SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- Form 8-K/A Amendment No. 1 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ---------------------- Date of Report (Date of earliest event reported) : April 15, 1996 ---------------------- MERRILL CORPORATION (Exact name of registrant as specified in its charter) Minnesota 0-14082 41-0946258 --------- ------- ---------- (State of Incorporation) (Commission (I.R.S. Employer File Number) Identification No.) One Merrill Circle, St. Paul, Minnesota 55108 --------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (612) 646-4501 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS A. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Financial statements of The Corporate Printing Company, Inc. and Affiliated Group (consisting of balance sheets as of December 31, 1995 and 1994 and the related statements of income and retained earnings, and cash flows for the years then ended including the accountants' reports thereon) are included in this Report. B. PRO FORMA FINANCIAL INFORMATION. Unaudited condensed consolidated pro-forma statements of operations for the three month period ended April 30, 1996 and for the year ended January 31, 1996 are included in this report. A pro-forma balance sheet is not included as all applicable purchase transactions are reflected in Merrill Corporation's consolidated balance sheet filed as part of its' April 30, 1996 Form 10-Q. C. EXHIBITS. 23.1 Consent of Mirsky, Furst & Associates, P.A., Independent Accountants 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. Date: July 1, 1996 MERRILL CORPORATION (Registrant) By /s/ Steven J. Machov ---------------------- Steven J. Machov Vice President and General Counsel [MIRSKY, FURST & ASSOCIATES, P.A. LETTERHEAD] Report of Independent Public Accountants ---------------------------------------- To the Board of Directors of The Corporate Printing Company, Inc. and Affiliated Group: We have audited the accompanying combined and consolidated balance sheets of The Corporate Printing Company, Inc. and Affiliated Group (identified in Note 1 - the "Company") as of December 31, 1995 and 1994, and the related combined and consolidated statements of income and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our 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 combined and consolidated financial position of The Corporate Printing Company, Inc. and Affiliated Group as of December 31, 1995 and 1994, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ MIRSKY, FURST & ASSOCIATES, P.A. Fort Lee, New Jersey April 9, 1996, except for Note 12, as to which the date is April 15, 1996 THE CORPORATE PRINTING COMPANY, INC. AND AFFILIATED GROUP COMBINED AND CONSOLIDATED BALANCE SHEETS December 31, 1995 and December 31, 1994 ASSETS December 31, December 31, 1995 1994 Current assets: ------------ ------------ Cash and cash equivalents $ 4,073,000 $ 1,527,000 Accounts receivable - trade, less allowance for doubtful accounts of $1,800,000 and $870,000 20,808,000 18,694,000 Accumulated costs on jobs in progress and supplies 2,446,000 3,815,000 Prepaid expenses and other current assets 2,212,000 4,210,000 ----------- ----------- Total current assets 29,539,000 28,246,000 Machinery, equipment and improvements, less accumulated depreciation and amortization 6,780,000 6,521,000 Other assets 2,299,000 2,614,000 ----------- ----------- Total assets $38,618,000 $37,381,000 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities: Bank debt $ 9,250,000 $ 500,000 Subordinated debt 4,181,000 840,000 Accounts payable 6,926,000 4,375,000 Accrued expenses and other current liabilities 2,473,000 4,081,000 Income taxes payable - deferred 1,598,000 1,031,000 ----------- ----------- Total current liabilities 24,428,000 10,827,000 Long-term debt - Bank 0 9,450,000 Retirement benefits 912,000 697,000 Deferred credits 750,000 179,000 Commitments and contingencies - - Minority interest 32,000 32,000 Subordinated debt 0 2,700,000 ----------- ----------- Total liabilities 26,122,000 23,885,000 ----------- ----------- Stockholders' equity Common stock - - Additional paid-in capital 201,000 201,000 Retained earnings 12,295,000 13,295,000 ----------- ----------- Total stockholders' equity 12,496,000 13,496,000 ----------- ----------- Total liabilities and stockholders' equity $38,618 000 $37,381,000 ----------- ----------- ----------- ----------- PRIOR YEAR BALANCES HAVE BEEN RECLASSED TO AGREE TO CURRENT YEAR PRESENTATION. See accompanying notes Page 2 THE CORPORATE PRINTING COMPANY, INC. AND AFFILIATED GROUP COMBINED AND CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS Twelve Months Ended December 31, 1995 and 1994 1995 1994 ------------ ------------ Net sales $ 64,593,000 $ 75,081,000 Cost of sales 43,706,000 48,218,000 ------------ ------------ Gross profit 20,887,000 26,863,000 ------------ ------------ Other costs and expenses: Selling 10,804,000 11,465,000 General and administrative 9,481,000 8,865,000 Interest expense 1,349,000 569,000 Interest income (369,000) (22,000) Other income & expense 168,000 ------------ ------------ 21,433,000 20,877,000 ------------ ------------ Income before income taxes (546,000) 5,986,000 Income taxes 374,000 870,000 ------------ ------------ Income before extraordinary item (920,000) 5,116,000 Extraordinary item, net of income taxes - (6,436,000) ------------ ------------ Net income (920,000) (1,320,000) Retained earnings, beginning of period 13,295,000 15,757,000 Dividends paid (80,000) (1,142,000) ------------ ------------ Retained earnings, end of period $ 12,295,000 $ 13,295,000 ------------ ------------ ------------ ------------ See accompanying notes. Page 3 THE CORPORATE PRINTING COMPANY, INC. AND AFFILIATED GROUP COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1995 and 1994 1995 1994 Cash flows from operating activities: ----------- ------------ Net income (loss) $ (920,000) $ (1,320,000) Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item, net 7,246,000 Depreciation and amortization 1,443,000 1,374,000 Provision for doubtful accounts 887,000 126,000 Provision for retirement benefits 215,000 62,000 Provision for deferred income taxes 567,000 (243,000) Net rent deferral 571,000 179,000 Minority interest 2,000 Increase (decrease) from changes in: Accounts receivable (3,001,000) 2,912,000 Accumulated costs on jobs in progress and supplies 1,368,000 640,000 Prepaid expenses and other current assets 198,000 (352,000) Other assets 37,000 (621,000) Accounts payable 2,551,000 (1,224,0O0) Accrued expenses and other current liabilities (1,608,000) (41,000) Accrued interest on subordinated debt 641,000 Income taxes payable/refundable (69,000) (25,000) ----------- ----------- Net cash provided by (used in) operating activities 2,880,000 8,715,000 ----------- ------------ Cash flows from investing activities: Net additions to machinery, equipment and improvements (1,578,000) (2,068,000) Write-off of investment 152,000 Net (increase) decrease in life insurance cash surrender values 3,000 (53,000) ----------- ------------ Net cash (used in) investing activities (1,423,000) (2,121,000) ----------- ------------ Cash flows from financing activities: Term loan borrowings from bank 3,500,000 Term loan repayments to bank (700,000) (500,000) Net (repayments) borrowings under revolving line of credit (3,500,000) 3,750,000 Subordinated debt repayments (5,579,000) Advances (payments) to/from shareholders 1,869,000 (2,000,000) Dividends paid (80,000) (1,142,000) ----------- ------------ Net cash (used in) provided by financing activities 1,089,000 (5,471,000) ----------- ------------ Net (decrease) increase in cash and cash equivalents 2,546,000 1,123,000 Cash and cash equivalents, beginning of period 1,527,000 404,000 ----------- ------------ Cash and cash equivalents, end of period $ 4,073,000 $ 1,527,000 ----------- ------------ ----------- ------------ PRIOR YEAR BALANCES HAVE BEEN RECLASSED TO AGREE TO CURRENT YEAR PRESENTATION. See accompanying notes. Page 4 THE CORPORATE PRINTING COMPANY, INC. AND AFFILIATED GROUP NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 NOTE 1. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION; BUSINESS The combined and consolidated financial statements of The Corporate Printing Company, Inc. and Affiliated Group include the accounts of The Corporate Printing Company, Inc., CP International Holdings, Inc., CPC Communications, Inc., CPC Reprographics, Inc., and The Corporate Printing Company International, Ltd., together with their majority-owned subsidiaries and partnerships, all of which are under common control and management (collectively, the "Company"). All significant intercompany accounts and transactions have been eliminated. The 1994 financial statements have been reclassified to conform to the 1995 presentation. The Company provides financial printing and duplication services and, although maintaining offices internationally, sells primarily to customers seeking access to the United States' securities markets. CASH AND CASH EQUIVALENTS Cash equivalents include highly liquid investments with original maturities of three months or less. ACCUMULATED COSTS ON JOBS IN PROGRESS AND SUPPLIES Accumulated costs on jobs in progress (1995 -- $1,623,000; 1994 -- $2,697,000) are valued at the lower of cost or market, and consist primarily of outside purchases, labor and overhead. Supplies (1995 -- $823,000; 1994 -- $1,118,000) are valued at the lower of cost or market (first-in, first-out), and consist primarily of paper, ink and chemicals. MACHINERY, EQUIPMENT AND IMPROVEMENTS Machinery, equipment and improvements are stated at cost. Depreciation is calculated by using the straight-line method over the estimated useful lives of the assets; amortization of leasehold improvements is calculated by using the straight-line method over the estimated useful lives of the assets or the lease terms, whichever is shorter. Page 5 THE CORPORATE PRINTING COMPANY, INC. AND AFFILIATED GROUP NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1994 GOODWILL Cost in excess of net assets of acquired businesses ("goodwill") is being amortized using the straight-line method over a period of forty years. INCOME TAXES Several of the affiliated companies have elected to be taxed as Subchapter S corporations, whereby their taxable incomes are reported directly by their stockholders; accordingly, these companies have no federal income tax provisions and reduced state and local income tax provisions. The Company provides deferred income taxes for the differences between income reported for tax and for financial statement purposes, principally the use of the cash basis of accounting for tax purposes. PERVASIVENESS 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. NOTE 2. ACCOUNTS RECEIVABLE - TRADE Accounts receivable - trade include unbilled amounts (1995 - $2,077,000; 1994 - $1,233,000). Page 6 THE CORPORATE PRINTING COMPANY, INC. AND AFFILIATED GROUP NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1994 NOTE 3. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets include the following: 1995 1994 ----------- ----------- Advances to stockholders $ 181,000 $ 2,000,000 Compensation 875,000 1,014,000 Non-trade receivables 91,000 277,000 Taxes receivable 543,000 474,000 Other 522,000 445,000 ----------- ----------- $ 2,212,000 $ 4,210,000 ----------- ----------- ----------- ----------- NOTE 4. MACHINERY, EQUIPMENT AND IMPROVEMENTS Machinery, equipment and improvements include the following: 1995 1994 ----------- ----------- Machinery and equipment $10,213,000 $ 9,970,000 Leasehold improvements 3,361,000 3,161,000 Furniture and fixtures 1,967,000 1,926,000 Construction in progress 890,000 71,000 Other 1,363,000 1,408,000 ----------- ----------- 17,794,000 16,536,000 Less accumulated depreciation and amortization 11,014,000 10,015,000 ----------- ----------- $ 6,780,000 $ 6,521,000 ----------- ----------- ----------- ----------- NOTE 5. OTHER ASSETS Other assets include the following: 1995 1994 ----------- ----------- Cash surrender values and other insurance contracts $ 1,029,000 $ 1,083,000 Goodwill 595,000 612,000 Investment in joint venture, at equity - 199,000 Other 675,000 720,000 ----------- ----------- $ 2,299,000 $ 2,614,000 ----------- ----------- ----------- ----------- Page 7 THE CORPORATE PRINTING COMPANY, INC. AND AFFILIATED GROUP NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1994 NOTE 6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities include the following: 1995 1994 ---------- ---------- Compensation and commissions $2,114,000 $3,589,000 Other accrued expenses 212,000 305,000 Deferred income 147,000 187,000 ---------- ---------- $2,473,000 $4,081,000 ---------- ---------- ---------- ---------- NOTE 7. BANK DEBT AND SUBORDINATE DEBT The Company and its principal bank are parties to a credit agreement, as amended, which provides for (a) a revolving line of credit of $12 million, (b) a $5 million term loan availability, and (c) the $1 million balance of a pre-existing term loan facility. Revolving loan borrowings are limited to certain trade accounts receivable ($8.9 million as of December 31, 1995) and originally matured on January 31, 1997. Interest on the revolving and term loans range from 8% to 9% per annum, respectively, at December 31, 1995; commitment fees of 1/4% and 1/2% per annum, respectively, are payable quarterly on the unused portions of the revolving and term loans. Borrowings under the credit agreement are collateralized by substantially all of the Company's assets, including accounts receivable, jobs in progress, and machinery, equipment and improvements. The agreement contains various covenants, including financial covenants relating to stockholders' equity, indebtedness, dividends, and the maintenance of earnings and cash flow, as defined. Page 8 THE CORPORATE PRINTING COMPANY, INC. AND AFFILIATED GROUP NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1994 During 1995 the credit agreement was amended and certain defaults relating to financial covenants were waived. As of December 31, 1995, the Company continued to be in default of certain financial covenants; plus a cross default relating to the non-payment of the annual installment due on December 29, 1995, under the Subordinated Notes Agreement. On February 15, 1996, the bank reduced the revolving loan commitment to the lesser of (a) the borrowing base availability, as defined, less the term loans outstanding at such time or (b) $5,000,000. This commitment expires on April 30, 1996. Therefore, the company has classified its total debt as current liabilities. In December 1994, the Company settled two long-standing legal actions involving one of its unions. In connection therewith, the Company paid $5 million and issued a $5 million subordinated note to the union. The note is payable in five annual $1 million principal installments. Quarterly interest payments at 6% per annum will commence in 1997 on the remaining principal balance. The note also provides for a lien on the Company's assets which is junior to that of its principal bank. At December 31, 1995 the subordinated note is recorded at it's net present value of $4,181,000 based on its terms. In connection with these matters, the Company recorded extraordinary items (and reduced income), in the amount of $6,436,000, net of income tax benefits of $810,000 ($8,000 current and $802,000 deferred). In February, 1996, the Company was notified that the subordinated note agreement was in default due to the non-payment of the annual installment due on December 29, 1995. In March, 1996 the company cured the default by making the payment plus penalty interest. Page 9 THE CORPORATE PRINTING COMPANY, INC. AND AFFILIATED GROUP NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1994 NOTE 8. INCOME TAXES PAYABLE The tax provisions on income before extraordinary item are comprised as follows: 1995 1994 --------- ----------- Current: Federal $ - $ 88,000 State and local - 223,000 --------- ----------- - 311,000 ---------- ----------- Deferred: Federal - - State and local 374,000 559,000 --------- ----------- 374,000 559,000 --------- ----------- Total $ 374,000 $ 870,000 --------- ----------- --------- ----------- The reconciliations of the difference between income taxes computed at federal statutory tax rates and the financial statement provisions are as follows: 1995 1994 ---------- ----------- Income taxes computed at federal statutory tax rates $(186,000) $ 2,035,000 Subchapter S elections 203,000 (1,986,000) State and local tax provisions, net of federal income tax benefits 247,000 517,000 Other, net 110,000 304,000 --------- ----------- Total $ 374,000 $ 870,000 --------- ----------- --------- ----------- As of December 31, 1995, the Company had state and local tax net operating loss carryforwards of approximately $5.1 million; such carryforwards are available to be utilized in future years and expire in 2010. A valuation reserve equal to the deferred tax asset has been recorded as it is not certain that these net operating losses will be utilized. Page 10 THE CORPORATE PRINTING COMPANY, INC. AND AFFILIATED GR0UP NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1994 NOTE 9: LITIGATION The Company is a party to several claims arising in the ordinary course of business. In the opinion of the Company's management, after review and consultation with counsel, the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position. NOTE 10: COMMITMENTS AND CONTINGENCIES LEASES The Company occupies premises and utilizes equipment under non-cancelable operating leases which expire on various dates through 2014. Many of the leases provide for payments of certain expenses (viz., real estate taxes on leased premises, minimum or excess copy charges on leased copier equipment, etc.) and may contain renewal and/or purchase options; in addition, the leases on premises provide for rent increases relating to increases in real estate taxes and the consumer price index. Rent expense under such leases, including the aforementioned expenses, amounted to $3,834,000 in 1995 and $4,155,000 in 1994. Future minimum annual lease commitments under non-cancelable operating leases are summarized as follows: 1996 $ 3,061,000 1997 2,326,000 1998 1,580,000 1999 1,328,000 2000 1,269,000 Thereafter 16,288,000 ----------- Total $25,852,000 ----------- ----------- Page 11 THE CORPORATE PRINTING COMPANY, INC. AND AFFILIATED GROUP NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1994 EMPLOYMENT AGREEMENTS AND BENEFITS The Company has entered into employment agreements with certain officers and key employees which require payments of minimum salaries and/or non-refundable draws against commissions through 2002, as follows: 1996 - $4,306,000, 1997 - $4,339,000, 1998 - $4,102,000, 1999 - $3,429,000, 2000 - $2,815,000, and thereafter - $2,189,000. The Company also has non-qualified deferred compensation agreements with several officers and key employees providing for annual post-retirement benefit payments upon reaching age sixty-five. While the present value of these agreements is accrued for, there is no present funding for them. In addition, the Company maintains a discretionary salary deferral savings plan (a 401(k) plan) for substantially all employees not covered by collective bargaining agreements. The Company contributed $107,000 to this plan during 1995 and $116,000 during 1994. NOTE 11. STOCKHOLDERS' EQUITY The capitalizations of the members of the Affiliated Group are as follows (there were no changes during 1995 except for newly-formed entities): (a) The Corporate Printing Company, Inc., common stock, par value $.01 per share, 2,000 shares authorized, 1,600 shares issued and outstanding; (b) CP International Holdings, Inc., common stock, par value $.01 per share, 1,000 shares authorized, 200 shares issued and outstanding; (c) CPC Communications, Inc., common stock, no par value, 200 shares authorized, issued and outstanding; (d) CPC Reprographics, Inc., common stock, par value $.01 per share, 1,000 shares authorized, 100 shares issued and outstanding; and (e) The Corporate Printing Company International, Ltd., common stock, par value $.10 per share, 10,000 shares authorized, 400 shares issued and outstanding. Page 12 THE CORPORATE PRINTING COMPANY, INC. AND AFFILIATED GROUP NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1994 NOTE 12. SUBSEQUENT EVENT On April 15, 1996, the Company sold substantially all of its assets, net of certain liabilities to Merrill Corporation. The effect of this transaction on the carrying amounts of the assets at December 31, 1995 is not significant. Page 13 PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) -------------------------- The following unaudited pro forma combined condensed statements of operations for the three-month period ended April 30, 1996, and for the year ended January 31, 1996 were prepared to illustrate the effects on the results of continuing operations of Merrill Corporation (the Company), The Corporate Printing Company, Inc. and Affiliated Group (CPC) and FMC Resource Management Corporation (FMC), using the purchase method of accounting and the assumptions described in the accompanying notes, and assuming the acquisitions occurred on February 1, 1995. The unaudited pro forma combined condensed statements of operations are not necessarily indicative of the combined results of operations as they may be in the future or as they might have been for the periods presented had the acquisitions been effective at February 1, 1995. The unaudited pro forma combined statements of operations and accompanying notes are based on the historical consolidated financial statements of the Company and FMC and the historical consolidated and combined financial statements of CPC. The results of operations for CPC and FMC included in the pro forma combined condensed statement of operations for the year ended January 31, 1996, are those for the year ended December 31, 1995. The pro forma adjustments are based upon available information and upon certain assumptions that the Company believes are reasonable in the circumstances. PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS for the three month period ended April 30, 1996 (Unaudited) (In thousands, except per share data) Merrill Pro Forma Corporation CPC FMC Total Adjustments Combined ----------- -------- -------- -------- ----------- -------- Revenues $71,200 $12,920 $2,322 $86,442 $86,442 Cost of revenues 46,030 8,644 1,608 56,282 (27)(1) 56,255 ----------- -------- -------- -------- ----------- -------- Gross profit 25,170 4,276 714 30,160 27 30,187 Selling, general and administrative expenses 17,509 4,783 555 22,847 322 (2) 23,156 (13)(1) ----------- -------- -------- -------- ----------- -------- Operating income 7,661 (507) 159 7,313 (282) 7,031 Other, net (81) (79) (32) (192) (435)(3) (737) (52)(4) (58)(5) ----------- -------- -------- -------- ----------- -------- Income before provision for income taxes 7,580 (586) 127 7,121 (827) 6,294 Provision for income taxes (3,335) 0 0 (3,335) 585 (6) (2,750) ----------- -------- -------- -------- ----------- -------- Net income $4,245 ($586) $127 $3,786 ($242)(8)(9) $3,544 ----------- -------- -------- -------- ----------- (10) -------- ----------- -------- -------- -------- ----------- -------- Income per common and common equivalent share: $0.54 $0.45 ----------- -------- ----------- -------- Weighted average number of common and common equivalent shares outstanding: 7,933,251 7,933,251 21,004 (7) 7,954,255 ----------- --------- -------- ----------- ----------- --------- -------- ----------- See accompanying notes to the Unaudited Pro Forma Combined Condensed Statements of Operations. PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS for the year ended January 31, 1996 (Unaudited) (In thousands, except per share data) Merrill Pro Forma Corporation CPC FMC Total Adjustments Combined ----------- -------- -------- -------- ----------- --------- Revenues $245,306 $64,593 $15,258 $325,157 $325,157 Cost of revenues 165,765 43,706 10,400 219,871 (110)(1) 219,761 ----------- -------- -------- -------- ----------- --------- Gross profit 79,541 20,887 4,858 105,286 110 105,396 Selling, general and administrative expenses 60,079 20,285 3,947 84,311 1,424 (2) 85,685 (50)(1) ----------- -------- -------- -------- ----------- --------- Operating income 19,462 602 911 20,975 (1,264) 19,711 Other, net (756) (1,148) (154) (2,058) (2,358)(3) (4,910) (255)(4) (239)(5) ----------- -------- -------- -------- ----------- --------- Income before provision for income taxes 18,706 (546) 757 18,917 (4,116) 14,801 Provision for income taxes (8,044) (374) 0 (8,418) 1,880 (6) (6,538) ----------- -------- -------- -------- ----------- --------- Net income $10,662 ($920) $757 $10,499 ($2,236)(8)(9) $8,263 ----------- -------- -------- -------- ----------- (10) --------- ----------- -------- -------- -------- ----------- --------- Income per common and common equivalent share: $1.34 $1.04 ----------- --------- ----------- --------- Weighted average number of common and common equivalent shares outstanding: 7,945,146 7,945,146 22,067 (7) 7,967,213 ----------- --------- ----------- --------- ----------- --------- ----------- --------- See accompanying notes to the Unaudited Pro Forma Combined Condensed Statements of Operations. NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (All amounts in thousands, except per share data) (1) - Represents adjustments to depreciation and amortization resulting from the fair value adjustments to fixed assets recorded in connection with the acquisitions. (2) - Represents the amortization of goodwill on a straight line basis over 15 years. (3) - Represents additional interest expense, computed using historical interest rates, resulting from increased borrowings under the Company's note payable in order to finance the acquisitions. Pro forma interest expense would be reduced by approximately $70 and $280 for the three month period ended April 30, 1996 and for the year ended January 31, 1996, respectively, due to anticipated lower interest rates of approximately 1% from historical interest rates associated with permanent financing. (4) - Represents reduced interest income resulting from a decrease in interest bearing cash and cash equivalents used to fund the acquisitions. (5) - Represents additional interest expense resulting from a non-compete obligation with the principal shareholder of CPC. (6) - Represents the income tax effect of the unaudited pro forma combined condensed statement of operations adjustments based on the statutory rate in effect for the periods shown. (7) - Represents additional common equivalent shares as a result of granting stock options at fair value in connection with the acquisition of CPC. (8) - CPC's historical statements of operations include operating results from foreign sales offices. CPC commenced closing these foreign sales offices prior to the acquisition. The remaining foreign sales offices are anticipated to be closed during the remainder of 1996. Excluding the operating results of CPC's foreign sales offices, pro forma operating results would have been as follows: Three month period ended Year ended April 30, 1996 January 31, 1996 ---------------- -------------- Pro forma revenue $85,333 $320,262 ======= ======== Pro forma net income $ 4,490 $ 11,009 ======= ======== Pro forma E.P.S. $ .56 $ 1.38 ======= ======== Foreign sales offices' identifiable tangible assets are not significant. (9) - The purchase agreements for CPC and FMC include contingent consideration not to exceed $12 million and $4 million, respectively. Any resulting contingent consideration will be recorded as goodwill and amortized on a straight line basis over the remainder of the 15 years from the date of the original acquisition. Pro forma net income, assuming the payment of the total maximum contingent consideration of $16 million under these agreements, at the date of original acquisition would be approximately $3.4 million ($ .43 per share ) for the three month period ended April 30, 1996 and approximately $7.5 million ($0.95 per share) for the year ended January 31, 1996. In addition, the purchase price for the CPC acquisitions is subject to adjustments, which have not been determined as of the filing date of this Form 8-K/A, for the collection of certain accounts receivables, final determination of any loss of CPC's affiliated companies, expenses for closing certain foreign sales offices and for 11% of the net income of CPC's affiliated S corporations. Any resulting adjustments will be recorded as an adjustment to goodwill and amortization over the remainder of the 15 years from the date of the original acquisition. (10)- The historical financial statements of CPC and FMC include officers' salaries and bonuses that are non recurring subsequent to the acquisitions. EXHIBIT INDEX Exhibit No. Description Method of Filing - ------- ----------- ---------------- 23.1 Consent of Mirsky, Furst & Associates & Associates............ Filed electronically with this Direct Transmission