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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO____________
Commission File Number: 1-8328
Anacomp, Inc.
(Exact name of registrant as specified in its charter)
Indiana 35-1144230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15378 Avenue of Science, San Diego, California 92128-3407
(858) 716-3400
(Address, including zip code, and telephone number, including area code, of
principal executive offices)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
As of April 30, 2003, the number of outstanding shares of the registrant's
Class A common Stock, $.01 par value per share, was 4,034,500 and the number of
outstanding shares of the registrant's Class B common Stock, $0.01 par value per
share, was 4,034.
ANACOMP, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at
March 31, 2003 and September 30, 2002........................... 2
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2003 and 2002...................... 3
Condensed Consolidated Statements of Operations
Six Months Ended March 31, 2003 and 2002........................ 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 2003 and 2002........................ 5
Notes to the Condensed Consolidated Financial Statements............. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk............... 30
Item 4. Controls and Procedures.................................................. 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................ 31
Item 4. Submission of Matters to a Vote of Securities Holders.................... 31
Item 6. Exhibits and Reports on Form 8-K......................................... 31
SIGNATURES ......................................................................... 32
Exhibit 99.1 Certification of Chief Executive Officer................................. 33
Exhibit 99.2 Certification of Chief Financial Officer................................. 34
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Reorganized Company
________________________________________
(in thousands) March 31, September 30,
2003 2002
___________________ __________________
Assets (Unaudited)
Current assets:
Cash and cash equivalents........................................... $ 14,655 $ 15,561
Receivable on sale of Swiss subsidiaries - current portion.......... 1,277 ---
Accounts receivable, net............................................ 31,562 33,990
Inventories, net.................................................... 2,815 3,474
Prepaid expenses and other.......................................... 4,884 6,442
Assets of discontinued operations................................... --- 12,027
___________________ __________________
Total current assets.................................................... 55,193 71,494
Property and equipment, net............................................. 19,621 21,448
Reorganization value in excess of identifiable net assets............... 73,093 73,227
Intangible assets, net.................................................. 9,821 10,813
Receivable on sale of Swiss subsidiaries - long-term portion............ 1,248 ---
Other assets............................................................ 2,442 3,101
___________________ __________________
$ 161,418 $ 180,083
=================== ==================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of senior secured revolving credit facility......... $ 11,365 $ 29,975
Accounts payable.................................................... 6,909 9,797
Accrued compensation, benefits and withholdings..................... 14,182 16,294
Deferred revenue.................................................... 8,321 7,117
Accrued income taxes................................................ 1,461 1,264
Other accrued liabilities........................................... 8,284 9,305
Liabilities of discontinued operations.............................. --- 4,241
___________________ __________________
Total current liabilities............................................... 50,522 77,993
___________________ __________________
Long-term liabilities:
Unfunded accumulated benefit obligation............................. 6,233 6,233
Other long-term liabilities......................................... 4,108 4,023
___________________ __________________
Total long-term liabilities............................................. 10,341 10,256
___________________ __________________
Stockholders' equity:
Preferred stock..................................................... --- ---
Common stock........................................................ 40 40
Additional paid-in capital.......................................... 97,000 96,942
Accumulated other comprehensive loss................................ (2,542) (2,836)
Retained earnings (deficit)......................................... 6,057 (2,312)
___________________ __________________
Total stockholders' equity.............................................. 100,555 91,834
___________________ __________________
$ 161,418 $ 180,083
=================== ==================
See the Notes to the Condensed Consolidated Financial Statements
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Reorganized Company
________________________________________
(in thousands, except per share amounts) Three months ended Three months ended
March 31, 2003 March 31, 2002
__________________ ___________________
Revenues:
Services........................................................... $ 43,038 $ 48,717
Equipment and supply sales......................................... 9,743 11,890
__________________ ___________________
52,781 60,607
__________________ ___________________
Cost of revenues:
Services........................................................... 28,914 32,121
Equipment and supply sales......................................... 6,689 8,334
__________________ ___________________
35,603 40,455
__________________ ___________________
Gross profit........................................................... 17,178 20,152
Costs and expenses:
Engineering, research and development.............................. 1,581 1,604
Selling, general and administrative................................ 13,634 15,256
Amortization of intangible assets.................................. 496 496
__________________ ___________________
Operating income from continuing operations............................ 1,467 2,796
__________________ ___________________
Other income (expense):
Interest income.................................................... 78 71
Interest expense and fee amortization.............................. (631) (1,205)
Other.............................................................. 90 (124)
__________________ ___________________
(463) (1,258)
__________________ ___________________
Income from continuing operations before income taxes.................. 1,004 1,538
Provision for income taxes............................................. 547 1,253
__________________ ___________________
Income from continuing operations...................................... 457 285
Income from discontinued operations, net of taxes...................... --- 618
Loss on sale of discontinued operations, net of taxes.................. (200) ---
__________________ ___________________
Net income............................................................. $ 257 $ 903
================== ===================
Basic and diluted per share data:
Basic and diluted income from continuing operations................ $ 0.11 $ 0.07
Basic and diluted income from discontinued operations.............. 0.00 0.15
Loss on sale of discontinued operations............................ (0.05) 0.00
__________________ ___________________
Basic and diluted net income....................................... $ 0.06 $ 0.22
================== ===================
Shares used in computing basic and diluted net income per share........ 4,039 4,034
================== ===================
See the Notes to the Condensed Consolidated Financial Statements
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Predecessor
Reorganized Company Company
_____________________________________ ___________________
(in thousands, except per share amounts) Six months ended Three months ended Three months ended
March 31, 2003 March 31, 2002 December 31, 2001
_________________ __________________ ___________________
(Unaudited) (Unaudited)
Revenues:
Services............................................ $ 85,863 $ 48,717 $ 55,098
Equipment and supply sales.......................... 19,889 11,890 12,926
_________________ __________________ ___________________
105,752 60,607 68,024
Cost of revenues:
Services............................................ 57,908 32,121 36,630
Equipment and supply sales.......................... 13,280 8,334 9,874
_________________ __________________ ___________________
71,188 40,455 46,504
_________________ __________________ ___________________
Gross profit............................................ 34,564 20,152 21,520
Costs and expenses:
Engineering, research and development............... 3,433 1,604 1,680
Selling, general and administrative................. 27,630 15,256 15,643
Amortization of intangible assets................... 992 496 2,896
Restructuring credits............................... --- --- (1,032)
_________________ __________________ ___________________
Operating income from continuing operations............. 2,509 2,796 2,333
_________________ __________________ ___________________
Other income (expense):
Interest income..................................... 147 71 155
Interest expense and fee amortization............... (1,394) (1,205) (3,114)
Other............................................... 28 (124) 265,108
_________________ __________________ ___________________
(1,219) (1,258) 262,149
_________________ __________________ ___________________
Income from continuing operations before reorganization
items, and income taxes............................. 1,290 1,538 264,482
Reorganization items.................................... --- --- 13,328
_________________ __________________ ___________________
Income from continuing operations before income taxes... 1,290 1,538 277,810
Provision for income taxes.............................. 1,105 1,253 450
_________________ __________________ ___________________
Income from continuing operations....................... 185 285 277,360
Income from discontinued operations, net of taxes....... --- 618 ---
Gain on sale of discontinued operations, net of taxes... 8,184 --- ---
_________________ __________________ ___________________
Net income.............................................. $ 8,369 $ 903 $ 277,360
================= ================== ===================
Basic and diluted per share data:
Basic and diluted income from continuing operations. $ 0.05 $ 0.07
Basic and diluted income from discontinued
operations..................................... 0.00 0.15
Gain on sale of discontinued operations............. 2.03 0.00
_________________ __________________
Basic and diluted net income........................ $ 2.08 $ 0.22
================= ==================
Shares used in computing basic and diluted net income...
per share........................................... 4,039 4,034
================= ==================
See the Notes to the Condensed Consolidated Financial Statements
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Predecessor
Reorganized Company Company
(in thousands) _____________________________________ ___________________
Six months ended Three months ended Three months ended
March 31, 2003 March 31, 2002 December 31, 2001
_________________ __________________ ___________________
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income............................................ $ 8,369 $ 903 $ 277,360
Adjustments to reconcile net income to net
cash provided by operating activities:
Other income due to extinguishment of debt.......... --- --- (265,329)
Adjustments of assets and liabilities to fair value. --- --- (16,916)
Write off of deferred debt issuance costs and
unamortized premiums and discounts............... --- --- 2,216
Gain on sale of discontinued operations............. (8,184) --- ---
Income from discontinued operations................. --- (618) ---
Depreciation and amortization....................... 7,627 4,434 7,194
Non-cash settlement of facility lease contract...... --- --- 349
Amortization of debt fees, premiums, and discounts.. 344 172 92
Non-cash compensation............................... 58 --- ---
Change in assets and liabilities:
Accounts and other receivables.................... 2,428 (1,972) 3,092
Inventories....................................... 659 (246) 739
Prepaid expenses and other assets................. 1,791 1,583 332
Accounts payable, accrued expenses and other
liabilities.................................... (7,851) (622) (3,733)
Accrued interest.................................. --- 250 (387)
_________________ __________________ ___________________
Net cash provided by continuing operations....... 5,241 3,884 5,009
Net cash provided by discontinued operations..... --- 1,495 ---
_________________ __________________ ___________________
Net cash provided by operating activities........ 5,241 5,379 5,009
_________________ __________________ ___________________
Cash flows from investing activities:
Purchases of property and equipment................... (1,518) (1,110) (1,075)
Proceeds from sale of discontinued operations, net.... 13,398 --- ---
_________________ __________________ ___________________
Net cash provided by (used in) investing
activities................................... 11,880 (1,110) (1,075)
_________________ __________________ ___________________
Cash flows from financing activities:
Principal payments on revolving line of credit, net... (18,610) (11,700) (2,000)
_________________ __________________ ___________________
Net cash used in financing activities............ (18,610) (11,700) (2,000)
_________________ __________________ ___________________
Effect of exchange rate changes on cash and cash
equivalents........................................... 583 (84) 637
_________________ __________________ ___________________
(Decrease) increase in cash and cash equivalents.......... (906) (7,515) 2,571
Less increase in cash from discontinued operations........ --- (1,495) ---
_________________ __________________ ___________________
Cash and cash equivalents at beginning of period.......... 15,561 26,879 24,308
_________________ __________________ ___________________
Cash and cash equivalents at end of period................ $ 14,655 $ 17,869 $ 26,879
================= ================== ===================
See the Notes to the Condensed Consolidated Financial Statements
Supplemental Disclosures of Cash Flow Information: Predecessor
Reorganized Company Company
_____________________________________ __________________
(in thousands) Six months ended Three months ended Three months ended
March 31, 2003 March 31, 2002 December 31, 2001
_________________ __________________ __________________
(unaudited) (unaudited)
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest.......................... $ 1,010 $ 555 $ 1,434
================= ================== ==================
Cash paid for income taxes...................... $ 627 $ 607 $ 459
================= ================== ==================
See the Notes to the Condensed Consolidated Financial Statements
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Company Reorganization
On October 19, 2001, we filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code, together with a prepackaged plan of
reorganization, with the U.S. Bankruptcy Court for the Southern District of
California. The U.S. Bankruptcy Court confirmed the plan on December 10, 2001,
and we emerged from bankruptcy effective December 31, 2001.
The primary benefits of our bankruptcy were the elimination of $310 million of
senior subordinated notes, related accrued interest of $52.3 million, and the
related annual interest expense of approximately $34 million. Additionally, our
credit facility was amended such that we cured previous events of default and we
continue to have the ability to borrow under the credit facility (see Note 4).
New Common Stock was distributed to the holders of the notes as well as to
holders of the previously existing Common Stock.
Also, as a result of the Chapter 11 reorganization, the following occurred:
o all unexercised options were canceled;
o prior stock option plans were terminated;
o executory contracts were assumed or rejected;
o trade creditors were paid in the ordinary course of business and were
not impaired;
o members of a new Board of Directors were designated by the holders of
the subordinated notes;
o 403,403 shares of new Class A Common Stock were authorized for use in
the establishment of new stock option plans; and
o the senior secured revolving credit facility was amended.
The U.S. Bankruptcy Court issued its final decree on September 27, 2002 closing
the Chapter 11 case. There are no remaining claims or unrecorded obligations
related to the bankruptcy proceedings.
Note 2. Basis of Presentation
At December 31, 2001, as a result of our emergence from bankruptcy, we adopted
Fresh Start Reporting in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code."
Fresh Start Reporting resulted in material changes to the Consolidated Balance
Sheet as of December 31, 2001, including adjustment of assets and liabilities to
estimated fair values, the valuation of equity based on the reorganization value
of the ongoing business, and the recording of an asset for reorganization value
in excess of the fair value of the separately identifiable assets and
liabilities (similar to goodwill).
The accompanying financial statements include historical information from prior
to December 31, 2001, the effective date we emerged from bankruptcy, and are
identified as financial statements of the Predecessor Company. Due to our
reorganization and the implementation of Fresh Start Reporting (see Note 3), the
financial statements for the Reorganized Company are not comparable to those of
the Predecessor Company.
The accompanying consolidated financial statements include the accounts of
Anacomp and our wholly-owned subsidiaries.
We account for our employee stock option plans in accordance with APB Opinion
No. 25, under which compensation expense is recognized only to the extent the
exercise price of the option is less than the fair market value of a share of
stock at the date of grant (the intrinsic value method). Accordingly, we have
adopted the disclosure only requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation" and SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." Had employee compensation costs for
these plans been determined based on their fair value on their grant date in
accordance with SFAS No. 123, our net results would have been as follows (in
thousands, except per-share amounts):
For the three months ended March 31: Reorganized Company
__________________________________
2003 2002
_________________ _____________
Net income as reported............................................. $ 257 $ 903
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects................ --- ---
Deduct: Total stock-based employee compensation expense determined
under fair value method for all awards granted since December
31, 2001, net of related tax effects .......................... (159) ---
_________________ _____________
Pro forma net income............................................... $ 98 $ 903
================= =============
Basic and diluted net income per share:
As reported.................................................. $ 0.06 $ 0.22
Pro forma.................................................... $ 0.02 $ 0.22
Predecessor
Reorganized Company Company
_____________________________________ ___________________
Six months ended Three months ended Three months ended
March 31, 2003 March 31, 2002 December 31, 2001
________________ __________________ ___________________
Net income as reported.......................... $ 8,369 $ 903 $ 277,360
Add: Stock-based employee compensation expense
included in reported net income, net of
related tax effects......................... --- --- ---
Deduct: Total stock-based employee compensation
expense determined under fair value method
for all awards granted since December 31,
2001, net of related tax effects ........... (321) --- ---
________________ __________________ ___________________
Pro forma net income............................ $ 8,048 $ 903 $ 277,360
================ ================== ===================
Basic and diluted net income per share:
As reported............................... $ 2.08 $ 0.22
Pro forma................................. $ 1.99 $ 0.22
All significant intercompany accounts and transactions have been eliminated in
consolidation. The financial statements, except for the balance sheet as of
September 30, 2002 and the statements of operations and cash flows for the three
months ended December 31, 2001, have not been audited, but in the opinion of
management, include all adjustments (consisting of normal recurring adjustments,
the Fresh Start adjustments described in Note 3 and the sale of Switzerland
adjustments described in Note 5) necessary for a fair presentation of our
financial position, results of operations and cash flows for all periods
presented. These financial statements should be read in conjunction with the
financial statements and notes thereto for the year ended September 30, 2002,
included in our fiscal 2002 Annual Report on Form 10-K. Interim operating
results are not necessarily indicative of operating results for the full year or
for any other period.
Preparation of the accompanying condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the periods presented. Estimates have been prepared
on the basis of the most current available information and actual results could
differ from those estimates.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
Note 3. Fresh Start Reporting
Our enterprise value after reorganization at December 31, 2001 was determined
based on the consideration of many factors and resulted in a reorganization
value (over the fair value of identifiable net assets) of $73.1 million, as
adjusted, and is reported as "Reorganization value in excess of identifiable net
assets". Although the asset will not be subject to future amortization (in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets"), it will be subject to, at a minimum,
annual impairment testing.
In developing the assumptions underlying the enterprise valuation, management
considered historical results as well as its best estimates of expected future
market conditions based on information available as of December 31, 2001. Actual
future events and results could differ substantially from management's
estimates, assumptions and projections. Unfavorable changes compared to our
projections used for Fresh Start Reporting purposes could result in future
impairments of our reorganization asset and identifiable intangible assets.
As a result of Fresh Start Reporting, identifiable intangible assets were valued
and consist of the following to be amortized over the useful lives indicated:
(dollars in thousands) Life in Years March 31, 2003
_______________________________________________________________________ _____________ ______________
Customer contracts and related customer relationships.................. 10 $ 7,600
Digital technology and intellectual property........................... 3 3,100
COM technology and intellectual property............................... 10 1,300
COM production software................................................ 5 300
______________
Total.................................................................. 12,300
Less: accumulated amortization......................................... 2,479
______________
$ 9,821
==============
The income due to extinguishment of debt, net of taxes, for the period ended
December 31, 2001, is calculated as follows:
(in thousands) Amount
_________________________________________________________ _______________
Carrying value of senior subordinated notes.............. $ 310,000
Carrying value of related accrued interest............... 52,254
Issuance of new common stock............................. (96,925)
_______________
Other income due to extinguishment of debt $ 265,329
===============
The holders of the senior subordinated notes received 99.9% of the new equity of
the Reorganized Company; therefore, the net equity of the Reorganized Company
was used as the basis for consideration exchanged in determining the income due
to extinguishment of debt. There is no income statement tax effect from the
extinguishment of debt (see Note 6).
In accordance with Statement of Position 90-7, transactions of the Predecessor
Company resulting from the Chapter 11 reorganization are reported separately as
reorganization items in the accompanying Condensed Consolidated Statement of
Operations for the period ended December 31, 2001, and are summarized below:
Three Months Ended
(in thousands) December 31, 2001
________________________________________________________ __________________
Adjustment of assets and liabilities to fair value...... $ 16,916
Write off of deferred debt issuance costs and
unamortized premiums and discounts................. (2,216)
Professional fees and other reorganization costs........ (1,023)
Settlement of facility lease contract................... (349)
__________________
Reorganization items $ 13,328
==================
Note 4. Senior Secured Revolving Credit Facility
On December 31, 2001, Anacomp and Fleet National Bank, as agent, and its
syndicate of lenders (collectively, "the Bank Group") entered into an Amended
and Restated Revolving Credit Agreement. The credit agreement provides for a
commitment of $28.0 million as of March 31, 2003, with a $21.7 million direct
borrowing sublimit and a $6.3 million letter of credit sublimit. The credit
commitment will be further reduced by future periodic scheduled amounts and by
85% of the remaining proceeds from the sale of the Switzerland subsidiaries. The
facility is available for new borrowings when borrowings are below the direct
borrowing sublimit.
Effective December 19, 2002, we signed an amendment to the revolving credit
agreement. The amendment modifies certain financial covenants to accommodate the
sale of our Switzerland operations and current business plans. Other changes to
the agreement included a permanent reduction to the credit facility commitment
of $10.0 million, a decrease in future quarterly commitment reductions, and
provisions for acquisitions and/or divestitures under specified conditions.
At March 31, 2003, the outstanding revolving credit borrowings were $11.4
million (plus outstanding standby letters of credit of $6.2 million). During the
six month period ended March 31, 2003, we made net cash payments totaling $12.8
million and have $10.4 million of borrowing capacity, after the effect of other
commitment reductions during the quarter.
The original maturity date of the amended facility was June 30, 2003, and it has
been extended to December 31, 2003 due to our receipt of proceeds from the sale
of the Switzerland subsidiaries. We have permanently reduced the borrowing
sublimit of the credit facility commitment and have reduced the outstanding
borrowings by $10.0 million. The credit facility commitment was also permanently
reduced by $0.8 million upon the initial receipt of proceeds from the sale of
our Switzerland operations and subsidiaries in October 2002.
The credit agreement bears interest at a base rate equal to the higher of (a)
the annual rate of interest announced from time to time by Fleet National Bank
as its best rate, or (b) one-half of one percent above the Federal Funds
Effective Rate, for the portion of the facility equal to a Formula Borrowing
Base ("FBB"). The FBB equals 80% of eligible accounts, which include U.S. and
Canadian accounts receivable. The rate of interest is three percentage points
higher than the base rate for the facility balance outstanding in excess of the
FBB. Interest is due and payable monthly in arrears. The interest rate was 4.25%
for the FBB portion and 7.25% for the excess portion at March 31, 2003. At March
31, 2003, the FBB was $13.5 million; accordingly, there were no excess
borrowings over the FBB.
The credit facility is secured by virtually all Anacomp assets and 65% of the
capital stock of our foreign subsidiaries. The facility contains covenants
relating to limitations on the following:
o capital expenditures;
o additional debt;
o open market purchases of our common stock;
o mergers and acquisitions; and
o liens and dividends.
The credit facility also is subject to minimum EBITDA, interest coverage and
leverage ratio covenants. In addition, we are required to remit to the Bank
Group the net proceeds of any capital asset sale.
Under the current facility as amended, the facility commitment and the direct
borrowings sublimit will be permanently reduced in the future as follows:
o $1.25 million on June 30, 2003;
o $1.25 million on September 30, 2003.
Note 5. Sale of Switzerland and Other Operations
We completed a sale of our Switzerland subsidiaries and operations on October
18, 2002. The acquiring company assumed operational responsibility effective
October 1, 2002.
Under the terms of the sale agreement, we sold all of the outstanding shares of
our two Swiss subsidiaries, Cominformatic AG and Anacomp Technical Services AG,
to edotech Ltd. (a UK company) at a sales price of CHF 26.7 million (Swiss
francs). As a result of a tax audit of the Switzerland operations for prior year
results, we estimate we will incur additional costs not to exceed CHF 0.3
million, or approximately $0.2 million. This will decrease the amount we will
receive on or before April 18, 2004.
The sales price is payable as follows: CHF 4.6 million, or approximately $3.1
million, which was received at closing; CHF 18.2 million, or approximately $11.8
million, which was received on March 10, 2003; CHF 1.1 million is due on or
before April 18, 2003; and CHF 2.8 million is due on or before April 18, 2004
upon expiration of certain indemnification claim periods. The costs of the sale
are estimated to be $2.1 million. Effectively all of the net proceeds (i.e.
sales price less sale costs) will be used to reduce the revolving credit
facility balance outstanding and 85% of such proceeds will permanently reduce
the total borrowing commitment under the terms of the senior secured revolving
credit facility.
The assets and liabilities of the Swiss operations have been classified
separately as "Assets of discontinued operations" and "Liabilities of
discontinued operations" in the Condensed Consolidated Balance Sheet as of
September 30, 2002. The net assets of the disposed operating units are
summarized as follows:
September 30,
(in thousands) 2002
___________________________________________ ______________
Cash....................................... $ 2,749
Accounts and notes receivable.............. 2,288
Inventories................................ 1,067
Property, plant and equipment.............. 5,227
Other assets............................... 696
Accounts payable and other accrued
Liabilities........................... (4,241)
_______________
Total net assets $ 7,786
===============
In the third quarter of fiscal 2002, we sold two smaller operating units. The
results of the Switzerland and other sold operations reported below for the
three months ended December 31, 2001 have not been segregated as discontinued
operations in the Condensed Consolidated Statements of Operations as they were
not material to the operating results of Anacomp in total.
Swiss Operating Results
Three Months Ended
(in thousands) December 31, 2001
________________________
Revenues $ 7,505
Income before taxes 869
Income taxes (60)
________________________
Net income $ 809
========================
Note 6. Income Taxes
Our provision for income taxes consists of the following:
Predecessor
Reorganized Company Company
____________________________________ ___________________
Six months ended Three months ended Three months ended
March 31, 2003 March 31, 2002 December 31, 2001
(in thousands) ________________ __________________ ___________________
Federal.......................................... $ --- $ 788 $ ---
State............................................ 20 112 10
Foreign.......................................... 1,085 353 440
________________ __________________ ___________________
$ 1,105 $ 1,253 $ 450
================ ================== ===================
Due to our reorganization, we have Cancellation of Debt ("COD") income estimated
to be $265.3 million. As a result, we were required to reduce, for federal
income tax purposes, certain tax attributes, including net operating loss
carryforwards and property basis by the amount of the COD. These adjustments
were determined at the end of our fiscal year ending September 30, 2002. A
deferred tax liability has been recorded for COD, book intangible assets and
certain temporary differences. A deferred tax asset has been recorded for tax
goodwill in excess of book reorganization asset, certain temporary differences,
net operating losses and other tax basis carryforwards. We have recorded a
valuation allowance in the amount of $41 million in order to fully offset the
net deferred tax asset.
Valuation allowances are established to reduce deferred tax assets to the amount
expected to be realized in future years. Management periodically reviews the
need for valuation allowances based upon our results of operations.
Note 7. Restructuring Activities
In fiscal year 2002, we recorded a restructuring charge of $2.1 million related
to the reorganization of our operations from two business units to one. We
reorganized our workforce by combining the field organizations of Document
Solutions and Technical Services into one organization, establishing an
executive level position to oversee all sales and marketing activities and
implementing a single support group for our data centers, Web Presentment
operations, field services operations and process quality. The restructuring
charges included $1.6 million in employee severance and termination-related
costs for approximately 100 employees, all of whom have left the company.
Substantially all of the severance payments have been completed. The
restructuring charges also include approximately $0.4 million for the closure of
a data center for which payments will continue until the lease expires in July
2004. Of the $0.4 million, $69 thousand represents a non-cash charge to write
off the net book value of leasehold improvements located in the closed data
center.
In the second and third quarters of 2000, we effected a reorganization of our
workforce in the United States and Europe along our lines of business,
reorganized parts of our corporate staff and phased out our manufacturing
operations. To accomplish the reorganization of our workforce and corporate
staff, we reassessed job responsibilities and personnel requirements in each of
our continuing business units and corporate staff. The assessment resulted in
substantial permanent personnel reductions and involuntary terminations
throughout our organization, primarily in our European operations and our
corporate and manufacturing staff. We recorded restructuring charges of $14.6
million related to these actions. Employee severance and termination-related
costs were for approximately 300 employees, all of whom have left the company;
we have paid all related severance. Other fees relate to professional fees
associated with negotiations to terminate facility leases and other costs
associated with implementation of our new business unit structure and the
reorganization of our business units into separate entities. In the first
quarter of fiscal year 2002, we vacated our Japanese facility, terminated
substantially all related personnel and undertook other procedures to wind down
our Japanese subsidiary. As a result, we reversed approximately $1 million of
fiscal 2000 business restructuring reserves due to favorable circumstances
related to the shutdown. Our closure costs to vacate the facility in Japan,
costs to fulfill our contract obligations and severance and related professional
costs up to that time were less than we anticipated at the time we recorded the
accrual. As of March 31, 2003, the remaining liability of $0.2 million related
to international facility costs is expected to be paid by the end of December
2003.
The restructuring reserves are included as a component of "Other accrued
liabilities" in the accompanying Condensed Consolidated Balance Sheets.
The following tables present the activity and balances of the restructuring
reserves from September 30, 2002 to March 31, 2003 (in thousands):
Fiscal Year 2002 Restructuring
__________________________________________________________________________________________
Payments and
September 30, 2002 Deductions March 31, 2003
_______________________________ __________________ __________________ ________________
Employee Separations $ 233 $ (216) $ 17
Facility Closing 325 (86) 239
__________________ __________________ ________________
$ 558 $ (302) $ 256
================== ================== ================
Fiscal Year 2000 Restructuring
__________________________________________________________________________________________
Payments and
September 30, 2002 Deductions March 31, 2003
_______________________________ __________________ __________________ ________________
Facility Closing $ 77 $ (35) $ 42
Contract Obligations 126 --- 126
__________________ __________________ ________________
$ 203 $ (35) $ 168
================== ================== ================
Note 8. Inventories
Inventories consist of the following:
Reorganized Company
_______________________________________
(in thousands) March 31, 2003 September 30, 2002
__________________ __________________
Finished goods, including purchased film.................. $ 1,296 $ 1,766
Consumable spare parts and supplies....................... 1,519 1,708
__________________ __________________
$ 2,815 $ 3,474
================== ==================
Note 9. Defined Benefit Plan
We have a retirement plan in place for our United Kingdom subsidiary that
qualifies as a defined benefit plan. The plan provides benefits based primarily
on years of service and employee compensation levels. The plan covers
approximately 619 participants, including 89 current employees, 484 former
employees with vested rights to future benefits, and 46 retirees and
beneficiaries receiving benefits. Funding policy for the plans is to contribute
amounts sufficient to meet minimum funding requirements as set forth in employee
benefit and tax laws plus additional amounts as we may determine to be
appropriate.
As of September 30, 2002, the UK pension plan was under funded by $6.2 million
(using September 30, 2002 currency exchange rates) based upon a projected
benefit obligation of $21.5 million, accumulated benefit obligation of $19.3
million, and the fair value of plan assets totaling $13.1 million. The under
funded liability of $6.2 million is classified as a long-term liability on the
Condensed Consolidated Balance Sheet. These actuarial projections were prepared
assuming a discount rate of 6.25%, a weighted average expected long-term rate of
return on plan assets of 7.5% per year and weighted average annual compensation
increases of 4%.
Almost all of the plan participants are inactive. As a result, we are amortizing
the unfunded liability over the 25-year remaining life expectancy of the
inactive participants as required by Financial Accounting Standard (FAS) No. 87,
"Employers Accounting for Pensions." In the six months ended March 31, 2003,
amortization of unfunded accumulated benefit obligation expense was $96 thousand
and is reflected in "Selling, general and administrative" expense in the
Condensed Consolidated Statement of Operations and as amortization in the
Comprehensive Income table in Note 11 as prescribed by FAS No. 87.
Note 10. Foreign Currency Contracts
On October 15, 2002, we entered into three Swiss Franc (CHF) forward contracts
to protect the value of the expected cash receipts from the sale of our
Switzerland operations. The contracts protect Anacomp against an exchange rate
above 1.5425. The first forward contract was written in the amount of CHF 18.2
million and expired on January 29, 2003. At expiration, the forward option was
replaced with another short-term option for the same amount, which provided
$11.8 million in U.S. dollar proceeds on March 10, 2003.
The second forward contract was written in the amount of CHF 2.1 million and
expired on April 15, 2003. CHF 1.0 million of the contract expired unused and
the remaining CHF 1.1 million was converted at 1.5425, yielding $0.7 million.
The third forward contract was written in the amount of CHF 1.8 million and
expires on April 15, 2004. We receive full exchange benefits for a lower rate on
50% of the contract and the remaining 50% will be converted at 1.5425. The
minimum U.S. dollar proceeds received would be $1.2 million if the buyer
releases all funds.
The Other Expense category of our Condensed Consolidated Statement of Operations
for the six months ended March 31, 2003 includes the recognition of $7 thousand
of income from currency fluctuations related to the Swiss receivable, the
forward contracts and sale costs.
Note 11. Comprehensive income
Comprehensive income consists of the following components:
Predecessor
Reorganized Company Company
_____________________________________ __________________
Six months ended Three months ended Three months ended
March 31, 2003 March 31, 2002 December 31, 2001
________________ __________________ __________________
Net income................................... $ 8,369 $ 903 $ 277,360
Change in foreign currency translation....... 198 (84) 639
Amortization of unfunded accumulated
benefit obligation........................ 96 --- ---
________________ __________________ __________________
Comprehensive income......................... $ 8,663 $ 819 $ 277,999
================ ================== ==================
Note 12. Income or Loss Per Share
Basic income or loss per share is computed based upon the weighted average
number of shares of Anacomp's common stock outstanding during the period. For
the six months ended March 31, 2003, potentially dilutive securities included
783,077 outstanding warrants to purchase Class B Common Stock, which were issued
as part of the reorganization. These warrants were excluded from the computation
of diluted income per share as they were anti-dilutive using the treasury stock
method. Basic and diluted net income amounts for the three months ended December
31, 2001 have not been presented as they are not comparable to subsequent
periods due to the implementation of Fresh Start Reporting (see Note 3).
Note 13. Recent Accounting Pronouncements
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure", which amends SFAS No. 123 and provides
alternative methods of transition for companies who elect to adopt the fair
value method of accounting for stock-based employee compensation. SFAS No. 148
also modifies the disclosure requirements for such compensation. Anacomp has not
elected to adopt the fair value method; we instead account for our employee
stock option plans using the intrinsic value method in accordance with APB
Opinion No. 25, under which compensation expense is recognized only to the
extent the exercise price of the option is less than the fair market value of a
share of stock at the date of grant. However, we are subject to the disclosure
requirements of SFAS Nos. 123 and 148. Accordingly, we have expanded our
stock-based compensation disclosures (see Note 2).
On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." The principal difference between Statement 146 and Issue
94-3 relates to Statement 146's requirements for recognition of a liability for
a cost associated with an exit or disposal activity. Statement 146 requires that
a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under Issue 94-3, a liability for an
exit cost as generally defined in Issue 94-3 was recognized at the date of an
entity's commitment to an exit plan. A fundamental conclusion reached by the
FASB in this Statement is that an entity's commitment to a plan, by itself, does
not create an obligation that meets the definition of a liability. Therefore,
this Statement eliminates the definition and requirements for recognition of
exit costs in Issue 94-3.
This Statement also establishes that fair value is the objective for initial
measurement of the liability. Severance pay under Statement 146, in many cases,
would be recognized over time rather than up front. The FASB decided that if the
benefit arrangement requires employees to render future service beyond a
"minimum retention period" a liability should be recognized as employees render
service over the future service period even if the benefit formula used to
calculate an employee's termination benefit is based on length of service. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002, with early application encouraged. We
anticipate adopting SFAS No. 146 in the second quarter of fiscal year 2003 and
do not expect it to have a material impact on our financial position or results
of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS No. 4, 44, and
64, Amendment of FASB SFAS No. 13, and Technical Corrections." Part of this
statement rescinds FASB SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt". As a result, gains and losses from extinguishments of
debt should be classified as extraordinary items only if they meet the criteria
of Accounting Principles Board Opinion No. 30. The provision of the Statement
related to the rescission of SFAS 4 shall be applied in fiscal years beginning
after May 15, 2002. Any gain or loss on extinguishment of debt that was
classified as an extraordinary item in prior periods presented that does not
meet the criteria in Opinion 30 for classification as an extraordinary item
shall be reclassified. As a result, we have reclassified the previously reported
$265.3 million extraordinary gain on extinguishments of debt to Other, under the
Other income (expense) heading in the Condensed Consolidated Statement of
Operations for the three months ended December 31, 2001.
Pursuant to Statement of Position 90-7, Anacomp has implemented the provisions
of accounting principles required to be adopted within twelve months of the
adoption of Fresh Start Reporting as of December 31, 2001, including the
following standards:
In June 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. The Company adopted SFAS No. 142 beginning January 1, 2002
upon application of Fresh Start Reporting (See Note 3). As a result of the
implementation of Fresh Start Reporting, all goodwill on the books at December
31, 2001 was eliminated. Under SFAS No. 142, purchased goodwill and intangible
assets with indefinite lives are no longer amortized, but instead are tested for
impairment at least annually. Accordingly, the Company does not amortize
goodwill and intangible assets with indefinite lives as of January 1, 2002.
Intangible assets with finite lives, primarily customer contracts, customer
relationships and proprietary technology will be amortized over their useful
lives.
The following table reconciles our net income to net income adjusted for the
amortization of intangible assets and goodwill. Due to our net loss tax position
in prior years, no tax benefit was realized from this expense.
Predecessor
Reorganized Company Company
______________________________________ __________________
Six months ended Three months ended Three months ended
(in thousands) March 31, 2003 March 31, 2002 December 31, 2001
_____________________________________________ _________________ __________________ __________________
Net income as reported....................... $ 8,369 $ 903 $ 277,360
Goodwill amortization........................ --- --- 2,629
_________________ __________________ __________________
Net income excluding effect of goodwill
amortization................................. $ 8,369 $ 903 $ 279,989
================= ================== ==================
We completed our annual goodwill impairment test as of September 30, 2002 and
found there to be no indicators of impairment.
On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets, and which
supercedes SFAS No. 121. SFAS No. 144 also reduces the threshold for
discontinued operations reporting to a component of an entity rather than a
segment of a business as required under Accounting Principles Bulletin No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." As a result of the changes whereby a component of an
entity can qualify for discontinued operations presentation, the sale of our
Switzerland subsidiary, effective October 1, 2002 (see Note 5) required such
presentation whereas under APB 30 it would not have qualified. We have not
separately disclosed the results of operations of our Switzerland subsidiaries
in the Statement of Operations for the three months ended December 31, 2001, as
required by SFAS No. 144 as the related amounts were not material.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report, including the following section regarding "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
contains "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions or variations
of such words are intended to identify forward-looking statements, but are not
the exclusive means of identifying forward-looking statements in this Quarterly
Report. Additionally, statements concerning future matters such as our future
plans and operations, projections used for valuation purposes, sales levels,
consolidation and restructuring plans, liquidity needs, expectations of business
trends and other statements regarding matters that are not historical are
forward-looking statements.
Although forward-looking statements in this Quarterly Report reflect the good
faith estimates and judgment of our management, such statements can only be
based on facts and factors of which we are currently aware. Consequently,
forward-looking statements are inherently subject to risks and uncertainties.
Our actual results, performance, and achievements may differ materially from
those discussed in or anticipated by the forward-looking statements. Factors
that could cause or contribute to such differences in results and outcomes
include without limitation those discussed under the heading "Risk Factors"
below, as well as those discussed elsewhere in this Quarterly Report. We
encourage you to not place undue reliance on these forward-looking statements,
which speak only as of the date of this Quarterly Report. We undertake no
obligation to revise or update any forward-looking statements in order to
reflect any event or circumstance that may arise after the date of this
Quarterly Report. We encourage you to carefully review and consider the various
disclosures made in this Quarterly Report, which attempt to advise interested
parties of the risks and factors that may affect our business, financial
condition, results of operations and prospects. Forward-looking statements
involve known and unknown risks, uncertainties and other important factors that
could cause our actual results, performance or achievements, or industry
results, to differ materially from any future results, performance or
achievements expressed or implied by forward-looking statements. Risks,
uncertainties and other important factors include, among others:
o general economic and business conditions;
o industry trends and growth rates;
o industry capacity;
o competition;
o future technology;
o raw materials costs and availability;
o currency fluctuations;
o the loss of any significant customers or suppliers;
o changes in business strategy or development plans;
o litigation issues;
o successful development of new products and services;
o anticipated financial performance and contributions of our products
and services;
o availability, terms and deployment of capital;
o ability to meet debt service obligations;
o availability of qualified personnel;
o changes in, or the failure or inability to comply with, government
regulations; and
o other factors referenced in this report and in other public filings
including our Form 10-K for the year ended September 30, 2002.
Overview and Recent Events
Our 2001 Bankruptcy
On October 19, 2001, we filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code, together with a prepackaged plan of
reorganization with the U.S. Bankruptcy Court for the Southern District of
California. Under the plan we eliminated $310 million of senior subordinated
notes, related accrued interest of $52.3 million and the related annual interest
expense of $34 million. New Common Stock was distributed to the holders of the
notes as well as to holders of the previously existing Common Stock. The U.S.
Bankruptcy Court confirmed the plan of reorganization on December 10, 2001, and
we emerged from bankruptcy effective December 31, 2001. The U.S. Bankruptcy
Court issued its final decree on September 27, 2002 closing the Chapter 11 case.
There are no remaining claims or unrecorded obligations related to the
bankruptcy proceedings.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and our results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to bad debts, inventories, intangible assets, income taxes,
restructuring and contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Our critical accounting policies are as follows:
o revenue recognition;
o estimating valuation allowances and accrued liabilities, including the
allowance for doubtful accounts, inventory valuation and assessments
of the probability of the outcomes of our current litigation and
environmental matters;
o accounting for income taxes; and
o valuation of long-lived, intangible and reorganization assets.
Revenue Recognition. We recognize contract revenue for the development and
implementation of document services solutions under contracts over the contract
period based on output measures as defined by deliverable items identified in
the contract. We make provisions for estimated losses on contracts, if any,
during the period when the loss becomes probable and can be reasonably
estimated.
We record revenues from sales of products and services or from leases of
equipment under sales-type leases based on shipment of products (and transfer of
risk of loss), commencement of the lease, or performance of services. We
recognize operating lease revenues during the applicable period of customer
usage. We recognize revenue from maintenance contracts ratably over the period
of the related contract. Amounts billed in advance of our performing the related
services are deferred and recognized as revenues as they are earned. Under
sales-type leases, we record as revenue the present value of all payments due
under the lease, charge the cost of sales with the book value of the equipment
plus installation costs, and defer and recognize future interest income over the
lease term.
In accordance with SOP 97-2, "Software Revenue Recognition," we recognize
revenues from software license agreements provided that all of the following
conditions are met:
o a non-cancelable license agreement has been signed;
o the software has been delivered and there are no material
uncertainties regarding customer acceptance;
o fees are fixed or determinable;
o collection of the resulting receivable is deemed probable and the risk
of concession is deemed remote; and
o we have no other significant obligations.
For contracts with multiple obligations, we unbundle the respective components
to determine revenue recognition using vendor-specific objective evidence
(VSOE). In instances where VSOE is not determinable, all of the related revenue
is deferred and amortized over the contract period.
Allowance for doubtful accounts, inventory valuations, litigation and
environmental matters. We must make estimates of the uncollectability of our
accounts receivable. When evaluating the adequacy of the allowance for doubtful
accounts, we specifically analyze accounts receivable as well as historical bad
debts, customer concentrations, customer credit-worthiness, current economic
trends and changes in our customer payment terms. Our accounts receivable
balance was $31.6 million, net of allowance for doubtful accounts of $1.8
million, as of March 31, 2003.
We write down our inventory for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions. If
actual market conditions are less favorable than management projects, we may
need to write down additional inventory.
We estimate ranges of liability related to pending litigation based on claims
for which we can determine the probability of loss and estimate the amount or
range of loss. When an estimate of loss is deemed probable we record our best
estimate of the expected loss or the minimum estimated liability related to
those claims, where there is an estimable range of loss. Because of the
uncertainties related to both the outcomes and ranges of loss on currently
pending litigation, we have not accrued for any litigation losses as of March
31, 2003. As additional information becomes available, we will assess the
potential liability related to our pending litigation and revise our estimates
as necessary. Such revisions in our estimates of potential liability could
materially impact our results of operations and financial position.
Xidex Corporation, a company that we acquired in 1988, was designated by the
United States Environmental Protection Agency ("EPA") as a potentially
responsible party for investigatory and cleanup costs incurred by state and
federal authorities involving locations included on a list of EPA's priority
sites for investigation and remedial action under the federal Comprehensive
Environmental Response, Compensation, and Liability Act. At March 31, 2003, we
have an estimated EPA liability for cleanup costs for the aforementioned
locations and other sites totaling $1.2 million. Remedial action required by the
EPA may exceed our current estimates and reserves and we may incur additional
expenses related to environmental clean up.
Accounting for income taxes. As part of the process of preparing our
consolidated financial statements we are required to estimate our income taxes
in each of the jurisdictions in which we operate. This process involves
estimating our actual current tax liability together with assessing temporary
differences resulting from differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which
are included within our Consolidated Balance Sheet. We must then assess the
likelihood that our deferred tax assets will be recovered from future taxable
income and, to the extent we believe that recovery is not likely, we must
establish a valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must include an expense
within the tax provision in the statement of operations.
Significant management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. The net deferred tax
asset as of March 31, 2003 was $0, net of a valuation allowance of approximately
$41 million, due to uncertainties related to our ability to utilize our net
deferred tax assets before they expire. The valuation allowance is based on our
estimates of taxable income by jurisdiction in which we operate and the period
over which our deferred tax assets will be recoverable. In the event that actual
results differ from these estimates or we adjust these estimates in future
periods we could materially impact our financial position and results of
operations.
The tax benefits of pre-reorganization net deferred tax assets will be reported
first as a reduction of the reorganization asset and then as a reduction to
non-current intangible assets arising from the reorganization, and finally as a
credit to stockholders' equity. These tax benefits will not reduce future income
tax expense for financial reporting purposes.
Valuation of long-lived, intangible and reorganization assets. We assess the
impairment of identifiable intangibles, long-lived assets and reorganization
value in excess of identifiable assets annually or whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors
we consider important which could trigger an impairment review include the
following:
o significant underperformance relative to historical trends or
projected future operating results;
o significant changes in the manner of our use of our assets or the
strategy for our overall business, including potential asset
dispositions;
o significant negative industry or economic trends;
o significant decline in our stock price for a sustained period; and
o our market capitalization relative to net book value.
If we determine that the carrying value of intangibles, long-lived assets and
reorganization value in excess of identifiable net assets may not be recoverable
based upon the existence of one or more of the above indicators of impairment,
we measure any impairment based on a projected discounted cash flow method using
a discount rate determined by our management to be commensurate with the risk
inherent in our current business model. Net intangible assets, long-lived
assets, and reorganization value in excess of identifiable assets amounted to
$106.2 million as of March 31, 2003.
Our enterprise value of $150 million before consideration of debt after
reorganization at December 31, 2001 was determined based on the consideration of
many factors and various valuation methods, including:
o discounted cash flow analysis;
o selected publicly-traded company market multiples;
o selected acquisition transaction multiples; and
o applicable ratios and valuation techniques believed by management to
be representative of our business and industry.
The cash flows valuation utilized five year projections assuming a weighted
average cost of capital rate of approximately 13.5%. A terminal value was
determined using a multiple of our estimated fifth year earnings before
interest, other income, reorganization items, asset impairment and restructuring
charges, taxes, depreciation and amortization, and extraordinary items (EBITDA),
together with the net present value of the five year projected cash flows. The
excess of the reorganization value over the fair value of identifiable net
assets of $73.1 million is reported as "Reorganization value in excess of
identifiable net assets" and will not be subject to future amortization (similar
to goodwill) in accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets" as issued by the
Financial Accounting Standards Board ("FASB"). The asset is subject to reduction
for current income tax expense that utilizes pre-reorganization generated
deferred tax assets. The utilization of these deferred tax assets are reflected
as a reduction of the "Reorganization value in excess of identifiable net
assets" value.
For enterprise valuation purposes, we estimated our revenues and cash flows
through fiscal year 2006. We projected continued declines in COM and COM-related
revenues at a rate of approximately 20% annually and growth in digital and
Multi-Vendor Services and product offerings. Our projections also assumed the
following:
o the elimination of our subordinated notes and related interest;
o our continuing cost reduction through consolidation of facilities and
adjustments to our labor force to maintain COM gross margin levels;
o our recent cost reduction activities and restructurings; and
o the completion of our bankruptcy and related legal and professional
costs.
The assigned fair values of the Reorganized Company and its assets and
liabilities represent significant estimates that we made based on facts and
circumstances currently available. Valuation methodologies employed in
estimating fair values also require the input of highly subjective assumptions
and predictions of future events and operations. Actual future events and
results could differ substantially from management's current estimates and
assumptions. Unfavorable changes compared to our projections used for Fresh
Start Reporting purposes (which were based on our best estimates and information
available at that time) could result in future impairments of our reorganization
asset and identifiable intangible assets, which could be material.
Results of Operations
The following results of operations information includes our historical
information from prior to December 31, 2001, the effective date we emerged from
bankruptcy, and is identified as results of operations of Predecessor Company.
The results of operations for the three and six month periods ended March 31,
2003, and the three month period ended March 31, 2002, represent the Reorganized
Company after adopting Fresh Start Reporting. Due to our reorganization and the
implementation of Fresh Start Reporting, the financial information for the
Reorganized Company is not comparable to the Predecessor Company. In addition,
in the first quarter of fiscal year 2003 we completed the sale of our
Switzerland operations and in the third quarter of fiscal year 2002 we sold two
smaller operating units. These units were not material to our consolidated
results and are, therefore, not reported as discontinued operations in our
statement of operations for the first quarter of fiscal year 2002.
We are developing plans to further consolidate our data centers and reorganize
parts of our corporate, marketing, sales and international operating
organizations. This process will include the closure of some data centers and
the downsizing of other centers. The process will also include an assessment of
job responsibilities and personnel requirements in our corporate, marketing,
sales and international operating organizations. It is expected that we will
record restructuring related charges in both the third and fourth quarters of
fiscal year 2003.
To facilitate a meaningful comparison of Anacomp's quarterly and year-to-date
operating performance in fiscal years 2003 and 2002, the following discussion of
results of operations on a consolidated basis is presented on a traditional
comparative basis for all periods. However, the pro forma results of operations
presented below for the six month period ended March 31, 2002 combines the
three month period ended March 31, 2002 on a Reorganized Company basis with the
three month period ended December 31, 2001 on a Predecessor Company basis. These
periods and bases of accounting are not comparable and we have presented them
separately in the accompanying Condensed Consolidated Statements of Operations.
CONSOLIDATED RESULTS OF OPERATIONS Three Months Ended March 31, Six Months Ended March 31,
_____________________________ _____________________________
2003 2002 2003 2002
(Reorganized (Reorganized (Reorganized (Pro Forma
(in thousands) Company) Company) Company) Basis)
_______________ ______________ _____________ ___________
Revenues:
Services........................................... $ 43,038 $ 48,717 $ 85,863 $ 103,815
Equipment and supply sales......................... 9,743 11,890 19,889 24,816
_______________ ______________ _____________ ___________
52,781 60,607 105,752 128,631
_______________ ______________ _____________ ___________
Cost of revenues:
Services........................................... 28,914 32,121 57,908 68,751
Equipment and supply sales......................... 6,689 8,334 13,280 18,208
_______________ ______________ _____________ ___________
35,603 40,455 71,188 86,959
_______________ ______________ _____________ ___________
Gross profit........................................... 17,178 20,152 34,564 41,672
Costs and expenses:
Engineering, research and development.............. 1,581 1,604 3,433 3,284
Selling, general and administrative................ 13,634 15,256 27,630 30,899
Amortization of intangible assets.................. 496 496 992 3,392
Restructuring charges (credits).................... --- --- --- (1,032)
_______________ ______________ _____________ ___________
Operating income from continuing operations............ 1,467 2,796 2,509 5,129
_______________ ______________ _____________ ___________
Other income (expense):
Interest income.................................... 78 71 147 226
Interest expense and fee amortization.............. (631) (1,205) (1,394) (4,319)
Other.............................................. 90 (124) 28 264,984
_______________ ______________ _____________ ___________
(463) (1,258) (1,219) 260,891
_______________ ______________ _____________ ___________
Income from continuing operations before
reorganization items and income taxes.............. 1,004 1,538 1,290 266,020
Reorganization items................................... --- --- --- 13,328
_______________ ______________ _____________ ___________
Income from continuing operations before income taxes.. 1,004 1,538 1,290 279,348
Provision for income taxes............................. 547 1,253 1,105 1,703
_______________ ______________ _____________ ___________
Income from continuing operations...................... 457 285 185 277,645
Income from discontinued operations, net of taxes...... --- 618 --- 618
Gain (loss) on sale of discontinued operations,
net of taxes...................................... (200) --- 8,184 ---
_______________ ______________ _____________ ___________
Net income............................................. $ 257 $ 903 $ 8,369 $ 278,263
=============== ============== ============= ===========
Three Months Ended March 31, 2003 vs. Three Months Ended March 31, 2002
General. We reported net income of $0.3 million for the three months ended
March 31, 2003 versus $0.9 million for the three months ended March 31, 2002.
Both MVS and Web revenues grew at a double-digit rate over the prior year period
revenue. However, COM based revenues continued to decline in the three months
ended March 31, 2003, in line with historical trends. We received proceeds of
$11.8 million from our sale of Switzerland subsidiaries in March 2003, and this,
in conjunction with our operating results, has enabled us to reduce our
outstanding credit facility balance by $12.8 million.
We define our product lines as follows:
MVS - Multi-Vendor Services where Anacomp acts as a third party maintainer,
providing support services such as on-site maintenance, help desk and depot
repair, laser printer maintenance and associated hardware sales.
Web - Transmitted ingestion, storage, delivery and internet browser-based access
to documents. Also includes license sales and maintenance for the Adesso
software that is our Web platform in the US.
CD/Digital - CD based document management services, scanning, professional
services and digital software sales.
COM/ Other Output Services - Our Computer Output Microfilm and laser printer
document management services.
COM Professional Services - Our maintenance services for Computer Output
Microfilm and other micrographic products.
Equipment/Supplies - Computer Output Microfilm original and duplicate film,
chemistry and hardware sales.
Revenues. Our revenues totaled $52.8 million in the three months ended
March 31, 2003, a decrease of 13%, or $7.8 million, from $60.6 million in the
three months ended March 31, 2002.
(in thousands) Three Months Ended March 31,
____________________________
Percentage
Product Line 2003 2002 Change change
____________ ____ ____ ______ ______
MVS $ 8,238 $ 6,421 $ 1,817 28%
Web Presentment 4,713 3,891 822 21%
CD/Digital 7,336 8,982 (1,646) (18%)
COM/Other Output Services 18,777 24,243 (5,466) (23%)
COM Professional Services 5,268 6,228 (960) (15%)
Equipment/Supplies 8,449 10,842 (2,393) (22%)
_____ ______ _______
Total $ 52,781 $ 60,607 $ (7,826) (13%)
======== ======== =========
The $1.8 million, or 28%, increase in MVS revenues over the prior year
three month period reflects the continued increase in new OEM agreements and the
resulting continued growth in our Multi-Vendor Services (services provided for,
and sales of, products manufactured by other companies) offerings. The
relationship in total Professional Services continues to migrate from COM to
MVS. In the three months ended March 31, 2003, MVS represented 61% of total
Professional Services, compared to 51% in the prior year three month period.
Web Presentment revenues increased $0.8 million, or 21%, over the prior year
three month period ended March 31, 2002. This reflects the addition of new
customers and additional revenue from established customers as they have
increased the number of their applications utilizing our Web services. The
sluggish economy and customer indecision have been reflected in a current
quarter slowing in the number of customers added and order bookings. In
addition, we expect that pricing for this product will become more competitive
in the future.
CD/Digital revenue declined $1.6 million, or 18%, from the prior year three
month period. The decline is the result of lower per unit pricing as the CD
service has become less specialized and more of a commodity and as customers
have opted for in-house or on-line solutions.
COM/Other Output Services revenue declined $5.5 million, or 23%, from the prior
year three month period. This decline reflects the decreased volumes processed
in our data centers and continues the trend experienced in prior years. We
expect that COM/Other Output Services revenues will continue to decline in
future periods.
COM Professional Services revenues declined $1.0 million, or 15%, from the prior
year three month period. This decline reflects the continued decrease in the
number of COM units in operation worldwide. We expect that the number of COM
units in use worldwide will continue to decline as organizations choose to
outsource these document management functions to service centers, such as those
operated by us, or elect to utilize other options such as CD or on-line
solutions.
Equipment and supplies revenue declined $2.4 million, or 22%, from the prior
year three month period. This decrease was largely the result of the decline in
demand for and use of COM systems.
Gross Margins. Our gross margin, $17.2 million for the three months ended
March 31, 2003 and $20.2 million for the three months ended March 31, 2002,
remained consistent at 33% of revenue. Even though revenues declined in
comparison to the prior year, we were able to maintain the gross margin as a
percentage of revenue through cost savings resulting from our recent and prior
restructuring activities, which included the consolidation and downsizing of
facilities and reductions in our work force.
Engineering, Research and Development. Engineering, research and
development expenditures remained consistent with the prior year quarter at $1.6
million, and 3% of total revenues in both periods. These expenses will not
necessarily have a direct or immediate correlation to revenues. We continue to
build and support our outsource service solutions base and corresponding
internet and digital technologies.
Selling, General and Administrative. SG&A expenses decreased from $15.3
million for the three months ended March 31, 2002 to $13.6 million for the three
months ended March 31, 2003, due primarily to benefits realized from our recent
restructuring activities and cost savings initiatives.
Amortization of Intangible Assets. Amortization of intangible assets was
the same at $0.5 million for the three months ended March 31, 2002 and March 31,
2003. The expense reflects the amortization of identifiable intangible assets
valued as part of Fresh Start Reporting.
Interest Expense and Fee Amortization. Interest expense decreased to $0.6
million for the three months ended March 31, 2003 from $1.2 million for the
three months ended March 31, 2002. The decrease reflects the decreased balance
outstanding on the senior secured revolving credit facility in the current year
period. The expense from both periods is related primarily to interest on the
senior secured revolving credit facility.
Other. The expense in both periods is related primarily to currency
exchange gains and losses.
Provision for Income Taxes. The provision for income taxes of $0.5 million
and $1.3 million for the three months ended March 31, 2003 and 2002,
respectively, related primarily to earnings of foreign subsidiaries.
Loss on Sale of Discontinued Operations. We sold our Switzerland operations
in the first quarter of fiscal year 2003 and recognized a gain on the sale in
that period. As a result of a tax audit of the Switzerland operations for prior
year results, we estimate we will incur additional costs not to exceed CHF 0.3
million, or approximately $0.2 million.
Six Months Ended March 31, 2003 vs. Six Months Ended March 31, 2002
General. We reported net income of $8.4 million for the six months ended
March 31, 2003 versus $278.3 million for the six months ended March 31, 2002.
Both MVS and Web Presentment revenues grew at a double-digit rate over the prior
year six month period. However, COM based revenues continued to decline in the
six months ended March 31, 2003, in line with historical trends. Due primarily
to proceeds received from the sale of our Switzerland subsidiaries, we have been
able to reduce our outstanding credit facility balance by $18.6 million in the
last six months.
Revenues. Our revenues totaled $105.8 million in the six months ended March
31, 2003, a decrease of 18%, or $22.8 million, from $128.6 million in the six
months ended March 31, 2002.
The following table shows our revenues by product line:
(in thousands) Six Months Ended March 31,
__________________________
Percentage
Product Line 2003 2002 Change change
____________ ____ ____ ______ ______
MVS $ 16,355 $ 12,934 $ 3,421 26%
Web Presentment 9,496 7,067 2,429 34%
CD/Digital 14,665 23,555 (8,890) (38%)
COM/Other Output Services 37,935 49,764 (11,829) (24%)
COM Professional Services 10,806 13,393 (2,587) (19%)
Equipment/Supplies 16,495 21,918 (5,423) (25%)
______ ______ _______
Total $ 105,752 $ 128,631 $(22,879) (18%)
========= ========= =========
In fiscal year 2002, we committed to a plan to sell our Switzerland operations
and we sold two smaller operating units. The results of the operations of those
units are not material to our operating results in the six months ended March
31, 2002. Our revenues for this six month period, excluding those operations
sold in fiscal year 2002, would have been as follows: MVS $12,880; Web
Presentment $6,939; CD/Digital $17,495; COM/Other Output Services $49,197; COM
Professional Services $13,114; Equipment/Supplies $21,501, for total revenue of
$121,126.
The $3.4 million, or 26%, increase in MVS revenues over the prior year six month
period reflects the continued increase in new OEM agreements and the resulting
continued growth in our Multi-Vendor Services (services provided for, and sales
of, products manufactured by other companies) offerings. The relationship in
total Professional Services continues to migrate from COM to MVS. In the six
months ended March 31, 2003, MVS represented 60% of total Professional Services,
compared to 49% in the prior year six month period.
Web Presentment revenues increased $2.4 million, or 34%, over the prior year six
month period ended March 31, 2002. This reflects the addition of new customers
and additional revenue from established customers as they have increased the
number of their applications utilizing our Web services.
CD/Digital revenue declined $8.9 million, or 38%, from prior year revenue. This
decrease was primarily the result of the sale of our Switzerland and other
operations in fiscal year 2002. CD/Digital revenue from these operations
included in the six months ended March 31, 2002 totaled $6.1 million. The
remainder of the decline is the result of lower per unit pricing as the CD
service has become less specialized and more of a commodity and as customers
have opted for in-house or on-line solutions.
COM/Other Output Services revenue declined $11.8 million, or 24%, from the prior
year six month period. This decline reflects the decreased volumes processed in
our data centers and continues the trend experienced in prior years. We expect
that COM/Other Output Services revenues will continue to decline in future
fiscal years.
COM Professional Services revenues declined $2.6 million, or 19%, from the prior
year. This decline reflects the continued decrease in the number of COM units in
operation worldwide. We expect that the number of COM units in use worldwide
will continue to decline as organizations choose to outsource these document
management functions to service centers, such as those operated by us, or elect
to utilize other options such as CD or on-line software systems.
Equipment and supplies revenue declined $5.4 million, or 25%, from the prior
year. This decrease was largely the result of the decline in demand for and use
of COM units.
Gross Margins. Our gross margin as a percentage of revenues increased
slightly from 32% ($41.7 million) for the six months ended March 31, 2002 to 33%
($34.6 million) for the six months ended March 31, 2003. Even though revenues
declined in comparison to the prior year, we were able to maintain the gross
margin percentage of revenues through cost savings resulting from our recent and
prior restructuring activities, which included the consolidation and downsizing
of facilities and reductions in our work force.
Engineering, Research and Development. Engineering, research and
development expenditures increased $0.1 million, or 5%, over the prior year.
These costs represented 3% of total revenues for the six months ended March 31,
2003 and 2002. These expenses will not necessarily have a direct or immediate
correlation to revenues. We continue to build and support our outsource service
solutions base and corresponding internet and digital technologies.
Selling, General and Administrative. SG&A expenses decreased from $30.9
million for the six months ended March 31, 2002 to $27.6 million for the six
months ended March 31, 2003. The $3.3 million, or 11%, decrease resulted in part
from the sale of our Switzerland operations, which had $1.3 million of related
expenses included in the prior year period. Also, SG&A expenses have declined
due to benefits realized from our recent restructuring activities and cost
savings initiatives.
Amortization of Intangible Assets. Amortization of intangible assets
decreased 71%, from $3.4 million for the six months ended March 31, 2002, to
$1.0 million for the six months ended March 31, 2003. The prior year period
amortization expense represented amortization during the first quarter of fiscal
2002 of goodwill related to prior acquisitions. All goodwill assets from the
Predecessor Company were eliminated in conjunction with Fresh Start Reporting.
Amortization expense after December 31, 2001 reflects the amortization of
identifiable intangible assets valued as part of Fresh Start Reporting.
Reorganization Items. Reorganization items in the six months ended March
31, 2002, represent expenses and adjustments resulting from our reorganization
and consist of professional fees incurred subsequent to our Chapter 11 filing
totaling $1 million, fair value adjustments made to assets and liabilities
totaling $16.9 million and other asset write-offs and settlements totaling $2.6
million (primarily related to our extinguished debt) in Fresh Start Reporting.
Interest Expense and Fee Amortization. Interest expense decreased to $1.4
million for the six months ended March 31, 2003 from $4.3 million for the six
months ended March 31, 2002. Prior year expense included interest (approximately
$1.7 million) on our senior subordinated notes up to October 19, 2001, the date
we filed Chapter 11 bankruptcy. The remainder of expense from both periods is
related primarily to interest on the senior secured revolving credit facility.
Other. We recognized other income due to extinguishment of debt totaling
$265.3 million for the six month period ended March 31, 2002 as a result of our
bankruptcy proceedings and subsequent emergence from Chapter 11 proceedings on
December 31, 2001. The remainder of expense in both periods is related primarily
to currency exchange gains and losses.
Provision for Income Taxes. The provision for income taxes of $1.1 million
and $1.7 million for the six months ended March 31, 2003 and 2002, respectively,
related primarily to earnings of foreign subsidiaries.
Gain on Sale of Discontinued Operations. In the six months ended March 31,
2003, we realized a gain of $8.2 million on the sale of our Switzerland
subsidiaries. This sale was effective October 1, 2002. The Switzerland
operations were not material to our consolidated results prior to December 31,
2001. As a result, the statements of operations for the three months ended
December 31, 2001 do not segregate the Switzerland operations as discontinued.
Liquidity and Capital Resources
Our legacy business (COM) has declined in recent years and is forecasted to
continue to decline as new technologies become available and are accepted in the
marketplace. Our ability to generate sufficient cash to fund operations and to
meet future bank requirements is dependent on successful and simultaneous
management of the decline in COM as well as the expansion of alternative service
offerings. Other factors, such as an uncertain economy, levels of competition in
the document management industry, and technological uncertainties will impact
our ability to generate cash and maintain liquidity. The actions taken over the
past two years, including new and enhanced product and service offerings,
company downsizing, cost control measures and the debt restructuring from our
bankruptcy have resulted in a return to profitability. We believe we will be
able to maintain sufficient cash flows from operations to meet our operating,
capital and debt requirements in the normal course of business for at least the
next twelve months.
On December 31, 2001, Anacomp and Fleet National Bank, as agent, and its
syndicate of lenders (collectively, "the Bank Group") entered into an Amended
and Restated Revolving Credit Agreement. The credit agreement provides for a
commitment of $28.0 million as of March 31, 2003, with a $21.7 million direct
borrowing sublimit and a $6.3 million letter of credit sublimit. The credit
commitment will be further reduced by future periodic scheduled amounts and by
85% of the remaining proceeds from the sale of the Switzerland subsidiaries and
operations. The facility is available for new borrowings when borrowings are
below the direct borrowing sublimit.
Effective December 19, 2002, we signed an amendment to the revolving credit
agreement. The amendment modifies certain financial covenants to accommodate the
sale of our Switzerland operations and current business plans. Other changes to
the agreement included a permanent reduction to the credit facility commitment
of $10.0 million, a decrease in future quarterly commitment reductions, and
provisions for acquisitions and/or divestitures under specified conditions.
At March 31, 2003, the outstanding revolving credit borrowings were $11.4
million (plus outstanding standby letters of credit of $6.2 million). During the
six month period ended March 31, 2003, we made net cash payments totaling $18.6
million and have $10.4 million of borrowing capacity, after the effect of other
commitment reductions during the period.
The original maturity date of the amended facility was June 30, 2003, and it has
been extended to December 31, 2003 due to our receipt of proceeds from the sale
of the Switzerland subsidiaries and operations. We received proceeds from this
sale of $11.8 million in March of 2003. We have permanently reduced the
borrowing sublimit of the credit facility commitment and have reduced the
outstanding borrowings by $10.0 million.
The credit agreement bears interest at a base rate equal to the higher of (a)
the annual rate of interest announced from time to time by Fleet National Bank
as its best rate, or (b) one-half of one percent above the Federal Funds
Effective Rate, for the portion of the facility equal to a Formula Borrowing
Base ("FBB"). The FBB equals 80% of eligible accounts, which include U.S. and
Canadian accounts receivable. The rate of interest is three percentage points
higher than the base rate for the facility balance outstanding in excess of the
FBB. Interest is due and payable monthly in arrears. The interest rate was 4.25%
for the FBB portion and 7.25% for the excess portion at March 31, 2003. At March
31, 2003, the FBB was $13.5 million; accordingly, there were no excess
borrowings over the FBB.
The credit facility is secured by virtually all Anacomp assets and 65% of the
capital stock of our foreign subsidiaries. The facility contains covenants
relating to limitations on the following:
o capital expenditures;
o additional debt;
o open market purchases of our common stock;
o mergers and acquisitions; and
o liens and dividends.
The credit facility also is subject to minimum EBITDA, interest coverage and
leverage ratio covenants. In addition, we are required to remit to the Bank
Group the net proceeds of any capital asset sale.
Under the current facility as amended, the facility commitment and the direct
borrowings sublimit will be permanently reduced in the future as follows:
o $1.25 million on June 30, 2003;
o $1.25 million on September 30, 2003.
As of May 8, 2003, the outstanding revolving credit borrowings were $9.8 million
and borrowing capacity was $11.4 million.
Our credit facility currently matures on December 31, 2003. No later than
December 31, 2003, we will be required to either repay any remaining principal
or refinance the credit facility. We believe we will be able to refinance the
facility prior to that date, although, there can be no assurances that such
financing will be available on terms acceptable to us, if at all.
We had positive working capital of $4.7 million at March 31, 2003, compared to
negative working capital of $6.5 million at September 30, 2002. The working
capital deficiency at September 30, 2002, was primarily related to the
classification of our $30.0 million revolving credit facility as current.
Net cash provided by continuing operations was $5.2 million for the six months
ended March 31, 2003, compared to $10.4 million in the comparable prior year
period. The prior period amount includes approximately $2.9 million contributed
by discontinued operations.
Net cash provided by investing activities was $11.9 million in the current
six month period, compared to cash used in investing activities of $2.2 million
in the comparable prior year period. The current year period included cash
proceeds from the sale of our Switzerland subsidiaries and operations.
Expenditures in both years were primarily for purchases of equipment. We
received an additional CHF 1.1 million, or approximately $0.7 million, on April
17, 2003, from our sale of Swiss subsidiaries as scheduled under the terms of
the sale agreement.
Net cash used in financing activities was $18.6 million during the current
six month period, compared to $13.7 million used in financing activities in the
prior year period. In both periods, cash was used to pay down the revolving
credit facility.
Our cash balance totaled $14.7 million at March 31, 2003 compared to $15.6
million at September 30, 2002. Approximately 68% of the March 31, 2003 cash
balance is located at our foreign subsidiaries compared to approximately 49% at
September 30, 2002. Our use of excess cash as additional payments against our
credit facility resulted in the decrease of domestic cash on hand.
RISK FACTORS
You should carefully consider the following risk factors and all of the other
information included in this Quarterly Report in evaluating our business and our
prospects. Investing in our Class A or Class B Common Stock (collectively,
"Common Stock") involves a high degree of risk. Additional risks and
uncertainties may also materially adversely affect our business and financial
condition in the future. Any of the following risks could materially adversely
affect our business, operating results or financial condition and could result
in a complete loss of your investment.
We recently effectuated a financial restructuring pursuant to a prepackaged
Chapter 11 plan of reorganization, we have a history of net losses and we may
face liquidity issues in the future.
On October 19, 2001 we filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code and a prepackaged plan of reorganization.
The Bankruptcy Court confirmed the plan of reorganization on December 10, 2001
and we emerged from our bankruptcy proceedings effective December 31, 2001.
However, our completion of bankruptcy proceedings does not assure our continued
success. For example, the bankruptcy proceedings described above are our second
bankruptcy: we previously filed a plan of reorganization in January 1996 and
emerged from those proceedings in June 1996. If our financial performance does
not exceed our recent historical results, the price of our Common Stock could
decline and your investment could be materially adversely affected. As part of
our plan of reorganization, our lenders modified the terms of our senior credit
facility, which encumbers substantially all of our assets. This facility also
includes mandatory periodic pay downs and covenant restrictions concerning the
commitment limits of this facility including levels of collateral, financial
covenants, and limitations on capital expenditures. Our credit facility is
scheduled to mature on December 31, 2003, at which time we will be required to
renew, refinance, or modify the credit facility with our lenders or locate
alternative financing. These restrictions and provisions could have an adverse
impact on our future liquidity and ability to implement our business plan.
Our revenues could continue to decrease over the next few years, which could
inhibit us from achieving or sustaining profitability or even prevent us from
continuing to operate.
Our accumulated deficit through December 31, 2001 has been eliminated as a
result of Fresh Start Reporting. However, we have not recorded sustained
profitable operating results for quite some time. To achieve sustained future
profitability we will need to generate and sustain revenues while satisfying our
payment obligations under the terms of our senior secured revolving credit
facility (including mandatory pay downs) and maintaining reasonable cost and
expense levels. Our COM business has been experiencing declining revenues for
several years, so revenue growth in other areas would have to offset the decline
in COM revenues before our total revenues would increase. We do not know when or
if we will become profitable on a sustained basis. If we fail to achieve
consistent profitability and generate sufficient cash flows, we will face
liquidity and bank covenant issues and our senior secured debt could become
immediately due and payable on demand. Even though we generated operating income
from continuing operations in recent quarters, we may not be able to sustain or
increase profitability on a quarterly or an annual basis. Any failure on our
part to achieve or sustain profitability could cause our stock price to decline.
The development of alternate technologies in the document management industry is
decreasing the need for our micrographics services and products.
The document management industry is rapidly changing. The recent trend of
technological advances and attendant price declines in digital systems and
products is expected to continue. As a result, in certain instances, potential
micrographics customers have deferred, and may continue to defer, investments in
micrographics systems (including our XFP2000(R) COM system) and the utilization
of micrographics service centers while evaluating the capabilities of other
technologies. Additionally, the continuing development of local area computer
networks and similar systems based on digital technologies has resulted and will
continue to result in many of our customers changing their use of micrographics
from document storage, distribution and access to primarily archival use. We
believe that this is at least part of the reason for the declines in recent
years in both sales and prices of our duplicate film, readers and
reader/printers. Our service centers also are producing fewer duplicate
microfiche per original for customers, reflecting the shift towards using
micrographics primarily for long term archival storage. Revenues for our
micrographics services and products, including COM service revenues, COM system
revenues, maintenance service revenues and micrographics supplies revenues, have
been adversely affected for each of the past five fiscal years and will likely
in the future be substantially adversely affected by, among other things, the
increasing use of digital technology. COM revenues from services, system and
supplies sales declined 27% in 2002 from fiscal year 2001 revenues. Overall, COM
revenues represented 66% of our revenues for the twelve month period ended
September 30, 2002, 71% of our fiscal year 2001 revenues, 77% of 2000 revenues,
83% of 1999 revenues, 91% of 1998 revenues and 95% of 1997 revenues.
Additionally, the rapidly changing document management industry has resulted in
price competition in certain of our businesses, particularly COM services. We
have been and we expect to continue to be impacted adversely by the decline in
the demand for COM services, the declining market for COM systems and the
attendant reduction in supplies revenues. We expect that our revenues for
maintenance of COM systems will continue to decline as a result of decreasing
use and fewer sales of COM systems. Additionally, the growth of alternate
technologies has created consolidation in the micrographics segment of the
document management industry. To the extent consolidation in the micrographics
segment has the effect of causing major providers of micrographics services and
products to cease providing such services and products, the negative trends in
the segment, such as competition from alternate technologies described above,
may accelerate. If we do not adapt to the rapid changes in the document
management industry, our business will suffer and your investment will be
adversely affected.
Intense competition in the document management industry could prevent us from
increasing or sustaining our revenues and prevent us from achieving or
sustaining profitability.
The document management industry is becoming increasingly competitive,
especially in the market for Internet-based document management services. We
face, and will continue to face, competition from other document-management
outsource-service providers as well as from document-management software
providers who offer in-house solutions. Some of our competitors are leading
original equipment manufacturers with established client-relationships in our
target markets. Some of our competitors are significantly larger than we are and
have greater financial resources, greater name recognition and longer operating
histories than we have. Our competitors may be able to respond more quickly or
adjust prices more effectively to take advantage of new opportunities or
customer requirements. Increased competition could result in pricing pressures,
reduced sales, reduced margins or failure to achieve or maintain widespread
market acceptance, any of which could prevent us from increasing or sustaining
our revenues and achieving or sustaining profitability.
Fluctuation in our quarterly financial results may cause instability in our
stock price.
Our COM business has experienced and continues to experience trending decline;
however, the rate at which this decline will impact our operations is difficult
to predict. Additionally, we attempt to base our operating expenses on
anticipated revenue levels, and a substantial percentage of our expenses are
fixed in the short term. As a result, any delay in generating or recognizing
revenues could cause our operating results to be below expectations. Moreover,
the operating expenses from our growth initiatives may exceed our estimates. Any
or all of these factors could cause the price of our common stock to decline.
If we are unable to decrease our costs to match the decline in our revenues, we
may not be able to sustain profitability.
The decline in the demand for COM services, systems and maintenance and the
attendant reduction in supplies revenues have adversely affected our business.
Over the past several years, COM revenues from services, system and supplies
sales have been steadily decreasing as a percentage of our revenues and declined
27% in 2002 from fiscal year 2001 revenues. We expect that our revenues for
maintenance of COM systems will continue to decline as a result of decreasing
use and fewer sales of COM systems. We have taken steps such as facilities
consolidation and personnel reductions to reduce our cost structure and offset
the decrease in COM revenues. We intend to take additional measures as necessary
to continue to reduce our cost structure. If these measures are unsuccessful, we
will not realize profits from our COM business and your investment may be
adversely affected.
If our future results do not meet or exceed the projections and assumptions we
made for Fresh Start Reporting purposes, we may have to write down the values of
some of our assets.
On December 31, 2001, as a result of our emergence from bankruptcy, we adopted
Fresh Start Reporting. This resulted in material changes to our financial
statements including the recording of an asset for "reorganization value in
excess of identifiable net assets." We determined the value of our business and
accordingly, our reorganization asset by making certain projections and
assumptions based on historical results as well as our best estimates of
expected future market conditions. Unfavorable changes compared to our
projections used for Fresh Start Reporting purposes could result in future
impairments of our reorganization asset and our identifiable intangible assets.
If these assets were to be impaired, the value of your investment could decline.
If we are unable to make technological advancements and upgrades to our current
product and service offerings, we will lose market share.
In order to maintain and grow market share, we continually invest in offering
new customer solutions and in upgrading our storage and delivery systems and
infrastructure. We cannot assure you that we will be able to continue to develop
innovations in our software to stay abreast of client needs. We also cannot
assure you that we will be able to maintain or upgrade our infrastructure to
take advantage of new technology. Our future plans for growth and a return to
profitability would be detrimentally affected if we are unable to develop new
and innovative customer solutions or if we are unable to sustain our
infrastructure.
Litigation or third party claims of intellectual property infringement could
require us to spend substantial time and money and adversely affect our ability
to develop and commercialize products.
Third parties may accuse us of employing their proprietary technology without
authorization. In addition, third parties may obtain patents that relate to our
technologies and claim that our use of such technologies infringes these
patents. Regardless of their merit, such claims could require us to incur
substantial costs, including the diversion of management and technical
personnel, in defending ourselves against any such claims or enforcing our
patents. In the event that a successful claim of infringement is brought against
us, we may be required to pay damages and obtain one or more licenses from third
parties. We may not be able to obtain these licenses at a reasonable cost, or at
all. Defense of any lawsuit or failure to obtain any of these licenses could
adversely affect our ability to develop and commercialize products and our
operating results.
The loss of key personnel or the inability to attract and retain additional
personnel could impair our ability to expand our operations.
We are highly dependent on the principal members of our management team and the
technical expertise of our personnel, especially in our Professional Services
business. The success of this business is based on our technical expertise and
proven ability to provide fast, expert, on-site service and support around the
clock. This service is provided in North America and Europe by approximately 400
Anacomp service professionals, the loss of whose services might adversely impact
the achievement of our business objectives. Moreover, our business operations
will require additional expertise in specific industries and areas applicable to
products identified and developed through our technologies. These activities
will require the addition of new personnel, including management and technical
personnel as well as the development of additional expertise by existing
employees. Competition for experienced technicians may limit our ability to
attract or retain such technicians. If we are unable to attract such personnel
or to develop this expertise, we may not be able to sustain or expand our
operations in a timely manner or at all.
We face business, political and economic risks because a significant portion of
our sales is to customers outside of the United States.
Revenues from operations outside the United States accounted for 28% of our
total revenue for the twelve month period ended September 30, 2002 and 30% of
our total revenue in fiscal year 2001. Our success continues to depend upon our
international operations, and we expect that a significant portion of our total
future revenues will be generated from international sales. Our international
business involves a number of risks, including:
o our ability to adapt our products to foreign design methods and
practices;
o cultural differences in the conduct of business;
o difficulty in attracting and retaining qualified personnel;
o longer payment cycles for and greater difficulty collecting accounts
receivable;
o unexpected changes in regulatory requirements, royalties and
withholding taxes that restrict the repatriation of earnings;
o tariffs and other trade barriers;
o the burden of complying with a wide variety of foreign laws;
o political, economic or military conditions associated with current
worldwide conflicts and events;
o the exchange markets and our ability to generate, preserve and
repatriate proceeds and dividends to the parent company in the United
States; and
o to the extent that profit is generated or losses are incurred in
foreign countries, our effective income tax rate may be significantly
affected. Any of these factors could significantly harm our future
international sales and, consequently, our revenues and results of
operations and business and financial condition.
We use hazardous chemicals in our business and any claims relating to improper
handling, storage or disposal of these materials could be time consuming and
costly.
Our operations involve the use and sale of hazardous chemicals. Although we
believe that our safety procedures for handling and disposing comply with the
applicable standards, we cannot eliminate the risk of accidental contamination
or discharge and any resultant injury from these materials. Federal, state and
local laws and regulations govern the use, manufacture, storage, handling and
disposal of hazardous materials. In the event of an accident, we may be sued for
any injury or contamination that results from our use or the use by third
parties of these materials, and our liability may exceed our insurance coverage
and our total assets.
Disclosure of trade secrets could aid our competitors.
We attempt to protect our trade secrets by entering into confidentiality
agreements with third parties, our employees and consultants. However, these
agreements can be breached and, if they are, there may not be an adequate remedy
available to us. If our trade secrets become known we may lose our competitive
position.
If we are unable to adequately protect our intellectual property, third parties
may be able to use our technology, which could adversely affect our ability to
compete in the market.
Our success will depend in part on our ability to obtain protection for our
intellectual property. We will be able to protect our intellectual property
rights from unauthorized use by third parties only to the extent that our
software is copyrightable and business methods are patentable under applicable
intellectual property laws or are effectively maintained as trade secrets. The
laws of some foreign countries do not protect intellectual property rights to
the same extent as the laws of the United States and many companies have
encountered significant problems in protecting and defending such rights in
foreign jurisdictions. Furthermore, others may independently develop similar or
alternative technologies or design around our intellectual property protections.
In addition, our competitors may independently develop substantially equivalent
proprietary information or may otherwise gain access to our trade secrets.
Difficulties we may encounter managing our growth product lines may divert
resources and limit our ability to successfully expand our operations and
implement our business plan.
We anticipate that our MVS and Web Presentment product lines will be able to
grow as a result of our reorganization. Our growth in the future anticipates
potential acquisitions that may place a strain on our administrative personnel
and operational infrastructure should such acquisitions occur. We cannot assure
you that we will be able to identify acquisition candidates, or be able to
consummate acquisitions on terms acceptable to us, if at all. Additionally, we
cannot assure you that we will have funds available for making acquisitions.
Effectively managing growth will also require us to improve our operational,
financial and management controls, reporting systems and procedures. We may not
be able to successfully implement improvements to our management information and
control systems in an efficient or timely manner and may discover deficiencies
in existing systems and controls.
We rely on a few suppliers to provide us COM products that while in decline, are
essential to our operations.
Supplies and system sales represented approximately 17% of our total revenue,
for fiscal year 2002. The primary products in the equipment and supplies
business are silver halide original COM film and non-silver duplicating
microfilm. We obtain all of our silver halide products through an exclusive
multi-year supply agreement with a single provider and our duplicate film
products from one other provider. Any disruption in the supply relationship
between Anacomp and such suppliers could result in delays or reductions in
product shipment or increases in product costs that adversely affect our
operating results in any given period. In the event of any such disruption, we
cannot assure you that we could develop alternative sources of raw materials and
supplies at acceptable prices and within reasonable times. Additionally, as the
demand for COM services declines, the demand for COM supplies falls as well. If
the decline in COM supplies is greater than planned, our profitability and
liquidity would decline as well.
Our stock price may be volatile, and you may not be able to resell your shares
at or above the price you paid, or at all.
Since the effective date of our bankruptcy restructuring, our common stock has
had limited trading activity on the OTC Bulletin Board. We cannot predict the
extent to which investor interest in our stock will lead to the development of a
more active trading market, how liquid that market might become or whether it
will be sustained. The trading price of our common stock could be subject to
wide fluctuations due to the factors discussed in this risk factors section and
elsewhere in this report. In addition, the stock markets in general have
experienced extreme price and volume fluctuations. These broad market and
industry factors may decrease the market price of our common stock, regardless
of our actual operating performance.
Our net deferred tax asset may have no future value should we experience an
Ownership Change as defined by the Internal Revenue Code.
A deferred tax asset has been recorded on our books for tax goodwill in excess
of book reorganization asset, certain temporary differences, net operating
losses and other tax basis carryforwards. We have also recorded a valuation
allowance in the amount of $41 million in order to fully offset this net
deferred tax asset. We have been advised that in the event of an Ownership
Change (as defined by the IRC in section 382), our net deferred tax asset may
have limited or no value and be unavailable for us to utilize for our benefit in
future periods.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Revenues generated outside of the United States, as a percentage of total
revenues, were 30% and 33% for the six month periods ended March 31, 2003 and
2002, respectively. Fluctuations in foreign exchange rates could impact
operating results through translation of our subsidiaries' financial statements.
Recent global economic events have caused exchange rates in general to rise over
the past several months, making foreign currencies more valuable in terms of the
U.S. dollar. For example, the Euro has risen almost 10% during the six months
ended March 31, 2003. Exchange rate changes of this magnitude can have a
material affect on our financial statement results, particularly with regard to
the accumulated other comprehensive income or loss account in the equity section
of the balance sheet.
Our revolving credit facility bears interest at variable rates and is therefore
affected by the general level of U.S. interest rates. We had $11.4 million
outstanding under our facility on March 31, 2003. If interest rates were to
increase 2%, annual interest expense would increase approximately $0.2 million
based on the March outstanding balance.
Foreign Exchange Options
We completed a sale of our Switzerland subsidiaries and operations on October
18, 2002 to edotech Ltd. (a UK company) at a sales price of CHF 26.7 million
(Swiss francs) or approximately $17.9 million (U.S. dollars). CHF 4.6 million of
the sales price was paid at closing, and CHF 18.2 million was paid on March 10,
2003. However, the remaining sales price was deferred and is payable as follows:
CHF 1.1 million on or before April 18, 2003; and CHF 2.8 million on or before
April 18, 2004 upon expiration of certain indemnification claim periods. As a
result of a tax audit of the Switzerland operations for prior year results, we
estimate we will incur additional costs not to exceed CHF 0.3 million, or
approximately $0.2 million. This will decrease the amount we will receive on or
before April 18, 2004.
We are exposed to various foreign currency exchange rate risks that arise in the
normal course of business. Our functional currency is the U.S. dollar. We have
international operations resulting in receipts and payments in currencies that
differ from the functional currency of Anacomp. In connection with the sale of
our Switzerland subsidiaries, we entered into forward contracts to hedge the
related receivables. All forward contracts entered into by us were entered into
for the sole purpose of hedging existing currency exposure, not for speculation
or trading purposes. Currently, we are using forward contracts only to hedge
balance sheet exposure. The contracts are in Swiss Francs, and have maturities
of April 15, 2003 and April 15, 2004. When hedging balance sheet exposure, all
gains and losses on forward contracts are recognized as other income and expense
in the same period as the gains and losses on remeasurement of the foreign
currency denominated assets. We entered into these foreign exchange forward
contracts within a few days of the sale, and therefore the difference between
the change in the fair value of the asset and the change in value in the
contracts that must be recognized in the financial statements is immaterial.
Item 4. Controls and Procedures
(a) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer,
we evaluated the effectiveness of the design and operations of our
disclosure controls and procedures, as such term is defined under
Rule-13a-14(c) promulgated under the Securities Exchange Act of 1934, as
amended, within the 90-day period prior to the filing date of this report.
Based on their evaluation, our principal executive officer and our
principal financial officer concluded that our disclosure controls and
procedures were effective as of that date.
(b) There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced in paragraph (a) above.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Anacomp and its subsidiaries are potential or named defendants in several
lawsuits and claims arising in the ordinary course of business. While the
outcome of claims, lawsuits or other proceedings brought against us cannot be
predicted with certainty, management expects that any liability, to the extent
not provided for through insurance or otherwise, will not have a material
adverse effect on our financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
On February 25, 2003, Anacomp held its annual meeting of shareholders. The
following directors were elected, with the following votes cast for, against,
and abstaining:
For Against/Withheld
___ ________________
Edward P. Smoot 2,919,170 1,009,160
Jeffrey R. Cramer 3,306,213 622,117
Ralph B. Bunje, Jr. 3,443,720 484,610
Gary J. Fernandez 3,830,015 98,315
Fred G. Jager 3,830,013 98,317
David E. Orr 3,443,722 484,608
Michael E. Tennenbaum 3,830,763 97,567
Item 6. Exhibits and Reports on Form 8-K (exhibits incorporated by reference)
(a) Exhibits: For a list of exhibits filed with this quarterly report, refer to
the Index of Exhibits below.
(b) During the period covered by this report, we filed the following reports on
Form 8-K:
(1) On January 31, 2003, we filed a Form 8-K to provide information
regarding nominations to Anacomp's Board of Directors.
(2) On March 12, 2003, we filed a Form 8-K to announce the receipt of
approximately $11.8 million in proceeds from the sale of our
Switzerland subsidiaries.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANACOMP, INC.
/s/ Linster W. Fox
___________________
Linster W. Fox
Executive Vice President and
Chief Financial Officer
Date: May 14, 2003
CERTIFICATION
I, Jeffrey R. Cramer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Anacomp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Jeffrey R. Cramer
_______________________________
Jeffrey R. Cramer
Chief Executive Officer
CERTIFICATION
I, Linster W. Fox, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Anacomp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Linster W. Fox
___________________________
Linster W. Fox
Chief Financial Officer
INDEX TO EXHIBITS
The following exhibits are filed with this Quarterly Report on Form 10-Q or
incorporated herein by reference to the listed document previously filed with
the Securities and Exchange Commission (the "SEC"). Previously unfiled documents
are noted with an asterisk (*):
2. Plan of Reorganization dated August 29, 2001. (1)
3.1 Amended and Restated Articles of Incorporation of the Company as of
December 31, 2001. (2)
3.2 Amended and Restated Bylaws of the Company as of April 25, 2002. (3)
4.1 Shareholders Rights Plan. (4)
4.2 Amendment to the Shareholders Rights Plan dated December 17, 2002. (5)
4.3 Warrant Agreement by and between the Company and Mellon Investor
Services LLC dated December 31, 2001. (2)
10.1 Part-Time Employment Agreement dated November 12, 2002, between the
Company and Edward P. Smoot. (*)
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 for Chief Executive
Officer.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 for Chief Financial
Officer.
_______________________
(1) Incorporated by reference to the Company's Form 8-K filed on September 20,
2001 and October 29, 2001.
(2) Incorporated by reference to the exhibits to the registration statement of
Form 8-A filed by the Company on January 9, 2002.
(3) Incorporated by reference to the Company's Form 10-Q/A for the quarterly
period ended June 30, 2002.
(4) Incorporated by reference to an exhibit to the Company's Form 8-K filed on
September 21, 2002.
(5) Incorporated by reference to an exhibit to the Company's Form 10-K for the
year ended September 30, 2002.
SIGNATURES
EXHIBIT 99.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Jeffrey R. Cramer, Chief Executive Officer of Anacomp, Inc. (the
"Registrant"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my
knowledge:
(1) the Quarterly Report on Form 10-Q of the Registrant, to which this
certification is attached as an exhibit (the "Report"), fully complies with
the requirements of section 13(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78m); and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Registrant.
Dated: May 14, 2003
/s/ Jeffrey R. Cramer
_____________________________
Jeffrey R. Cramer
Chief Executive Officer
EXHIBIT 99.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Linster W. Fox, Chief Financial Officer of Anacomp, Inc. (the "Registrant"),
do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:
(1) the Quarterly Report on Form 10-Q of the Registrant, to which this
certification is attached as an exhibit (the "Report"), fully complies with
the requirements of Section 13(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78m); and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Registrant.
Dated: May 14, 2003
/s/ Linster W. Fox
____________________________
Linster W. Fox
Chief Financial Officer