profit was attributed to the significant increase in volume of financial transaction documents during the year. Financial transaction business generally results in higher margins when compared to the other service categories offered by the Company. The general increase in the volume of work across all service categories also contributed to the increase in gross profit as the Company maximized the utilization of its operating resources. The increase in selling, general and administrative expenses in fiscal year 1997 was attributed to integration costs associated with the fiscal year 1997 acquisitions of CPC and FMC, the related goodwill amortization, continued expansion of the Company's sales and marketing activities and provisions for incentive compensation. The significant increase in the average short-term borrowings during fiscal year 1997 resulted from financing the Company's acquisitions of CPC and FMC with the bank line of credit for approximately six months of fiscal year 1997. Interest expense for fiscal year 1997 was significantly higher than for fiscal year 1996, which was attributed to the financing of the acquisitions noted above, and the increased need for working capital to support the strong financial transaction activity. The effective tax rate for fiscal year 1997 was 45 percent compared to 43 percent for fiscal year 1996. The effective rates were higher than the statutory federal rate of 35 percent primarily because of state income taxes and the impact of increased non-deductible business entertainment expenses incurred in conjunction with the additional financial and corporate activity previously discussed. IMPACT OF INFLATION The Company does not believe that inflation has had a significant impact on the results of its operations. LIQUIDITY AND CAPITAL RESOURCES Working capital at January 31, 1998, increased to $79.3 million from $69.2 million a year ago, reflecting strong sales activity during the entire year. The increase in sales activity resulted in a corresponding increase in trade receivables at January 31, 1998. Work-in-process inventories decreased at January 31, 1998, reflecting lower activities experienced during the last quarter of the year and initiatives implemented to improve inventory turns. Capital expenditures for the year approximated $17.0 million and were primarily related to leasehold improvements and reprographic and computer based production equipment. Cash and cash equivalents decreased to $2.5 million and there were no borrowings under the Company's line of credit at January 31, 1998. Long-term obligations were 25.0 percent of total capitalization at January 31, 1998, compared to 30.8 percent a year ago. The Company expects capital expenditures in fiscal year 1999 to range from $20 million to $25 million for computer and production equipment and facility expansion and remodeling. Approximately $2.0 million of this amount is committed at this time. MERRILL CORPORATION 11 The Company has historically been working-capital intensive, but in recent years has increased its needs for technology and production equipment. The Company generally has been able to generate sufficient cash from operations to fund its capital needs. At January 31, 1998, the Company's principal internal sources of liquidity were cash and cash equivalents and cash flow provided by operating activities. The Company has available a $40 million unsecured bank line of credit expiring on November 29, 1999. Management anticipates that these sources will satisfy its needs for fiscal year 1999. NEW ACCOUNTING PRONOUNCEMENT Effective January 31, 1999, the Company will adopt Statement of Financial Accounting Standards (SFAS) No. 131 "Disclosures About Segments of an Enterprise and Related Information." The Company is reviewing the requirements of this statement. This statement does not impact the basic Consolidated Financial Statements; it affects only the presentation of segment information in the Notes to the Financial Statements. - -------------------------------------------------------------------------------- QUARTERLY STOCK PRICE INFORMATION Merrill Corporation shares are traded on the NASDAQ Stock Market under the symbol MRLL. The table below sets forth the range of high and low sales prices per share as reported by the NASDAQ Stock Market. For periods prior to August 1997, high and low sales prices in the table below have been retroactively restated to reflect the 2-for-1 stock split described in Note 8 to the Consolidated Financial Statements. These prices do not include adjustments for retail markups, markdowns or commissions. There were approximately 2,125 shareholders of record and non-objecting beneficial owners of the Company's common stock at the close of trading on April 14, 1998. The Company paid annualized cash dividends of $.07 per share in fiscal 1998 and $.06 per share in fiscal 1997. Total cash dividends approximated $1,133,000 and $948,000 in fiscal years 1998 and 1997, respectively.
First Second Third Fourth Stock Price Per Share Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FY 1998 High 14 20 5/16 24 1/4 24 Low 10 1/4 11 5/8 17 1/8 18 5/32 FY 1997 High 11 13 1/4 12 1/4 12 3/8 Low 7 1/4 9 1/8 9 1/2 10 1/4
12 1998 ANNUAL REPORT CONSOLIDATED BALANCE SHEETS
As of January 31, --------------------- (In thousands, except share data) 1998 1997 - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 2,531 $ 5,161 Trade receivables, less allowance for doubtful accounts of $6,992 and $6,027, respectively 116,721 81,733 Work-in-process inventories 13,686 24,958 Other inventories 7,112 4,878 Other current assets 10,290 9,933 - ---------------------------------------------------------------------------------------- Total current assets 150,340 126,663 Property, plant and equipment, net 41,045 34,717 Goodwill, net 44,437 34,030 Other assets 10,657 6,587 - ---------------------------------------------------------------------------------------- Total assets $246,479 $201,997 - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable to banks $ 5,950 Current maturities of long-term debt $ 655 645 Current maturities of capital lease obligations 249 307 Accounts payable 29,142 20,387 Accrued expenses 41,033 30,154 - ---------------------------------------------------------------------------------------- Total current liabilities 71,079 57,443 Long-term debt, net of current maturities 40,225 40,880 Capital lease obligations, net of current maturities 1,616 1,849 Other liabilities 7,884 5,665 - ---------------------------------------------------------------------------------------- Total liabilities 120,804 105,837 - ---------------------------------------------------------------------------------------- Commitments and contingencies (Notes 3 and 5) Shareholders' equity Common stock, $.01 par value: 25,000,000 shares authorized; 16,315,136 and 15,865,048 shares, respectively, issued and outstanding 163 159 Undesignated stock: 500,000 shares authorized; no shares issued Additional paid-in capital 22,401 17,778 Retained earnings 103,111 78,223 - ---------------------------------------------------------------------------------------- Total shareholders' equity 125,675 96,160 - ---------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $246,479 $201,997 - ---------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. MERRILL CORPORATION 13 CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended January 31, -------------------------------------------- (In thousands, except share and per share data) 1998 1997 1996 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Revenues $ 459,516 $ 353,769 $ 245,306 Cost of revenues 295,390 227,478 165,765 - ------------------------------------------------------------------------------------------------ Gross profit 164,126 126,291 79,541 Selling, general and administrative expenses 114,174 89,946 60,079 - ------------------------------------------------------------------------------------------------ Operating income 49,952 36,345 19,462 Interest expense (4,321) (4,124) (1,099) Other income, net 835 263 343 - ------------------------------------------------------------------------------------------------ Income before provision for income taxes 46,466 32,484 18,706 Provision for income taxes 20,445 14,645 8,044 - ------------------------------------------------------------------------------------------------ Net income $ 26,021 $ 17,839 $ 10,662 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Net income per share: Basic $ 1.61 $ 1.13 $ .69 Diluted $ 1.54 $ 1.11 $ .68 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Weighted average number of shares outstanding: Basic 16,129,341 15,792,161 15,502,403 Diluted 16,906,382 16,117,432 15,782,979 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 14 1998 ANNUAL REPORT CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 31, ----------------------------------- (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- Operating activities Net income $ 26,021 $ 17,839 $ 10,662 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 11,147 10,825 9,724 Amortization of intangible assets 4,286 2,581 1,088 Provision for losses on trade receivables 2,064 2,861 1,486 Provision for unbillable inventories (1,063) 2,678 250 Deferred income taxes (2,592) (6,555) (2,583) Change in deferred compensation 1,285 401 582 Changes in operating assets and liabilities, net of effects from business acquisitions Trade receivables (36,706) (18,499) (10,768) Work-in-process inventories 12,082 (11,667) (4,141) Other inventories (1,667) 583 (709) Other current assets (1,798) (1,718) 315 Accounts payable 7,336 (3,720) 1,594 Accrued expenses 11,537 11,365 2,142 Income taxes (1,059) 1,530 (89) - -------------------------------------------------------------------------------------------------- Net cash provided by operating activities 30,873 8,504 9,553 - -------------------------------------------------------------------------------------------------- Investing activities Purchase of property, plant and equipment (17,069) (9,216) (12,487) Business acquisitions, net of cash acquired (13,179) (26,010) Other, net 137 (564) (727) - -------------------------------------------------------------------------------------------------- Net cash used in investing activities (30,111) (35,790) (13,214) - -------------------------------------------------------------------------------------------------- Financing activities Borrowings on notes payable to banks 104,275 139,050 51,700 Repayments on notes payable to banks (110,225) (139,100) (45,700) Proceeds from issuance of long-term debt 35,000 Principal payments on long-term debt and capital lease obligations (936) (15,164) (1,243) Repurchase of common stock (3,065) Dividends paid (1,133) (948) (931) Exercise of stock options 5,417 1,045 1,024 Tax benefit realized upon exercise of stock options 2,192 328 1,451 Other equity transactions, net 83 162 (533) - -------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (3,392) 20,373 5,768 - -------------------------------------------------------------------------------------------------- (Decrease) increase in cash and cash equivalents (2,630) (6,913) 2,107 Cash and cash equivalents, beginning of year 5,161 12,074 9,967 - -------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 2,531 $ 5,161 $ 12,074 - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- Supplemental cash flow disclosures Income taxes paid $ 22,000 $ 19,253 $ 9,268 Interest paid 3,757 2,866 880 - -------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. MERRILL CORPORATION 15 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended January 31, 1998, 1997 and 1996 ---------------------------------------------------- Additional Common Paid-in Retained (In thousands, except per share data) Stock Capital Earnings Total - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- Balance, January 31, 1995 $ 152 $ 14,308 $ 51,601 $ 66,061 Exercise of stock options 5 1,019 1,024 Tax benefit realized upon exercise of stock options 1,451 1,451 Other (533) (533) Cash dividends ($.06 per share) (931) (931) Net income 10,662 10,662 - ---------------------------------------------------------------------------------------------------------------- Balance, January 31, 1996 $ 157 $ 16,245 $ 61,332 $ 77,734 - ---------------------------------------------------------------------------------------------------------------- Exercise of stock options 2 1,043 1,045 Tax benefit realized upon exercise of stock options 328 328 Other 162 162 Cash dividends ($.06 per share) (948) (948) Net income 17,839 17,839 - ---------------------------------------------------------------------------------------------------------------- Balance, January 31, 1997 $ 159 $ 17,778 $ 78,223 $ 96,160 - ---------------------------------------------------------------------------------------------------------------- Exercise of stock options 7 5,410 5,417 Tax benefit realized upon exercise of stock options 2,192 2,192 Repurchase of common stock (3) (3,062) (3,065) Other 83 83 Cash dividends ($.07 per share) (1,133) (1,133) Net income 26,021 26,021 - ---------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 31, 1998 $ 163 $ 22,401 $ 103,111 $125,675 - ---------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 16 1998 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- ONE - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS The Company provides paper and electronic document services consisting of creative design, typesetting, printing, reproduction, distribution, and data and information management services to financial, legal, investment company, real estate and corporate clients worldwide. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant areas which require the use of management's estimates relate to the determination of the allowances for doubtful accounts and unbillable inventories. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include all majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. INVENTORIES Work-in-process, which includes purchased services, materials, direct labor and overhead, is valued at the lower of cost or net realizable value, with cost determined on a specific job-cost basis. Other inventories consist primarily of paper and printed materials and are valued at the lower of cost or market, with cost determined on a specific job-cost basis. 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 is determined using the straight-line method over the estimated useful lives of the assets which range from three to 30 years. Amortization of leasehold improvements is recorded on a straight-line basis over the estimated useful lives of the assets or the lease term, whichever is shorter. When assets are sold or retired, related gains or losses are included in the results of operations. GOODWILL Goodwill recognized in business acquisitions accounted for as purchases is amortized on the straight-line method, principally over 15 years. The Company periodically evaluates the recoverability of unamortized goodwill through measurement of future estimated undiscounted operating unit cash flows. INCOME TAXES Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the year and the change during the year in deferred tax assets and liabilities. REVENUE RECOGNITION The Company recognizes revenue when service projects are completed or products are shipped. NET INCOME PER SHARE Effective January 31, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share," and has disclosed basic and diluted net income per share for all periods presented in accordance with the standard. The dilutive effect on net income per share resulted from the assumed exercise of dilutive stock options outstanding under the Company's stock option plans. MERRILL CORPORATION 17 - -------------------------------------------------------------------------------- ONE - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED STOCK-BASED COMPENSATION The Company accounts for stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation costs for stock options granted to employees are measured as the excess, if any, of the fair value of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Such compensation costs, if any, are amortized on a straight-line basis over the underlying option vesting terms. The Company accounts for stock-based compensation to non-employees using the fair value method prescribed by SFAS No. 123, "Accounting for Stock Based Compensation." Compensation costs for stock options granted to non-employees are measured as the excess of the fair value of the option over the amount the holder must pay to acquire the stock. BUSINESS SEGMENTS Effective January 31, 1999, the Company will adopt SFAS No. 131 "Disclosures About Segments of an Enterprise and Related Information. " The Company is reviewing the requirements of this statement. This statement does not impact the basic Consolidated Financial Statements; it affects only the presentation of segment information in the Notes to Financial Statements. - -------------------------------------------------------------------------------- TWO - SELECTED FINANCIAL STATEMENT DATA
As of January 31, ----------------------- (In thousands) 1998 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT, NET Land $ 1,951 $ 1,951 Buildings 11,965 11,778 Equipment 54,929 45,250 Furniture and fixtures 11,057 9,655 Leasehold improvements 10,479 9,923 Construction in progress 5,609 659 - -------------------------------------------------------------------------------- 95,990 79,216 Less accumulated depreciation and amortization (54,945) (44,499) - -------------------------------------------------------------------------------- $ 41,045 $ 34,717 - -------------------------------------------------------------------------------- GOODWILL, NET Goodwill $ 52,913 $ 38,481 Less accumulated amortization (8,476) (4,451) - -------------------------------------------------------------------------------- $ 44,437 $ 34,030 - -------------------------------------------------------------------------------- ACCRUED EXPENSES Commissions and compensation $ 25,003 $ 17,926 Retirement plan 4,965 3,860 Other 11,065 8,368 - -------------------------------------------------------------------------------- $ 41,033 $ 30,154 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
18 1998 ANNUAL REPORT - -------------------------------------------------------------------------------- THREE - BUSINESS ACQUISITIONS On April 15, 1996, the Company purchased substantially all of the operating assets and assumed certain liabilities of The Corporate Printing Company, Inc. and Affiliated Group (CPC) for approximately $22.6 million in cash. The Company did not purchase any assets relating to CPC's pressroom and shipping businesses. The purchase price was subsequently reduced by approximately $1.7 million in accordance with terms of the purchase agreement. In accordance with the agreement, additional contingent purchase consideration of $8 million was paid in August 1997. The Company also entered into a five-year non-compete agreement with CPC's principal shareholder that requires payments totaling $3.4 million through April 15, 2001. The principal shareholder is also entitled to an additional $500,000 annually through March 31, 2001, as the Company maintains certain business of a specified customer. The acquisition has been accounted for as a purchase. On March 28, 1996, the Company purchased all of the outstanding common stock of FMC Resource Management Corporation for $5.4 million in cash and promissory notes for $2.0 million. The agreement calls for additional contingent consideration, not to exceed $4 million, based on annual gross profits of the acquired business through January 31, 2001, as defined in the agreement. Contingent consideration recorded through January 31, 1998, was $1.6 million. The acquisition has been accounted for as a purchase. Results of the acquired companies' operations have been included in the Consolidated Statements of Operations from their respective dates of acquisitions. Pro forma (unaudited) results of the Company for the years ended January 31, 1997 and 1996, as if the acquisitions had been effective at February 1, 1995, are as follows:
For the Years Ended January 31, -------------------------------- (In thousands, except per share data) 1997 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Revenues $376,647 $325,157 Net income 17,047 8,263 Net income per share - diluted 1.05 .52 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
During fiscal year 1998, the Company completed the acquisitions of substantially all of the operating assets and assumed certain liabilities of Roald Marth Learning Systems, Inc., doing business as Superstar Computing and Total Management Support Services, LLC. These acquisitions are not significant to the financial position or results of operations of the Company. MERRILL CORPORATION 19 - -------------------------------------------------------------------------------- FOUR - FINANCING ARRANGEMENTS BANK FINANCING The Company has a revolving credit agreement with a group of banks that provides for a $40 million unsecured bank line of credit which expires on November 29, 1999. There were no borrowings outstanding under this agreement at January 31, 1998. Borrowings under the agreement were $5,950,000 at January 31, 1997, and bore interest at the Agent's reference rate (8.25% at January 31, 1997). Under the agreement, the Company has the option to borrow at the Agent's reference rate, at 1% above the London Interbank Offered Rate (LIBOR) or at 1.0% above a certificate of deposit-based rate, and is required to pay quarterly commitment fees of 0.25% on the unused portion of the line of credit. The weighted average interest rates on borrowings on the line of credit were 8.26%, 7.39%, and 8.83% for the years ended 1998, 1997 and 1996, respectively. The revolving credit agreement includes various covenants, including the maintenance of minimum tangible net worth and limitations on the amounts of certain transactions, including payment of dividends. LONG-TERM DEBT Long-term debt consisted of the following:
As of January 31, ---------------------- (In thousands) 1998 1997 - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ Unsecured senior notes, bearing interest at 7.463%, with semi-annual interest only payments through October 2000, at which time annual principal and semi-annual interest payments are due through October 2006. The notes have various covenants, including the maintenance of certain financial ratios and limitations on the amount of certain transactions including the payment of dividends $ 35,000 $ 35,000 Industrial development bonds, due in 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 $3,760 at January 31, 1998 3,380 3,525 Unsecured promissory notes payable due in March 1999. The notes bear interest at LIBOR plus 1.0%, adjustable and payable annually. The interest rate at January 31, 1998 and 1997 was 7.281% and 6.608%, respectively 2,000 2,000 Unsecured promissory note payable in equal annual installments of $500 on December 31 through 1998. The note bears interest at the prime rate The prime interest rate at January 31, 1998 and 1997 was 8.50% and 8.25%, respectively 500 1,000 - ------------------------------------------------------------------------------------------------------ 40,880 41,525 Less current maturities of long-term debt (655) (645) - ------------------------------------------------------------------------------------------------------ $ 40,225 $ 40,880 - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------
20 1998 ANNUAL REPORT - -------------------------------------------------------------------------------- FOUR - FINANCING ARRANGEMENTS, CONTINUED The aggregate maturities of long-term debt are as follows:
(In thousands) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1999 $ 655 2000 2,170 2001 5,180 2002 5,195 2003 5,210 Thereafter 22,470 - -------------------------------------------------------------------------------- $40,880 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Based on quoted market prices for similar issues, the fair value of long-term debt approximated its carrying value at January 31, 1998 and 1997. - -------------------------------------------------------------------------------- FIVE - LEASES The Company leases an office and production facility and the associated land and equipment under capital leases that terminate at various dates through November 30, 2005. Certain leases contain bargain purchase options. A summary of the Company's property under capital leases, which is classified as property, plant and equipment, is as follows:
As of January 31, ---------------------- (In thousands) 1998 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Land $ 333 $ 333 Building 2,439 2,439 Equipment 594 594 Less accumulated amortization (1,366) (1,129) - -------------------------------------------------------------------------------- $ 2,000 $ 2,237 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
The Company also leases office space and equipment under noncancelable operating leases which expire at various dates through October 31, 2018. Rental expense charged to operations was $8,019,000, $6,009,000 and $5,123,000, for the years ended January 31, 1998, 1997 and 1996, respectively. Future minimum rental commitments under noncancelable leases at January 31, 1998, are as follows:
Capital Operating (In thousands) Leases Leases - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1999 $ 434 $ 6,044 2000 392 4,876 2001 330 3,824 2002 330 2,851 2003 330 2,547 Thereafter 935 21,183 - -------------------------------------------------------------------------------- 2,751 $ 41,325 --------- --------- Imputed interest (886) - ---------------------------------------------------------------- Present value of minimum lease payments 1,865 Less current maturities of capital lease obligations (249) - ---------------------------------------------------------------- Capital lease obligations, net of current maturities $ 1,616 - ---------------------------------------------------------------- - ----------------------------------------------------------------
MERRILL CORPORATION 21 - -------------------------------------------------------------------------------- SIX - INCOME TAXES Components of the provision for income taxes are as follows:
For the Years Ended January 31, --------------------------------- (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Current Federal $ 19,974 $ 17,758 $ 9,203 State 3,063 3,442 1,424 - -------------------------------------------------------------------------------- 23,037 21,200 10,627 Deferred (2,592) (6,555) (2,583) - -------------------------------------------------------------------------------- Provision for income taxes $ 20,445 $ 14,645 $ 8,044 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Temporary differences comprising the net deferred tax asset recognized in the accompanying Consolidated Balance Sheets are as follows:
As of January 31, -------------------- (In thousands) 1998 1997 - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- Depreciation and amortization $ 2,126 $1,102 Deferred compensation 1,980 1,382 Allowance for doubtful accounts 1,349 2,676 Insurance reserves 1,130 1,001 Vacation 1,085 653 Inventories 958 300 Other, net 1,405 327 - --------------------------------------------------------------------------------- Net deferred tax asset $10,033 $7,441 - --------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------
Management expects that the Company will fully realize the benefits attributable to the net deferred tax asset at January 31, 1998. Accordingly, no valuation allowance has been recorded at January 31, 1998. Significant differences between income taxes on income for financial reporting purposes and income taxes calculated using the federal statutory tax rate are as follows:
As of January 31, --------------------------- (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Provision for federal income taxes at statutory rate $16,263 $11,369 $6,547 State income taxes, net of federal benefit 1,646 1,444 695 Non-deductible business meeting and entertainment expenses 1,832 1,210 778 Other 704 622 24 - -------------------------------------------------------------------------------- $20,445 $14,645 $8,044 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Consolidated federal income tax returns filed by the Company have been examined by the Internal Revenue Service through fiscal 1994. The Company's fiscal 1995 and 1996 federal and certain state income tax returns are presently under audit. Management believes any additional taxes which may ultimately result from these audits or any other state or local agencies' audits would not have a material adverse effect on the Company's consolidated financial position. 22 1998 ANNUAL REPORT - -------------------------------------------------------------------------------- SEVEN - RETIREMENT PLAN The Company has a defined contribution retirement plan covering substantially all employees. Contributions to the plan are based on 7% of eligible employee compensation. Costs charged to operations were $4,965,000, $3,860,000 and $3,620,000 for the years ended January 31, 1998, 1997 and 1996, respectively. - -------------------------------------------------------------------------------- EIGHT - SHAREHOLDERS' EQUITY COMMON STOCK In August 1997, the Company's Board of Directors declared a 2-for-1 stock split of the Company's common stock in the form of a 100% stock dividend which was paid on October 15, 1997, to shareholders of record, on September 30, 1997. The Consolidated Statements of Changes in Shareholders' Equity and all share and per share amounts have been retroactively restated to reflect the stock split. Also, all information regarding shares outstanding, stock purchase agreements, stock options and stock grants has been retroactively restated to reflect the stock split. The classes, series, rights and preferences of the undesignated stock may be established by the Company's Board of Directors. No action with respect to such shares has been taken. During fiscal year 1997, the Company's Board of Directors approved the repurchase of up to 1,500,000 shares of the Company's common stock. Through January 31, 1998, 264,000 shares of common stock had been repurchased for approximately $3.1 million. EARNINGS PER SHARE The denominator used to calculate diluted earnings per share includes the dilutive impact of 777,041, 325,271 and 280,576 stock options for the years ended January 31, 1998, 1997 and 1996, respectively. STOCK PLANS Under Company-sponsored incentive and stock option plans, 5,806,000 shares of common stock were reserved for the granting of incentive awards to employees in the form of incentive stock options, nonstatutory stock options and restricted stock awards at exercise prices not less than 100% of the fair market value of the Company's common stock on the date of grant. As of January 31, 1998, stock options for 4,851,400 shares and 70,800 restricted stock awards had been granted under the plans, leaving 883,800 shares available for future grants. In May 1996, the shareholders of the Company approved the Company's 1996 Non-employee Director Plan (the Plan) whereby 400,000 shares of common stock were reserved for granting of non-statutory options and awarding of common stock as partial payment to non-employee directors who serve on the Company's Board of Directors. Non-statutory stock options issued under the Plan are granted at an exercise price not less than 100% of the fair market value of the Company's common stock on the date of grant. Compensation expense is recorded when common stock is awarded as partial payment for the director's annual retainer in an amount approximately equal to the fair market value of the Company's common stock on the date of grant. As of January 31, 1998, non-statutory options for 92,000 shares and 6,694 shares of common stock had been granted under the Plan, leaving 301,306 shares available for future grants. In addition to options granted under the plans above, the Company has granted non-qualified options to directors and consultants at prices equal to or exceeding market value at date of grant. Options granted under all Company-sponsored stock plans generally vest and expire over five to seven years. MERRILL CORPORATION 23 - -------------------------------------------------------------------------------- EIGHT - SHAREHOLDERS' EQUITY, CONTINUED A summary of selected information regarding all stock options for the three years ended January 31, 1998, is as follows:
Weighted Average Number of Exercise Price Exercise Price Shares Per Share Per Share - ---------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------- Balance, January 31, 1995 1,971,928 $ 1.68-14.88 $ 7.06 - ---------------------------------------------------------------------------------- Granted 609,000 8.13-9.25 8.22 Exercised (556,600) 1.68-8.68 1.84 Canceled (169,700) 8.68-14.88 10.05 - ---------------------------------------------------------------------------------- Balance, January 31, 1996 1,854,628 2.00-14.88 8.46 Granted 1,092,000 8.12-11.96 9.06 Exercised (152,436) 3.68-10.38 6.85 Canceled (106,364) 8.12-13.25 9.86 - ---------------------------------------------------------------------------------- Balance, January 31, 1997 2,687,828 2.00-14.88 8.74 Granted 1,129,200 11.19-22.75 13.95 Exercised (759,400) 2.00-15.06 7.88 Canceled (88,200) 8.13-10.00 8.86 - ---------------------------------------------------------------------------------- BALANCE, JANUARY 31, 1998 2,969,428 $ 2.00-22.75 $ 10.94 - ---------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------
At January 31, 1998, the weighted average exercise price and remaining life of the stock options are as follows:
Range of exercise prices $ 2.00-8.25 $ 8.69-13.50 $ 14.75-22.75 Total - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Total options outstanding 896,500 1,694,928 378,000 2,969,428 Weighted average exercise price $ 7.88 $ 10.89 $ 18.38 $ 10.94 Weighted average remaining life 6.8 years 6.1 years 5.8 years 6.3 years - -------------------------------------------------------------------------------------------- Options exercisable 163,200 233,328 36,000 432,528 Weighted average price of exercisable options $ 6.79 $ 11.39 $ 14.75 $ 9.93 - -------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------
24 1998 ANNUAL REPORT - -------------------------------------------------------------------------------- EIGHT - SHAREHOLDERS' EQUITY, CONTINUED Had the Company used the fair value-based method of accounting for its incentive and stock option plans beginning on February 1, 1995, and charged compensation cost against income, over the vesting period, based on the fair value of options at the date of grant, net income and net income per share would have been reduced to the following pro forma amounts:
For the Years Ended January 31, ---------------------------------- (In thousands except per share data) 1998 1997 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NET INCOME As reported $26,021 $17,839 $10,662 Pro forma 24,541 17,223 10,444 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NET INCOME PER SHARE As reported - basic $ 1.61 $ 1.13 $ .69 As reported - diluted 1.54 1.11 .68 Pro forma - basic 1.52 1.09 .67 Pro forma - diluted 1.45 1.07 .66 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
The pro forma information above includes only stock options granted in fiscal years 1996-1998. Pro forma compensation expense under the fair value-based method of accounting will increase in the future as additional stock option grants will be considered. The weighted average grant date fair value of options granted during fiscal years 1998, 1997 and 1996 was $6.68, $4.72 and $4.42, respectively. The weighted average grant date fair value of options was calculated by using the fair value of each option grant, utilizing the Black-Scholes option-pricing model and the following key assumptions:
For the Years Ended January 31, --------------------------------- 1998 1997 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Risk free interest rate 6.50% 6.87% 6.28% Expected life 5 YEARS 6 years 6 years Expected volatility 43.52% 48.85% 49.26% Expected dividend yield 0.38% 0.68% 0.58% - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
MERRILL CORPORATION 25 - -------------------------------------------------------------------------------- NINE - QUARTERLY DATA (UNAUDITED) The following is a summary of unaudited quarterly data for the years ended January 31, 1998 and 1997:
First Second Third Fourth (In thousands except per share data) Quarter Quarter Quarter Quarter Total - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- 1998 Revenues $ 109,859 $ 115,601 $ 112,091 $ 121,965 $ 459,516 Gross profit 43,585 41,066 39,374 40,101 164,126 Net income 7,754 6,312 5,707 6,248 26,021 Net income per share - basic .49 .39 .35 .38 1.61 Net income per share - diluted .47 .38 .33 .36 1.54 Dividends declared per share .015 .015 .02 .02 .07 - ----------------------------------------------------------------------------------------------------- 1997 Revenues $ 71,200 $ 87,569 $ 93,776 $ 101,224 $ 353,769 Gross profit 25,170 32,691 32,273 36,157 126,291 Net income 4,245 4,671 4,377 4,546 17,839 Net income per share - basic .27 .29 .28 .29 1.13 Net income per share - diluted .27 .29 .27 .28 1.11 Dividends declared per share .015 .015 .015 .015 .06 - ----------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------
26 1998 ANNUAL REPORT SUMMARY OF OPERATING AND FINANCIAL DATA
For the Years Ended January 31, (In thousands, except employee, --------------------------------------------------------------------- per share data and ratio) 1998 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- OPERATING RESULTS Revenues $459,516 $353,769 $245,306 $236,878 $181,584 $147,716 Costs and expenses 413,050 321,285 226,600 215,724 159,593 133,552 - -------------------------------------------------------------------------------------------------------- Income before provision for income taxes 46,466 32,484 18,706 21,154 21,991 14,164 Provision for income taxes 20,445 14,645 8,044 9,171 8,820 5,565 - -------------------------------------------------------------------------------------------------------- Net income $ 26,021 $ 17,839 $ 10,662 $ 11,983 $ 13,348 $ 8,599 - -------------------------------------------------------------------------------------------------------- PER COMMON SHARE Net income - basic $ 1.61 $ 1.13 $ .69 $ .79 $ .90 $ .60 Net income - diluted $ 1.54 $ 1.11 $ .68 $ .76 $ .86 $ .57 Cash dividends declared $ .07 $ .06 $ .06 $ .06 $ .05 Book value $ 7.70 $ 6.06 $ 4.95 $ 4.35 $ 3.58 $ 2.68 - -------------------------------------------------------------------------------------------------------- FINANCIAL DATA/OTHER Working capital $ 79,261 $ 69,220 $ 39,379 $ 31,523 $ 22,528 $ 24,650 Current ratio 2.1 2.2 2.0 2.0 1.6 2.1 Total assets $246,479 $201,997 $125,521 $106,470 $100,123 $ 66,042 Shareholders' equity $125,675 $ 96,160 $ 77,734 $ 66,061 $ 53,597 $ 39,330 Return on average shareholders' equity 23.5% 20.5% 14.8% 20.0% 28.7% 25.1% Long-term obligations $ 41,841 $ 42,729 $ 6,454 $ 7,522 $ 8,656 $ 2,138 Long-term obligations to capitalization 25.0% 30.8% 7.7% 10.2% 13.9% 5.2% Number of employees 3,297 2,539 1,932 1,739 1,601 1,041 - -------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------
MERRILL CORPORATION 27 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Merrill Corporation: We have audited the accompanying consolidated balance sheets of Merrill Corporation and Subsidiaries as of January 31, 1998 and 1997, and the related consolidated statements of operations, cash flows and changes in shareholders' equity for each of the three years in the period ended January 31, 1998. 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 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 consolidated financial position of Merrill Corporation and Subsidiaries as of January 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 31, 1998, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. St. Paul, Minnesota March 30, 1998 28 1998 ANNUAL REPORT EX-21.1 6 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF THE COMPANY
JURISDICTION OF NAME INCORPORATION PERCENT OWNED - --------------------------------------------------------------------- --------------- ------------- Merrill/New York Company............................................. Minnesota 100% Merrill/Magnus Publishing Corporation................................ Minnesota 100% Merrill Corporation, Canada ......................................... Ontario 100% Merrill/May, Inc..................................................... Minnesota 100% Merrill International Inc............................................ Minnesota 100% Merrill Real Estate Company.......................................... Minnesota 100% FMC Resource Management Corporation.................................. Washington 100% Merrill Training & Technology, Inc................................... Minnesota 100%
EX-23.1 7 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements on Form S-8 of Merrill Corporation and Subsidiaries (File Nos. 33-46275, 33-52623 and 33-06897) of our report dated March 30, 1998, on our audits of the consolidated financial statements of Merrill Corporation and Subsidiaries as of January 31, 1998 and 1997, and for each of the three years in the period ended January 31, 1998, which report is incorporated by reference in this Annual Report on Form 10-K, and our report dated March 30, 1998, on the related financial statement schedule included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Minneapolis, Minnesota May 1, 1998 EX-27.1 8 EXHIBIT 27.1
5 1,000 YEAR JAN-31-1998 FEB-01-1997 JAN-31-1998 2,531 0 123,713 6,992 20,798 150,340 95,990 54,945 246,479 71,079 41,841 0 0 163 125,512 246,479 459,516 459,516 295,390 295,390 114,174 2,064 4,321 46,466 20,445 26,021 0 0 0 26,021 1.61 1.54
EX-27.2 9 EXHIBIT 27.2
5 1,000 9-MOS JAN-31-1998 FEB-01-1997 OCT-31-1997 2,781 0 113,678 8,601 26,646 148,155 92,338 52,449 238,087 69,887 0 0 0 163 119,445 238,087 337,551 337,551 213,526 213,526 88,589 3,002 3,283 35,436 15,663 19,773 0 0 0 19,773 1.23 1.18
EX-27.3 10 EXHIBIT 27.3
5 1,000 6-MOS JAN-31-1998 FEB-01-1997 JUL-31-1997 1,576 0 111,302 9,844 28,778 143,320 88,892 49,655 232,541 71,288 0 0 0 81 112,711 232,541 225,460 225,460 140,809 140,809 59,306 3,960 2,130 25,345 11,279 14,066 0 0 0 14,066 .88 .85
EX-27.4 11 EXHIBIT 27.4
5 1,000 3-MOS JAN-31-1998 FEB-01-1997 APR-30-1997 4,113 0 101,412 8,017 34,073 139,336 83,115 47,231 217,554 67,295 0 0 0 79 101,845 217,554 109,859 109,859 66,274 66,274 29,614 2,107 994 13,971 6,217 7,754 0 0 0 7,754 .49 .47
EX-27.5 12 EXHIBIT 27.5
5 1,000 YEAR JAN-31-1997 FEB-01-1996 JAN-31-1997 5,161 0 87,760 6,027 29,836 126,663 79,216 44,499 201,997 57,443 43,681 0 0 79 96,081 201,997 353,769 353,769 227,478 227,478 89,946 2,861 4,124 32,484 14,645 17,839 0 0 0 17,839 1.13 1.11
EX-27.6 13 EXHIBIT 27.6
5 1,000 9-MOS JAN-31-1997 FEB-01-1996 OCT-31-1996 2,659 0 85,955 5,457 38,989 130,186 77,137 41,779 205,325 65,050 0 0 0 79 91,467 205,325 252,545 252,545 162,411 162,411 63,904 1,897 2,807 23,952 10,659 13,293 0 0 0 13,293 .84 .83
EX-27.7 14 EXHIBIT 27.7
5 1,000 6-MOS JAN-31-1997 FEB-01-1996 JUL-31-1996 2,462 0 79,540 4,881 37,305 118,136 76,610 39,325 196,146 0 0 0 0 79 86,992 196,146 158,769 158,769 100,908 100,908 40,608 1,336 1,405 16,073 7,157 8,916 0 0 0 8,916 .56 .56
EX-27.8 15 EXHIBIT 27.8
5 1,000 3-MOS JAN-31-1997 FEB-01-1996 APR-30-1996 468 0 79,966 3,638 29,240 110,702 75,346 37,033 186,892 91,124 12,474 0 0 79 81,785 186,892 71,200 71,200 46,030 46,030 17,509 93 221 7,580 3,335 4,245 0 0 0 4,245 .27 .27
EX-27.9 16 EXHIBIT 27.9
5 1,000 YEAR JAN-31-1996 FEB-01-1995 JAN-31-1996 12,074 0 52,111 3,545 16,133 79,236 66,710 35,029 125,521 39,857 7,762 0 0 78 77,656 125,521 245,306 245,306 165,765 165,765 60,079 1,486 1,099 18,706 8,044 10,662 0 0 0 10,662 .69 .68
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