<ins> Prepared by MERRILL CORPORATION www.edgaradvantage.com </ins>

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<ins> Prepared by MERRILL CORPORATION www.edgaradvantage.com
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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,
Washington, D.C. 20549
FORM 10-Q

(MARK ONE)

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1999

/ / 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

(MARK ONE)

/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 1999

/ /

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
(Exact name of Registrant as specified in its charter)

MINNESOTA 41-0946258

(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)

ONE MERRILL CIRCLE
ST. PAUL, MINNESOTA 55108
(Address of principal executive offices) (Zip

Minnesota

41-0946258
(State or other jurisdiction of

incorporation or organization) (I.R.S. Employer

Identification No.)
One Merrill Circle

St. Paul, Minnesota
(Address of principal executive offices)

55108
(Zip Code)

Registrant's telephone number, including area code: 651-646-4501

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 filing requirements for the past 90 days.

Yes X
No -------- --------

The number of shares outstanding of Registrant's Common Stock, par value $.01, on June 10,September 9, 1999 was 16,076,425.

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16,138,045.

PART I.--FINANCIALI.—FINANCIAL INFORMATION

PAGE(S)
-----------

ITEM
Page(s)
Item 1. FINANCIAL STATEMENTS Financial Statements

Included herein is the following unaudited financial information:

Consolidated Balance Sheets as of April 30,July 31, 1999 and January 31, 1999................................1999

Consolidated Statements of Operations for the three and six month periods ended April 30,July 31, 1999 and 1998......1998

Consolidated Statements of Cash Flows for the threesix month periods ended April 30,July 31, 1999 and 1998......1998

Notes to Consolidated Financial Statements........................................................... 6-7

ITEMStatements

6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 8-11

ITEM Management's Discussion and Analysis of Financial Condition and Results of Operations

9
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK....................................... 12 Quantitative and Qualitative Disclosures About Market Risk

PART II.--OTHERII.—OTHER INFORMATION

PAGE(S)
-----------

ITEM
Page(s)

Item 1. Legal Proceedings

17
Item 4. Submission of Matters to a Vote of Security Holders

17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................ 13

SIGNATURES............................................................................................... 14 Exhibits and Reports on Form 8-K

PART I--FINANCIALI—FINANCIAL INFORMATION

ITEM
Item 1. FINANCIAL STATEMENTS

Financial Statements
MERRILL CORPORATION
CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

(in thousands, except share data)
ASSETS

APRIL 30, JANUARY
July 31,

1999 January 31,

1999
----------- -----------

(UNAUDITED)
(unaudited)
Current assets
Cash and cash equivalents.......................................................... equivalents $ 4,103 11,001 $ 23,477
Trade receivables, less allowance for doubtful accounts of $9,298$9,581 and $8,126, respectively..................................................................... 139,852 respectively 145,796 102,365
Work-in-process inventories........................................................ 25,364 inventories 16,848 12,639
Other inventories.................................................................. 8,046 inventories 8,785 7,559
Other current assets............................................................... 12,839 assets 15,369 12,253
----------- -----------

Total current assets............................................................. 190,204 assets 197,799 158,293
Property, plant and equipment, net................................................... 59,026 net 58,122 44,935
Goodwill, net........................................................................ 75,123 net 78,296 49,744
Other assets......................................................................... 12,995 assets 12,944 12,973
----------- -----------

Total assets..................................................................... assets $ 337,348 347,161 $ 265,945
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities

Notes payable to banks............................................................. banks $ 66,500
68,000
Current maturities of long-term debt............................................... 210 debt 960 $ 2,210
Current maturities of capital lease obligations.................................... 222 obligations 204 236
Accounts payable................................................................... 38,236 payable 35,600 29,640
Accrued expenses................................................................... 35,707 expenses 37,993 44,642
----------- -----------

Total current liabilities........................................................ 140,875 liabilities 142,757 76,728
Long-term debt, net of current maturities............................................ maturities 38,110 38,110
Capital lease obligations, net of current maturities................................. 1,329 maturities 1,292 1,375
Other liabilities.................................................................... 10,517 liabilities 10,266 8,581
----------- -----------

Total liabilities................................................................ 190,831 liabilities 192,425 124,794
----------- -----------
Shareholders' equity
Common stock, $.01 par value: 25,000,000 shares authorized; 16,069,89516,130,520 and 15,823,155 shares, respectively, issued and outstanding.......................... outstanding 161 158
Undesignated stock: 500,000 shares authorized; no shares issued....................
issued
Additional paid-in capital, net of note receivables of $1,547...................... 13,882 $2,055 at July 31, 1999 14,202 12,722
Retained earnings.................................................................. 132,474 earnings 140,373 128,271
----------- -----------

Total shareholders' equity....................................................... 146,517 equity 154,736 141,151
----------- -----------

Total liabilities and shareholders' equity....................................... equity $ 337,348 347,161 $ 265,945
----------- -----------
----------- -----------

The accompanying notes are an integral part

of the consolidated financial statements.

MERRILL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
(in thousands, except share and per share data)

(unaudited)

THREE MONTHS ENDED
APRIL 30
-----------------------------
Three Months Ended

July 31 Six Months Ended

July 31

1999

1998
------------ ------------

Revenue.....................................................

1999

1998
Revenue $ 131,836 166,237 $ 123,514
148,458 $ 298,073 $ 271,972
Cost of revenue............................................. 84,564 75,156
------------ ------------
revenue 109,398 94,484 193,962 169,640
Gross profit.............................................. 47,272 48,358
profit 56,839 53,974 104,111 102,332
Selling, general and administrative expenses................ 37,728 33,425
------------ ------------
expenses 38,281 37,267 76,009 70,692
Merger costs 1,130 — 1,130 —
Operating income.......................................... 9,544 14,933
income 17,428 16,707 26,972 31,640
Interest expense............................................ (1,103) (932)
expense (2,064 ) (1,095 ) (3,167 ) (2,027 )
Other (expense) income, net................................. (206) 307
------------ ------------
net (390 ) 202 (596 ) 509
Income before provision for income taxes.................. 8,235 14,308
taxes 14,974 15,814 23,209 30,122
Provision for income taxes.................................. 3,714 6,296
------------ ------------
taxes 6,753 7,108 10,467 13,404
Net income................................................ income $ 4,521 8,221 $ 8,012
------------ ------------
------------ ------------
8,706 $ 12,742 $ 16,718
Net income per share:
Basic..................................................... $.28 $.49
------------ ------------
------------ ------------
Diluted................................................... $.27 $.47
------------ ------------
------------ ------------
Basic $0.51 $0.53 $0.80 $1.02
Diluted $0.50 $0.50 $0.77 $0.97
Dividends per common share.................................. $.02 $.02
------------ ------------
------------ ------------share $0.02 $0.02 $0.04 $0.04

Weighted average number of shares outstanding:
Basic..................................................... 15,881,177 16,332,927
------------ ------------
------------ ------------
Diluted................................................... 16,470,066 17,194,712
------------ ------------
------------ ------------

Basic 16,089,141 16,412,306 15,985,159 16,372,617
Diluted 16,587,536 17,305,017 16,525,333 17,249,865

The accompanying notes are an integral part

of the consolidated financial statements.

MERRILL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

(in thousands)

(unaudited)

THREE MONTHS ENDED
APRIL 30
------------------------
Six Months Ended

July 31

1999

1998
---------- ----------
Operating activities
Net income........................................................................... income $ 4,521 12,742 $ 8,012
16,718
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization...................................................... 3,745 2,791
amortization 7,959 6,024
Amortization of intangibles........................................................ 1,170 1,080
intangible assets 2,632 2,174
Writedown of goodwill.............................................................. -- goodwill — 1,000
Provision for losses on trade receivables.......................................... 1,997 1,048
receivables 2,883 2,585
Deferred compensation.............................................................. 691 1,338
compensation 910 1,519
Changes in operating assets and liabilities, net of effects from business acquisitions
Trade receivables................................................................ (25,289) (8,418)
receivables (29,799 ) (25,807 )
Work-in-process inventories...................................................... (7,957) (13,228)
inventories 559 (6,140 )
Other inventories................................................................ (487) 202
inventories (237 ) (396 )
Other current assets............................................................. 164 (697)
assets 1,017 41
Accounts payable................................................................. 2,010 6,052
payable (2,158 ) 2,924
Accrued expenses................................................................. (13,621) (9,589)
expenses (11,034 ) (5,738 )
Accrued and deferred income taxes................................................ 2,693 5,794
---------- ----------
taxes (972 ) (196 )
Net cash used in operating activities.......................................... (30,363) (4,615)
---------- ----------
activities (15,498 ) (5,292 )
Investing activities
Business acquisitions, net of cash acquired.......................................... (50,371) --
acquired (54,556 ) (3,200 )
Purchase of property, plant and equipment............................................ (2,836) (3,696)
equipment (5,125 ) (7,809 )
Other investing activities, net...................................................... (1,089) (1,494)
---------- ----------
net (1,888 ) (1,601 )
Net cash used in investing activities.......................................... (54,296) (5,190)
---------- ----------
activities (61,569 ) (12,610 )
Financing activities
Borrowings on notes payable to banks................................................. 69,900 12,600
banks 115,250 71,400
Repayments on notes payable to banks................................................. (3,400) (4,900)
banks (49,382 ) (51,800 )
Principal payments on long-term debt and capital lease obligations................... (2,060) (71)
obligations (2,120 ) (149 )
Repurchase of common stock — (2,178 )
Dividends paid....................................................................... (318) (326)
paid (640 ) (655 )
Exercise of stock options............................................................ 733 669
options 962 1,514
Tax benefit realized upon exercise of stock options.................................. 430 427
options 521 690
Other equity transactions, net....................................................... -- 41
---------- ----------
net — 226
Net cash provided by financing activities...................................... 65,285 8,440
---------- ----------
Decreaseactivities 64,591 19,048
(Decrease) increase in cash and cash equivalents.................................................. (19,374) (1,365)
equivalents (12,476 ) 1,146
Cash and cash equivalents, beginning of period......................................... period 23,477 2,531
---------- ----------
Cash and cash equivalents, end of period............................................... period $ 4,103 11,001 $ 1,166
---------- ----------
---------- ---------- 3,677

The accompanying notes are an integral part

of the consolidated financial statements.

MERRILL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our consolidated financial statements as of April 30,July 31, 1999, and for the three and six month periods ended April 30,July 31, 1999 and 1998, have been
prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated financial statements reflect all adjustments, consisting of normal
recurring accruals, which we consider necessary for a fair presentation of the results for the indicated periods. Certain information and accounting policies and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The year end consolidated balance
sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles. These consolidated financial
statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 1999 Annual Report.
2. MERGER
On July 14, 1999, we entered into an agreement and plan of merger with Viking Merger Sub., Inc. (Viking), an affiliate of DLJ Merchant Banking
Partners II L.P. and certain of its affiliates. The merger is subject to shareholder approval and may be terminated if the merger is not consummated by December 31, 1999. The merger can
also be terminated if certain events, as defined in the agreement, occur.

Upon effectiveness of the merger, Viking will be merged into us, and we will continue as the surviving company. In connection with the merger, our shareholders will receive $22.00 in
cash, per share of common stock. John Castro, our President and Chief Executive Officer, and Rick Atterbury, our Executive Vice President and Chief Technology Officer, will continue to hold the shares
of a new class B common stock that they will receive shortly before the merger in exchange for some of their shares of our common stock and will receive $22.00 in cash for each of their
remaining shares of our common stock. The holders of each share of Viking's common stock will be entitled to receive class B common stock in Merrill for each of their shares of Viking's common
stock outstanding at the time of the merger; and the holders of each share of Viking's preferred stock and warrants will be entitled to receive preferred stock or warrants, as the case may be, in
Merrill for each of their shares of Viking's preferred stock or warrants outstanding at the time of the merger. The transaction is expected to be accounted for as a recapitalization and will have no
impact on our historical basis of assets and liabilities.
3. NET INCOME PER SHARE
The denominator used to calculate diluted earnings per share includes the dilutive impact of stock options, which increase the actual weighted average number
of shares outstanding by 588,889498,395 and 861,785892,711 for the three month periods ended April 30,July 31, 1999 and 1998, respectively and by 540,174 and 877,248 for the six month periods ended July 31,
1999 and 1998, respectively.

3.
4. BUSINESS ACQUISITIONS
On April 14, 1999, we purchased substantially all operating assets and assumed certain liabilities of Daniels Printing, Limited Partnership for
approximately $44$44.0 million in cash, assumption and payment of existing lines of credit obligations totaling approximately $5.6 million and the assumption of certain ordinary course liabilities
of $7.7 million (the Daniels Acquisition).million. The acquisition has been accounted for as a purchase. The excess of the purchase price over the estimated fair value of the net identifiable assets acquired approximated
$23.3 million and is being amortized using the straight-line method over 20 years.

Pro Forma (unaudited) results for the six month period ended July 31, 1999 and the three month and six month periods ended July 31, 1998, as though the acquisition had
been effective at February 1, 1998, are as follows:

Three Months

ended July 31, 1998 Six Months

ended July 31, 1999
(in thousands, except per share amounts)
Revenues $ 166,838 $ 311,260 $ 313,798
Net Income 8,013 16,450 13,350
Net Income Per Share—diluted $ 0.46 $ 0.95 $ 0.81

On June 11, 1999, we purchased substantially all operating assets and assumed certain liabilities of Alternatives Communications Group, Inc. for approximately $2.6 million in
cash, a promissory note for $0.8 million, payment of an existing line of credit obligation of $2.1 million, and the assumption of certain ordinary course liabilities of $1.9 million. The acquisition
washas been accounted for as a purchase and is not significant to our financial position or operating results. The excess of the purchase price over the estimated fair value of the net identifiable
assets acquired approximated $3.3 million and is being amortized using the straight-line method over 15 years.

These acquisitions were financed with excess operating cash and amounts available under our revolving credit agreement.

We have determined that it is impracticable at this time to provide the pro
forma financial information required under applicable Securities and Exchange
Commission rules and regulations for this acquisition. We will file the required
pro forma financial information in an amendment to the Form 8-K filed on or
before June 28, 1999.

4.facility.
5. SEGMENT AND RELATED INFORMATION
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," changeschanged the way we report information about our
operating segments. Our five business units have been aggregated into two reportable segments, comprisingcomprised of Specialty Communication Services and Document Services.

SPECIALTY COMMUNICATION SERVICES
Specialty Communication Services This segment consists of threefour business units--Financialunits: Financial Document Services, Investment
Company Services, and Managed Communications Programs--that printPrograms and Merrill Print Group. Our Specialty Communication Services segment provides our financial, investment company and corporate clients with
information technology-based solutions for the production and distribution of transactional financial documents, marketing materials, compliance documents and deliver services used in thebranded promotional materials. We are one
of three international financial marketplace, including mutual fundprinters with a nationwide network and insurance companies and banks,
and national organizations. The principal markets for thisrecognized brand name.
Document Services This segment include major
metropolitan centers in the world including North America, Europe, Latin America
and the Far East. Customers include major investment bankers, corporate
officers, mutual fund companies, national and regional real estate networks and
other business services.

DOCUMENT SERVICESconsists solely of our Document Management Services is the sole business unit
reported in this segment. They deliver document management solutions to legal
and corporate clients through client-based

4. SEGMENT AND RELATED INFORMATION (CONTINUED)
service centers. These Merrill-managed facilities provide clients with a broad
range of value-added document services, including litigation copying and
support, imaging, electronic document scanning, storage and retrieval, binding
and post-production shipping. The principal markets for this segment are major
metropolitan areas in North America. Customers includewhich provides law firms,
corporate legal departments and large
corporations.investment banks with information-management products and services designed to enhance productivity and reduce costs. We provide a total outsourcing solution to our
clients' information management needs, including providing all of the staff, technology and equipment necessary to manage the varying levels of demand associated with this function.

The accounting policies of the reportable segments are the same as those described in Note One of Notes to Consolidated Financial Statements.Statements included in our 1999 Annual Report.
We evaluate the performance of our operating segments based on revenue and operating earnings of the respective business units. Intersegment sales and transfers are not significant.

Summarized financial information concerning our reportable segments is shown in the following table. The "Interest && Other" column includes corporate-related items and, as it relates
to income before provision for income taxes, income and expense not allocated to reportable segments.

SPECIALTY INTEREST &
(IN THOUSANDS) COMMUNICATION SERVICES DOCUMENT SERVICES OTHER TOTAL

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(in thousands)
Specialty

Communication Services
Document Services
Interest & Other
Total
Three month period ending April 30,ended July 31, 1999
Revenue...............................
Revenue $ 115,650 148,801 $ 16,186 17,436 $ 131,836
166,237
Income (loss) before provision for income taxes........................ 9,418 126 taxes $ (1,309) 8,235
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19,763 $ (1,205 ) $ (3,584 ) $ 14,974
As of April 30,July 31, 1999
Total assets.......................... 266,692 34,539 36,117 337,348
- ----------------------------------------------------------------------------------------------------------------
assets $ 267,693 $ 35,195 $ 44,273 $ 347,161
Three month period ending April 30,ended July 31, 1998
Revenue...............................
Revenue $ 109,111 133,902 $ 14,403 14,556 $ 123,514
148,458
Income (loss) before provision for income taxes........................ 16,641 (1,708) taxes $ (625) 14,308
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18,859 $ (2,152 ) $ (893 ) $ 15,814
As of January 31, 1999
Total assets.......................... assets $ 186,825 $ 25,966 $ 53,154 $ 265,945
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Six month period ended July 31, 1999
Revenue $ 263,839 $ 34,234 $ 298,073
Income (loss) before provision for income taxes $ 29,181 $ (1,079 ) $ (4,893 ) $ 23,209
Six month period ended July 31, 1998
Revenue $ 243,012 $ 28,960 $ 271,972
Income (loss) before provision for income taxes $ 35,500 $ (3,860 ) $ (1,518 ) $ 30,122

5.
6. FINANCING AGREEMENT
Subsequent to April 30,July 31, 1999, we amended our revolving credit agreement. Amounts available for borrowing underThe termination date of the amended agreement were increasedwas extended to $90 million through June 30,December 31, 1999.
Amounts available for borrowing under the amended agreement are scheduled to decrease to $80will remain at $80.0 million on July 1, 1999 and
$40 million on September 1, 1999, at which time, we anticipate to have completedthrough the refinancing of amounts borrowed under this amended agreement related to the
Daniels Acquisition.termination date. Under the amended agreement, we have the option to borrow at the bank's
reference rate, at 1.0% above the London Interbank Offered Rate (LIBOR), or at 1.0% above a certificate of deposit based rate. We are also required to pay a commitment fee of 0.25% on the unused
portion of the line. The amended revolving credit agreementsagreement includes various covenants, including the maintenance of minimum tangible net worth and limitations on the amounts of certain transactions
without the approval of the bank.

6.
7. SUPPLEMENTAL CASH FLOW DISCLOSURE

During the first quarter of fiscal year 2000, optionsDISCLOSURES
Options to purchase 180,040219,160 shares of common stock during the six month period ended July 31, 1999 were exercised through the issuance ofusing non-interest bearing note agreementsnotes
primarily to officers of the Company.our officers. Amounts advanced under the note agreementsnotes, totaling approximately $1.5$2.1 million as of April 30,July 31, 1999, are recorded as a reduction of additional paid-in capital on the
accompanying unaudited consolidated balance sheets.

ITEM

During the second quarter of fiscal year 1998, we recorded an obligation of $8.0 million for additional consideration related to business acquisitions.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS Management's Discussion and Analysis

of Financial Condition and Results of Operations
Certain statements in Management's Discussion and Analysis of Financial Condition and Results of Operations, constitute 'forward-looking' statements within the
meaning of the Privatefederal Securities Litigation Reform Act of 1995.laws. Such 'forward-looking' statements involve our known and unknown risks, uncertainties, or achievements thatwhich 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, our ability to continue to
diversify our revenue stream, the effectpace of technological changes affecting our business, the demand for printed financial documents, and the competitive environment in our business.
Overview
We are a diversified communications and document services company applying advanced information systems and Internet technology to provide a full range of
services to our corporate, financial and legal clients. We maintain a disciplined focus on specific target markets with substantial, complex business communication requirements, and we aggressively
pursue a leadership position within each of these markets.

In February 1999, we realigned our corporate structure by shifting from a geographically-based matrix organization into five business units in order to provide clearer
accountability, quicker decision making and sharper operational focus within each line of business. These business units have been organized into two reportable segments, Specialty Communication
Services and Document Services:

Specialty Communication Services

• Financial Document Services

• Investment Company Services

• Managed Communications Programs

• Merrill Print Group

Document Services

• Document Management Services

Our management's discussion and analysis for the three and six month periods ended July 31, 1999 and 1998 reflects our recent realignment into these five business units. Our
management's discussion and analysis filed for prior periods reflect the historical presentation of our business on a product line basis.

Our Financial Document Services business historically has generated large, high margin cash flow. This business encompasses transactional documents that generally reflect the level of
deal activity in the capital markets as well as required regulatory compliance and other repetitive work that is typically not significantly affected by capital market fluctuations. While some types
of transactions tend to increase when others are out of favor, a prolonged reduction in the overall level of financial transactions could be expected to have a negative impact on our Financial
Document Services business. This was the case, for example, during the Fall of 1998 when pronounced economic difficulties in certain emerging markets reduced the overall level of transaction activity
on a global scale. As a result, revenue related to transaction-based financial printing was depressed for the fourth quarter of fiscal year 1999 and the first quarter of fiscal year 2000, during which
time we would have completed and invoiced certain transactions that were otherwise postponed or terminated. The first and second quarters of fiscal 1999, on the other hand, represented relatively
robust capital markets, which translated into strong operating results for the transaction portion of our Financial Document Services business during these periods.

In an effort to maximize the stability of our revenue and profitability, we have not only strived to grow the non-financial transaction portion of our Financial Document Services
business, but we have also continued to develop and grow our other business units. Our Investment Company Services, Managed Communications Programs and Document Management Services businesses all
compete in highly fragmented markets that we believe are undergoing robust growth. Compliance documentation and marketing materials for our investment fund and corporate clients are not significantly
affected by capital markets fluctuations, but are usually in higher demand during our first fiscal quarter as a result of our clients' annual filing requirements. Our Managed Communications Programs
and Document Management Services businesses tend to follow general economic trends. Both of these businesses also have a considerable amount of long-term contracted revenue that serves to stabilize
our operating results. We generally do not begin to receive significant revenue in our Managed Communications Programs business until we have invested approximately six to 12 months analyzing our
clients' communication processes and designing appropriate product and service offerings that effectively address their needs.

The strength of our diversification effort has been attributable to both internal growth and acquisitions. On June 11, 1998, we acquired Executech, Inc. and World Wide Scan
Services, LLC, an East coast-based software and imaging company that expanded Document Management Services' client base, giving us a strong presence among top-100 law firms and Fortune 200 corporate
law departments. On April 14, 1999, we finalized the acquisition of Daniels Printing, Limited Partnership, a full-service financial and commercial printing company based in suburban Boston,
Massachusetts, that reinforce the presence of our Investment Company Services business in the important New England market. Furthermore, we acquired Alternatives Communications Group, Inc. on
June 14, 1999, extending the service capabilities, customer base and geographic reach of our Managed Communications Programs business. We have accounted for all of these acquisitions under the
purchase method of accounting. Accordingly, our historical results reflect these acquired operations from the date of acquisition.

In addition to broadening our revenue and customer base, we also strive to maintain a low fixed cost asset base and high utilization rates in connection with our printing assets. This
enables us to better respond to a potential downturn in the financial markets and the associated reduction in demand for transaction-based printing services. In periods of strong demand, we
subcontract as much as 40% of our financial and investment company printing requirements to third-party local vendors. We pursue a strategy of maintaining a low fixed cost asset base throughout all of
our other business units as well. For example, we pioneered the hub and spoke network utilized in our Financial Document Services and Investment Company Services businesses as an efficient method to
deploy the resources needed in those businesses. In our Document Management Services business, we recently entered into leasing arrangements with major manufacturers of photocopying equipment, whereby
we lease such equipment on an as-needed basis and pay for such usage entirely on a per copy basis (as opposed to paying a fixed monthly rental cost). These arrangements are in line with our overall
operating strategy of minimizing our fixed cost asset base and maximizing operating flexibility.

In all of our business units, we recognize revenue when we ship or complete the product or, in the case of our Document Management Services, when we provide the service. Prior to our
recent corporate realignment, our printing operations were historically reflected as a cost center in our overall operating results for the entire company. With its formation in February 1999,
the Merrill Print Group has been established as a profit center responsible for managing the printing operations for all of our internal businesses as well as our growing base of commercial printing
clients.

As a result of the proposed merger with an affiliate of DLJ Merchant Banking Partners II, L.P. and certain of its affiliates, we have incurred merger costs of approximately $1.1
million through July 31,
1999. We anticipate that total merger fees and expenses will approximate $23.9 million of which $11.2 million relates to financing costs that will be capitalized and amortized over the
term of the finance agreements. The remaining $12.7 million of fees and expenses relates to non-capitalizable merger fees and expenses. While the exact timing, nature and amount of these costs
are subject to change, we anticipate that a

substantial one-time charge will be recorded in the quarter in which the merger is consummated. Because this charge will be funded entirely through the proceeds of the merger financing, we do not
expect this loss to materially impact our liquidity, ongoing operations or market conditions, government
public reporting regulations, paper cost,position. The merger is expected to be accounted for as a recapitalization and would consequently have no impact on
our historical basis of assets and liabilities nor would result in the integration and performancerecording of recent acquisitions and Year 2000 readiness. See our 1999 Form 10-K for further
information on these risks and uncertainties.

RESULTS OF OPERATIONSany goodwill.
Results of operations
The following table sets forth the percentage relationship to total revenue of certain items in our consolidated statements of operations for the three and six
month periods ended April 30,July 31, 1999 and 1998, and the percentage change in the dollar amounts of such items between the periods.

THREE MONTHS ENDED APRIL 30,
------------------------------------
PERCENTAGE
INCREASE
PERCENTAGE (DECREASE)
OF REVENUE ----------
--------------------- Three Months Ended July 31,
Six Months Ended July 31,

Percentage

of Revenue
Percentage

Increase

(Decrease)

Percentage

of Revenue
Percentage

Increase

(Decrease)
1999
1998
1999 VS.
vs. 1998
1999
1998
1999 vs. 1998 1998
-------- -------- ----------

Revenue
Financial Document Services 45.8 % 57.6 % (11) % 46.9 % 55.3 % (7) %
Investment Company Services 25.9 18.3 59 24.0 19.0 38
Managed Communications Programs 13.9 12.1 28 14.8 13.6 19
Merrill Print Group 3.9 2.2 102 2.9 1.4 122
Subtotal Specialty Communication Services:
Financial................................ 30.6% 37.5% 13%
Corporate................................ 37.5 32.9 22
Commercial and other..................... 19.6 18.0 16
-------- --------
87.7 88.4 6
Communications Services 89.5 90.2 11 88.6 89.3 9
Document Services:
Document management services............. 12.3 11.6 12
-------- --------
Management Services 10.5 9.8 20 11.4 10.7 18
Total revenue.......................... revenue 100.0 100.0 7
12 100.0 100.0 10
Cost of revenue.............................. 64.1 60.8 13
-------- --------
revenue 65.8 63.6 16 65.1 62.4 14
Gross profit............................. 35.9 39.2 (2)
profit 34.2 36.4 5 34.9 37.6 2
Selling, general and administrative expenses.................................... 28.6 27.1 13
-------- --------
expenses 23.0 25.1 3 25.5 26.0 8
Merger costs .7 — — .4 — —
Operating income......................... 7.3 12.1 (36)
income 10.5 11.3 4 9.0 11.6 (15 )
Interest expense............................. (0.8) (0.8) 18
expense (1.3 ) (0.7 ) 88 (1.0 ) (0.7 ) 56
Other (expense) income, (expense), net.................. (0.3) 0.3 (167)
-------- --------
net (0.2 ) 0.1 (293 ) (0.2 ) 0.2 (217 )
Income before provision for income taxes.................................. 6.2 11.6 (42)
taxes 9.0 10.7 (5 ) 7.8 11.1 (23 )
Provision for income taxes................... 2.8 5.1 (41)
-------- --------
taxes 4.1 4.8 (5 ) 3.5 4.9 (22 )
Net income............................... 3.4% 6.5% (44)
-------- --------
-------- --------income 4.9 % 5.9 % (6) % 4.3 % 6.2 % (24) %

BUSINESS

We are a diversified electronic and paper document management company.
During
Quarter ended July 31, 1999 we adopted Statement of Financial Standards No. 131 "Disclosures
about Segments of an Enterprise and Related Information." As a result, we
defined our reportable segments and changed the information we report about our
operating segments. Operating segment information for prior periods has been
restatedcompared to conformquarter ended July 31, 1998
Revenue
Overall revenue increased 12.0% to the 1999 presentation. Following the new standard, our
operating segments have been aggregated into two reportable segments: Specialty
Communication Services and Document Services.

Under Specialty Communication Services, we include three business units:
Financial Document Services, Investment Company Services and Managed
Communications Programs. Revenue generated by these three business units is
categorized as financial, corporate and other. Document Management Services is
the sole business reported in the Document Services segment. Revenue generated
by this business unit is categorized as document management services. All
accounting policies of the reportable segments are consistent with generally
accepted accounting principles and our accounting policies. Additional
information about the reportable segments is included in Note Four of the 10-Q.

The financial revenue category generally reflects the level of transactional
activity in the capital markets. The financial revenue category 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 revenue category encompasses required regulatory
compliance and mutual fund documentation and other repetitive work and is
typically not significantly affected by capital market fluctuations. The
commercial and other revenue and document management services revenue categories
tend to follow general economic trends.

QUARTER ENDED APRIL 30, 1999 COMPARED TO QUARTER ENDED APRIL 30, 1998

Revenue$166.2 million for the first quarter of fiscalended July 31, 1999 from $148.5 million for the same period one year 2000 increased by $8.3 million
or seven percent to $131.8 million. On April 14, 1999 the Company purchased
substantially all assets and assumed certain liabilities of Daniels Printing,
Limited Partnership (the Daniels Acquisition). For the period April 15, 1999 to
April 30, 1999, this operation contributed approximately $3.6 million of
revenue.ago. Revenue in the
Specialty Communication Services segment increased six
percent in$14.9 million, or 11.1% to $148.8 million from $133.9 million. Within the firstSpecialty Communication Services segment, Financial Document Services
revenue decreased 10.9% to $76.2 million from
$85.5 million. Revenue generated by financial transactions, which represented 33.5% of our revenue for the quarter ended July 31, 1999, declined 8.3% when compared to the same period a year
ago. This decrease was driven by lower financial transaction activity in the quarter ended July 31, 1999 versus the record activity experienced in the prior year quarter. Corporate regulatory
compliance revenue also experienced a decrease of approximately 15.6% for the quarter ended July 31, 1999. This decrease was primarily

attributable to the timing of certain projects. Investment Company Services revenue increased $15.9 million, or 58.6% to $43.1 million for the current quarter from $27.2 million for the quarter ended
July 31, 1998. The newly acquired Daniels Printing operation contributed $9.3 million of this revenue. Excluding revenue generated by the Daniels Printing operation, Investment Company
Services' revenue grew 24.3% which represented an increase in new customer accounts and an increase in the level of services provided to our existing customers. Managed Communications Programs revenue
increased $5.1 million or 28.2% to $23.1 million for the quarter ended July 31, 1999 from $18.0 million for the same period one year ago. TheOur recently acquired Alternatives
Communications operations contributed $2.0 million of this revenue. Excluding this contribution, Managed Communications Programs revenue growthgrew 17.2% as a result of an increase in the Specialty Communication Services was led by a 22 percentnew customer accounts
and an increase in the corporatelevel of services provided to our existing customers. Merrill Print Group revenue category. Thisincreased $3.2 million to $6.4 million for the quarter ended July 31, 1999. The increase
was attributedprincipally attributable to strong Investment Company Service activity; strong demand for corporate
compliance documents and approximately $2.2 million of revenue contributedgenerated by the acquiredDaniels Printing operation of Daniels Printing. Commercial and other revenue
category also contributed to the Specialty Communication Services segment
revenue growth by posting a 16 percent increase in revenue during the current
first quarter. This increase resulted from our Managed Communication Program
Services' offerings to existing customers and through program introductions to
new customers. Offsetting this revenue growth was a 13 percent decline in
revenue from the financial revenue category. This decline reflects the sharp
decline in financial transactions and the continued market volatility that began
during the second half of fiscal yearquarter ended July 31, 1999.

Revenue in the Document Services segment increased 12 percent in$2.9 million, or 19.8% to $17.4 million for the first
quarter ended July 31, 1999 from $14.6 million for the quarter ended
July 31, 1998. This growth was due to increased revenue from our document service centers, our regional copy centers, and from our imaging services.
Gross profit
Gross profit increased $2.9 million, or 5.3% to $56.8 million for the quarter ended July 31, 1999 from $54.0 million for the quarter ended
July 31, 1998. As a percentage of revenue, gross profit was 34.2% for the quarter ended July 31, 1999 compared to 36.4% for the same period lastprior year. Leading this growthThe increase in gross profit was due to
revenue increases discussed above, offset by the decrease in gross profit as a percentage of revenue. The decrease in gross profit as a percentage of revenue resulted from a shift in revenue mix from
higher gross margin financial transaction revenue to revenue generated by our imaging servicesother business units which tend to carry lower gross margins.
Selling, general and software products offered through
Merrill/E-Tech. Document service center revenue was constantadministrative
Selling, general and administrative expenses increased $1.0 million to $38.3 million for the comparable
first quartersquarter ended July 31, 1999 from $37.3 million for the
quarter ended July 31, 1998. Selling, general and administrative expenses primarily increased as a result of variable costs associated with increased revenues. Selling, general and
administrative expenses as a percentage of revenue, were 23.0% for the quarter ended July 31, 1999 compared with 25.1% for the prior year quarter. The decrease in selling, general and
administrative expense, as a percentage of revenue, resulted from our increasing ability to manage our fixed expense base and lower incentive compensation costs.
Merger costs
During the quarter ended July 31, 1999, we recorded costs associated with the proposed plan of merger of approximately $1.1 million. This amount
reflects investment banking fees, accounting, legal and other
direct expenses. It is expected that this amount will continue to increase through the closing of the transaction.
Interest expense
Interest expense for the quarter ended July 31, 1999 was $2.1 million compared to $1.1 million for the prior year quarter. The increase in interest
expense was caused by borrowings under our revolving credit facility to finance the Daniels Printing and Alternatives Communications acquisitions.

Other expense, net
Other expense, net for the quarter ended July 31, 1999 was $0.4 million compared to other income, net of $0.2 million for the quarter ended
July 31, 1998. During the current quarter, we wrote off approximately $0.7 million of advances made to a technology company that filed for bankruptcy. We subsequently purchased the assets of
this business for $0.8 million.
Tax provision
The effective tax rate for the quarter ended July 31, 1999 was 45.1% compared to 44.9% for the prior year quarter. The increase in the effective rate
was caused by an increase in non-deductible business and entertainment expenses and non-deductible merger costs. We expect the effective tax rate to increase for the remainder of fiscal year and 1999.

Gross profit declined by approximately $1.12000 as
additional non-deductible merger costs are incurred.
Net income
Net income was $8.2 million, or two percent$0.50 per diluted share, for the quarter ended July 31, 1999 versus $8.7 million, or $0.50 per diluted share, for the
quarter ended July 31, 1998. The decrease in net income was related to higher selling, general and administrative expenses, merger costs and interest expense, as previously discussed.
Six months ended July 31, 1999 compared to six months ended July 31, 1998
Revenue
Overall revenue increased 9.6% to $298.1 million for the six months ended July 31, 1999 from $272.0 million for the prior year period. Revenue in the Specialty
Communication Services segment increased $20.8 million, or 8.6% to $263.8 million from $243.0 million. Within the Specialty Communciation Services segment, Financial Document Services revenue
decreased 7.2% to $139.7 million from $150.4 million. Revenue generated by financial transactions, which represented 32.2% of our overall revenue for the current six month period, decreased by 10.3%
when compared to the prior year period. This decrease reflected lower financial transaction activity in the six month period ended July 31, 1999, versus the record activity experienced in the
prior year period. Offsetting this decrease was a 4.7% increase in revenue from corporate regulatory compliance work. This increase was driven by an aggressive marketing initiative implemented during
the first quarter of fiscal year 2000 which resulted in increased compliance reporting work. Investment Company Services revenue increased $19.7 million, or 38.0% to $71.5 million for the six month
period ended July 31, 1999 from $51.8 million for the prior year period. The newly acquired Daniels Printing operations contributed $11.5 million of this revenue. Excluding this contribution,
Investment Company Services' revenue grew 15.8%, which primarily represented an increase in new customers and an increase in the level of services provided to our existing customers.
Managed Communications Programs revenue increased $7.2 million, or 19.5% to $44.2 million for the six month period ended July 31, 1999 compared to $37.0 million for the prior year period. The
newly acquired Alternatives Communications operations contributed $2.0 million of this revenue. Excluding this contribution, Managed Communications Programs' revenue grew 14.1% which primarily
represented an increase in new customer accounts and an increase in the level of services provided to our existing customers. Merrill Print Group revenue increased to $8.5 million for the six month
period ended July 31, 1999 from $3.8 million during the prior year period. This increase was primarily from $4.4 million of commercial printing generated from the recently acquired Daniels
Printing operations.

Revenue in the Document Services segment increased $5.3 million, or 18.2% to $34.2 million in the six month period ended July 31, 1999 from $29.0 million for the six month
period ended July 31, 1998. This growth was due to increased revenue from our document service centers, our regional copy centers, and from our imaging services.

Gross profit
Gross profit increased slightly to $104.1 million for the six month period ended July 31, 1999 from $102.3 million for the six month period ended
July 31, 1998. As a percentage of revenue, gross profit was 34.9% for the six month period ended July 31, 1999 versus 37.6% for the prior year period. The increase in gross profit was
due to the revenue increases discussed above, offset by the decrease in gross profit as a percentage of revenue. This decrease in gross profit as a percentage of revenue was due to a shift in revenue
mix from higher gross margin financial transaction revenue to revenue generated by our other business units which tend to carry lower gross margins.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $5.3 million to $76.0 million for the six months ended July 31, 1999 from $70.7 million for the
six months ended July 31, 1998. The increase in selling, general and administrative expenses was primarily related to variable costs associated with increased revenue. During the six month
period ended July 31, 1998, we recorded a $1.0 million goodwill write-down associated with Merrill Training and Technology, formally Merrill/Superstar Computing Company. Selling, general and
administrative expense, as a percentage of revenue, after giving effect to this write-down, was 25.5% for the six month period ended July 31, 1999 and 25.6% for the six month period ended
July 31, 1998.
Merger costs
During the six month period ended July 31, 1999, we recorded costs associated with the proposed plan of merger of approximately $1.1 million. The amount
recorded reflects investment banking fees, accounting, legal and other direct expenses. It is expected that this amount will continue to increase through the closing of the transaction.
Interest expense
Interest expense for the six month period ended July 31, 1999 was $3.2 million compared to $2.0 million for the prior year period. The increase in interest
expense was caused by borrowings under our revolving credit facility to finance the Daniels Printing and Alternatives Communications acquisitions.
Other expense, net
Other expense, net for the six month period ended July 31, 1999 was $0.6 million compared to other income, net of $0.5 million for same period ended
July 31, 1998. The primary contributor of the change relates to write-offs of approximately $1.3 million of advance payments we made to a technology company that filed for bankruptcy. We subsequently
purchased the assets of this business for $0.8 million.
Tax provision
The effective tax rate for the six month period ended July 31, 1999 was 45.1% compared to 44.5% for the prior year period. The increase in the effective rate
was caused by an increase in non-deductible business and entertainment expenses and non-deductible merger costs. We expect the effective tax rate to increase for the remainder of fiscal year 2000 as
additional non-deductible merger costs are incurred.
Net income
Net income was $12.7 million, or $0.77 per diluted share, for the six month period ended July 31, 1999 versus $16.7 million, or $0.97 per diluted share,
for the same period last year. The current quarter gross
profit percent of 35.9 percent is down from last year's corresponding period's
gross profit percent of 39.2 percent. This decline isdecrease in net income was primarily attributed to
the weak financial transaction market that the industry experienced during the
last half of fiscal 1999. As a result, utilization at our production facilities
declined which drove gross profit margins down. We began to experience increased
utilization of our production facilities during the first quarter of fiscal 2000
as evidencedcaused by our increased work-in-process balances at April 30, 1999.

Selling, general and administrative expenses increased 13 percent in the
first quarter compared to the same period one year ago. This increase was a
result of continued investment in the selling areas, both in hiring additional
sales representatives and branding new product marketing activities. In
addition, as a result of the financial transactions downturn, we experienced
higher than average receivables write-offs

during the first quarter. As a result, the provision for losses on accounts
receivables increased approximately $1.0 million for the current period when
compared to the first quarter of fiscal 1999. We anticipate the selling, general
and administrative expense to net sales ratio will decrease compared to the
first quarter throughout the rest of fiscal year 2000 through cost controls and
increased sales revenue from the sales and marketing activities.

Interest expense increased in the first quarter compared to the same period
last year. This is mainly attributable to increased interest costs associated
with our revolving credit agreement as a result of higher borrowing requirements
for the Daniels Acquisition and working capital needs as trade receivables and
work-in-process inventories grew.

The effective income tax rate for the first quarter increased by
approximately one percent to 45.1 percent, compared to 44.0 percent in the same
period a year ago. The increase in the rate resulted primarily from increased
non-deductible business and entertainment expenses.

Net income for the quarter was $4.5 million or 27 cents per diluted share
compared to $8.0 million or 47 cents per diluted share in the first quarter last
year. Net income, as a percentage of revenue decreased during the current
quarter as a result of decreased gross profit margins and higher selling, general and administrative expenses, as discussed previously.

LIQUIDITY AND CAPITAL RESOURCES

Workingpreviously discussed.

Liquidity and capital resources
Cash and cash equivalents decreased $12.5 million to $11.0 million at April 30,July 31, 1999 decreased to $49.3 million from $81.6$23.5 million at January 31, 1999. The decrease is primarily attributed toWe used cash in operating
activities of $15.5 million in the six month period ended July 31, 1999 versus cash used in operating activities of $5.3 million in the six month period ended July 31, 1998. This change
was driven by decreased net income, a seasonal increase in trade accounts receivable balances and the assumption and subsequent payment of ordinary course liabilities resulting from the Daniels
Acquisition whichPrinting and Alternatives Communications acquisitions. Net cash used in investing activities was financed through excess operating$61.6 million and $12.6 million for the six month periods ended July 31, 1999 and 1998,
respectively. Significant uses of cash and our revolving
credit agreement. Consideration paidin investing activities for the current six month period included $54.6 million of cash used for the Daniels AcquisitionPrinting and Alternatives Communications
acquisitions and capital expenditures of approximately $5.1 million. Consideration for the Daniels Printing acquisition included approximately $44$44.0 million in cash, assumption and payment of existing
line of credit obligations totaling approximately $5.6 million and the assumption of certain ordinary course liabilities of $7.7 million. We plan to refinance
amounts borrowed under our revolving credit agreementConsideration for the Daniels
Acquisition to term debt during 1999. Offsetting the net decrease in working
capital was an increase in trade receivable and work-in-process balances
totalingAlternatives Communications acquisition
included approximately $50 million.

We used cash in operating activities of $30.4$2.6 million in the first quartercash, a promissory note of fiscal year 2000 compared to net cash used in operating activities$0.8 million, payment of $4.6an existing line of credit obligations of $2.1 million in the first quarterand assumption of fiscal year 1999. This change is driven by an
increase in trade receivables, work-in-process inventories and the assumption
and subsequent payment ofcertain ordinary course
liabilities resulting from the Daniels
Acquisition.

Net cash used in investing activities was $54.3 million and $5.2 million for
the quarters ended April 30, 1999 and 1998, respectively. Significant use of cash in investing activities for the current quarter included $49.6 million for
the Daniels Acquisition and capital expenditures of approximately $2.8$1.9 million. Net cash provided by financing activities was $65.3$64.6 million compared to $8.4$19.0 million for the quarterssix month periods ended April 30,July 31, 1999 and 1998, respectively. This
change is primarily the result ofresulted from financing a significant portion of the Daniels Acquisition.

YEARPrinting and Alternatives Communications acquisitions with our revolving credit facility.
Year 2000 READINESSReadiness
Many older computer software programs refer to years in terms of their final two digits only. Such programs may interpret the year 2000 to mean the year 1900
instead. If not corrected, those programs could cause date-related transaction failures. We have a Year 2000 project underway that addresses our internal business systems including software, hardware
and firmware as well as external business partners, supply chains, and customers. Our plan includes the following steps:

ASSESSMENT.
•
Assessment. We have identified and prioritized systems and individual components of systems
that contain potentially date-sensitive computer codes.
10

REMEDIATION.

•
Remediation. We are making decisions on how to make systems and processes Year 2000-ready,
then proceeding to make the necessary changes.
THIRD-PARTY VENDORS.

•
Third-Party Vendors. We have surveyed thefor Year 2000 readiness of
significantour material
third-party vendors, including external providers of software anand hardware products, as well as print producers.
CONFIGURATION MANAGEMENT.

•
Configuration Management. We have tracked source code components of our business
applications and changes to those components to manage the remediation process.
VALIDATION/TESTING.

•
Validation/Testing. We have substantially completed testing of data and have reviewed
results to determine that errors were not introduced during the conversionremediation process.
CONTINGENCY PLANNING.

•
Contingency Planning. We are formulatinghave formulated contingency plans that address the continuum from
minor administrative interruptions to failure of mission critical processes to include alternate material and services suppliers where applicable. This plan includes a staffed "command center" that
will be activated in December 1999 and stay active as long as required into January 2000.

Our project plan includes initial testing and remediation which was begun last year and continued into the firstfourth quarter of ourthe fiscal year ending January
31, 2000. The Companyended 1999. We also completed the
surveying of key suppliers in the fourth quarter of fiscal 1999. The Company is currently

Our mission critical accounting, job control, composition and EDGAR filing systems have been tested, remediated and were re-installed in the process of developing
contingency plans, as necessary, with the initial plan to be completed and
distributed bya Year 2000 ready mode on or before
July 31, 1999. We plan to haveThere are some ancillary systems still in the balance of our mission-critical internal systems and
electronic data links readyremediation process that are scheduled for completion by October 31, 1999,1,

1999. The Managed Communications Programs' accounting and resolve any supplier
problems.fulfillment system is in final testing and scheduled for re-installation in October 1999. We have surveyed our major utility companies and
landlords at our facilities and have received most response statements. We are in the process of analyzing those statements and following up, where needed for clarity.

A master project plan has been developed and a Steering Committee, chartered by the Board of Directors, meets regularly to monitor the plan and address issues. The project has
progressed through the system assessment stage and is
well into the final stages of remediation stage where programming changes are being made to major business and production systems. We believe that the project is currently on schedule.

We estimate that the total cost to identify and remediate Year 2000 problems is approximately $3.6$4.2 million. Approximately $2.0$2.8 million of these costs have been incurred as of
April 30,July 31, 1999. These costs are expensed as incurred. These costs are primarily relate to the purchase of a new payroll system, consultant and payroll-related costs for our information technology
group and some computer hardware and software package upgrade purchase costs. Such costs do not include normal system upgrades and replacements.

Detailed system-by-system status for major systems is available on our web
site http:/www.merrillcorp.com for those interest parties.

We, of course, do not have control over many Year 2000 problems. The nature of our society and the interconnected systems of government agencies, utilities, businesses and even
individuals can affect our ability to provide goods and services to our customers, and by extension could also affect our financial position. We are making every effort to evaluate, correct and test
potential problem areas, but ultimately, the resolutions of Year 2000 questions by other entities in our network of relationships could influence us significantly.

ITEM
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and Qualitative Disclosures About Market Risk.
We regularly invest excess operating cash in overnight repurchase agreements that are subject to changes in short-term interest rates. Accordingly, we believe
that the market risk arising from itsour holding of these financial instruments is minimal.

PART II.--OTHERII.—OTHER INFORMATION

ITEM
Item 1. Legal Proceedings
Plaintiffs have filed two lawsuits in Minnesota state court on behalf of our shareholders. The lawsuits allege that our board of directors breached their
fiduciary duties to our shareholders in approving the merger, and that our shareholders will not receive adequate compensation for their shares of Merrill common stock pursuant to the merger
agreement. The plaintiffs seek to enjoin or rescind the merger, or to recover compensatory damages if the merger is closed and not rescinded. We believe these lawsuits are without merit and intend to
defend them vigorously. We do not know of any other pending legal, governmental, administrative or other matters that would materially affect our business or properties.
Item 4. Submission of Matters to a Vote of Security Holders

(a) Our annual meeting of shareholders was held on June 2, 1999.

(b) The following matters were submitted to a vote of security holders:

Proposal 1—Election of Directors

To elect nine directors to terms expiring in calendar year 2000.

Directors
Votes For Votes Withheld
Rick R. Atterbury 12,780,910 85,009
James R. Campbell 12,781,010 84,909
John W. Castro 12,781,010 84,909
Ronald N. Hoge 12,781,010 84,909
Frederick W. Kanner 12,781,010 84,909
Richard G. Lareau 12,543,410 322,509
Paul G. Miller 12,780,010 85,909
Michael S. Scott Morton 12,781,010 84,909
Robert F. Nienhouse 12,781,010 84,909

Item 6. EXHIBITS AND REPORTS ON FORM Exhibits and Reports on Form 8-K

(a) Exhibits

27. Financial Data Schedule

(b) Reports on Form 8-K

A Form 8-K,8-K/A dated April 14, 1999, was filed during the firstsecond quarter of
the fiscal year ended JanuaryJuly 31, 20001999 related to the acquisition of substantially all operating assets and assumption of certain liabilities
of Daniels Printing, Limited Partnership.

A Form 8-K dated July 20, 1999, was filed during the second quarter ended July 31, 1999 related to the agreement and plan of merger between our company and Viking Merger Sub, Inc.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

(REGISTRANT) MERRILL CORPORATION
BY (SIGNATURE) /s/ /s/ John W. Castro
(NAME
(NAME AND TITLE) John W. Castro, President and Chief Executive Officer
(DATE) June September 14, 1999

BY (SIGNATURE)

/s/ Kay A. Barber
(NAME
(NAME AND TITLE) Kay A. Barber, Chief Financial Officer
(DATE) June September 14, 1999

/x/		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended July 31, 1999
		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

		Page(s)
Item 1. ~~FINANCIAL STATEMENTS~~ Financial Statements
Included ~~herein~~ is the following unaudited financial information:
Consolidated Balance Sheets as of ~~April 30,~~July 31, 1999 and January 31, ~~1999................................~~1999		3
Consolidated Statements of Operations for the three and six month periods ended ~~April 30,~~July 31, 1999 and ~~1998......~~1998		4
Consolidated Statements of Cash Flows for the ~~three~~six month periods ended ~~April 30,~~July 31, 1999 and ~~1998......~~1998		5
Notes to Consolidated Financial ~~Statements........................................................... 6-7 ITEM~~Statements		6
Item 2. ~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 8-11 ITEM~~ Management's Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3. ~~QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK....................................... 12~~ Quantitative and Qualitative Disclosures About Market Risk		16

Minnesota		41-0946258
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
One Merrill Circle St. Paul, Minnesota (Address of principal executive offices)		55108 (Zip Code)

		Page(s)

Item 1. Legal Proceedings		17
Item 4. Submission of Matters to a Vote of Security Holders		17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................ 13 SIGNATURES............................................................................................... 14 Exhibits and Reports on Form 8-K		17

	July 31, 1999		January 31, 1999 ~~----------- -----------~~ ~~(UNAUDITED)~~
		(unaudited)
Current assets
Cash and cash ~~equivalents..........................................................~~ equivalents	$ ~~4,103~~	11,001	$	23,477
Trade receivables, less allowance for doubtful accounts of ~~$9,298~~$9,581 and $8,126, ~~respectively..................................................................... 139,852~~ respectively		145,796		102,365
Work-in-process ~~inventories........................................................ 25,364~~ inventories		16,848		12,639
Other ~~inventories.................................................................. 8,046~~ inventories		8,785		7,559
Other current ~~assets............................................................... 12,839~~ assets		15,369		12,253 ~~----------- -----------~~

Total current ~~assets............................................................. 190,204~~ assets		197,799		158,293
Property, plant and equipment, ~~net................................................... 59,026~~ net		58,122		44,935
Goodwill, ~~net........................................................................ 75,123~~ net		78,296		49,744
Other ~~assets......................................................................... 12,995~~ assets		12,944		12,973 ~~----------- -----------~~

Total ~~assets.....................................................................~~ assets	$ ~~337,348~~	347,161	$	265,945 ~~----------- ----------- ----------- -----------~~

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable to ~~banks.............................................................~~ banks	$ ~~66,500~~	68,000
Current maturities of long-term ~~debt............................................... 210~~ debt		960	$	2,210
Current maturities of capital lease ~~obligations.................................... 222~~ obligations		204		236
Accounts ~~payable................................................................... 38,236~~ payable		35,600		29,640
Accrued ~~expenses................................................................... 35,707~~ expenses		37,993		44,642 ~~----------- -----------~~

Total current ~~liabilities........................................................ 140,875~~ liabilities		142,757		76,728
Long-term debt, net of current ~~maturities............................................~~ maturities		38,110		38,110
Capital lease obligations, net of current ~~maturities................................. 1,329~~ maturities		1,292		1,375
Other ~~liabilities.................................................................... 10,517~~ liabilities		10,266		8,581 ~~----------- -----------~~

Total ~~liabilities................................................................ 190,831~~ liabilities		192,425		124,794 ~~----------- -----------~~

Shareholders' equity
Common stock, $.01 par value: 25,000,000 shares authorized; ~~16,069,895~~16,130,520 and 15,823,155 shares, respectively, issued and ~~outstanding..........................~~ outstanding		161		158
Undesignated stock: 500,000 shares authorized; no shares ~~issued....................~~ issued
Additional paid-in capital, net of note receivables of ~~$1,547...................... 13,882~~ $2,055 at July 31, 1999		14,202		12,722
Retained ~~earnings.................................................................. 132,474~~ earnings		140,373		128,271 ~~----------- -----------~~

Total shareholders' ~~equity....................................................... 146,517~~ equity		154,736		141,151 ~~----------- -----------~~

Total liabilities and shareholders' ~~equity.......................................~~ equity	$ ~~337,348~~	347,161	$	265,945 ~~----------- ----------- ----------- -----------~~

	Three Months Ended July 31						Six Months Ended July 31
	1999			1998 ~~------------ ------------~~ ~~Revenue.....................................................~~			1999			1998
Revenue	$ ~~131,836~~	166,237		$ ~~123,514~~	148,458		$	298,073		$	271,972
Cost of ~~revenue............................................. 84,564 75,156 ------------ ------------~~ revenue		109,398			94,484			193,962			169,640

Gross ~~profit.............................................. 47,272 48,358~~ profit		56,839			53,974			104,111			102,332
Selling, general and administrative ~~expenses................ 37,728 33,425 ------------ ------------~~ expenses		38,281			37,267			76,009			70,692
Merger costs		1,130			—			1,130			—

Operating ~~income.......................................... 9,544 14,933~~ income		17,428			16,707			26,972			31,640
Interest ~~expense............................................ (1,103) (932)~~ expense		(2,064	)		(1,095	)		(3,167	)		(2,027	)
Other (expense) income, ~~net................................. (206) 307 ------------ ------------~~ net		(390	)		202			(596	)		509

Income before provision for income ~~taxes.................. 8,235 14,308~~ taxes		14,974			15,814			23,209			30,122
Provision for income ~~taxes.................................. 3,714 6,296 ------------ ------------~~ taxes		6,753			7,108			10,467			13,404

Net ~~income................................................~~ income	$ ~~4,521~~	8,221		$ ~~8,012 ------------ ------------ ------------ ------------~~	8,706		$	12,742		$	16,718

Net income per share: Basic..................................................... $.28 $.49 ------------ ------------ ------------ ------------ Diluted................................................... $.27 $.47 ------------ ------------ ------------ ------------
Basic	$0.51			$0.53			$0.80			$1.02
Diluted	$0.50			$0.50			$0.77			$0.97
Dividends per common share.................................. $.02 $.02 ------------ ------------ ------------ ------------share	$0.02			$0.02			$0.04			$0.04
Weighted average number of shares outstanding: Basic..................................................... 15,881,177 16,332,927 ------------ ------------ ------------ ------------ Diluted................................................... 16,470,066 17,194,712 ------------ ------------ ------------ ------------
Basic		16,089,141			16,412,306			15,985,159			16,372,617

Diluted		16,587,536			17,305,017			16,525,333			17,249,865

	Six Months Ended July 31
	1999			1998 ~~---------- ----------~~
Operating activities
Net ~~income...........................................................................~~ income	$ ~~4,521~~	12,742		$ ~~8,012~~	16,718
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and ~~amortization...................................................... 3,745 2,791~~ amortization		7,959			6,024
Amortization of ~~intangibles........................................................ 1,170 1,080~~ intangible assets		2,632			2,174
Writedown of ~~goodwill.............................................................. --~~ goodwill		—			1,000
Provision for losses on trade ~~receivables.......................................... 1,997 1,048~~ receivables		2,883			2,585
Deferred ~~compensation.............................................................. 691 1,338~~ compensation		910			1,519
Changes in operating assets and liabilities, net of effects from business acquisitions
Trade ~~receivables................................................................ (25,289) (8,418)~~ receivables		(29,799	)		(25,807	)
Work-in-process ~~inventories...................................................... (7,957) (13,228)~~ inventories		559			(6,140	)
Other ~~inventories................................................................ (487) 202~~ inventories		(237	)		(396	)
Other current ~~assets............................................................. 164 (697)~~ assets		1,017			41
Accounts ~~payable................................................................. 2,010 6,052~~ payable		(2,158	)		2,924
Accrued ~~expenses................................................................. (13,621) (9,589)~~ expenses		(11,034	)		(5,738	)
Accrued and deferred income ~~taxes................................................ 2,693 5,794 ---------- ----------~~ taxes		(972	)		(196	)

Net cash used in operating ~~activities.......................................... (30,363) (4,615) ---------- ----------~~ activities		(15,498	)		(5,292	)

Investing activities
Business acquisitions, net of cash ~~acquired.......................................... (50,371) --~~ acquired		(54,556	)		(3,200	)
Purchase of property, plant and ~~equipment............................................ (2,836) (3,696)~~ equipment		(5,125	)		(7,809	)
Other investing activities, ~~net...................................................... (1,089) (1,494) ---------- ----------~~ net		(1,888	)		(1,601	)

Net cash used in investing ~~activities.......................................... (54,296) (5,190) ---------- ----------~~ activities		(61,569	)		(12,610	)

Financing activities
Borrowings on notes payable to ~~banks................................................. 69,900 12,600~~ banks		115,250			71,400
Repayments on notes payable to ~~banks................................................. (3,400) (4,900)~~ banks		(49,382	)		(51,800	)
Principal payments on long-term debt and capital lease ~~obligations................... (2,060) (71)~~ obligations		(2,120	)		(149	)
Repurchase of common stock		—			(2,178	)
Dividends ~~paid....................................................................... (318) (326)~~ paid		(640	)		(655	)
Exercise of stock ~~options............................................................ 733 669~~ options		962			1,514
Tax benefit realized upon exercise of stock ~~options.................................. 430 427~~ options		521			690
Other equity transactions, ~~net....................................................... -- 41 ---------- ----------~~ net		—			226

Net cash provided by financing ~~activities...................................... 65,285 8,440 ---------- ---------- Decrease~~activities		64,591			19,048

(Decrease) increase in cash and cash ~~equivalents.................................................. (19,374) (1,365)~~ equivalents		(12,476	)		1,146
Cash and cash equivalents, beginning of ~~period.........................................~~ period		23,477			2,531 ~~---------- ----------~~

Cash and cash equivalents, end of ~~period...............................................~~ period	$ ~~4,103~~	11,001		$ 1,166 ---------- ---------- ---------- ----------	3,677

	Three Months ended July 31, 1998		Six Months ended July 31, 1998		Six Months ended July 31, 1999
	(in thousands, except per share amounts)
Revenues	$	166,838	$	311,260	$	313,798
Net Income		8,013		16,450		13,350
Net Income Per Share—diluted	$	0.46	$	0.95	$	0.81

(in thousands)	Specialty Communication Services		Document Services			Interest & Other			Total

Three month period ~~ending April 30,~~ended July 31, 1999 ~~Revenue...............................~~
Revenue	$ ~~115,650~~	148,801	$ ~~16,186~~	17,436					$ ~~131,836~~	166,237
Income (loss) before provision for income ~~taxes........................ 9,418 126~~ taxes	$ ~~(1,309) 8,235 - ----------------------------------------------------------------------------------------------------------------~~	19,763	$	(1,205	)	$	(3,584	)	$	14,974

As of ~~April 30,~~July 31, 1999
Total assets.......................... 266,692 34,539 36,117 337,348 - ---------------------------------------------------------------------------------------------------------------- assets	$	267,693	$	35,195		$	44,273		$	347,161

Three month period ~~ending April 30,~~ended July 31, 1998 ~~Revenue...............................~~
Revenue	$ ~~109,111~~	133,902	$ ~~14,403~~	14,556					$ ~~123,514~~	148,458
Income (loss) before provision for income ~~taxes........................ 16,641 (1,708)~~ taxes	$ ~~(625) 14,308 - ----------------------------------------------------------------------------------------------------------------~~	18,859	$	(2,152	)	$	(893	)	$	15,814

As of January 31, 1999
Total ~~assets..........................~~ assets	$	186,825	$	25,966		$	53,154		$	265,945 ~~- ----------------------------------------------------------------------------------------------------------------~~

Six month period ended July 31, 1999
Revenue	$	263,839	$	34,234					$	298,073
Income (loss) before provision for income taxes	$	29,181	$	(1,079	)	$	(4,893	)	$	23,209

Six month period ended July 31, 1998
Revenue	$	243,012	$	28,960					$	271,972
Income (loss) before provision for income taxes	$	35,500	$	(3,860	)	$	(1,518	)	$	30,122

	Three Months Ended July 31,						Six Months Ended July 31,
	Percentage of Revenue				Percentage Increase (Decrease)		Percentage of Revenue				Percentage Increase (Decrease)
	1999		1998		1999 ~~VS.~~ vs. 1998		1999		1998		1999 vs. 1998 ~~1998 -------- -------- ----------~~
Revenue
Financial Document Services	45.8	%	57.6	%	(11)	%	46.9	%	55.3	%	(7)	%
Investment Company Services	25.9		18.3		59		24.0		19.0		38
Managed Communications Programs	13.9		12.1		28		14.8		13.6		19
Merrill Print Group	3.9		2.2		102		2.9		1.4		122

Subtotal Specialty Communication Services: Financial................................ 30.6% 37.5% 13% Corporate................................ 37.5 32.9 22 Commercial and other..................... 19.6 18.0 16 -------- -------- 87.7 88.4 6 Communications Services	89.5		90.2		11		88.6		89.3		9
Document ~~Services: Document management services............. 12.3 11.6 12 -------- --------~~ Management Services	10.5		9.8		20		11.4		10.7		18

Total ~~revenue..........................~~ revenue	100.0		100.0 7		12		100.0		100.0		10
Cost of ~~revenue.............................. 64.1 60.8 13 -------- --------~~ revenue	65.8		63.6		16		65.1		62.4		14

Gross ~~profit............................. 35.9 39.2 (2)~~ profit	34.2		36.4		5		34.9		37.6		2
Selling, general and administrative ~~expenses.................................... 28.6 27.1 13 -------- --------~~ expenses	23.0		25.1		3		25.5		26.0		8
Merger costs	.7		—		—		.4		—		—

Operating ~~income......................... 7.3 12.1 (36)~~ income	10.5		11.3		4		9.0		11.6		(15	)
Interest ~~expense............................. (0.8) (0.8) 18~~ expense	(1.3	)	(0.7	)	88		(1.0	)	(0.7	)	56
Other (expense) income, ~~(expense), net.................. (0.3) 0.3 (167) -------- --------~~ net	(0.2	)	0.1		(293	)	(0.2	)	0.2		(217	)

Income before provision for income ~~taxes.................................. 6.2 11.6 (42)~~ taxes	9.0		10.7		(5	)	7.8		11.1		(23	)
Provision for income ~~taxes................... 2.8 5.1 (41) -------- --------~~ taxes	4.1		4.8		(5	)	3.5		4.9		(22	)

Net income............................... 3.4% 6.5% (44) -------- -------- -------- --------income	4.9	%	5.9	%	(6)	%	4.3	%	6.2	%	(24)	%

Directors	Votes For	Votes Withheld
Rick R. Atterbury	12,780,910	85,009
James R. Campbell	12,781,010	84,909
John W. Castro	12,781,010	84,909
Ronald N. Hoge	12,781,010	84,909
Frederick W. Kanner	12,781,010	84,909
Richard G. Lareau	12,543,410	322,509
Paul G. Miller	12,780,010	85,909
Michael S. Scott Morton	12,781,010	84,909
Robert F. Nienhouse	12,781,010	84,909

(REGISTRANT)		MERRILL CORPORATION
BY (SIGNATURE) ~~/s/~~		/s/ John W. Castro ~~(NAME~~
(NAME AND TITLE)		John W. Castro, President and Chief Executive Officer
(DATE) ~~June~~		September 14, 1999
BY (SIGNATURE)		/s/ Kay A. Barber ~~(NAME~~
(NAME AND TITLE)		Kay A. Barber, Chief Financial Officer
(DATE) ~~June~~		September 14, 1999