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Merrill Comments on Recapitalization, Reports Financial Results

Thursday, June 06, 2002

Press release from the issuing company

ST. PAUL, MINN. — June 3, 2002 — Merrill Corporation (www.merrillcorp.com) announced today that it has reached an agreement on a proposed recapitalization plan that will waive or cure existing defaults under its senior credit facilities as well as the outstanding notes and will inject additional capital into the company. Under the proposed recapitalization plan, Merrill's largest shareholder, DLJ Merchant Banking Partners II, LP, will invest $18.5 million in Merrill upon the final effectiveness of an amendment to the senior credit facility and successful exchange and amendment of Merrill's outstanding senior subordinated notes and senior preferred shares. Merrill's senior lenders have agreed not to exercise their rights and remedies under the senior credit facility as a result of previously disclosed defaults until at least August 14, 2002 (the "Forbearance Period"), while Merrill completes the recapitalization plan. Holders of approximately 77% of Merrill's Senior Subordinated Notes due 2009, and 100% of both the Senior Discount Notes due 2008 and the senior preferred shares have entered into a lockup agreement with Merrill in support of this proposed recapitalization, subject to certain terms and conditions. To complete the plan, Merrill intends to launch an exchange offer and consent solicitation for the senior subordinated notes, the senior discount notes and senior preferred shares within the next 30 days. The financial advisor for the senior subordinated noteholders is Chanin Capital Partners and the information agent for the exchange offer is D. F. King & Co., Inc. "We feel this agreement on a recapitalization plan with our senior lenders and the lockup agreement are significant milestones in reaching our goal of addressing the needs of all of our stakeholders, including our customers, vendors and employees," said John Castro, President and CEO of Merrill. In addition, Merrill today announced unaudited financial results for the fiscal year ended January 31, 2002, and the first fiscal quarter ended April 30, 2002. These results show significant improvement in operating results over prior periods. While revenue was lower, due to the overall market, EBITDA returns were higher both in total earnings and as a percentage of revenue. Revenue for the year was $602.9 million, a decrease of 7.2% from $649.5 million for fiscal year ended January 31, 2001. The revenue decline was primarily due to a marked decrease in transactional financial printing, which is largely driven by capital markets activity. EBITDA for the year, adjusted for non-recurring restructuring costs, was $61.6 million, an increase of 15.6% from $53.3 million for the prior fiscal year. EBITDA margins increased to 10.2% in fiscal 2002 versus 8.2% in fiscal 2001. The substantial increase in EBITDA and EBITDA margin in fiscal 2002 was primarily due to (i) the success of cost savings initiatives implemented in late fiscal 2001 and early fiscal 2002 and (ii) revenue growth in non-transactional businesses. During the fiscal year ended January 31, 2002, Merrill reduced long-term debt and capital lease obligations by $24.2 million. Revenue for the first fiscal quarter ended April 30, 2002, was $159.2 million, a decrease of 4.8% from $167.2 million for the first fiscal quarter ended April 30, 2001. EDITDA for the quarter, adjusted for non-recurring financial restructuring costs, was $20.9 million, an increase of 4.5% from $20.0 million for the same period in the prior year. EBITDA margins increased to 13.1% in the first quarter of fiscal 2002 versus 12.0% in the prior year period. The increases in EBITDA and EBITDA margin as compared to the prior year were due to a continued focus on cost reduction and revenue diversification. "Our results for the fiscal year ended January 31, 2002, and the fiscal quarter ended April 30, 2002, illustrate the strength of our product offering, the diversity of our revenue base and the flexibility of our cost structure. Despite a difficult business environment that resulted in lower sales, we were able to generate healthy EBITDA growth," said Castro. "We began this recapitalization process in January 2001. Since then, the Company's performance has exceeded our lenders' forecasts and we have reduced our total outstanding debt by $25.9 million. We expect a continuation of this positive trend through our current fiscal year," said Castro. Merrill Corporation is a diversified communications and document services company applying advanced information systems and intranet/Internet technology to provide a wide range of services to its financial, legal and corporate clients.




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