Item 1. Business.
Sears Roebuck Acceptance Corp. ("SRAC") is a wholly-owned subsidiary of Sears, Roebuck and Co. ("Sears"). SRAC raises funds primarily from the direct placement of commercial paper with corporate and institutional investors and through intermediate-term loans. SRAC uses borrowing proceeds to acquire short-term notes of Sears and purchase outstanding customer receivable balances from Sears. Sears uses the funds obtained from SRAC for general funding purposes.
In 1994, SRAC borrowed $845 million of intermediate-term loans having original maturities between two and five years. In March 1995, SRAC filed a registration statement with the Securities and Exchange Commission for the registration of debt securities.
SRAC's income is derived primarily from the earnings on its investment in the notes and receivable balances of Sears. The interest rate on Sears notes is presently calculated so that SRAC maintains an earnings to fixed charge ratio of at least 1.25 times. The yield on the investment in Sears notes is related to SRAC's borrowing costs and, as a result, SRAC's earnings fluctuate in response to movements in interest rates and changes in Sears short-term borrowing requirements.
In January 1995, Moody's Investors Service raised its ratings on SRAC's Commercial Paper (to P-1 from P-2). Other ratings for SRAC's commercial paper are from Fitch Investors Service, Duff-1 from Duff and Phelps Credit Rating Co. and A-2 from Standard & Poor's.
In 1994, SRAC took steps to bring its liquidity support and capital resources into alignment with projected funding requirements. SRAC's credit facilities, which totalled $4.2 billion at the end of 1993, were replaced with a syndicated credit agreement totalling $4.5 billion, a syndicated minority bank credit agreement totalling $32 million and $600 million of uniform credit agreements with individual banks.
SRAC continues to be a very strongly capitalized company, with an equity position of $1.2 billion. The company's debt-to-equity ratio was 5.0:1 at the end of 1994 compared to 2.6:1 at the end of 1993.
Pursuant to the syndicated credit agreements between SRAC and various banks (detailed below in Item 8 "Notes to Financial Statements, note 5"), the agreement between SRAC and Sears concerning SRAC's investment in Sears notes may not be amended, waived, terminated or modified (except that SRAC's fixed charge coverage ratio may be reduced to 1.15) without the approval of such banks.
From time to time, SRAC acts as placement agent for Sears Credit Corp. A, Sears Credit Corp. B, Sears Credit Corp. I and Sears Credit Corp. II (collectively "SCC"), which are wholly-owned subsidiaries of Sears that issue asset-backed commercial paper ("ABCP"). The ABCP is secured by investor certificates acquired by SCC, which represent undivided interests in a trust. The trust holds receivables arising in selected accounts under Sears open-end credit plans, all payments received on the receivables including related finance charges, and deposits in certain accounts of the trust. At February 28, 1995, SRAC had 11 employees.
Item 2.

Item 3. Legal Proceedings.
None.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
There is no established public trading market for SRAC's common stock. As of February 28, 1995, Sears owned all outstanding shares of SRAC's common stock. The Board of Directors of SRAC declared a $1.7 billion dividend on December 20, 1993 to Sears, payable on December 30, 1993. The Board also approved payment to Sears on December 30, 1993 of $330.2 million out of capital in excess of par value; such payment is characterized as a dividend under the Delaware General Corporation Law. Payments for these transactions were effected by reducing SRAC's investment in the notes of Sears by approximately $2.0 billion. SRAC does not intend to pay any cash or other dividends on its common stock in the foreseeable future.
Item 6.

Item 6. Selected Financial Data.
Not applicable.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Financial Condition
SRAC's investment in Sears notes increased to over $6.8 billion at year-end 1994, from $3.4 billion at the end of 1993, due to increased funding requirements by Sears. In response to Sears increased funding requirements, total commercial paper outstandings increased from $2.5 billion at the beginning of the year to $4.9 billion at the close of 1994. SRAC also borrowed $845 million under 15 privately-placed variable rate intermediate-term loans with original maturities from two to five years. At the end of 1994, SRAC maintained a very strong equity position of $1.2 billion, with a debt-to-equity ratio of 5.0:1.
SRAC had investments in highly liquid short-term securities of $100.7 million at the end of 1994, as part of its liability management program. In 1994, SRAC took steps to bring its liquidity support into alignment with projected funding requirements. SRAC's credit facilities, which totalled $4.2 billion at the end of 1993, were replaced with a syndicated credit agreement totalling $4.5 billion, a syndicated minority bank credit agreement for $32 million and $600 million in uniform credit agreements with individual banks.
In March 1995, SRAC filed a registration statement with the Securities and Exchange Commission for the registration of debt securities.
Results of Operations
Under an agreement with Sears, SRAC is presently guaranteed a rate on the notes of Sears providing a ratio of earnings to fixed charges of at least 1.25 times. SRAC's total revenues of $282.7 million declined $54.8 million, or 16%, compared to $337.5 million in 1993, primarily due to a decrease in the average Customer Receivable Balances purchased from Sears during 1994. In 1994, SRAC's average cost of short-term funds increased 90 basis points to 4.57% from 3.67% in 1993. Average outstanding short- term debt of $3,739.7 million declined $581 million compared to $4,320.7 million in 1993. The 13% decrease in average outstanding debt during 1994, resulted in a $17.6 million, or 7%, decrease in interest and related expenses to $218.5 million in 1994 from $236.1 million in 1993. In 1994, SRAC purchased receivables from Sears with recourse, thereby not requiring a loss provision, compared to the receivables purchased in 1993 without recourse which required a loss provision of $33.8 million. As a result, total expenses decreased $56.3 million, or 20%, to $220.4 million from $276.7 million in 1993 and SRAC's 1994 net income increased $.7 million, or 2%, to $40.2 million from net income of $39.5 million in 1993. In 1993, SRAC's net income decreased 63% from $108.1 million in 1992, primarily due to a reduction in the Sears notes during 1993.
The financial information appearing in this annual report on Form 10-K is presented in historical dollars which do not reflect the decline in purchasing power that results from inflation. As is the case for most financial companies, substantially all of SRAC's assets and liabilities are monetary in nature. Interest rates on SRAC's combined investment in Sears notes (set to provide a fixed charge coverage of at least 1.25 times) and customer receivable balances help insulate SRAC from the effects of inflation-based interest rate increases.
Item 8.

Item 8. Financial Statements and Supplementary Data.
SEARS ROEBUCK ACCEPTANCE CORP. STATEMENTS OF INCOME Year Ended December 31, millions 1994 1993 1992 ------- ------- ------- Revenues -------- Earnings on notes of Sears $257.9 $209.1 $508.4 Earnings on receivable balances purchased from Sears (Note 3) 6.2 105.4 125.3 Earnings on invested cash 18.4 22.6 61.9 Other revenues 0.2 0.4 0.9 ------- ------- ------- Total revenues 282.7 337.5 696.5
Expenses -------- Interest and amortization of debt discount and expense 218.5 236.1 482.8 Provision for credit losses -- 33.8 44.9 Operating expenses 1.9 6.8 4.6 ------- ------- ------- Total expenses 220.4 276.7 532.3 ------- ------- ------- Income before income taxes 62.3 60.8 164.2 Income taxes (Note 2) 22.1 21.3 56.1 ------- ------- ------- Net Income $40.2 $39.5 $108.1 ------- ------- ------- Ratio of earnings to fixed charges 1.29 1.26 1.34
See notes to financial statements.
SEARS ROEBUCK ACCEPTANCE CORP. STATEMENTS OF FINANCIAL POSITION December 31, millions 1994 1993 --------- --------- Assets ------ Notes of Sears $6,842.5 $3,403.9 Customer receivable balances purchased from Sears (Note 3) 81.5 88.0 Cash and invested cash 102.1 650.7 Other assets 5.1 3.2 --------- --------- Total assets $7,031.2 $4,145.8 --------- --------- Liabilities ----------- Commercial paper (net of unamortized discount of $22.3 and $5.1) $4,912.9 $2,475.0 Agreements with bank trust departments 87.4 139.8 Zero coupon note - 379.8 Intermediate-term loans 845.0 - Accrued interest and other liabilities 8.2 10.7 Deferred federal income taxes - 3.0 --------- --------- Total liabilities 5,853.5 3,008.3 --------- --------- Stockholder's Equity -------------------- Capital stock, par value $100 per share 500,000 shares authorized 350,000 shares issued and outstanding 35.0 35.0 Capital in excess of par value - - Retained income 1,142.7 1,102.5 --------- --------- Total stockholder's equity 1,177.7 1,137.5 --------- --------- Total liabilities and stockholder's equity $7,031.2 $4,145.8 --------- --------- See notes to financial statements.
SEARS ROEBUCK ACCEPTANCE CORP. STATEMENTS OF STOCKHOLDER'S EQUITY
Year Ended December 31, millions 1994 1993 1992 -------- -------- -------- Capital stock $35.0 $35.0 $35.0 -------- -------- -------- Capital in excess of par value Beginning of year - $330.2 $330.2 Return of capital paid to Sears* - (330.2) - -------- -------- -------- End of year $- $- $330.2 -------- -------- -------- Retained income Beginning of year $1,102.5 $2,763.0 $2,654.9 Net income 40.2 39.5 108.1 Dividend paid to Sears - (1,700.0) - -------- -------- -------- End of year $1,142.7 $1,102.5 $2,763.0 -------- -------- -------- Total stockholder's equity $1,177.7 $1,137.5 $3,128.2 -------- -------- --------
* characterized as a dividend under Delaware General Corporation Law.
See notes to financial statements.
SEARS ROEBUCK ACCEPTANCE CORP. STATEMENTS OF CASH FLOWS Year Ended December 31, millions 1994 1993 1992 -------- -------- -------- Cash Flows From Operating Activities ------------------------------------ Net income $40.2 $39.5 $108.1 Adjustments to reconcile net income to net cash provided by operating activities Earnings amortization on Retail Customer Receivable Balances discount - (125.9) (149.2) Provision for credit losses - 33.8 44.9 Depreciation, amortization and other noncash items 20.9 58.7 55.3 Decrease in deferred federal income taxes (3.0) (7.1) (5.9) Increase in other assets (2.6) (2.5) (1.0) Decrease in other liabilities (2.5) (20.9) (5.4) -------- -------- -------- Net cash provided by (used in) operating activities 53.0 (24.4) 46.8
Cash Flows From Investing Activities ------------------------------------ (Increase) decrease in notes of Sears (3,438.6) 5,059.5 1,720.9 Decrease in receivable balances purchased from Sears 6.5 967.5 183.7 -------- -------- -------- Net cash (used in) provided by investing activities (3,432.1) 6,027.0 1,904.6
Cash Flows From Financing Activities ------------------------------------ Increase (decrease) in commercial paper, primarily 90 days or less 2,437.9 (6,040.3) (1,690.5) Decrease in agreements with bank trust departments (52.4) (258.1) (112.2) Payments for redemption of zero coupon and variable interest notes (400.0) - (604.0) Proceeds from issuance of intermediate-term loans 845.0 - - -------- -------- -------- Net cash provided by (used in) financing activities 2,830.5 (6,298.4) (2,406.7) -------- -------- -------- Net decrease in cash and invested cash (548.6) (295.8) (455.3) Cash and invested cash, beginning of year 650.7 946.5 1,401.8 -------- -------- -------- Cash and invested cash, end of year $102.1 $650.7 $946.5 -------- -------- -------- Supplemental Disclosure of Cash Flow Information Cash paid during the year Interest $231.1 $200.5 $444.1 Income taxes 21.7 37.1 61.0 See notes to financial statements. NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sears Roebuck Acceptance Corp. ("SRAC"), a wholly-owned subsidiary of Sears, Roebuck and Co. ("Sears"), is principally engaged in the business of acquiring short-term notes of Sears and purchasing outstanding customer receivable balances from Sears, using proceeds from its short-term borrowing programs (primarily the direct placement of commercial paper) and intermediate-term loans.
Under the letter agreement between SRAC and Sears, the interest rate on the Sears notes is presently calculated so that SRAC maintains an earnings to fixed charge ratio of at least 1.25 times.
Cash and invested cash is defined to include all highly liquid investments with maturities of three months or less. In 1993 a $2.0 billion dividend and return of capital paid to Sears was effected through a reduction in SRAC's investment in Sears notes, a noncash transaction.
Customer receivables purchased from Sears are either purchased at a discount and then amortized using the interest method, or purchased at par and are interest-bearing.
The zero coupon note issued to Sears Overseas Finance N.V. ("SOFNV"), a wholly-owned international finance subsidiary of Sears, was amortized using the interest method. Other debt discount and issue expenses are amortized on a straight-line basis over the terms of the related obligation.
The results of operations of SRAC are included in the consolidated federal income tax return of Sears. Tax liabilities and benefits are allocated as generated by SRAC, whether or not such benefits would be currently available on a separate return basis.
Effective January 1, 1992, SRAC adopted Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," and SFAS No. 112, "Employers' Accounting for Postemployment Benefits." The adoption of the standards did not have a material impact on the financial statements of SRAC, and will have no effect on the future cash flows of the Company.
2. FEDERAL INCOME TAXES
Year Ended December 31, millions 1994 1993 1992 ------- ------- ------- Current $25.5 $28.4 $62.0 Deferred (3.4) (7.1) (5.9) ------- ------- ------- Financial statement income tax provision $22.1 $21.3 $56.1 ------- ------- ------- Effective income tax rates 35% 35% 34%
3. CUSTOMER RECEIVABLE BALANCES
SRAC has purchased two types of customer receivable balances ("CRB") from Sears, merchant ("MCRB") and retail ("RCRB"). MCRB are purchased with recourse at par, with SRAC earning interest on the receivables. RCRB (excluding related finance charges) were purchased without recourse and at a discount (which included an allowance for uncollectible accounts).
MCRB are made up of credit accounts Sears has established with merchants and contractors for bulk purchases from Sears. The MCRB's are predominately paid within 30 days. RCRB were made up of accounts under Sears open-end credit plans related to the purchase of goods and services at Sears. In administering sold receivables, Sears utilizes procedures with respect to collections, charge-offs and other matters identical to those employed in administering account balances which had not been purchased by SRAC. The MCRB purchased were negotiated between related parties; accordingly, the fair value of this instrument is not provided.
In December 1993, SRAC sold to Sears the entire outstanding RCRB at net book value of $847.6 million. SRAC received the collections and accepted the net charge-offs (collectively referred to as liquidations) related to the RCRB and paid Sears a fee for administering the accounts. The administrative fee paid to Sears in 1993 was $20.5 million.
Each month, SRAC purchases the balance increases in the MCRB accounts attributable to additional credit sales and receives the collections related to the previously purchased balances. Sears will pay interest to SRAC on the balances in these accounts at a rate equivalent to the prime rate.
4. BORROWINGS
SRAC obtains funds through the direct placement of commercial paper (issued in maturities of one to 270 days) and borrowings under agreements with bank trust departments and private institutions (intermediate-term loans). Selected details of SRAC's borrowings are shown below. Weighted interest rates are based on the actual number of days in the year and borrowings net of unamortized discount.
The short-term and/or variable interest rate nature of substantially all of SRAC's financial instruments (both assets and liabilities) causes their carrying value to approximate fair value. The terms of the loan agreement with SOFNV was negotiated between related parties; accordingly, the fair value of this instrument is not provided. December 31, millions 1994 1993 -------- -------- Commercial paper outstanding $4,935.2 $2,480.1 Less: Unamortized discount 22.3 5.1 -------- -------- Commercial paper outstanding (net) 4,912.9 2,475.0 Agreements with bank trust departments 87.4 139.8 Intermediate-term loans 845.0 - Zero coupon, $400 million face value loan agreement with SOFNV due May 26, 1994 - 379.8 -------- -------- Total borrowings $5,845.3 $2,994.6 -------- -------- Commercial Paper and Agreements with Bank Trust Departments Average and Maximum Balances During the Year
1994 1993 ------------------- ------------------- Maximum Maximum millions Average (month-end) Average (month-end) ------------------- ------------------- Commercial paper $3,615.3 $4,912.9 $3,812.1 $ 7,271.1 Agreements with bank trust dept. 124.4 142.2 401.8 499.1 ------------------- ------------------- Weighted Interest Rates 1994 1993 ------------------- ------------------- millions Average Year-End Average Year-End ------------------- ------------------- Commercial paper 4.58% 5.82% 3.64% 3.51% Agreements with bank trust dept. 4.38% 6.06% 3.38% 3.30% ------------------- -------------------
Under the terms of a 1986 agreement, Sears agreed to make all payments required to be made by SRAC to SOFNV in accordance with certain loan agreements between SRAC and SOFNV. SRAC remains liable to SOFNV for such loan agreements, which total $302 million as of December 31, 1994.
SRAC's intermediate-term loans were as follows at December 31, 1994:
Term (millions) ------------------------------------------------------------------- Two year loans expiring in 1996 $200 Three year loans expiring in 1997 320 Five year loans expiring in 1999 325 ------------------------------------------------------------------- Total loans $845 ===================================================================
The rates on most of these variable rate intermediate-term loans are set periodically at Libor plus a set basis point spread. The average rate on the intermediate-term loans in 1994 was 5.41%.
5. CREDIT FACILITIES AS OF DECEMBER 31, 1994
Contractual Credit Facilities:
Expiration Date (millions) -------------------------------------------------------------------- June 1999 $4,500 September 1995 200 October 1995 32 December 1995 400 ------------------------------------------------------------------- Total credit facilities $5,132 ===================================================================
Commitment fees are paid on the unused portions of the above credit facilities. The annualized fees at December 31, 1994 on these lines were $6.1 million.
6. LETTER OF CREDIT COMMITMENTS
SRAC issues letters of credit at Sears request to facilitate Sears purchase of goods from foreign suppliers. At December 31, 1994, letters of credit totaling $119.0 million were outstanding. SRAC has no liabilities with respect to this program other than the obligation to pay drafts under the letters of credit which, if not reimbursed by Sears on the day of the disbursement, are automatically converted into demand borrowings by Sears from SRAC. To date, all SRAC disbursements have been reimbursed on a same- day basis.
SRAC issues standby letters of credit on behalf of its affiliate, Western Auto Supply Company ("Western Auto"), which are used by Western Auto to secure its obligation to repurchase any defaulted accounts receivable sold to a financial institution. At December 31, 1994, a $49.0 million standby letter of credit was outstanding.
7. QUARTERLY FINANCIAL DATA (UNAUDITED)
For the quarter ended March 31, June 30, September 30, December 31, 1994 1993 1994 1993 1994 1993 1994 1993 ------------- ------------ ------------- ------------ Operating Results (millions) Combined earnings from Sears notes and CRB $47.6 $123.7 $53.9 $73.6 $72.3 $63.4 $90.3 $87.6 Total Revenues 51.1 133.2 57.1 79.0 76.3 67.0 98.2 92.1
Interest & related expenses 40.3 96.7 45.2 54.7 55.0 44.9 78.0 39.8 Total expenses 41.1 107.7 45.7 65.0 55.8 55.7 77.8 48.3 Income before income taxes 10.0 25.5 11.4 14.0 20.5 11.3 20.4 10.0
Net income 6.4 16.8 7.3 9.3 13.1 6.6 13.4 6.8
Ratio of earnings to fixed charges 1.25 1.26 1.25 1.26 1.37 1.25 1.26 1.25
Averages (billions) Earning assets* $4.5 $11.3 $4.8 $7.4 $5.4 $6.2 $6.7 $6.6 Short-term debt 3.0 7.8 3.2 3.9 4.0 2.7 4.7 3.0 Cost of short-term debt 3.45% 3.98% 4.11% 3.57% 4.68% 3.31% 5.45% 3.33%
* Notes and receivable balances of Sears and invested cash.
Certain reclassifications have been made to the quarterly data from the classification used in reporting such data in Form 10-Q, which primarily relate to the presentation of the provision for credit losses.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant.
Not applicable.
Item 11.

Item 11. Executive Compensation.
Not applicable.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
Not applicable.
Item 13.

Item 13. Certain Relationships and Related Transactions.
Not applicable.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
1. An "Index to Financial Statements" has been filed as a part of this report on page S-1 hereof.
2. No financial statement schedules are included herein because they are not required or because the information is contained in the financial statements and notes thereto, as noted in the "Index to Financial Statements" filed as part of this report.
3. An "Exhibit Index" has been filed as part of this report beginning on page E-1 hereof.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K during the fourth quarter of 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SEARS ROEBUCK ACCEPTANCE CORP. (Registrant)
By Stephen D. Carp* Vice President, Finance and Assistant Secretary
March 27, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title Date
Keith E. Trost Director and President ) (Principal Executive ) Officer) ) ) ) Stephen D. Carp* Vice President, Finance ) March 27, 1995 and Assistant Secretary ) (Principal Financial and ) Accounting Officer) ) ) ) James A. Blanda* Director ) ) ) James D. Constantine* Director ) ) ) Alan J. Lacy* Director ) ) ) Alice M. Peterson* Director ) ) ) Larry R. Raymond* Director ) ) ) George F. Slook* Director )
*By \s\ Stephen D. Carp Individually and as Attorney-in-Fact
SEARS ROEBUCK ACCEPTANCE CORP.
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
PAGE
STATEMENTS OF INCOME 5
STATEMENTS OF FINANCIAL POSITION 6
STATEMENTS OF STOCKHOLDER'S EQUITY 7
STATEMENTS OF CASH FLOWS 8
NOTES TO FINANCIAL STATEMENTS 9-13
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS S-2
S-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholder and Board of Directors of Sears Roebuck Acceptance Corp.:
We have audited the accompanying Statements of Financial Position of Sears Roebuck Acceptance Corp. (a wholly-owned subsidiary of Sears, Roebuck and Co.) as of December 31, 1994 and 1993, and the related Statements of Income, Stockholder's Equity, and Cash Flows for each of the three years in the period ended December 31, 1994. 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, such financial statements present fairly, in all material respects, the financial position of Sears Roebuck Acceptance Corp. as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP Philadelphia, Pennsylvania January 26, 1995
S-2
EXHIBIT INDEX
3(a) Certificate of Incorporation of the Registrant, as in effect at November 13, 1987 [Incorporated by reference to Exhibit 28(c) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1987*].
3(b) By-laws of the Registrant, as in effect at March 24, 1995.**
4(a)(1) Form of Series A-B Note [Incorporated by reference to Exhibit 4(a)(1) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1982*].
4(a)(2) Form of letter agreement relating to Series A-B Note [Incorporated by reference to Exhibit 4(a)(2) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1982*].
4(b) $4,500,000,000 Credit Agreement dated as of June 7, 1994 among SRAC, the Banks listed therein and Morgan Guaranty Trust Company of New York, as Agent [Incorporated by reference on Form 8-K of the Registrant for June 7, 1994*]
4(c) Form of Sears Roebuck Acceptance Corp. Investment Note Agreement. [Incorporated by reference to Exhibit 4(c) to Annual Report on Form 10-K of the Registrant for the year ended December 31, 1992*]
4(d) The Registrant hereby agrees to furnish the Commission, upon request, with each instrument defining the rights of holders of long-term debt of the Registrant with respect to which the total amount of securities authorized does not exceed 10% of the total assets of the Registrant.
10(a) Letter Agreement dated as of October 17, 1991 between Sears Roebuck Acceptance Corp. and Sears, Roebuck and Co. [Incorporated by reference to Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991*].
________________________________ * SEC File No. 1-4040. ** Filed herewith.
E-1 EXHIBIT INDEX (cont'd)
10(b) Letter Agreement dated as of September 2, 1986 between Sears Roebuck Acceptance Corp. and Sears, Roebuck and Co. [Incorporated by reference to Exhibit 10 to the Registrant's Current Report on Form 8-K dated September 2, 1986*].
10(c)(1) Agreement to Issue Letters of Credit dated December 3, 1985 between Sears, Roebuck and Co. and Sears Roebuck Acceptance Corp. [Incorporated by reference to Exhibit 10(i)(1) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1987*].
10(c)(2) Letter Agreement dated March 11, 1986 amending Agreement to issue Letters of Credit dated December 3, 1985 [Incorporated by reference to Exhibit 10(i)(2) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1987*].
10(c)(3) Letter Agreement dated November 26, 1986 amending Agreement to Issue Letters of Credit dated December 3, 1985 [Incorporated by reference to Exhibit 10(i)(3) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1987*].
12 Calculation of ratio of earnings to fixed charges.**
24 Power of attorney.**
________________________________ * SEC File No. 1-4040. ** Filed herewith.
E-2
Exhibit 12
SEARS ROEBUCK ACCEPTANCE CORP.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31, 1994 1993 1992 (dollars in millions)
INCOME BEFORE INCOME TAXES $ 62.3 $ 60.8 $ 164.2
PLUS FIXED CHARGES: Interest 190.5 177.6 427.6 Amortization of debt discount and expense 28.0 58.5 55.2 ------- ------- -------
TOTAL FIXED CHARGES 218.5 236.1 482.8 ------- ------- -------
EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES $ 280.8 $ 296.9 $ 647.0 ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES 1.29 1.26 1.34
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a director or officer, or both, of SEARS ROEBUCK ACCEPTANCE CORP., a Delaware corporation (the "Corporation"), does hereby constitute and appoint JAMES A. BLANDA, RICHARD F. KOTZ, KEITH E. TROST, GEORGE F. SLOOK, STEPHEN D. CARP and NANCY HOUGHTON-LYNCH, with full power to each of them to act alone, as the true and lawful attorneys and agents of the undersigned, with full power of substitution and resubstitution to each of said attorneys, to execute, file and deliver any and all instruments and to do any and all acts and things which said to attorneys and agents, or any of them, deem advisable to enable the Corporation to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereto, relating to annual reports on Form 10-K, including specifically, but without limitation of the general authority hereby granted, the power and authority to sign his name in the name and on behalf of the Corporation or as director or officer, or both, of the Corporation, as indicated below opposite his signature, to annual reports on Form 10-K or any amendment or papers supplemental thereto; and each of the undersigned does hereby fully ratify and confirm all that said attorneys and agents, or any of them, or the substitute of any of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents, as of this 24th day of March, 1995.
NAME TITLE
/s/ Keith E. Trost Director and President (Principal Executive Officer)
/s/ Stephen D. Carp Vice President, Finance and Assistant Secretary (Principal Financial and Accounting Officer)
/s/ James A. Blanda Director
/s/ James D. Constantine Director
/s/ Alan J. Lacy Director
/s/ Alice M. Peterson Director
/s/ Larry R. Raymond Director
/s/ George F. Slook Director


ITEM 1. BUSINESS (A) GENERAL DEVELOPMENT OF BUSINESS
Merrill Corporation provides a full range of typesetting, printing, document reproduction, distribution and marketing communication services to financial, legal, insurance and corporate markets. The Company is headquartered in St. Paul, Minnesota and has 16 full service offices in major financial centers across the United States and in Canada, as well as 5 regional printing plants, and printing and distribution operations in St. Cloud, Minnesota.
On June 1, 1993, the Company completed the acquisition of the common stock of Torrie Enterprises, Ltd., operators of Atwell Fleming Printing Company, a financial and corporate printing company, in Toronto and Montreal.
On December 31, 1993, the Company acquired the business of May Printing Company for approximately $25 million. This business, which is conducted through a wholly owned subsidiary, May Printing Company, Inc. ("May Printing"), provides demand printing and distribution services designed to promote the corporate identity of large, national clients with multiple franchisees, members, divisions or affiliated organizations.
The Company, which is a Minnesota corporation, was organized in 1968 under the name "K.F. Merrill Company." The Company's executive offices are located at One Merrill Circle, Energy Park, St. Paul, Minnesota 55108. Its telephone number is (612) 646-4501. Unless the context otherwise requires, the terms "Merrill Corporation" or the "Company" include its subsidiaries, Merrill/New York Company, Merrill Custom Communications, Inc., Merrill/Magnus Publishing Corporation, Merrill Corporation, Canada, and May Printing Company, Inc.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Since its inception, the Company's revenues, operating profits and assets have been attributable to one business segment -- providing document typesetting, printing, reproduction, distribution and marketing communication services for the financial, legal, insurance and corporate markets. Financial information about this segment is contained on pages 24 to 33 of the Company's 1994 Annual Report, which information is incorporated herein by reference.
(C) NARRATIVE DESCRIPTION OF BUSINESS
The Company's services can be divided into three categories: financial, corporate, and commercial and other services.
In its financial printing business, the Company applies advanced computer and telecommunications technology to the production and distribution of time-sensitive, transactional financial documents, such as registration statements, prospectuses and other printed materials related to corporate financings and acquisitions. The Company's corporate printing business involves typesetting and printing of corporate documents which are prepared annually or at regular intervals, such as annual and quarterly reports and proxy materials for companies, and registration statements for unit investment trusts and mutual funds. In its commercial printing business, the Company typesets price catalogs, directories, insurance industry annual reports, sample ballots and technical manuals from electronic information supplied by customers and provides printing services for customers desiring time-sensitive or other high levels of service. The Company's May Printing subsidiary provides demand printing and distribution services designed to promote the corporate identity of large, national clients with multiple franchisees, members, divisions or affiliated organizations. The Company's document reproduction and imaging businesses provide photocopying and imaging services to law firms and corporate customers. These services include dedicated office photocopying or imaging services, for which the Company provides on-site equipment, employees and management, and custom photocopying or imaging of projects requiring time-sensitivity or other special services. The Company also provides custom marketing communication services to corporate customers.
The following table sets forth the percentage of revenue attributable to each of the Company's categories of service for each of the past three fiscal years:
FINANCIAL AND CORPORATE SERVICES
GENERAL
In its financial printing business, the Company typesets, prints and distributes financial documents. These include documents which are used for specific financing transactions, such as registration statements and prospectuses filed with the Securities and Exchange Commission (the "SEC"), tender offer materials and merger documents, official statements for municipal securities, offering circulars, and other documents related to corporate financings, acquisitions and mergers, restructurings and bankruptcy reorganizations.
The Company's corporate printing business involves typesetting, printing and distribution of corporate documents which are prepared annually or at regular intervals. These include annual and interim reports to shareholders, proxy materials, certificates for stocks, bonds and other securities, and periodic reports filed with the SEC. The Company includes in this category registration statements and other documents for unit investment trusts and mutual funds which are regularly produced at periodic intervals.
The Company's financial and corporate document business is service oriented. The production of financial and corporate documents requires rapid typesetting and printing services, available 24 hours a day and tailored to the exacting demands of the Company's customers. Financial and corporate documents are usually prepared and edited by numerous parties involved in a transaction, including corporate executives, investment bankers, attorneys and accountants. Each document typically goes through numerous proof cycles, and at each cycle the document is typeset, duplicated and distributed to the parties. Individual participants are frequently located in different cities, often requiring proofs to be delivered simultaneously to different parts of the country.
Just prior to the completion of a financial or corporate document, a drafting group generally will meet at one of the Company's service facilities where conference rooms and other amenities are maintained for customer use. Accommodating the needs of its customers "in-house" is the most time-critical service that the Company provides, and requires, among other things, the accurate and rapid turnaround of the edited pages and expert knowledge of the documents and filing requirements of the SEC. After final changes have been made, the Company is usually required to quickly prepare copies of the document (including any exhibits) for filing with the SEC. The document is then printed, collated, bound and distributed in booklet form.
"HUB AND SPOKE" NETWORK
By using advanced computer and telecommunications technology, the Company has created a "hub and spoke" network linking its central computerized production facility in St. Paul, Minnesota with its 16 full-service facilities.
The Company's central computerized production facility (the "hub") is located in St. Paul, Minnesota, and its 16 full service facilities (the "spokes") are located in New York City, Boston, Newark, Washington, D.C., Atlanta, Chicago, Minneapolis/St. Paul, Dallas, Denver, Seattle, San Francisco, Palo Alto, downtown Los Angeles, West Los Angeles, Montreal and Toronto, with sales offices in Baltimore, Cleveland and Houston. The Company receives information directly from its customers in various forms, including typed or handwritten pages, magnetic recording media, such as word-
processing disks or computer tapes, and by direct telecommunication with its clients' word processing equipment. This information is transmitted by facsimile or direct electronic connection to the Company's central production facility for processing into a typeset document.
CENTRAL COMPUTERIZED PRODUCTION FACILITY. The Company has integrated multiple systems with communications technology and proprietary software in its central production facility. This facility consists of multiple computers, communication controllers, text entry and editing stations, laser typesetting equipment, as well as a number of special purpose computer subsystems for data conversion and information management. Each critical piece of equipment in the system has at least one secondary or back-up device to protect against interruptions should any piece of equipment temporarily fail. This computer equipment has been integrated by the Company to create a document production environment which is designed to have a high level of performance, data protection and system reliability.
The concentration of equipment and typesetting personnel in a central facility has been a key Company strategy to reduce overhead and labor expense, implement more effective training programs and more efficiently use its management resources. The Company believes that this strategy has enabled it to benefit more quickly from new technologies that have decreased costs and improved the quality of its service, since new technologies and methods, when implemented in the central facility, immediately benefit all service facilities. The Company also believes that this concentration of personnel and equipment at the hub, and the linking of service facilities to the hub, enables it to respond quickly to fluctuating demand for typesetting services in each of its service facilities across the country by efficiently allocating its typesetting resources when and where they are needed.
NATIONAL COMMUNICATIONS NETWORK. The Company has established a dedicated telecommunications network, connecting each of its service facilities with the hub, which permits typeset documents and production control information to be electronically transmitted to each of its service facilities. The network consists of "tie" lines connecting each of the Company's service facilities with the hub, data switching and multiplexing equipment, and the necessary software to manage and control the communications. Designed to operate continuously, the network is highly efficient and reliable, and contains secondary or back-up service for each portion of the network to minimize the possibility of an interruption in service.
SERVICE FACILITIES. Each service facility is staffed with sales, administrative, customer service, production, duplication and distribution personnel. The service facilities all have conference rooms with support staff, office equipment and amenities to give the Company's customers a comfortable work environment in which to meet, write and revise their documents. Each service facility has the necessary photo imaging equipment to produce documents with high image quality, using the electronic information received from the hub. This enables the Company to transmit completed documents to one or more service facilities for distribution within minutes of completion.
MERRILLLINK-TM-. The Company has developed the MerrillLink system that connects the hub to locations outside of its service facilities through the use of portable printing devices. These printing devices, usually placed in the customer's office or at the Company's sales offices, allow the Company to edit typeset pages and provide proof distribution to remote locations throughout the world. MerrillLink lets the Company service transactional work in locations where a smaller market does not justify the cost of a full service facility and where rapid turnaround distribution is needed.
INTERNATIONAL SERVICE. The Company and Burrups, Ltd., a London based financial printing company, jointly market worldwide their communications and production facilities and services. The objective of this arrangement is to work together to provide customers with integrated document typesetting, printing and distribution services wherever the document originates or needs to be delivered. Besides London, Burrups has full service facilities in Luxembourg, Paris, Seoul and Tokyo. In addition, the Company has established relationships with financial printing companies in the Czech Republic, Italy, Hong Kong, New Zealand, Australia, Mexico, Argentina and Brazil which have agreed to work as service facilities for the Company on an "as needed" basis. The Company has made
software and hardware modifications in order to successfully establish electronic communications between its production hub and the service facilities overseas. With this electronic connection as well as the MerrillLink system, the Company is able to transmit high-quality typeset documents for printing and distribution in Europe, the Pacific Rim and South America without the time delays and costs incurred by conventional air shipment. As a result of the acquisition of Atwell Fleming Printing Company, the Company is able to offer its financial and corporate services in Canada through its full service facilities in Toronto and Montreal.
THE JOB CONTROL SYSTEM. The Company coordinates the activities of its service facilities through a proprietary Job Control System ("JCS"). This system tracks each document from the time it is initially received by the Company at a service facility through completion of production and billing. The JCS is used as a national production control system with each service facility being "on-line" to the system through the Company's communications network. Information can be sent to and retrieved from the JCS by any service facility, and can be immediately read by the hub to aid in the rapid and accurate completion of each document. Each service facility can also immediately send instructions to another service facility using this system. During the production phase of a document, the JCS assigns job numbers and keeps track of specific information about the document, such as dates and the times at which proofs are due, style and job specifications, messages regarding the job and last-minute changes. Distribution of drafts is a critical task in the preparation of financial documents, and the JCS simplifies this task by keeping a current address list for each job and history of the distribution and method of delivery for each proof of the document. The Company also uses the production information collected in the JCS to assist in the pricing of its services.
EDGAR
The SEC has established a program for the electronic filing of documents under the federal securities laws, entitled Electronic Data Gathering Analysis and Retrieval ("EDGAR"). This program requires participants or their agents to file disclosure information with the SEC in an electronic format rather than by the traditional paper filing package. This electronic format, usually in ASCII, includes additional submission information and coding "tags" within the document for aid in the SEC's analysis of the document and retrieval by the public. This electronic format is generally delivered by direct telecommunications, but may be delivered on magnetic computer tape or by diskette. EDGAR allows registrants to file and the public to retrieve disclosure information electronically.
The SEC began the development of EDGAR with a pilot program in 1984. Through a phase-in schedule, the SEC has assigned one of ten dates by which all public companies must start filing disclosure documents through the EDGAR operational system, which began April 26, 1993. Through December 1993, there have been 3,380 companies required to file through EDGAR. All publicly-held companies are expected to be required to file disclosure documents through EDGAR by May 1996, according to the phase-in schedule.
The Company has been highly involved in all stages of development of EDGAR since the start of the pilot program. The Company has written proprietary software that enables it to quickly prepare and file the electronic version of financial and corporate documents through a dedicated data line directly to the SEC's computers. In addition, the Company has spent considerable time training its staff to coordinate the preparation of these EDGAR filings. The Company also keeps current and future participants informed of EDGAR developments by publishing quarterly Merrill's EDGAR Advisor-TM-, a newsletter for distribution to lawyers, corporate executives and other interested parties, and by conducting seminars throughout the country to inform current and future participants about EDGAR. The Company has a toll-free telephone information line for its customer's questions regarding EDGAR and also distributes EDGAR rules, forms and reference materials.
The Company has experienced an increased demand for EDGAR filing services for financial as well as corporate categories of services. The Company converts word processing and other computer formats to the EDGAR format for SEC form types and exhibit documents, and assembles these
documents for electronic filing with the SEC. The Company believes that the operational EDGAR system will continue to increase the demand for the time-sensitive services of the Company, since many filing companies will use outside services to meet EDGAR filing requirements. With the experience and expertise gained since the start of the pilot program, the Company believes it has developed the procedures and skills necessary to handle the increased volume of EDGAR filings as more companies are required to file electronically.
COMMERCIAL AND OTHER SERVICES
GENERAL
As part of its commercial and other services, the Company provides document reproduction services for projects that are time-sensitive or otherwise require special service, such as photocopying business records or other documents for large litigation matters. The Company will produce the photocopies at its service facilities or locate photocopying equipment and personnel at the customer's office. Document reproduction services require rapid turnaround and availability 24 hours a day. The Company's document reproduction customers typically have several boxes of documents which may be in file folders, stapled or on varying sizes of paper. The Company will take apart, photocopy and reassemble the original documents and copies as instructed by the customer. The Company also provides sequential numbering and binding services for these documents, if requested. Photocopying projects range from single copies of short documents to the more complicated copying jobs described above. The Company also offers comprehensive office photocopying, typesetting and mailroom facility management services to its customers. These services involve providing for all of a customer's needs for that department, including on-site equipment, employees and management of the operation. The Company uses its service facilities in connection with its document reproduction services. Each service facility is equipped with sophisticated photocopying equipment. The Company is able to make more efficient use of this equipment by performing project photocopying during times when the equipment would otherwise be idle.
The Company's Imaging Services Group captures data from its customers' paper documents and creates a digital picture of each page. The customer may then store large quantities of documents on CD-ROM (Compact disk -- read only memory), rather than on paper in boxes or file cabinets. Retrieval of the documents may be accessed simply by one user with a personal computer, or simultaneously by multiple users at multiple sites. The Company disassembles the customers' documents, captures the image, and reassembles the original documents. The Company may also create for the customer text files using Optical Character Recognition ("OCR") processing for full text retrieval systems. The Company also performs document management services such as barcoding, document coding, and services to assist with database development, programming, data management and conversions. The Company also consults with the customer regarding its hardware, software and network needs for development of an imaging system. Imaging projects can take from one day to several months to complete. The Company may provide imaging services at its service facilities, or provide on-site equipment, employees and management at the customer's location.
The Company also typesets, prints and distributes commercial and other documents, including price catalogs, directories, sample ballots, legal briefs, business and college educational materials, annual reports for the insurance industry and technical manuals, often produced using electronic information supplied by its clients. Through its Merrill Custom Communications, Inc. subsidiary, the Company provides custom marketing communications and publishing services, primarily marketed to financial services companies, media organizations, retailers and the health care industry. The types of custom publications the Company produces include magazines, tabloids, newsletters, booklets and catalogs used by its customers for their marketing purposes. The Company, generally pursuant to an annual contract, works with customers in the design and editorial content of these publications, typesets and prints the publications, then assists the customer in locating a target mailing list and mails the publications. The Company also has an insurance printing group which typesets and prints annual reports submitted to various governmental regulatory agencies by the insurance industry. The Company's commercial typesetting business provides turnkey document services, including camera,
pre-press and printing services for one-or multi-color publications. The Company believes that offering high levels of service is a competitive advantage in certain niches of the commercial printing business. These commercial printing projects, like financial and corporate printing, require a high level of attention to detail, quick turnaround times and responsive customer service.
MAY PRINTING
On December 31, 1993, the Company acquired the business of May Printing Company. May Printing provides demand printing and distribution services designed to support the corporate identity of large, national clients with multiple franchisees, members, divisions or affiliated organizations ("member organizations").
May Printing is authorized by its national clients to develop and produce custom printed products such as business cards, stationary and collateral support print materials with a uniform appearance for the client's member organizations. Working with each national account client, May Printing prepares a catalog to merchandise these custom printed products, along with other promotional merchandise produced by third parties. May Printing distributes each client-specific catalog to the national client's member organizations.
In marketing its national account printed products, May Printing develops direct relationships with each of the individual member organizations, which are independently owned and operated and make their own print purchasing decisions. May Printing uses a sophisticated order entry system, supported by a large inbound telemarketing staff, to receive and process orders. After reviewing a catalog, a member organization can place an order by mail, fax or toll free May Printing telephone number. A May Printing customer service representative processing the order will have access to the customer's purchase history (if an existing customer) and can suggest reordering certain items, cross-sell complementary items or alert the customer to current specials. May Printing accepts major credit cards and payment is typically made upon placing the order.
May Printing produces large quantities of printed materials for each national client, which it warehouses pending receipt of an order for the product. May Printing can produce multi-color, highly technical, commercial quality printed materials. Products ordered from a catalog typically require additional "personalizing" for the ordering member organization, after which they are checked for quality, packaged and shipped. Promotional merchandise (point of purchase, advertising specialty, premiums and incentives) included in a catalog that are produced by third parties are generally shipped directly by the manufacturer to the ordering member organization. May Printing uses a sophisticated materials handling system with automated handling, order consolidation and shipping. Most orders are filled within four days of receipt.
The demand printing and distribution services provided by May Printing benefit both the national account client and the member organizations. The national account client benefits from May Printing's centralized production and fulfillment by controlling the use of its trademarks and facilitating the economies of mass production for its membership while the ultimate consumer of May Printing's services, the member organization, receives quality products, fast delivery and prices that the Company believes are competitive with prices charged by local print shops.
In addition to working with national accounts, May Printing provides general commercial printing services. The commercial printing services that May provides help keep it current with printing industry trends and enhance overall printing quality. May Printing's customers are located in all 50 states and Canada, with limited shipments to Mexico, Puerto Rico, Australia/New Zealand, France and England.
PRINTING SERVICES
The demand for financial printing services, like that for typesetting, fluctuates significantly. In order to adequately meet this fluctuating demand, financial printing companies have typically invested in printing presses and employed a complete printing workforce in or near each of the markets they serve. The Company meets this fluctuating demand by owning presses only in those markets
where it has an adequate amount of recurring business and identifying in these and the other markets it serves several printers capable of meeting a portion of the Company's production needs on an "as required" basis.
The Company currently operates printing plants in Minneapolis/St. Paul, Los Angeles, Chicago, Dallas, and New Jersey, markets in which the Company has found it advantageous to acquire printing presses to service a portion of its recurring corporate and commercial business. Corporate and commercial printing is generally both more predictable in volume and less time-sensitive in nature than financial printing. Because the Company only owns presses in those markets in which its corporate and commercial printing business requires presses, the Company is able to adequately utilize these printing presses for its recurring corporate and commercial work while retaining the flexibility to use the presses for financial printing. May Printing also operates a printing plant in St. Cloud, Minnesota, for its specialized printing services. See "Business -- Commercial and Other Services -- May Printing" above.
The Company uses associated printers when it needs additional capacity in markets where the Company does not own presses or where special printing equipment is needed. The Company generally selects associated printers on a job-by-job basis, based upon considerations of price, availability and suitability of press equipment.
MARKETING AND CUSTOMERS
The Company markets its services nationwide through a direct sales organization operating from full service facilities located in New York City, Boston, Newark, Washington, D.C., Atlanta, Minneapolis/St. Paul, Chicago, Dallas, Denver, San Francisco, Palo Alto, Los Angeles, Seattle, Toronto and Montreal, sales offices in Baltimore, Cleveland and Houston, and its custom communications facility located in Eden Prairie, Minnesota. The services provided by May Printing are marketed through a direct sales organization operating from May Printing's principal facility in St. Cloud, Minnesota, and sales offices in Minneapolis/St. Paul, Los Angeles and San Francisco.
The Company markets its financial and corporate document production services to executives or corporations whose securities are publicly traded, or are planned to be publicly traded, corporate finance underwriters, municipal bond underwriters, attorneys and others who require fast and accurate typesetting. The Company markets its commercial printing services primarily to corporations, associations, insurance companies and legal, institutional and governmental publishers, and markets its document reproduction services primarily to lawyers, paralegal and law office administrators, as well as to the legal departments of corporations. The Company markets its custom publication services to financial service companies (such as banks, credit unions and insurance companies), television and radio stations and networks, trade associations, manufacturers and the health care and vacation travel industries. May Printing markets its demand printing and distribution services to large, national clients with multiple franchisees, members, divisions or affiliated organizations. The Company markets all of these services through personal contacts with customers, corporate advertising, promotional programs and direct mail.
As of April 15, 1994, the Company employed 101 full-time salespeople to market its typesetting, printing, publishing, imaging and document reproduction services and 20 full-time employees to market the services provided by May Printing. The Company's salespersons solicit business from existing and prospective customers and, together with the customer service representatives, act as coordinators between the customer and the Company's production personnel, and provide advice and assistance to customers.
COMPETITION
The Company competes with a number of other companies in the financial printing industry, including regional firms, two principal nationwide competitors, Bowne & Co., Inc. and R.R. Donnelley & Sons Company, and international printing firms. Both Bowne and Donnelley have been in business longer, have greater financial resources and revenues than the Company, and are major
competitors in most of the Company's financial and corporate printing markets. In its commercial printing business, the Company competes for complex computer intensive and large-run typesetting work with a number of other computer typesetting firms, and medium-run printing work with a number of commercial web press printers. In its document reproduction and imaging services businesses, the Company competes with two nationwide service companies, Xerox Corporation and Pitney Bowes, litigation support services vendors, and a large number of photocopying and imaging shops, including privately owned shops as well as franchise operations. The Company competes in its custom communications business with marketing service firms, including advertising agencies, custom publication printers, direct mail firms, and television, radio, newspapers, magazine and other media organizations. In the insurance printing business, the Company competes with other national and regional printers, including Bowne. In the May Printing business, the Company believes that its primary competitors are local print shops. Competition in the Company's printing businesses is intense, and is based principally on service, price, speed, accuracy, technological capability and established relationships. The Company believes that it competes favorably with its competitors.
EMPLOYEES
As of April 1, 1994, the Company had 1,577 full-time employees and 41 part-time employees. None of the Company's employees are covered by a collective bargaining agreement. The Company considers its employee relations to be good.
The Company's senior management and certain technical personnel have substantial experience and expertise in the financial printing industry. The Company considers the retention of these employees to be important to its continued success. The Company competes intensively with others in the industry to attract and retain qualified sales personnel. However, the Company believes that it is able to provide employment incentives sufficient to minimize the loss of key sales producers and to attract new sales personnel capable of producing significant amounts of business should the need or opportunity arise. Many sales personnel are under employment contracts of varying terms with the Company.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Substantially all of the Company's revenue, operating profit and identifiable assets are attributable to the United States.
ITEM 2.

ITEM 2. PROPERTIES
The Company leases all of its facilities, other than the principal facility of May Printing, which it owns. The Company's principal production and administrative office facility, located in St. Paul, includes 47,000 square feet of space and is leased, together with the associated land, from the Port Authority of the City of St. Paul. The terms of the Company's agreements with the Port Authority are contained in a facilities lease and land lease, both dated October 1, 1985, which require the Company to pay rents to the Port Authority in the amounts of $24,069 per month and $3,431 per month, respectively, for a term expiring on November 30, 2005. Each lease grants the Company the option to purchase the property at the end of the term, or earlier. Under the facilities lease, the Company may purchase the building for $254,500 at the end of the lease term or after ten years if the Company pays the remaining principal and interest on the bonds outstanding at the time of exercise of the options. The land may be purchased for $167,140 at the end of the lease term or $334,280 at the end of ten years.
The Company owns May Printing's principal production, administrative and warehousing facility. This facility, which is located in St. Cloud, Minnesota, includes approximately 122,900 square feet of space.
The Company also leases other office and warehouse space in the Minneapolis/St. Paul metropolitan area, service facilities in each of its other fifteen cities and sales offices in three other cities, with
space ranging from 120 square feet to 77,000 square feet. These leases have expiration dates ranging from September 1994 to December 1998 under which the Company makes monthly payments aggregating approximately $239,000, including rental fees, real estate and taxes and operating expense.
The Company makes a continuing effort to keep all of its properties and facilities modern, efficient and adequate for its operating needs, through the acquisition, disposition, expansion and improvement of such properties and facilities. As a result, the Company believes that its properties and facilities are, on an aggregate basis, fully utilized and adequate for the conduct of its business.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
There are no material pending or threatened legal, governmental, administrative or other proceedings to which the Company or its subsidiaries is a party or of which any of their property is the subject.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages, the year first elected or appointed as an executive officer and the offices held as of April 26, 1994 are as follows:
Executive officers of the Company are elected by the Board of Directors and serve for one-year terms, commencing with their election at the first meeting of the Board of Directors immediately following the annual meeting of shareholders and continuing until the next such meeting of the Board of Directors. Appointed officers serve at the discretion of the President and Chief Executive Officer. There are no family relationships between or among any of the executive officers or directors of the Company. Except as indicated below, there has been no change in position of any of the executive officers during the past five years.
Ms. Iserman was appointed Vice President -- Client Services Development in June, 1993. She had served as Vice President -- Production since July 1986.
Mr. Machov has been General Counsel of the Company since January 1987. He was elected to the office of Secretary in February 1990 and Vice President in May 1993.
Mr. Sippl joined the Company in November 1989 as Vice President. Prior to joining the Company, Mr. Sippl was President of Chicago Cutlery Corporation, a manufacturer of quality cutlery, from May 1986 to October 1989.
Ms. Larkin joined the Company in April 1993 as Manager of Human Resources and was appointed Vice President -- Human Resources in December 1993. From February 1987 to March 1993, Ms. Larkin was Employee Relations Manager for The Gillette Company, a manufacturer of personal care products.
Ms. Shay served as Manager of Training and Development from March 1993 to December 1993 when she was appointed Vice President -- Training and Development. From July 1989 to March 1993, she was Manager of Customer Service for the Company's St. Paul operations, and also served as a Customer Service Supervisor from November 1988 to July 1989.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the caption "Quarterly Stock Price Comparison" on page 23 of the Company's 1994 Annual Report is incorporated herein by reference.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The financial information in the table on page 35 of the Company's 1994 Annual Report is incorporated herein by reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 20 to 23 of the Company's 1994 Annual Report is incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements on pages 24 to 33 (including the unaudited information set forth under the caption "Quarterly Financial Data" on page 33) and the Report of its Independent Accountants on page 34 of the Company's 1994 Annual Report are incorporated herein by reference.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) DIRECTORS OF THE REGISTRANT.
The information under the captions "Election of Directors -- Information About Nominees" and "Other Information About Nominees" on page 5 of the Company's 1994 Proxy Statement is incorporated herein by reference.
(b) EXECUTIVE OFFICERS OF THE REGISTRANT.
Information concerning Executive Officers of the Company is included in this Report under Item 4A, "Executive Officers of the Registrant."
(c) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information under the caption "Security Ownership of Certain Beneficial Owners and Management" on pages 3 and 4 of the Company's 1994 Proxy Statement is incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information under the captions "Election of Directors -- Directors' Compensation" on page 6 and "Executive Compensation" on pages 9 to 13, (excluding the "Comparative Stock Performance" graph on page 11), of the Company's 1994 Proxy Statement is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Security Ownership of Certain Beneficial Owners and Management" on pages 3 and 4, and "Election of Directors -- Information About Nominees" on page 5 of the Company's 1994 Proxy Statement is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial statements:
The following Financial Statements are incorporated herein by reference from the pages indicated in the Company's 1994 Annual Report:
Consolidated Balance Sheets as of January 31, 1994 and 1993 -- page 24.
Consolidated Statements of Operations for the years ended January 31, 1994, 1993 and 1992 -- page 25.
Consolidated Statements of Cash Flows for the years ended January 31, 1994, 1993 and 1992 -- page 26.
Consolidated Statements of Changes in Shareholders' Equity for the years ended January 31, 1994, 1993 and 1992 -- page 27.
Notes to Consolidated Financial Statements -- pages 28-33.
Report of Independent Accountants -- page 34.
2. Financial statement schedules:
The following supplemental schedules and accountants' report thereon are included herein and should be read in conjunction with the consolidated financial statements referred to above (page numbers refer to pages in this Report):
All other schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
3. Exhibits:
The exhibits to this Report are listed in the Exhibit Index on pages 22 and 23 herein.
A copy of any of these exhibits will be furnished at a reasonable cost to any person who was a shareholder of the Company as of April 1, 1994, upon receipt from any such person of a written request for any such exhibit. Such request should be sent to Merrill Corporation, One Merrill Circle, St. Paul, Minnesota 55108, Attention: Secretary.
The following is a list of each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K:
A. Employment Agreement between John Castro and the Company (incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1989 (File No. 0-14082)).
B. Amendment to Employment Agreement between John Castro and the Company (filed herewith).
C. Employment Agreement between Rick R. Atterbury and the Company (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1991 (File No. 0-14082)).
D. Amendment to Employment Agreement between Rick R. Atterbury and the Company (filed herewith).
E. 1987 Omnibus Stock Plan, as amended (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1991 (File No. 0-14082)).
F. 1993 Incentive Stock Plan (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1993 (File No. 0-14082)).
G. Option Agreement between Ronald N. Hoge and the Company (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1993 (File No. 0-14082)).
(b) REPORTS ON FORM 8-K:
A Form 8-K, dated December 31, 1993, was filed during the fourth quarter of the fiscal year ended January 31, 1994 covering Items 2 and 7. Financial statements of May Printing Company (consisting of balance sheets as of September 30, 1993 and December 31, 1992 and the related statements of operations, stockholders' equity and cash flows for the nine month period ended September 30, 1993 and for the year ended December 31, 1992 respectively, including the accountants' reports thereon), and unaudited condensed consolidated pro forma financial statements (consisting of a balance sheet as of October 31, 1993 and statements of operations for the nine month period ended October 31, 1993 and for the year ended January 31, 1993) were included in the Form 8-K/A.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
Our report on the consolidated financial statements of Merrill Corporation has been incorporated by reference in this Form 10-K from page 34 of the 1994 Annual Report to Shareholders of Merrill Corporation. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in Item 14(a)2 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND
St. Paul, Minnesota March 22, 1994
SCHEDULE II MERRILL CORPORATION
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992 (IN THOUSANDS)
ADDITIONAL INFORMATION
- -------------------------- * Currently under renegotiation with expectation of payment over approximately 5 years.
SCHEDULE V MERRILL CORPORATION
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992 (IN THOUSANDS)
See page 28 of the Annual Report incorporated by reference in this Form 10K for information regarding property, plant and equipment accounting policies.
SCHEDULE VI MERRILL CORPORATION
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992 (IN THOUSANDS)
See page 28 of the Annual Report incorporated by reference in this Form 10K for information regarding property, plant and equipment accounting policies.
SCHEDULE VIII
MERRILL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992 (IN THOUSANDS)
SCHEDULE IX
MERRILL CORPORATION
SHORT-TERM BORROWINGS
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992 (IN THOUSANDS)
SCHEDULE X
MERRILL CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992 (IN THOUSANDS)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
MERRILL CORPORATION EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JANUARY 31, 1993