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MANAGEMENT'S DISCUSSION AND ANALYSIS

Certain statements in Management's Discussion and Analysis of Financial Condition and Results of Operations constituteforward-lookingstatements within the meaning
of the Private Securities Litigation Reform Act of 1995. Suchforward-lookingstatements involve known and unknown risks, uncertainties or achievements of the Company which may cause actual results to be
materially
different from any future results, performance or achievements expressed or implied by suchforward-lookingstatements. These risks and uncertainties
include, but are not limited to, the effect of economic and financial market conditions, government public reporting regulations, paper costs, the integration and performance of recent acquisitions
and Year 2000 readiness.

Results of Operations

The following table sets forth, for the years indicated, the percentage relationship to revenue of certain items in the Company's consolidated statements of
operations and the percentage changes in the dollar amounts of such items in comparison to the prior years.

|                                             |  | For the Years Ended January 31, |  
|-------------------------------------------- |  | ------------------------------- | -
|
|
|
|
|Revenue                                      |  |                                 |  
|Specialty Communication Services:            |  |                                 |  
|Financial                                    |  | 36.5                            | %
|Corporate                                    |  | 31.4                            |  
|Commercial and other                         |  | 19.7                            |  
|                                             |  |                                 |  
|                                             |  | 87.6                            |  
|Document Services:                           |  |                                 |  
|Document management services                 |  | 12.4                            |  
|                                             |  |                                 |  
|                                             |  | 100.0                           |  
|Cost of revenue                              |  | 64.9                            | %
|Gross profit                                 |  | 35.1                            |  
|Selling, general and administrative expenses |  | 25.1                            |  
|Operating income                             |  | 10.0                            |  
|Interest expense                             |  | (0.8                            | )
|Other income, net                            |  | 0.2                             |  
|Income before provision for income taxes     |  | 9.4                             |  
|Provision for income taxes                   |  | 4.2                             |  
|Net income                                   |  | 5.2                             |  
|                                             |  |                                 |  

BusinessMerrill Corporation is a diversified electronic and paper document management company. During 1999, the
Company adopted Statement of Financial Standards No. 131. As a result, the Company defined its reportable segments and changed the information it reports about its operating segments. Operating
segment information for prior years has been restated to conform to the 1999 presentation. Following the new standard, the Company's operating segments have been aggregated into two reportable
segments: Specialty Communication Services and Document Services. Under Specialty Communication Services, we include three business units: Financial Document Services, Investment Company Services and
Managed Communications Programs. Revenue generated by these three business units is categorized as financial, corporate and commercial and other.

Document Management Services is the sole business reported in the Document Services segment. Revenue generated by this business unit is categorized as document management services. All accounting
policies of the reportable segments are consistent with generally accepted accounting principles and the accounting policies of the Company described in Note One of the notes to consolidated financial
statements. Additional information about the Company's reportable segments is included in Note Nine of the notes to consolidated financial statements.

1999
REVENUE
BY CATEGORY
[GRAPH]

The
financial revenue category generally reflects the level of transactional activity in the capital markets. The financial revenue category encompasses many types of transactions,
and some types of transactions tend to increase when others are out of favor. However, a prolonged reduction in the overall level of financial transactions could be expected to have a negative impact
on this category. The corporate revenue category encompasses required regulatory compliance and mutual fund documentation and other repetitive work and is typically not significantly affected by
capital market fluctuations. The commercial and other revenue category tends to follow general economic trends.

Document
management services revenue category tends to follow general economic trends.

Fiscal Year 1999 vs. Fiscal Year 1998Overall revenue for fiscal year 1999 increased 11 percent over the previous year.
Revenue in the Specialty Communication Services segment increased 10 percent over the previous year. The financial revenue category increased six percent compared to the prior year. This increase was
driven by strong mergers and acquisition activity in the first six months of fiscal year 1999. The financial revenue category declined in the second half of the fiscal year by 15 percent as a result
of the Fall market volatility. International revenue, which is included in the financial revenue category, represented less than 10 percent of consolidated revenue and increased over fiscal year 1998
revenue. Management does not anticipate significant fluctuations in the relative percentage of international revenue during fiscal year 2000. The corporate revenue category increased 11 percent
compared to fiscal year 1998. This increase is attributed mainly to strong growth in Investment Company Services products and continued solid demand for corporate compliance business. The commercial
and other revenue category realized revenue growth of 18 percent over fiscal year 1998. The growth is primarily the result of our Managed Communications Programs business.

Document
Services segment revenue grew 17 percent in fiscal year 1999. Ten percent of the growth was a result of the acquisition of Executech and affiliated World Wide Scan Services
in June 1998. Document Service Centers, which totaled 80 at January 31, 1999, contributed revenue growth of seven percent on a same-site comparison.

We anticipate that our total revenue for fiscal year 2000 will continue to grow compared to our total revenue for fiscal year 1999, primarily as a result of our acquisition activity,
increased selling efforts and new product offerings. As a percentage of our total revenue, we anticipate that our financial revenue category in fiscal year 2000 will decline as a percentage of total
revenue as our other business sectors continue to grow. The forward-looking statements in this paragraph contain various risks and uncertainties that may make these statements untrue. These risks and
uncertainties include, but are not limited to, the effect of economic and financial market conditions on our revenue, the extent of changes to government reporting requirements and the ability of our
management to successfully select suitable acquisition candidates and the ability to integrate and manage them successfully.

Fiscal year 1999 gross profit of approximately 35 percent declined slightly from fiscal year 1998. Strong margins were maintained despite the significant slowdown in financial
transaction activity in the second half of the fiscal year 1999. Management implemented cost control measures in the second half of the fiscal year 1999 to offset the lower production activity. These
cost controls measures included a reduction in our workforce of approximately 100 employees (approximately three percent of our total

workforce) and a decrease in our incentive bonuses payable to employees (resulting from anticipated lower company performance compared to the quantitative targets set forth in our plan). On
February 1, 1999, we also reorganized our company into five distinct business units: Financial Document Services, Investment Company Services, Management Communications Programs, the Merrill
Print Group and Document Management Services. By realigning our business into five operating units, we believe that we are able to achieve more accountability for overall profitability of these
business units. In addition, by establishing the Merrill Print Group as a separate profit center, we hope to increase the utilization of our printing assets. In order to further this objective,
management compensation for the Merrill Print Group is now based on profitability. We believe that these cost cutting initiatives together with our expectation that overhead costs will remain stable,
will result in higher operating margins during the next couple of years. The decrease in gross profit as a percentage of revenue resulted from a shift in revenue mix from higher gross margin financial
transaction revenue to revenue generated by our other business units which tend to carry lower gross margins. We expect to continue to realize decreasing gross margins due to the changing mix of our
revenue between Financial Document Services (higher gross margin business) and non-Financial Document Services (lower gross margin business).

The immediately preceding paragraph contains forward-looking statements involving various risks and uncertainties that may make these statements untrue. These risks and uncertainties
include, but are not limited to, the effect of economic and financial market conditions on our revenue, the extent of changes to government reporting requirements, the ability of our management to
successfully select suitable acquisition candidates and the ability to integrate and manage them successfully, the success of our focus on value-added technology and the ability of our management to
successfully continue to diversify our operations.

Selling, general and administrative expenses increased in both dollar terms and as a percentage of revenue. The increase in these expenses in fiscal year 1999 was principally a result
of our continued expansion of the Company's sales and marketing activities and provisions for losses on trade receivables. Specifically, during fiscal year 1999, we hired additional sales personnel,
marketing employees and product managers, and engaged in several, nationwide corporate branding and product marketing programs. We anticipate that we will continue to hire additional sales and
marketing personnel in the immediate future, and will continue our corporate branding and product marketing inititatives for the foreseeable future. During the fiscal year ending January 31,
1998, management decided to discontinue the sales of hardware and software related to its Merrill Training and Technology group, formerly Merrill/Superstar Computing Company. As a result of this
decision, the Company recorded a $1.2 million goodwill impairment as it was determined that the carrying amount of


the goodwill related to the Superstar acquisition was not fully recoverable. The Company reviews the carrying value of long-lived assets and certain identifiable intangibles for impairment, at least
quarterly but more frequently whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Based on this policy, no other goodwill or long-lived
asset was determined to be impaired.

Average
short-term borrowings under the Company's line of credit arrangement were approximately $4.3 million, $4.7 million and $30.1 million in fiscal years 1999, 1998 and 1997,
respectively.

Interest
expense for fiscal year 1999 declined slightly compared to fiscal year 1998, which reflects stable interest rates and a slight reduction in overall amounts borrowed during
fiscal year 1999.

The
effective income tax rate for fiscal year 1999 was 44.5 percent compared to 44 percent for fiscal year 1998. The effective rates were higher than the statutory federal income tax
rate primarily because of state income taxes and the impact of increased non-deductible business entertainment expenses incurred in conjunction with the financial and corporate revenue category
activity previously discussed. The effective income tax rate in future years is expected to approximate 44.5 percent.

Fiscal Year 1998 vs. Fiscal Year 1997Overall revenue for fiscal year 1998 increased 30 percent over the previous year.
Revenue in the Specialty Communication Services segment increased 29 percent over the previous year. The financial revenue category increased 22 percent compared to 1997. This increase was driven by
continued strong mergers and acquisition activity in financial markets throughout fiscal year 1998. The increase was also driven by the results of the Corporate Printing Company (CPC) business
acquired in April 1996. International revenue, which is included in the financial revenue category, represented less than 10 percent of consolidated revenue and increased over fiscal year 1997
revenue. The corporate revenue category increased 49 percent when compared to fiscal year 1997. This increase is attributed to strong corporate compliance business, continued solid demand for EDGAR
services and strong growth in Investment Company Services products. The commercial and other revenue category experienced a 17 percent increase in revenue over fiscal year 1997. The growth is
primarily the result of our Managed Communications Programs.

Document
Services segment revenue grew 35 percent in fiscal year 1998, reflecting continued growth in the number of Document Service Centers, which totaled 76 at January 31,
1998. This resulted from internal growth and the acquisition of selected assets of Total Management Support Services.

Fiscal
year 1998 gross profit of approximately 36 percent remained level with fiscal year 1997. Continued strong margins in both financial and corporate revenue category activity
along with high production utilization allowed us to maintain the same margins.

Selling,
general and administrative expenses increased, but as a percent of revenue, declined slightly in the last year. The increase in these expenses in fiscal year 1998 was
principally a result of our continued expansion of sales and marketing activities and provisions for incentive compensation.

Average
short-term borrowings under the Company's line of credit arrangement were approximately $4.7 million, $30.1 million and $2.2 million in fiscal years 1998, 1997 and 1996,
respectively. The significant decrease in the average short-term borrowings in fiscal year 1998 resulted from the issuance of $35 million in unsecured senior notes in October 1996.

Interest
expense for fiscal year 1998 remained relatively consistent compared to fiscal year 1997, which reflects stable interest rates and consistent overall amounts borrowed during
the time periods.

The
effective income tax rate for fiscal year 1998 was 44 percent compared to 45 percent for fiscal year 1997. The effective rates were higher than the statutory federal rate
primarily because of state income taxes and the impact of increased non-deductible business entertainment expenses incurred in conjunction with the additional financial and corporate revenue category
activity previously discussed.

Impact of InflationThe Company does not believe that inflation has had a significant impact on the results of its
operations.

Liquidity and Capital ResourcesThe Company continued to strengthen its financial position during fiscal year 1999.
Working capital at January 31, 1999, increased to $81.6 million from $79.3 million a year ago. Our current ratio remained consistent at 2.1:1 in fiscal year 1999 when compared to fiscal year
1998. Working capital increased primarily from higher cash balances, reflecting strong collection of trade receivables during the entire year. Trade accounts receivable decreased as a result of the
strong cash collections and the reduction in the financial transaction activity. Work-in-process inventories decreased at January 31, 1999, reflecting the downturn in financial transaction
activity in the fourth quarter and improved inventory turns. Cash and cash equivalents increased to $23.5 million with no borrowings under the Company's line of credit at January 31, 1999.
Long-term obligations to total capitalization was 21.9 percent at January 31, 1999, compared to 25.0 percent a year ago.

Cash
provided by operating activities was $55.8 million in fiscal year 1999, compared to $30.9 million in fiscal year 1998 and $8.5 million in fiscal year 1997. Operating cash flows
for fiscal year 1999 included strong earnings performance and a decrease in accounts receivable and work-in-process

inventories offset by decreases in accounts payable and accrued expenses. Operating cash flows for fiscal year 1998 included strong earnings performance, a decrease in work-in-process inventories and
an increase in accounts payable and accrued expenses offset by an increase in accounts receivable.

Net
cash used in investing activities was $23.1 million in fiscal year 1999, compared to $30.1 million in fiscal year 1998 and $35.8 million in fiscal year 1997. Capital expenditures
were $16.5 million, $17.1 million and $9.2 million for the years ended January 31, 1999, 1998 and 1997, respectively. Capital expenditures in each fiscal year were principally for reprographic
and computer based production equipment and for leasehold improvements. Cash used for businesses acquired included Executech in fiscal year 1999, Superstar Computing, Total Management Support Services
and The Corporate Printing Company in fiscal year 1998 and The Corporate Printing Company and FMC Resource Management Corporation in fiscal year 1997.

Net
cash used in financing activities was $11.8 million in fiscal year 1999 compared to $3.4 million in fiscal year 1998. Net cash used in these fiscal years was primarily a result of
repurchases of common stock offset by stock option exercises and repayment of borrowings under the Company's line of credit. Fiscal year 1997 cash provided by financing activities of $20.4 million was
primarily a result of the issuance of long-term debt offset by payments on long-term debt and capital lease obligations.

The
Company repurchased 734,000 shares of its common stock for approximately $12.8 million in fiscal year 1999. A cumulative total of 998,000 shares have been repurchased for
approximately $15.9 million under the 1,500,000 share repurchase program authorized by the Board of Directors in fiscal year 1997.

The
Company expects capital expenditures in fiscal year 2000 to range from $25 million to $30 million for computer and production equipment and facility expansion and remodeling.
Approximately $2 million of this amount is committed at this time.

The
Company has historically been working-capital intensive, but in recent years has increased its needs for technology and production equipment. The Company generally has been able
to generate sufficient cash from operations to fund its capital needs.

At
January 31, 1999, the Company's principal internal sources of liquidity were cash and cash equivalents and cash flow provided by operating activities. The Company has
available an unsecured bank line of credit expiring on November 29, 1999. The amount available was increased from $40 million to $70 million subsequent to January 31, 1999. Management
anticipates that these sources will satisfy its needs for fiscal year 2000.

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



Our
project plan includes initial testing and remediation which was begun last year and continued into the fourth quarter of the fiscal year ended January 31, 1999 (fiscal
1999). The Company completed the surveying of key suppliers in the fourth quarter of fiscal 1999. The Company is currently in the process of developing contingency plans, as necessary, with the
initial draft to be completed July 31, 1999.

We
plan to have Merrill's mission-critical internal systems and electronic data links ready by July 31, 1999, and resolve any supplier problems. We have surveyed our major
utility companies and have received most response statements. We are in the process of analyzing those statements and following up, where needed, for clarity.

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

The
Company estimates that the total cost to identify and remediate Year 2000 problems is approximately $3.0 million. Approximately $1.1 million of these costs have been incurred as
of January 31, 1999. These costs are expensed as incurred. These costs are primarily consultant and payroll-related costs for the Company's information technology group and some computer
hardware and software package upgrade purchase costs. Such costs do not include normal system upgrades and replacements.

Detailed
system-by-system status for major systems is available on our web sitehttp://www.merrillcorp.comfor those interested
parties.

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

Quarterly Stock Price Information

Merrill Corporation shares are traded on the Nasdaq Stock Market under the symbol MRLL. The table below sets forth the range of high and low sales prices per
share as reported by the Nasdaq Stock Market. These prices do not include adjustments for retail markups, markdowns or commissions. There were approximately 2,100 shareholders of record and
non-objecting beneficial owners of the Company's common stock at the close of trading on April 15, 1999. The Company paid annualized cash dividends of $.08 per share in fiscal year 1999 and
$.07 per share in fiscal year 1998. Total cash dividends approximated $1.3 million and $1.1 million in fiscal years 1999 and 1998, respectively.

|Stock Price Per Share |  | First
Quarter |  | Second
Quarter |  | Third
Quarter |  | Fourth
Quarter
|--------------------- |  | ------------- |  | -------------- |  | ------------- |  | --------------
|FY 1999               |  | High          |  | 239/16         |  | 243/4         |  | 237/8         
|                      |  | Low           |  | 18             |  | 20            |  | 121/16        
|FY 1998               |  | High          |  | 14             |  | 205/16        |  | 241/4         
|                      |  | Low           |  | 101/4          |  | 115/8         |  | 171/8         



## 

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                   |  | As of January 31,
|---------------------------------------------------------------------------------------------------------------------------------- |  | -----------------
|
|
|ASSETS                                                                                                                            
|Current assets                                                                                                                     |  |                  
|Cash and cash equivalents                                                                                                          |  | $                
|Trade receivables, less allowance for doubtful accounts of $8,126 and $6,992, respectively                                         |  |                  
|Work-in-process inventories                                                                                                        |  |                  
|Other inventories                                                                                                                  |  |                  
|Other current assets                                                                                                               |  |                  
|                                                                                                                                   |  |                  
|Total current assets                                                                                                               |  |                  
|Property, plant and equipment, net                                                                                                 |  |                  
|Goodwill, net                                                                                                                      |  |                  
|Other assets                                                                                                                       |  |                  
|                                                                                                                                   |  |                  
|Total assets                                                                                                                       |  | $                
|                                                                                                                                   |  |                  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                              
|Current liabilities                                                                                                                |  |                  
|Current maturities of long-term debt                                                                                               |  | $                
|Current maturities of capital lease obligations                                                                                    |  |                  
|Accounts payable                                                                                                                   |  |                  
|Accrued expenses                                                                                                                   |  |                  
|                                                                                                                                   |  |                  
|Total current liabilities                                                                                                          |  |                  
|Long-term debt, net of current maturities                                                                                          |  |                  
|Capital lease obligations, net of current maturities                                                                               |  |                  
|Other liabilities                                                                                                                  |  |                  
|                                                                                                                                   |  |                  
|Total liabilities                                                                                                                  |  |                  
|                                                                                                                                   |  |                  
|Commitments and contingencies (Notes 3 and 5)                                                                                      |  |                  
|Shareholders' equity                                                                                                               |  |                  
|Common stock, $.01 par value: 25,000,000 shares authorized; 15,823,155 and 16,315,136 shares, respectively, issued and outstanding |  |                  
|Undesignated stock: 500,000 shares authorized; no shares issued                                                                    |  |                  
|Additional paid-in capital                                                                                                         |  |                  
|Retained earnings                                                                                                                  |  |                  
|                                                                                                                                   |  |                  
|Total shareholders' equity                                                                                                         |  |                  
|                                                                                                                                   |  |                  
|Total liabilities and shareholders' equity                                                                                         |  | $                
|                                                                                                                                   |  |                  

The
accompanying notes are an integral part of the consolidated financial statements.



CONSOLIDATED STATEMENTS OF OPERATIONS

|                                               |  | For the Years Ended January 31, |           
|---------------------------------------------- |  | ------------------------------- | ----------
|
|
|Revenue                                        |  | $                               | 509,543   
|Cost of revenue                                |  |                                 | 330,632   
|                                               |  |                                 |           
|Gross profit                                   |  |                                 | 178,911   
|Selling, general and administrative expenses   |  |                                 | 127,705   
|                                               |  |                                 |           
|Operating income                               |  |                                 | 51,206    
|Interest expense                               |  |                                 | (3,961    
|Other income, net                              |  |                                 | 426       
|                                               |  |                                 |           
|Income before provision for income taxes       |  |                                 | 47,671    
|Provision for income taxes                     |  |                                 | 21,214    
|                                               |  |                                 |           
|Net income                                     |  | $                               | 26,457    
|                                               |  |                                 |           
|Net income per share:                          |  |                                 |           
|Basic                                          |  | $                               | 1.63      
|Diluted                                        |  | $                               | 1.55      
|                                               |  |                                 |           
|Weighted average number of shares outstanding: |  |                                 |           
|Basic                                          |  |                                 | 16,253,148
|Diluted                                        |  |                                 | 17,020,673
|                                               |  |                                 |           

The
accompanying notes are an integral part of the consolidated financial statements.



## 

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                       |  | For the Years Ended January 31, |        
|-------------------------------------------------------------------------------------- |  | ------------------------------- | -------
|
|
|Operating activities                                                                   |  |                                 |        
|Net income                                                                             |  | $                               | 26,457 
|Adjustments to reconcile net income to net cash provided by operating activities       |  |                                 |        
|Depreciation and amortization                                                          |  |                                 | 13,066 
|Amortization of intangible assets                                                      |  |                                 | 4,573  
|Writedown of goodwill                                                                  |  |                                 | 1,180  
|Provision for losses on trade receivables                                              |  |                                 | 3,273  
|Provision for unbillable inventories                                                   |  |                                 | 67     
|Deferred income taxes                                                                  |  |                                 | (3,518 
|Change in deferred compensation                                                        |  |                                 | 1,807  
|Changes in operating assets and liabilities, net of effects from business acquisitions |  |                                 |        
|Trade receivables                                                                      |  |                                 | 11,796 
|Work-in-process inventories                                                            |  |                                 | 865    
|Other inventories                                                                      |  |                                 | (333   
|Other current assets                                                                   |  |                                 | 1,301  
|Accounts payable                                                                       |  |                                 | (348   
|Accrued expenses                                                                       |  |                                 | (3,267 
|Income taxes                                                                           |  |                                 | (1,109 
|                                                                                       |  |                                 |        
|Net cash provided by operating activities                                              |  |                                 | 55,810 
|                                                                                       |  |                                 |        
|Investing activities                                                                   |  |                                 |        
|Purchase of property, plant and equipment                                              |  |                                 | (16,479
|Business acquisitions, net of cash acquired                                            |  |                                 | (4,039 
|Other investing activities, net                                                        |  |                                 | (2,551 
|                                                                                       |  |                                 |        
|Net cash used in investing activities                                                  |  |                                 | (23,069
|                                                                                       |  |                                 |        
|Financing activities                                                                   |  |                                 |        
|Borrowings on notes payable to banks                                                   |  |                                 | 86,600 
|Repayments on notes payable to banks                                                   |  |                                 | (86,600
|Proceeds from issuance of long-term debt                                               |  |                                 |        
|Principal payments on long-term debt and capital lease obligations                     |  |                                 | (814   
|Repurchase of common stock                                                             |  |                                 | (12,813
|Dividends paid                                                                         |  |                                 | (1,297 
|Exercise of stock options                                                              |  |                                 | 2,149  
|Tax benefit realized upon exercise of stock options                                    |  |                                 | 884    
|Other equity transactions, net                                                         |  |                                 | 96     
|                                                                                       |  |                                 |        
|Net cash (used in) provided by financing activities                                    |  |                                 | (11,795
|                                                                                       |  |                                 |        
|Increase (decrease) in cash and cash equivalents                                       |  |                                 | 20,946 
|Cash and cash equivalents, beginning of year                                           |  |                                 | 2,531  
|                                                                                       |  |                                 |        
|Cash and cash equivalents, end of year                                                 |  | $                               | 23,477 
|                                                                                       |  |                                 |        
|Supplemental cash flow disclosures                                                     |  |                                 |        
|Income taxes paid                                                                      |  | $                               | 24,724 
|Interest paid                                                                          |  |                                 | 3,599  
|                                                                                       |  |                                 |        

The
accompanying notes are an integral part of the consolidated financial statements.



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

|                                                    |  | For the Years Ended January 31, 1999,
1998 and 1997 |    
|--------------------------------------------------- |  | --------------------------------------------------- | ---
|
|Balance, January 31, 1996                           |  | $                                                   | 157
|Exercise of stock options                           |  |                                                     | 2  
|Tax benefit realized upon exercise of stock options |  |                                                     |    
|Other                                               |  |                                                     |    
|Cash dividends ($.06 per share)                     |  |                                                     |    
|Net income                                          |  |                                                     |    
|                                                    |  |                                                     |    
|Balance, January 31, 1997                           |  | $                                                   | 159
|                                                    |  |                                                     |    
|Exercise of stock options                           |  |                                                     | 7  
|Tax benefit realized upon exercise of stock options |  |                                                     |    
|Repurchase of common stock                          |  |                                                     | (3 
|Other                                               |  |                                                     |    
|Cash dividends ($.07 per share)                     |  |                                                     |    
|Net income                                          |  |                                                     |    
|                                                    |  |                                                     |    
|Balance, January 31, 1998                           |  | $                                                   | 163
|                                                    |  |                                                     |    
|Exercise of stock options                           |  |                                                     | 2  
|Tax benefit realized upon exercise of stock options |  |                                                     |    
|Repurchase of common stock                          |  |                                                     | (7 
|Other                                               |  |                                                     |    
|Cash dividends ($.08 per share)                     |  |                                                     |    
|Net income                                          |  |                                                     |    
|                                                    |  |                                                     |    
|Balance, January 31, 1999                           |  | $                                                   | 158
|                                                    |  |                                                     |    

The
accompanying notes are an integral part of the consolidated financial statements.



## 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OneNature of Business and Significant Accounting Policies

Nature of BusinessThe Company provides paper and electronic document services consisting of creative design,
typesetting, printing, reproduction, distribution, data and information services to financial, legal, investment company, real estate and corporate clients worldwide.

Use of EstimatesThe 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 revenue and expenses during the reporting periods. Actual results could differ from those estimates. The most significant areas which require the use of
management's estimates relate to the determination of the allowances for doubtful accounts and unbillable inventories.

Principles of ConsolidationThe consolidated financial statements include all majority-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.

Cash EquivalentsThe Company considers all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.

InventoriesWork-in-process, which includes purchased services, materials, direct labor and overhead, is valued at the
lower of cost or net realizable value, with cost determined on a specific job-cost basis. Other inventories consist primarily of paper and printed materials and are valued at the lower of cost or
market, with cost determined on a specific job-cost basis.

Property, Plant and EquipmentProperty, plant and equipment are stated at cost. Significant additions or improvements
extending asset lives are capitalized; normal maintenance and repair costs are expensed as incurred. Depreciation is determined using the straight-line method over the estimated useful lives of the
assets which range from three to 30 years. Amortization of leasehold improvements is recorded on a straight-line basis over the estimated useful lives of the assets or the lease term, whichever is
shorter. When assets are sold or retired, related gains or losses are included in the results of operations.

GoodwillGoodwill recognized in business acquisitions accounted for as purchases is amortized on the straight-line
method, principally over 15 years. The Company periodically evaluates the recoverability of unamortized goodwill through measurement of future estimated undiscounted operating unit cash flows.

Income TaxesDeferred income taxes are recognized for the tax consequences in future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for
the year and the change during the year in deferred tax assets and liabilities.

Revenue RecognitionThe Company recognizes revenue when service projects are completed or products are shipped.

Net Income per ShareThe Company has disclosed basic and diluted net income per share for all periods presented in
accordance with the Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." The dilutive effect on net income per share resulted from the assumed exercise of dilutive
stock options outstanding under the Company's stock option plans.

Stock-Based CompensationThe Company accounts for stock-based compensation using the intrinsic value method prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation costs for stock options granted to employees are
measured as the excess, if any, of the fair value of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Such compensation costs, if any, are
amortized on a straight-line basis over the underlying option vesting terms. The Company accounts for stock-based compensation to non-employees using the fair value method prescribed by SFAS No. 123,
"Accounting for Stock Based Compensation." Compensation costs for stock options granted to non-employees are based on fair value of the option at the date of grant.

Business SegmentsEffective January 31, 1999, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which requires the Company to report information about its operating segments according to the management approach for determining reportable
segments. This approach is based on the way management organizes segments within a company for making operating decisions and assessing performance. Segment results have been reported for all periods
presented and are described in Note Nine.

TwoSelected Financial Statement Data

|                                               |  | As of January 31, |        
|---------------------------------------------- |  | ----------------- | -------
|
|
|Property, Plant and Equipment, Net             |  |                   |        
|Land                                           |  | $                 | 1,951  
|Buildings                                      |  |                   | 12,111 
|Equipment                                      |  |                   | 63,068 
|Furniture and fixtures                         |  |                   | 14,157 
|Leasehold improvements                         |  |                   | 18,664 
|Construction in progress                       |  |                   | 1,090  
|                                               |  |                   |        
|                                               |  |                   | 111,041
|Less accumulated depreciation and amortization |  |                   | (66,106
|                                               |  |                   |        
|                                               |  | $                 | 44,935 
|                                               |  |                   |        
|Goodwill, Net                                  |  |                   |        
|Goodwill                                       |  | $                 | 63,462 
|Less accumulated amortization                  |  |                   | (13,718
|                                               |  |                   |        
|                                               |  | $                 | 49,744 
|                                               |  |                   |        
|Accrued Expenses                               |  |                   |        
|Commissions and compensation                   |  | $                 | 22,089 
|Retirement plan                                |  |                   | 3,970  
|Purchase price consideration                   |  |                   | 7,734  
|Other                                          |  |                   | 10,849 
|                                               |  |                   |        
|                                               |  | $                 | 44,642 
|                                               |  |                   |        

ThreeBusiness Acquisitions

On April 15, 1996, the Company purchased substantially all of the operating assets and assumed certain liabilities of The Corporate Printing
Company, Inc. and Affiliated Group (CPC) for

approximately $22.6 million in cash. The Company did not purchase any assets relating to CPC's pressroom and shipping businesses. The purchase price was subsequently reduced by approximately $1.7
million in accordance with terms of the purchase agreement. In accordance with the agreement, additional contingent purchase consideration of $8 million was paid in August 1997. The Company
also entered into a five-year non-compete agreement with CPC's principal shareholder that requires payments totaling $3.4 million through April 15, 2001. The principal shareholder is also
entitled to an additional $500,000 annually through March 31, 2001, as the Company maintained certain business of a specified customer. The acquisition has been accounted for as a purchase.

On
March 28, 1996, the Company purchased all of the outstanding common stock of FMC Resource Management Corporation for $5.4 million in cash and promissory notes for $2.0
million. The agreement calls for additional contingent consideration, not to exceed $4 million, based on annual gross profits of the acquired business through January 31, 2001, as defined in
the agreement. Contingent consideration recorded through January 31, 1999, was $2.4 million. The acquisition has been accounted for as a purchase.

Results
of the acquired companies' operations have been included in the Consolidated Statements of Operations from their respective dates of acquisitions. Pro forma (unaudited)
results of the Company for the year ended January 31, 1997, as if the acquisitions had been effective at February 1, 1995, are as follows:

|(In thousands, except per share data) |  | For the Year Ended
January 31, 1997
|------------------------------------- |  | -----------------------------------
|Revenue                               |  | $                                  
|Net income                            |  |                                    
|Net income per sharediluted          |  |                                    
|                                      |  |                                    

During
fiscal year 1999, the Company completed the acquisition of substantially all of the operating assets and liabilities of Executech, Inc. and an affiliated company, World
Wide Scan Services, LLC for $3.2 million in cash. The agreement calls for additional consideration totalling approximately $10.0 million through fiscal year 2003. The acquisition has been accounted
for as a purchase and is not significant to the financial position or results of operations of the Company.

FourFinancing Arrangements

Bank FinancingThe Company has a revolving credit agreement with a group of banks that provides for an unsecured bank
line of credit which expires on November 29, 1999. Subsequent to January 31, 1999, the agreement was amended to increase the amount available for borrowing from $40 million to $70
million. There were no borrowings outstanding under this agreement at January 31, 1999 and 1998. Under the agreement, the Company has the option to borrow at the Agent's reference rate, at 1.0%
above the London Interbank Offered Rate (LIBOR) or at 1.0% above a certificate of deposit-based rate, and is required to pay quarterly commitment fees of 0.25% on the unused portion of the line of
credit. The weighted average interest rates on borrowings on the line of credit were 8.44%, 8.26% and 7.39% for the years ended 1999, 1998 and 1997, respectively. The revolving credit agreement
includes various covenants, including the maintenance of minimum tangible net worth and limitations on the amounts of certain transactions, including payment of dividends.

Long-Term DebtLong-term debt consisted of the following:

|                                                                                                                                                                                                                                                                                                                                                                                                  |  | As of January 31, |       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------
|
|
|Unsecured senior notes, bearing interest at 7.463%, with semi-annual interest only payments through October 2000, at which time annual principal and semi-annual interest payments are due through October 2006.
The notes have various covenants, including the maintenance of certain financial ratios and limitations on the amount of certain transactions including the payment of dividends |  | $                 | 35,000
|Industrial development bonds, due in annual installments, including interest ranging from 4.2% to 5.5%, over the life of the bonds with the remaining unpaid balance due on August 1, 2010; collateralized by land,
building and equipment with a carrying value of $4,712 at January 31, 1999                                                                                                    |  |                   | 3,320 
|Unsecured promissory notes payable due in March 1999. The notes bear interest at LIBOR plus 1.0%, adjustable and payable annually. The interest rate at January 31, 1999 and 1998 was 6.8125% and 7.281%,
respectively                                                                                                                                                                            |  |                   | 2,000 
|Unsecured promissory note payable in equal annual installments of $500 on December 31 through 1998                                                                                                                                                                                                                                                                                                |  |                   |       
|                                                                                                                                                                                                                                                                                                                                                                                                  |  |                   |       
|                                                                                                                                                                                                                                                                                                                                                                                                  |  |                   | 40,320
|Less current maturities of long-term debt                                                                                                                                                                                                                                                                                                                                                         |  |                   | (2,210
|                                                                                                                                                                                                                                                                                                                                                                                                  |  |                   |       
|                                                                                                                                                                                                                                                                                                                                                                                                  |  | $                 | 38,110
|                                                                                                                                                                                                                                                                                                                                                                                                  |  |                   |       

The
aggregate maturities of long-term debt are as follows:

|(In thousands) |  |  
|-------------- |  | -
|2000           |  | $
|2001           |  |  
|2002           |  |  
|2003           |  |  
|2004           |  |  
|Thereafter     |  |  
|               |  |  
|               |  | $
|               |  |  

Based
on quoted market prices for similar issues, the fair value of long-term debt approximated its carrying value at January 31, 1999 and 1998.

FiveLeases

The Company leases an office and production facility and the associated land and equipment under capital leases that terminate at various dates through
November 30, 2005. Certain leases contain

bargain purchase options. A summary of the Company's property under capital leases, which is classified as property, plant and equipment, is as follows:

|                              |  | As of January 31, |       
|----------------------------- |  | ----------------- | ------
|
|
|Land                          |  | $                 | 333   
|Building                      |  |                   | 2,439 
|Equipment                     |  |                   | 389   
|Less accumulated amortization |  |                   | (1,334
|                              |  |                   |       
|                              |  | $                 | 1,827 
|                              |  |                   |       

The Company also leases office space and equipment under noncancelable operating leases which expire at various dates through October 31, 2014. Rental expense charged to operations was $9.0
million, $8.0 million and $6.0 million for the years ended January 31, 1999, 1998 and 1997, respectively.

Future
minimum rental commitments under noncancelable leases at January 31, 1999, are as follows:

|(In thousands)                                       |  | Capital
Leases |       | Operating
Leases
|---------------------------------------------------- |  | -------------- | ----- | ----------------
|2000                                                 |  | $              | 392   |                 
|2001                                                 |  |                | 330   |                 
|2002                                                 |  |                | 330   |                 
|2003                                                 |  |                | 330   |                 
|2004                                                 |  |                | 330   |                 
|Thereafter                                           |  |                | 605   |                 
|                                                     |  |                |       |                 
|                                                     |  |                | 2,317 |                 
|                                                     |  |                |       |                 
|Imputed interest                                     |  |                | (706  | )               
|                                                     |  |                |       |                 
|Present value of minimum lease payments              |  |                | 1,611 |                 
|Less current maturities of capital lease obligations |  |                | (236  | )               
|                                                     |  |                |       |                 
|Capital lease obligations, net of current maturities |  | $              | 1,375 |                 
|                                                     |  |                |       |                 

SixIncome Taxes

Components of the provision for income taxes are as follows:

|                           |  | For the Years Ended January 31, |       
|-------------------------- |  | ------------------------------- | ------
|
|Current                    |  |                                 |       
|Federal                    |  | $                               | 21,204
|State                      |  |                                 | 3,528 
|                           |  |                                 |       
|                           |  |                                 | 24,732
|Deferred                   |  |                                 | (3,518
|                           |  |                                 |       
|Provision for income taxes |  | $                               | 21,214
|                           |  |                                 |       



Temporary
differences comprising the net deferred tax asset recognized in the accompanying Consolidated Balance Sheets are as follows:

|                                |  | As of January 31,
|------------------------------- |  | -----------------
|
|
|Deferred compensation           |  | $                
|Property, plant and equipment   |  |                  
|Insurance reserves              |  |                  
|Vacation accrual                |  |                  
|Allowance for doubtful accounts |  |                  
|Goodwill amortization           |  |                  
|Inventories                     |  |                  
|Other, net                      |  |                  
|                                |  |                  
|Net deferred tax asset          |  | $                
|                                |  |                  

Management expects that the Company will fully realize the benefits attributable to the net deferred tax asset at January 31, 1999. Accordingly, no valuation allowance has been recorded at
January 31, 1999.

Significant
differences between income taxes on income for financial reporting purposes and income taxes calculated using the federal statutory tax rate are as follows:

|                                                           |  | As of January 31,
|---------------------------------------------------------- |  | -----------------
|
|
|Provision for federal income taxes at statutory rate       |  | $                
|State income taxes, net of federal benefit                 |  |                  
|Non-deductible business meeting and entertainment expenses |  |                  
|Other                                                      |  |                  
|                                                           |  |                  
|                                                           |  | $                
|                                                           |  |                  

Consolidated federal income tax returns filed by the Company have been examined by the Internal Revenue Service through fiscal 1994. The Company's fiscal 1995, 1996 and 1997 federal and certain state
income tax returns are presently under audit. Management believes any additional taxes which may ultimately result from these audits or any other state or local agencies' audits would not have a
material adverse effect on the Company's consolidated financial position or results of operations.

SevenRetirement Plan

On February 1, 1998, the Company combined its defined contribution retirement plan and its 401(k) incentive savings plan. Under the new plan, Company
contributions are based on 4% of eligible employee compensation and 100% matching contributions up to a maximum of the first 3% of a participant's 401(k) contribution. Substantially all employees of
the Company are covered by the new plan. Related costs of all retirement plans charged to operations were $6.1 million, $5.1 million and $4.0 million for the years ended January 31, 1999, 1998
and 1997, respectively.

EightShareholders' Equity

Common StockIn August 1997, the Company's Board of Directors declared a 2-for-1 stock split of the Company's
common stock in the form of a 100% stock dividend which was paid on October 15, 1997, to shareholders of record on September 30, 1997. The Consolidated Statements of Changes in
Shareholders' Equity and all share and per share amounts have been retroactively restated to reflect
the stock split. Also, all information regarding shares outstanding, stock purchase agreements, stock options and stock grants has been retroactively restated to reflect the stock split.

The
classes, series, rights and preferences of the undesignated stock may be established by the Company's Board of Directors. No action with respect to such shares has been taken.
During fiscal year 1997, the Company's Board of Directors approved the repurchase of up to 1,500,000 shares of the Company's common stock. In fiscal year 1999, the Company repurchased 734,000 shares
of common stock for approximately $12.8 million. Through January 31, 1999, 998,000 shares of common stock had been repurchased for approximately $15.9 million.

Earnings Per ShareThe denominator used to calculate diluted earnings per share includes the dilutive impact of
767,525, 777,041 and 325,271 stock options for the years ended January 31, 1999, 1998 and 1997, respectively.

Stock PlansUnder Company-sponsored incentive and stock option plans, 6,506,000 shares of common stock were reserved
for the granting of incentive awards to employees in the form of incentive stock options, nonstatutory stock options and restricted stock awards at exercise prices not less than 100% of the fair
market value of the Company's common stock on the date of grant. As of January 31, 1999, stock options for 5,342,300 shares and 70,800 restricted stock awards had been granted under the plans,
leaving 1,092,900 shares available for future grants.

Under
the Company's 1996 Non-employee Director Plan (the Plan), 400,000 shares of common stock were reserved for granting of non-statutory options and awarding of common stock as
partial payment to non-employee directors who serve on the Company's Board of Directors. Non-statutory stock options issued under the Plan are granted at an exercise price not less than 100% of the
fair market value of the Company's common stock on the date of grant. Compensation expense is recorded when common stock is awarded as partial payment for the director's annual retainer in an amount
approximately equal to the fair market value of the Company's common stock on the date of grant. As of January 31, 1999, non-statutory options for 120,000 shares and 10,863 shares of common
stock had been granted under the Plan, leaving 269,137 shares available for future grants.

In
addition to options granted under the plans above, the Company has granted non-qualified options to directors and consultants at prices equal to or exceeding market value at date
of grant. Options granted under all Company-sponsored stock plans generally vest and expire over five to seven years.

A summary of selected information regarding all stock options for the three years ended January 31, 1999, is as follows:

|                          |  | Number of
Shares |   | Exercise Price
Per Share |             | Weighted Average
Exercise Price
Per Share
|------------------------- |  | ---------------- | - | ------------------------ | ----------- | -----------------------------------------
|Balance, January 31, 1996 |  | 1,854,628        |   | $                        | 2.00-14.88  |                                          
|Granted                   |  | 1,092,000        |   |                          | 8.12-11.96  |                                          
|Exercised                 |  | (152,436         | ) |                          | 3.68-10.38  |                                          
|Canceled                  |  | (106,364         | ) |                          | 8.12-13.25  |                                          
|                          |  |                  |   |                          |             |                                          
|Balance, January 31, 1997 |  | 2,687,828        |   |                          | 2.00-14.88  |                                          
|Granted                   |  | 1,129,200        |   |                          | 11.19-22.75 |                                          
|Exercised                 |  | (759,400         | ) |                          | 2.00-15.06  |                                          
|Canceled                  |  | (88,200          | ) |                          | 8.13-10.00  |                                          
|                          |  |                  |   |                          |             |                                          
|Balance, January 31, 1998 |  | 2,969,428        |   |                          | 2.00-22.75  |                                          
|Granted                   |  | 611,000          |   |                          | 18.25-21.38 |                                          
|Exercised                 |  | (239,750         | ) |                          | 2.00-15.06  |                                          
|Canceled                  |  | (70,600          | ) |                          | 8.13-21.38  |                                          
|                          |  |                  |   |                          |             |                                          
|Balance, January 31, 1999 |  | 3,270,078        |   | $                        | 3.68-22.75  |                                          
|                          |  |                  |   |                          |             |                                          

At January 31, 1999, the weighted average exercise price and remaining life of the stock options are as follows:

|Range of exercise prices                      |  | $3.68-8.25 |           | $8.50-13.50 |   | $14.75-22.75 |  | Total
|--------------------------------------------- |  | ---------- | --------- | ----------- | - | ------------ |  | -----
|Total options outstanding                     |  |            | 821,700   |             |   | 1,485,878    |  |      
|Weighted average exercise price               |  | $          | 8.06      |             | $ | 10.94        |  | $    
|Weighted average remaining life               |  |            | 3.3 years |             |   | 3.5 years    |  |      
|Options exercisable                           |  |            | 248,400   |             |   | 386,918      |  |      
|Weighted average price of exercisable options |  | $          | 7.92      |             | $ | 11.30        |  | $    
|                                              |  |            |           |             |   |              |  |      

Had
the Company used the fair value-based method of accounting for its incentive and stock option plans beginning on February 1, 1995, and charged compensation cost against
income, over the vesting period based on the fair value of options at the date of grant, net income and net income per share would have been reduced to the following pro forma amounts:

|                     |  | For the Years Ended January 31,
|-------------------- |  | -------------------------------
|
|
|Net Income           |  |                                
|As reported          |  | $                              
|Pro forma            |  |                                
|                     |  |                                
|Net Income Per Share |  |                                
|As reportedbasic    |  | $                              
|As reporteddiluted  |  |                                
|Pro formabasic      |  |                                
|Pro formadiluted    |  |                                
|                     |  |                                



The
pro forma information above includes only stock options granted since fiscal year 1996. Pro forma compensation expense under the fair value-based method of accounting will
increase in the future as additional stock option grants will be considered.

The
weighted average grant date fair value of options granted during fiscal years 1999, 1998 and 1997 was $10.32, $6.68 and $4.72, respectively. The weighted average grant date fair
value of options was calculated by using the fair value of each option grant, utilizing the Black-Scholes option-pricing model and the following key assumptions:

|                        |  | For the Years Ended January 31, |  
|----------------------- |  | ------------------------------- | -
|
|Risk free interest rate |  | 5.50                            | %
|Expected life           |  | 5 Years                         |  
|Expected volatility     |  | 51.18                           | %
|Expected dividend yield |  | 0.41                            | %
|                        |  |                                 |  

NineSegment and Related Information

SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," changes the way the Company reports information about its operating
segments. The information for fiscal years 1998 and 1997 is also presented.

The
Company's business units have been aggregated into two reportable segments comprising of Specialty Communication Services and Document Services.

Specialty Communication ServicesThis segment consists of three business unitsFinancial Document Services,
Investment Company Services and Managed Communications Programsthat print documents and deliver services used in the financial marketplace, including mutual fund and insurance companies
and banks, and national organizations. The principal markets for this segment include major metropolitan centers in the world including North America, Europe, Latin America and the Far East. Customers
include major investment bankers, corporate officers, mutual fund companies, national and regional real estate networks and other business services.

Document ServicesDocument Management Services is the sole business unit reported in this segment. They deliver
document management solutions to legal and corporate clients through client-based
service centers. These Merrill-managed facilities provide clients with a broad range of value-added document services, including litigation copying and support, imaging, electronic document scanning,
storage and retrieval, binding and post-production shipping. The principal markets for this segment are major metropolitan areas in North America. Customers include law firms and large corporations.

The
accounting policies of the reportable segments are the same as those described in Note One of Notes to Consolidated Financial Statements. The Company evaluates the performance of
its operating segments based on revenue and operating earnings of the respective business units. Intersegment sales and transfers are not significant.

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

|(In thousands)                                  |  | Specialty Communication Services |         | Document Services |   | Interest & Other |   | Total
|----------------------------------------------- |  | -------------------------------- | ------- | ----------------- | - | ---------------- | - | -----
|1999                                            |  |                                  |         |                   |   |                  |   |      
|Revenue                                         |  | $                                | 446,579 |                   | $ | 62,964           |   |      
|Income (loss) before provision for income taxes |  |                                  | 52,995  |                   |   | (1,789           | ) | $    
|Total assets                                    |  |                                  | 186,825 |                   |   | 25,966           |   |      
|                                                |  |                                  |         |                   |   |                  |   |      
|1998                                            |  |                                  |         |                   |   |                  |   |      
|Revenue                                         |  | $                                | 405,742 |                   | $ | 53,774           |   |      
|Income (loss) before provision for income taxes |  |                                  | 57,276  |                   |   | (7,324           | ) | $    
|Total assets                                    |  |                                  | 205,200 |                   |   | 16,530           |   |      
|                                                |  |                                  |         |                   |   |                  |   |      
|1997                                            |  |                                  |         |                   |   |                  |   |      
|Revenue                                         |  | $                                | 314,187 |                   | $ | 39,582           |   |      
|Income (loss) before provision for income taxes |  |                                  | 45,555  |                   |   | (9,210           | ) | $    
|Total assets                                    |  |                                  | 167,043 |                   |   | 11,729           |   |      
|                                                |  |                                  |         |                   |   |                  |   |      

TenQuarterly Data (Unaudited)

The following is a summary of unaudited quarterly data for the years ended January 31, 1999 and 1998:

|(In thousands except per share data) |  | First
Quarter |         | Second
Quarter |   | Third
Quarter |  | Fourth
Quarter |         | Total
|------------------------------------ |  | ------------- | ------- | -------------- | - | ------------- |  | -------------- | ------- | -----
|1999 Revenue                         |  | $             | 123,514 |                | $ | 148,458       |  | $              | 119,759 |      
|Gross profit                         |  |               | 48,358  |                |   | 53,974        |  |                | 39,100  |      
|Net income                           |  |               | 8,012   |                |   | 8,706         |  |                | 6,488   |      
|Net income per sharebasic           |  |               | .49     |                |   | .53           |  |                | .40     |      
|Net income per sharediluted         |  |               | .47     |                |   | .50           |  |                | .38     |      
|Dividends declared per share         |  |               | .02     |                |   | .02           |  |                | .02     |      
|                                     |  |               |         |                |   |               |  |                |         |      
|1998 Revenue                         |  | $             | 109,859 |                | $ | 115,601       |  | $              | 112,091 |      
|Gross profit                         |  |               | 43,585  |                |   | 41,066        |  |                | 39,374  |      
|Net income                           |  |               | 7,754   |                |   | 6,312         |  |                | 5,707   |      
|Net income per sharebasic           |  |               | .49     |                |   | .39           |  |                | .35     |      
|Net income per sharediluted         |  |               | .47     |                |   | .38           |  |                | .33     |      
|Dividends declared per share         |  |               | .015    |                |   | .015          |  |                | .02     |      
|                                     |  |               |         |                |   |               |  |                |         |      

For fiscal year 1999, the summations of quarterly net income per share --basic does not equate to the calculation for the year as quarterly calculations are performed on a discrete basis.

ElevenSubsequent Event

On April 14, 1999, the Company purchased substantially all assets and assumed certain liabilities of Daniels Printing, Limited Partnership for $45
million in cash plus $10.6 million in payoff of existing term debt and line of credit plus the assumption of $7.7 million of certain ordinary course liabilities. The acquisition will be accounted for
as a purchase. The acquisition was financed using the Company's line of credit and available operating cash.

Summary of Operating and Financial Data

|                                         |  | For the Years Ended January 31, |        
|---------------------------------------- |  | ------------------------------- | -------
|
|
|Operating Results                        |  |                                 |        
|Revenue                                  |  | $                               | 509,543
|Costs and expenses                       |  |                                 | 461,872
|                                         |  |                                 |        
|Income before provision for income taxes |  |                                 | 47,671 
|Provision for income taxes               |  |                                 | 21,214 
|                                         |  |                                 |        
|Net income                               |  | $                               | 26,457 
|                                         |  |                                 |        
|Per Common Share                         |  |                                 |        
|Net incomebasic                         |  | $                               | 1.63   
|Net incomediluted                       |  | $                               | 1.55   
|Cash dividends declared                  |  | $                               | .08    
|Book value                               |  | $                               | 8.92   
|                                         |  |                                 |        
|Financial Data/Other                     |  |                                 |        
|Working capital                          |  | $                               | 81,565 
|Current ratio                            |  |                                 | 2.1    
|Total assets                             |  | $                               | 265,945
|Shareholders' equity                     |  | $                               | 141,151
|Return on average shareholders' equity   |  |                                 | 19.8   
|Long-term obligations                    |  | $                               | 39,485 
|Long-term obligations to capitalization  |  |                                 | 21.9   
|Number of employees                      |  |                                 | 3,385  
|                                         |  |                                 |        

REPORT OF INDEPENDENT ACCOUNTANTS

To the shareholders and board of directors of Merrill Corporation:

In
our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in shareholders' equity and cash flows present fairly, in
all material respects, the financial position of Merrill Corporation and Subsidiaries as of January 31, 1999 and 1998 and the results of their operations and their cash flows for each of the
three years in the period ended January 31, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Merrill Corporation's
management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

/s/PRICEWATERHOUSECOOPERS LLP

PRICEWATERHOUSECOOPERS LLP

March 29,
1999
Saint Paul, Minnesota



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MANAGEMENT'S DISCUSSION AND ANALYSIS

CONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF CASH FLOWSCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS