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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended September 30, 1996
Commission File Number 1-8328 ANACOMP, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1144230
(State of incorporation) (IRS Employer Identification No.)
11550 North Meridian Street, P.O. Box 40888
Indianapolis,Indiana 46240
(Address of principal executive offices) (ZipCode)
Registrant's telephone number, including area code: 317-844-9666
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $.01 par value
Common Stock Warrants
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1934
subsequent to the distribution of Securities under a plan confirmed by a court.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of December 16, 1996: Common stock par value $.01 per share,
$111,318,708. Common Stock outstanding as of December 16, 1996 was 13,700,764
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement relating to the registrant's 1997
Annual Meeting of Shareholders to be held on February 3, 1997, have been
incorporated by reference in Part III of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
Overview
Anacomp, Inc. ("Anacomp" or the "Company") is one of the world's leading
providers of products and services used to manage corporate information
throughout its life cycle. The Company serves more than 15,000 customers in 65
countries, maintaining significant market positions in micrographics products
and services, magnetic media manufacturing, digital output services, and related
information delivery technologies.
One of Anacomp's largest businesses is output services. In the United
States, the Company is the second largest provider of Computer Output to
Microfilm ("COM") output services, the high-speed conversion of digital
information to microfilm or microfiche. Micrographics is widely used throughout
the world as a long-term, low-cost medium for storing large amounts of
information.
Although still a small percentage of Anacomp's revenues, the Company has
quickly become a significant provider of digital output services since entering
this market in fiscal 1995, ranking as the third largest U.S. provider of
Compact Disc-Recordable ("CD-R") output services. Available throughout the
United States and at an increasing number of the Company's international
locations, CD services provide Anacomp's customers with a high-capacity storage
and delivery solution for applications requiring frequent and high-speed
information retrieval.
Anacomp recently introduced archival services and print/mail services, both
of which it views as highly complementary to its existing output services. The
Company offers archival services, the physical storage of microfilmed records,
at selected service centers in the United States and plans to open several new
archival vaults in fiscal 1997. The Company intends to expand this business to
include the off-site storage of multiple-media formats and, ultimately, to
develop an electronic storage and distribution service. Anacomp believes that
print/mail services, which involve the output and mailing of printed information
for clients, represent a promising opportunity for both the Company and its
customers. The Company intends to roll-out this service to a broad portion of
its U.S. customer base in fiscal 1997.
Complementing Anacomp's output services are the development and sale of
micrographic and digital systems for customers who desire in-house information
management solutions. The Company and its subsidiaries have introduced virtually
every major advance in the COM industry, including the XFP 2000, the world's
leading COM system, and Advanced Function Indexing, a sophisticated method to
index and retrieve large volume COM applications. Recently, Anacomp has
increasingly invested in electronic management products to provide customers
with COLD (Computer Output to Laserdisk), imaging, workflow, and document
management solutions.
The Company Also Provides Maintenance And Professional Services To Its
Customers Worldwide To Facilitate The Installation, Management, Maintenance, And
Competitive Use Of Information Delivery Solutions. Services Include System
Integration, Technical Support, Document Conversion, And Software And Hardware
Maintenance.
Anacomp derives a significant portion of its revenues and profits from the
sale of micrographics supplies, as well as magnetic media products. The Company
has the world's largest installed base of COM systems (approximately 55% of
those in use), which enables it to generate recurring revenue by providing
related consumable supplies, a significant portion of which are proprietary.
Anacomp also is a major manufacturer and distributor of computer tape products
used by data processing operations, including 3480/ 3490E tape cartridges, open
reel tape, and back-up tape cartridges such as quarter-inch, 4mm, and 8mm.
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In general, the Company's customers are mid-sized and large organizations
whose businesses rely on efficient, reliable, and ongoing access to significant
amounts of information. The Company's clients include leaders in the finance,
insurance, and retail industries, businesses that tend to process and maintain
relatively large amounts of customer and legal documentation. In addition, the
Company's 44 output service facilities in the United States, along with multiple
locations abroad, have made Anacomp an attractive supplier for customers
requiring products and services at multiple locations.
The Company believes it has a loyal following among businesses in the
United States and abroad, and provides a solid foundation for continued
technological and market innovation.
Recent Developments
On June 4, 1996, the Company emerged from bankruptcy proceedings under its
Third Amended Joint Plan of Reorganization (the "Reorganization"). On such date,
the Company canceled its existing secured debt and subordinated debt, including
15% Senior Subordinated Notes, 13.875% Convertible Subordinated Debentures and
9% Convertible Subordinated Debentures, and its equity securities, including
common stock, common stock purchase rights, preferred stock and warrants, and
distributed to its creditors approximately $22 million in cash, $112.2 million
principal amount of its 11-5/8% Senior Secured Notes due 1999 (the "Senior
Secured Notes"), $160 million principal amount of its 13% Senior Subordinated
Notes due 2002 (the "Senior Subordinated Notes"), 10 million shares of new
common stock, par value $.01 per share (the "New Common Stock"), and warrants to
purchase 362,694 shares of New Common Stock at a price of $12.23 per share for a
period of five years from June 4, 1996. The Plan of Reorganization resulted in a
reduction of approximately $173 million in principal and accrued interest on the
Company's debt obligations and in liquidation amount and accrued dividends on
its preferred stock. The resulting capital structure reduced the Company's
interest expense by approximately $30 million per year.
The process began January 5, 1996, when Anacomp filed a Prenegotiated Plan
of Reorganization with the U.S. Bankruptcy Court in Delaware under Chapter 11 of
the U.S. Bankruptcy Code. The Company was in default under substantially all of
its debt agreements as a result of its failure to make $89.7 million of
principal payments scheduled for April 26, 1995 and October 26, 1995 on the
senior secured credit facilities (including $60 million relating to the
revolving loan agreement which expired on October 26, 1995), $11.4 million of
principal and interest payments on the 9% Convertible Subordinated Debentures
which were due January 15, 1996, $34.1 million of interest payments scheduled
for May 1, 1995 and November 1, 1995 on its Senior Subordinated Notes, and $3.2
million of interest payments scheduled for July 15, 1995 and January 15, 1996 on
the 13.875% Subordinated Debentures, as well as certain financial covenant
violations, and the cross-default provisions of the other debt agreements.
Organization and Operations
Anacomp currently employs over 2,600 people at multiple facilities and
offices in the United States, Canada, Brazil, Japan, and Europe, including 44
output service centers in the United States.
Domestically, Anacomp markets its products and services through two
separate sales forces based in offices located throughout the country. The U.S.
Group, which employs approximately 120 salespeople, is comprised of ten regions
responsible for sales of micrographics and CD-R services; COM systems and
related maintenance services, supplies, and equipment; digital hardware and
software solutions; and sales of magnetics products to end-users. The Magnetics
Group sales organization employs 21 salespeople and is responsible for sales of
magnetics products, primarily to dealers and distributors.
Outside of the United States, the Company maintains direct sales forces in
most of those countries where it has subsidiaries, and a network of dealers and
distributors is used to reach the market in other countries. In addition to
relationships with end-users and with dealers and distributors worldwide, the
Company also manufactures products as an Original Equipment Manufacturer ("OEM")
to companies who re-label and sell Anacomp's products under their respective
brand names.
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The Company provides round-the-clock maintenance and professional services
through over 600 highly trained service employees operating in various countries
worldwide. In the United States, over 400 field service engineers and managers
provide geographic coverage through ten districts. Internationally, maintenance
services are provided either by Anacomp employees operating in the Company's
foreign subsidiaries or by employees of dealers and distributors.
Anacomp maintains its corporate headquarters in Carmel, Indiana, and has
corporate and administrative offices in Atlanta, Georgia and Poway (San Diego),
California. The Company operates three manufacturing facilities, all of which
have received international recognition for quality standards by earning
International Standards Organization ("ISO") 9002 certification. All of
Anacomp's micrographics manufacturing and software development is conducted at
the Company's Poway facility. The Company's magnetics manufacturing facilities
are located in Graham, Texas and Brynmawr, Wales.
Engineering, Research and Development
Anacomp's engineering costs, including research and development, were
significantly reduced in fiscal 1996, primarily as a result of the substantial
completion of the IBM and Xerox print stream projects for the XFP 2000 COM
system. However, the Company continues to make investments in projects that
enhance the XFP 2000 and the overall value of COM, including a high-speed
bitmapping initiative and the continuing development of DragonCOM, a version of
the XFP 2000 for the Asian market that is capable of processing double-byte
ideographic languages.
The Company also launched an engineering initiative in fiscal 1996 known as
"Pegasys" to automate Anacomp's 44 output service centers in the United States
and to develop a state-of-the-art data transmission capability for these
centers. Anacomp believes that better automation of the service centers will
maximize processing capacity, increase productivity, and reduce operating costs.
An improved transmission capability will enable many more of Anacomp's service
customers to send their data to the Company electronically, eliminating the need
for tape handling (on the part of both the customer and the Company's service
center staff) as well as eliminating tape pick-up and delivery. In addition,
data transmission will facilitate the Company's plan to consolidate selected
service centers in order to increase efficiencies and reduce operating costs.
Anacomp expects its current limited research and development relating to
advanced digital technologies to grow going forward as the Company introduces
new digital products and services. These costs will be tempered, however, by the
Company's plan to acquire the rights to core technologies whenever possible.
Anacomp's focus in the digital area will be on the development of customer
applications, where the Company believes it can add value.
The Company also owns various patents and licenses covering aspects of its
product line and its production processes, as well as proprietary trade secret
information relating to its products and services. While Anacomp believes that
the protection provided by these patents, licenses, and proprietary information
is important, the Company also believes that equally significant is the
knowledge and experience of its employees, and their abilities to develop and
market the Company's products and services and to provide a value-added benefit
to customers.
Raw Materials and Suppliers
Polyester is the principal raw material used in the manufacture of
microfilm and magnetic media products, two of Anacomp's primary businesses. A
worldwide shortage of polyester has abated recently, and supply and demand are
more in balance now. As a result, Anacomp has seen its cost of polyester for
magnetic media products decrease recently -- reversing a previous trend of
increasing costs.
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SKC America, Inc. and SKC Limited (collectively "SKC") is Anacomp's sole
supplier of duplicate microfilm, the result of a ten-year supply agreement
between the companies entered into in 1993 as part of SKC's purchase of
Anacomp's Sunnyvale, California duplicate microfilm facilities. SKC's duplicate
film production is dedicated exclusively to Anacomp, and SKC also provides
Anacomp with polyester for a large percentage of its magnetic media products. In
connection with the supply agreement, SKC also provided Anacomp with a $25
million trade credit facility, secured by up to $10 million of products sold to
Anacomp by SKC. In addition, under an amendment to the supply agreement executed
in 1996, Anacomp agreed to certain price increases, retroactive to 1994, and
agreed to make the following deferred payments to SKC related to the retroactive
price increases: $400,000 in 1997; $600,000 in 1998; $800,000 in 1999; $800,000
in 2000; and $1,000,000 in 2001.
Anacomp's XFP 2000 COM system utilizes a proprietary, patented original
film canister, and the original film used in that canister is supplied
exclusively by the Eastman Kodak Company ("Kodak"). Anacomp also purchases from
Kodak substantially all of its requirements for original microfilm for
earlier-generation COM recorders manufactured by Anacomp and others, although
Anacomp has from time to time purchased orginal microfilm utilized in those
older COM recorders from other suppliers.
Market Strategy
The Company's market strategy adheres to a paradigm known as the
Information Delivery Life Cycle, which describes the relationship between the
age of information, the frequency and speed of access, and the type of media
upon which the information is stored. In general, as information ages, the
frequency with which retrieval is required and the speed with which it needs to
be delivered declines. To achieve the greatest degree of cost-effectiveness and
efficiency, organizations migrate this information across several different
delivery systems over the life of the information.
[GRAPHIC OMITTED]
Newly created information is generally the most frequently accessed,
requiring a high-speed storage media such as magnetic disk ("DASD"). As the
information begins to age, it is often migrated to optical disk ("OD") or CD-R,
which offers quick access to information at a lower cost than DASD and which has
high storage capacity. As the need to access information becomes more
infrequent, it often is migrated to magnetic tape, an even lower cost media that
provides somewhat slower, yet readily accessible, information delivery. Once
information moves to an archival stage in its life cycle, it is often moved to
microfilm and microfiche, which offers very low storage costs for both archival
and non-archival applications.
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Anacomp's array of products and services are designed to help organizations
best manage how they store, deliver, and migrate their information across this
entire life cycle. The Company believes that vendor consolidation, a gradual
blending of product and market components of document imaging, and similar
trends will favor suppliers that can provide a broad, technologically robust
suite of products and services across the entire cycle. The Company also
believes that this market will continue to favor vendors with a fully developed
domestic and international infrastructure allowing them to serve large customers
and reap the benefits of economies of scale.
Additionally, competitive pressures on companies in industries served by
Anacomp have steadily increased the demand for output services. Concerns over
technology obsolescence, the sometimes high capital cost of information
management systems, and a general recognition of the benefits of outside
expertise have induced many companies to reduce in-house expenditures on certain
operations in favor of third-party service providers. Through outsourcing,
companies are able to avoid the capital requirements of proprietary data
management and storage systems, and maintain flexibility to migrate their
information as new products and technologies become available.
Anacomp believes this trend should have a positive impact on many of the
output services offered by the Company. Value-added product features (such as
customized indexes, retrieval software, and other user productivity
enhancements), as well as strong client relationships and unsurpassed customer
service enable Anacomp to differentiate itself from other service providers.
Anacomp recognizes that certain products and services in the information
delivery industry are declining relative to others. Traditionally, micrographics
has provided one of the most cost-effective means of data storage and retrieval
for information-intensive organizations such as banks, insurance companies,
financial service companies, retailers, healthcare providers, and government
agencies. However, the ongoing growth of local area and client/server networks
and similar systems based on digital technologies has and will continue to
result in alternative data storage and retrieval technologies for active records
management. Over the next few years, the Company believes that micrographics
technology will continue to retain certain cost and functional advantages over
alternative data storage media, which will keep micrographics competitive in a
wide range of applications. Over a longer term, the Company believes
micrographics technology will be viewed predominately as a cost-effective method
for long-term data storage.
The Company also believes that its leadership in micrographics,
particularly COM services, affords it a substantial marketing and business
platform from which to advance its product and service plans. New and
complementary offerings such as CD-R output services provide a migration path
for customer transitions to digital technologies for certain applications.
Further, by maximizing its share of existing markets such as micrographics and
magnetic media, the Company creates additional opportunities to work with
organizations to better manage their information throughout its life cycle.
The Company believes that strategic acquisitions are integral to future
success in the fragmented information delivery industry. To that end, a core
component of the Company's strategy is to acquire a select number of outsourcing
and other businesses that provide services complementary to Anacomp's existing
data output services. Recent and potential acquisitions include companies in
either COM or CD-R outsourcing, as well as organizations providing complementary
archival and print/mail services.
Likewise, the Company is actively pursuing partnerships with companies
which it believes possess products, technology, or other resources that add
value to Anacomp's own capabilities. Currently, the Company maintains
partnerships with major technology companies for the development of print and
data stream technologies, the development of digital software applications, the
distribution of COM systems in Asia, and in other information management areas.
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Products and Services
Anacomp's information management solutions address its customers' needs
along the entire life cycle of documents. The Company's product and service
offerings are grouped into several areas: Output Services, Technology Services,
Output Systems, Micrographics Supplies and Magnetic Media.
The table below shows Anacomp's revenues by product and service line for
the last three fiscal years. The table is presented on a traditional comparative
basis for the twelve months ended September 30, 1996, to facilitate a meaningful
comparison to fiscal years 1995 and 1994. Consequently, the fiscal 1996
information presented below does not comply with accounting requirements for
companies upon emergence from bankruptcy which calls for separate reporting for
the newly reorganized company and the predecessor company.
Year Ended September 30,
1996 1995 1994
(Dollars in Thousands)
---------------------------------------------------------------------------------
Output Services $103,733 21% $132,144 22% $131,238 22%
Technology Services 82,105 17 86,175 15 91,339 15
Output Systems 32,794 7 51,276 9 57,627 10
Micrographics Supplies 150,449 31 190,621 32 204,346 35
Magnetic Media 112,187 23 128,353 22 97,545 17
Other 4,872 1 2,620 0 10,504 1
$486,140 100% $591,189 100% $592,599 100%
Output Services
COM Services
COM services, the delivery of microfilm outsourcing services, represents
the largest component of Anacomp's output services. The Company operates 44
output service centers in the United States, ranking second in domestic market
share, and plans to begin offering COM services in fiscal 1997 at startup output
service centers in Canada and Europe.
On a daily basis, Anacomp's output service centers receive thousands of
electronic downloads and computer tapes from customers. This information (both
text and graphics) is converted to 16mm microfilm or to microfiche, which is a
four-inch by six-inch film medium capable of storing up to 1,000 pages of
computer output. Turnaround for a typical COM services job ranges from two hours
to 36 hours, depending on specific circumstances and requirements, and the
centers generally operate 24 hours a day every day of the year.
In response to a gradual decline in the market for micrographics services
and a more competitive market, in fiscal 1995 Anacomp completed installation of
XFP 2000 COM systems in all of its output service centers, increasing the
efficiency of COM production. Additionally, the Company has upgraded many of
these systems with Anacomp-developed emulation software for IBM and Xerox laser
print streams, expanding the potential market for COM services and resulting in
higher average prices than for other COM output.
As an adjunct to COM services, Anacomp also provides External Facilities
Management ("XFM") services to selected customers. Under an XFM arrangement,
Anacomp operates and manages a customer's COM production at Anacomp's
facilities.
The COM services segment of the micrographics industry processed over 45
billion images in 1995, generating over $350 million in revenues. The Company
believes it holds an estimated 25 percent to 30 percent market share, second
only to First Image Management Company, a division of First Data Corporation.
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ALVA CD Services
Anacomp is the third largest U.S. provider of CD-R output services. The
Company's ALVA CD Services provide Anacomp customers with a high-capacity
storage and delivery solution for applications requiring frequent and high-speed
information retrieval.
ALVA CD services involves storing and indexing customer information such as
invoices and customer statements on CD-R. In addition to indexed CD output, ALVA
also includes sophisticated Windows-based software for accessing and retrieving
the data. ALVA is available at the majority of the Company's output service
centers in the United States, as well as through new Company output service
centers in Canada and Europe.
Anacomp estimates the total market for CD services to grow from an
estimated $10 - $15 million in revenues in fiscal 1996 to $75 million by 1999.
The Company believes that its ALVA solution has significant advantages over
competing products, primarily due to the Company's network of output service
centers, its extensive knowledge of applications and indexing expertise, and
ALVA's flexible and easy-to-use user interface.
Archival And Print/Mail Services
Anacomp provides archival storage services at several of its output service
centers in the United States, providing the long-term storage of original
microfilmed records for its COM services customers. The microfilm is stored in a
secure vault within the Anacomp facility, providing customers with a convenient
and safe method of off-site storage of critical business records. In addition,
Anacomp offers customers the ability to retrieve their records on an as-needed
basis. Anacomp plans to expand this business in fiscal 1997 by opening several
new archival vaults.
The Company also intends to broaden its archival services business in the
future by storing multiple-media records -- such as paper, optical disks, and
magnetic tape in addition to microfiche and microfilm -- at dedicated storage
facilities. Anacomp has taken a first step in this direction in October 1996 by
acquiring Archive Storage, Inc. ("ASI"), a small Massachusetts company that
operated an underground, climate-controlled storage vault. ASI also provided
records management and disaster recovery consulting services to businesses,
helping customers ensure they are storing the right information on the most
cost-effective media for the appropriate periods of time.
Anacomp plans to expand print/mail services, the output and mailing of
printed information, in the United States in fiscal 1997. The Company sees
print/mail services as complementary to the COM and CD output services it offers
to clients today, and the Company believes it can leverage its existing client
relationships and application knowledge to obtain significant print/mail
revenues by providing its customers with distinct cost and service advantages.
Technology Services
Anacomp's technology services includes both traditional maintenance
services as well as newer professional services offered by the Company.
Anacomp maintains approximately 98% of its own installed base of COM
systems, as well as a large percentage of those built by other companies. In
addition, the Company provides maintenance services for micrographics-related
devices and, increasingly, non-micrographics equipment. Since many customers
tend to use the maintenance services of the vendor that installed the system,
maintenance revenues traditionally have been a function of new COM system sales
and the size of the installed base. Anacomp's COM maintenance market share is
approximately 65 percent in the United States, 50 percent in Europe, and 15
percent in the Americas (excluding the United States) and Asia.
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In fiscal 1996, Anacomp identified professional services as a potential
growth segment of its maintenance business. Professional services refers to the
delivery of project-specific expertise in such areas as job set-ups, user
interfaces, data communications, and networking. Tasks include software
development, problem resolution, and consulting. In the past, Anacomp had
provided many of these services to customers free of charge. As an example of
how the Company plans to market professional services, Anacomp now provides a
specified number of hours of "free" job set-up assistance with each XFP 2000
sold; the customer is charged for work exceeding those hours.
Output Systems
COM Systems
Anacomp is the world's leading manufacturer and distributor of COM systems,
offering a complete line of COM recorders, duplicators, sorters, and related
software. Anacomp's installed base of COM systems, approximately 55 percent of
those in use worldwide, is more than twice as large as its nearest competitor,
and related sales of COM services and supplies to the installed base provide the
Company with a recurring revenue stream that constitutes a significant portion
of its annual revenues.
The XFP 2000, which is manufactured by the Company, is the most advanced
COM recorder on the market and has enabled the Company to capture an estimated
57 percent of all new COM systems sold or leased. The XFP 2000 is faster and
more reliable than previous COM recorders and, through its laser technology, has
the capability to generate precise reproductions of any image.
In fiscal 1996, Anacomp introduced DragonCOM, a version of the XFP 2000 for
the Asian market, which is capable of processing Chinese, Korean, Taiwanese,
Japanese, and other ideographic languages utilizing the popular IBM Advanced
Function Presentation ("AFP") architecture.
Anacomp also has developed two new software products that emulate IBM and
Xerox laser print streams. AFP software developed in conjunction with IBM
enables the XFP 2000 to process and image AFP formatted data streams used by IBM
high-speed mainframe laser printers. Xerox Compatibility Feature ("XCF")
software developed in partnership with Xerox enables the XFP 2000 to process the
same data stream used by Xerox high-speed, high-volume laser printers.
Principal customers for the Company's COM systems include
information-intensive organizations such as banks, insurance companies,
financial service companies, retailers, healthcare providers, and government
agencies, as well as non-Anacomp COM output service centers. While the majority
of COM systems are sold outright, the Company does offer customers lease and
monthly usage options.
The Company's primary competitors in the sale of COM systems are
Agfa-Gevaert AG ("Agfa") and Micrographic Technology Corporation. Competition is
based principally on product features, as well as on such factors as product
quality, service and price. Anacomp sells approximately 57 percent of all new
COM systems sold worldwide, including those sold through an OEM arrangement.
Electronic Data Management
The Company is working actively to bring to market a new suite of
electronic data and image management solutions, known as "Concerto". These
software solutions are expected to support a wide range of computer output,
document images, document routing, and management applications. Applications are
expected to include customer response systems, healthcare claims processing,
litigation support, insurance claims processing, and many other applications
involving the electronic storage, retrieval, routing, and management of
documents and associated information.
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The Company also markets an integrated system for information management
known as XSTAR, or the eXtended STorage And Retrieval system ("XSTAR"). Launched
in 1995, XSTAR is a solution for mainframe computing environments that allows
organizations with significant data access requirements to expedite information
retrieval regardless of the data's location.
The Company intends to position itself as a comprehensive provider of
integrated solutions for organizing, storing, routing, and processing
information of all types. In order to quickly and cost-effectively provide these
solutions to its customers, and to take maximum advantage of the Company's areas
of expertise, Anacomp has embarked on establishing technology alliances with the
foremost providers of the key technologies available today for managing and
delivering information.
Micrographics Supplies
Anacomp sells the most comprehensive line of micrographics supplies in the
world, including original silver halide film, duplicate film, chemicals for
microfilm processing, paper and toners for reader/printers, micrographics lamps
and bulbs, and other consumables. The Company also markets a complete line of
microfilm/microfiche readers.
Anacomp is the world's largest supplier of duplicate microfilm, which is
used to create one or more additional copies of original microfiche and
microfilm masters. The Company's share of this estimated $75 million worldwide
market is approximately 67 percent, which includes sales to its own output
centers. Anacomp's primary competitor in the duplicate microfilm market is
Rexham Graphics Ltd. ("Rexham") with an estimated 25 percent share of the
worldwide duplicate film market.
The Company sells original microfilm for Anacomp's COM systems and for
other manufacturers' COM systems, with film sold for Anacomp's systems
representing the vast majority of original microfilm sales. Anacomp competes in
sales of non-proprietary original COM microfilms with other manufacturers,
including Agfa, Fuji Photo Film U.S.A., Inc. ("Fuji"), Kodak, and Imation
Enterprises Corporation ("Imation") (formerly part of 3M). For non-OEM sales of
the XFP 2000, the Company is the exclusive supplier for original microfilm
because of the proprietary nature of the canister in which the film is placed.
Anacomp sells its consumable supplies directly to more than 90 percent of its
worldwide installed base.
Ancomp has an estimated 33 percent of the micrographics supplies market in
Europe and an estimated 39 percent of the supplies market in the Americas
(excluding the United States) and Asia. In Europe, the Company's primary
competitors for micrographics supplies and equipment are the Kalle Microfilm
Division of Hoechst AG, A. Messerli AG and Rexham. Its primary competitors in
Japan are Kodak and Fuji.
Magnetic Media
Anacomp manufactures, sells, and distributes a broad range of magnetics
products such as open reel tape, 3480/3490E tape cartridges, TK 50/52
CompacTape, and back-up tape cartridges such as quarter-inch, 4mm, and 8mm.
Anacomp is the world's largest manufacturer of half-inch tape products, widely
used by many organizations for the near-line storage of business data.
Anacomp is exploring new applications and markets based on its magnetics
coating capacity. In fiscal 1995, Anacomp introduced voice logging tape and
instrumentation tape. Voice logging tape is used by brokerage companies, "911"
emergency service providers, and other entities to record telephone
conversations. Instrumentation tape is used by various government agencies to
measure and record sensitive data. In fiscal 1996, Anacomp began to use magnetic
coated media to manufacture transfer tape, which is found on the back of
transaction media (similar to credit and telephone cards).
The Company is actively seeking partnerships that will enable the Company
to participate in the next generation of magnetic media products, including
half-inch metal particle tape (3590 cartridges). This product will be introduced
in fiscal 1997 and is expected to enjoy significant growth as this market
expands over the next several years.
11
Anacomp primarily sells its magnetics products through its worldwide
distributor and dealer network and, to a lesser extent, through parts of the
Company's direct sales force. Anacomp markets its magnetics products under the
"Memorex", "Dysan", "Graham", and "StorageMaster" trademarks.
Anacomp has no significant competitors with respect to the manufacture of
open reel tape, and its worldwide market share for that product is estimated at
92 percent. Anacomp competes with Imation and BASF AG in the sale of 3480/3490E
data cartridges. Anacomp's worldwide market share for 3480 and 3490E data
cartridges is estimated to be 38 percent and 35 percent, respectively.
Industry Segment and Foreign Operations
As discussed in Note 1 to the consolidated financial statements, Anacomp
operates in a single business segment -- providing equipment, supplies and
services for information management, including storage, processing and
retrieval. Financial information concerning the Company's operations in
different geographical areas is included in Note 22 to the consolidated
financial statements.
Summary
Soon to begin its fourth decade of operation, Anacomp has substantial
market positions for most of its products. Serving more than 15,000 customers in
65 countries, the Company is one of the oldest and most well-known names in
information management.
Micrographics, historically its core product line, continues to provide the
Company access to a premier customer base and the revenue to invest in new
products and technologies. New products and services, such as ALVA, Concerto,
archival services, and print/mail services, offer the Company the opportunity to
extend its history of leadership into the next decade. After its financial
reorganization in fiscal 1996, Anacomp believes it has positioned itself to
become the world leader in helping organizations manage information across its
entire life cycle.
13
ITEM 2. PROPERTIES
Anacomp maintains its corporate headquarters in Carmel, Indiana (a suburb
of Indianapolis) and has corporate and administrative offices in Atlanta,
Georgia and Poway (San Diego), California. Micrographics manufacturing,
engineering, customer service, marketing and product maintenance facilities are
all located in Poway, California near San Diego. Anacomp's magnetics
manufacturing facilities are located in Graham, Texas and Brynmawr, Wales.
During 1994, Anacomp's Graham and Brynmawr facilities received international
recognition for quality standards, earning International Standards Organization
("ISO") 9002 certification. Anacomp's Poway facility earned ISO 9002
certification in September 1995.
The following table indicates the square footage of Anacomp's
facilities:
Operating Other Corporate
Facilities Facilities Facilities Total
United States:
Leased .................................. 601,700 119,614 49,111 770,425
Owned ................................... 147,420 15,630 - 163,050
749,120 135,244 49,111 933,475
International:
Leased .................................. 105,254 29,410 - 134,664
Owned ................................... 145,000 -- -- 145,000
250,254 29,410 - 279,664
Total ................................. 999,374 164,654 49,111 1,213,139
Other Facilities consist primarily of abandoned facilities, of which
151,569 square feet is sublet to others. Anacomp also leases office space for
its sales and service centers in a variety of locations. Anacomp considers its
facilities adequate for its present needs and does not believe that it would
experience any difficulty in replacing any of its present facilities if any of
its current agreements were terminated.
ITEM 3. LEGAL PROCEEDINGSLegal Proceedings
The Company and its subsidiaries are named defendants in several lawsuits
and claims arising in the ordinary course of business. While the outcome of such
claims, lawsuits or other proceedings against the Company cannot be predicted
with certainty, management expects that any liability arising thereunder, to the
extent not provided for through insurance or otherwise, will not have a material
adverse effect on the financial statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the three months ended September 30,
1996, to a vote of Anacomp's security holders through the solicitation of
proxies or otherwise.
14
EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company, their ages (as of December
16, 1996) and positions are listed below:
Name Age Position
P. Lang Lowrey, III 43 President, Chief Executive Officer and
Chairman of the Board
Ralph W. Koehrer 51 President and Chief Operating Officer
(effective January 6, 1997)
Donald L. Viles 50 Executive Vice President and
Chief Financial Officer
Ray L. Dicasali 48 Senior Vice President and
Chief Technology Officer
Barry L. Kasarda 53 Senior Vice President-Operations
Kevin M. O'Neill 42 Senior Vice President-Global Marketing
William C. Ater 56 Vice President, Chief Administrative Officer
and Secretary
Jeffrey S. Withem 37 Vice President-Planning and Communications
and Chief of Staff
Thomas L. Brown 40 Vice President and Treasurer
K. Gordon Fife 51 Vice President-Tax
George C. Gaskin 37 Vice President-Legal, Corporate Counsel and
Assistant Secretary
Hasso Jenss 53 President-European Group
Gary M. Roth 54 President-International Group
T. Randy Simmons 49 President-U.S. Group
Peter Williams 44 President-Magnetics Group
The business experience of the above officers and directors for the past
five years is described below. Each executive officer is elected for a term of
one year and holds office until his successor is chosen and qualified or until
his death, resignation or removal.
P. Lang Lowrey, III was elected Chairman of the Board on June 4, 1996. Mr.
Lowrey was elected President and Chief Operating Officer in May 1995 and
subsequently assumed the duties of Chief Executive Officer, effective October 1,
1995. Prior to that, he served as President - Magnetics Group from November 1992
to May 1995. He served from October 1990 to October 1992 as Vice President
Worldwide Marketing Division.
Ralph W. Koehrer was elected President and Chief Operating Officer
(effective January 6, 1997) on December 10, 1996. Koehrer will join the Company
from Automatic Data Processing, Inc. ("ADP"), where, most recently, he served as
a corporate officer and as president of ADP's Information and Processing
Services division.
Donald L. Viles was elected Executive Vice President and Chief Financial
Officer on February 15, 1996. From October 1985 to February 1996, he served as
Vice President and Controller.
Ray L. Dicasali was elected Senior Vice President and Chief Technology
Officer on June 3,1996. From 1993 to 1996, Mr. Dicasali served as Senior Vice
President of Technology and CIO of Flexel. From 1989 to 1993, Mr. Dicasali was
Senior Vice President and CIO of Dun and Bradstreet Software.
Barry L. Kasarda was elected Senior Vice President - Operations on December
10, 1996, after assuming responsibility for the Technology Services Group. He
had been elected Senior Vice President of Manufacturing and Materials on June 3,
1996 and continues to oversee those functions. From 1993 to 1996, he served as
Vice President of Materials. Prior to joining the Company, Mr. Kasarda served as
Vice President and General Manager of ABEX Division of Parker Hannifin
Corporation from 1989 to 1993.
15
Kevin M. O'Neill was elected Senior Vice President - Global Marketing on
June 3, 1996. Mr. O'Neill had previously served as Vice President of Global
Marketing from 1995 until June 1996. From 1994 to 1995, Mr. O'Neill served as
Vice President of Marketing, Strategic Resellers Group. Prior to joining the
Company, Mr. O'Neill served as Senior Director, Marketing & Product Development
for Fujitsu-ICL Systems, Inc. from 1982 to 1994.
William C. Ater was elected Vice President and Chief Administrative Officer
in February 1988. He has served as Secretary since March 1985.
Jeffrey S. Withem was elected Vice President - Planning and Communications
and Chief of Staff on June 3, 1996. Mr. Withem was Vice President, Strategic
Planning and Corporation Communications from October 1995 to June 1996. From
1993 to 1995, Mr. Withem served as Vice President, Marketing, for the Company's
Magnetics Group. Prior to that, he was Marketing Communications Manager for
Worldwide Marketing for the Company from 1990 to 1992.
Thomas L. Brown was elected Vice President and Treasurer on May 19, 1996.
From January 1995 to April 1996, Mr. Brown served as Corporate Controller of
Hurco Companies, Inc. Mr. Brown had previously served as Assistant Vice
President of Financial Reporting and Analysis for the Company from March 1991 to
1995.
K. Gordon Fife was elected Vice President - Tax in October 1985.
George C. Gaskin was elected Vice President - Legal, Corporate Counsel and
Assistant Secretary on June 3, 1996. From June 1990 to June 1996, Mr. Gaskin
served as Corporate Counsel and Assistant Secretary.
Hasso Jenss was elected President of the European Group effective October
1,1995. Mr. Jenss served as Vice President - European Micrographics from
November 1993 to September 1995. Prior to that, he served from October 1989 to
October 1993 as Managing Director of Anacomp's German subsidiary.
Gary M. Roth was elected President of the International Group, effective
October 1, 1995. Previously, Mr. Roth served as Vice President, Americas/Asia
Division from November 1992 to September 1995. From October 1991 to October
1992, he served as Manager, LAAP/Canada Operations. From October 1988 to October
1991, he served as Vice President - Data Systems Division.
T. Randy Simmons was elected President of the U.S. Group, effective October
1, 1995. Previously, Mr. Simmons served as Vice President, Direct Sales Division
- - East from November 1994 to September 1995. Prior to that, he served as Vice
President - Information Systems Division from November 1991 to November 1994. He
served from 1987 to 1991 as Vice President - Micrographics Services Division.
Peter Williams was elected President of the Magnetics Group, effective
October 1, 1995. Previously, he served as General Manager of the Magnetics
European Group from 1993 to September 1995. Prior to that, he served from 1990
to 1993 as Vice President, Wales Operations - Magnetics.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Market, holder and dividend information concerning the Company's common
stock appears on page A-2 of this Annual Report on Form 10-K.
16
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data appears on page A-2 of this Annual Report on Form
10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations appears on pages A-3 to A-9 of this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary financial information appear on
pages A-10 to A-41 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There are no changes in or disagreements with accountants on accounting and
financial disclosures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company hereby incorporates by reference the information contained
under the headings "Election of Directors" and "Compliance with Section 16(a) of
the Securities and Exchange Act of 1934" from its definitive Proxy Statement
(hereinafter, the "Proxy Statement") to be delivered to the shareholders of the
Company in connection with the 1997 Annual Meeting of Shareholders to be held
February 3, 1997. Certain information relating to executive officers of the
Company appears on pages 13 and 14 hereof.
ITEM 11. EXECUTIVE COMPENSATIONExecutive Compensation
The Company hereby incorporates by reference the information contained
under the heading "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Company hereby incorporates by reference the information contained
under the heading "Security Ownership of Management and Other Beneficial Owners"
in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships or related transactions that require disclosure.
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. The following financial statements and other information appear in
Appendix A to this Annual Report on Form 10-K and are filed as a part hereof:
Selected Financial Data.
Market Price and Dividend Information.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Report of Independent Public Accountants.
Consolidated Balance Sheets - September 30, 1996 and 1995.
Consolidated Statements of Operations -
Four Months Ended September 30, 1996,
Eight Months Ended May 31, 1996,
Twelve Months Ended September 30, 1995 and 1994.
Consolidated Statements of Cash Flows -
Four Months Ended September 30, 1996,
Eight Months Ended May 31, 1996,
Twelve Months Ended September 30, 1995 and 1994.
Consolidated Statements of Stockholders' Equity (Deficit) -
Four Months Ended September 30, 1996,
Eight Months Ended May 31, 1996,
Twelve Months Ended September 30, 1995 and 1994.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules are not filed with this Annual Report on
Form 10-K because the Schedules are either inapplicable or the required
information is represented in the financial statements or notes thereto.
(b) Reports on Form 8-K:
During the quarter ended September 30, 1996, and prior to filing its Annual
Report on Form 10-K, Anacomp filed no reports on Form 8-K.
(c) The following exhibits are filed with this Annual Report on Form 10-K or
incorporated herein by reference to the document set forth next to the exhibit
listed below.
Previously unfiled documents are noted with an asterisk (*):
(3) Articles of Incorporation and Bylaws:
a) The Amended and Restated Articles of Incorporation of Anacomp were
effective June 4, 1996, and are incorporated by reference to Anacomp's Form 8-K
filed on June 19, 1996 (File No. 1-8328).
b) The Amended and Restated Bylaws of Anacomp were effective June 4, 1996,
and are incorporated by reference to Anacomp's Form 8-K filed on June 19, 1996
(File No. 1-8328).
18
(4) Instruments defining the rights of security holders, including
indentures:
(a) Third Amended Joint Plan of Reorganization of the Company and certain
of its subsidiaries. Previously filed and incorporated by reference to the
Company's Form 8-A filed on May 15, 1996 (File No. 0-7641).
(b) Indenture, dated as of June 4, 1996, between the Company and The Bank
of New York, as trustee, relating to the Company's 11-5/8% Senior Secured Notes
due 1999. Previously filed and incorporated by reference to the Company's Form
8-K filed on June 19, 1996 (File No. 1-8328).
(c) Application by the Company for Exemption from Section 314(d) of the
Trust Indenture Act of 1939, as amended, pursuant to Section 304(d) and Rule
4d-7 thereunder. Previously filed and incorporated by reference to the Company's
Form 8-K filed on June 19, 1996 (File No. 1-8328).
(d) Indenture, dated as of June 4, 1996, between the Company and IBJ
Schroder Bank & Trust Company, as trustee, relating to the Company's 13% Senior
Subordinated Notes due 2002. Previously filed and incorporated by reference to
the Company's Form 8-K filed on June 19, 1996 (File No. 1-8328).
(e) Warrant Agreement, dated as of June 4, 1996, between the Company and
ChaseMellon Shareholder Services, L.L.C. Previously filed and incorporated by
reference to the Company's Form 8-K filed on June 19, 1996 (File No. 1-8328).
(f) Security and Pledge Agreement, dated as of June 4, 1996, by the
Company, in favor of the Senior Secured Trustee. Previously filed and
incorporated by reference to the Company's Form 8-K filed on June 19, 1996 (File
No. 1-8328).
(g) First Leasehold Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing, dated June 4, 1996, made by Anacomp, Inc., as grantor, in
favor of Chicago Title Insurance Company, as trustee, for the benefit of The
Bank of New York, as beneficiary. Previously filed and incorporated by reference
to the Company's Form 8-K filed on June 19, 1996 (File No. 1-8328).
(h) First Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing, dated June 4, 1996 made by Anacomp, Inc., as grantor, in favor
of Chicago Title Insurance Company, as trustee, for the benefit of The Bank of
New York, as beneficiary. Previously filed and incorporated by reference to the
Company's Form 8-K filed on June 19, 1996 (File No. 1-8328).
(10) Material Contracts:
(a) *Amended and Restated Employment Agreement, effective October 1, 1996,
between Anacomp, Inc. and P. Lang Lowrey, III.
(b) Employment Agreement, effective March 1, 1992, between Anacomp, Inc.
and Thomas R. Simmons. Previously filed and incorporated by reference to the
Company's Form 10-K for the year ended September 30, 1993.
(c) *Employment Agreement, effective October 1, 1992, between Anacomp, Inc.
and William C. Ater.
19
(d) *Employment Agreement, effective February 15, 1996, between Anacomp,
Inc. and Donald L. Viles.
(e) Common Stock Registration Rights Agreement, dated as of June 4, 1996 by
and among the Company and the Holders of Registrable Shares. Previously filed
and incorporated by reference to the Company's Form 8-K filed on June 19, 1996
(File No. 1-8328).
(f) Senior Secured Note Registration Rights Agreement, dated as of June 4,
1996 by and among the Company and the Holders of Registrable Notes. Previously
filed and incorporated by reference to the Company's Form 8-K filed on June 19,
1996 (File No. 1-8328).
(g) Senior Subordinated Note Registration Rights Agreement dated as of June
4, 1996, by and among the Company and Holders of Registrable Notes. Previously
filed and incorporated by reference to the Company's Form 8-K filed on June 19,
1996 (File No. 1-8328).
(h) Amended and Restated Master Supply Agreement, dated October 8, 1993,
among Anacomp, Inc., SKC America, Inc. and SKC Limited. Previously filed and
incorporated by reference to the Company's Form 10-K for the year ended
September 30, 1993.
(11)*Statement re: computation of per share earnings.
(21)*Subsidiaries of the registrant.
(27)*Financial data schedule (Required for electronic filing only).
20
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ANACOMP, INC.
By: /s/ P. Lang Lowrey, III
P. Lang Lowrey, III
President, Chief Executive
Officer, and Chairman of the Board
December 23, 1996
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
on the dates indicated.
Dated: December 23, 1996 By: /s/ P. Lang Lowrey, III
P. Lang Lowrey, III
President, Chief Executive
Officer, and Chairman of the Board
Dated: December 23, 1996 By: /s/ Donald L. Viles
Donald L. Viles, Executive Vice
President and Chief Financial Officer
Dated: December 23, 1996 By: /s/ Talton R. Embry
Talton R. Embry, Director
Dated: December 23, 1996 By: /s/ Darius W. Gaskins, Jr.
Darius W. Gaskins, Jr., Director
Dated: December 23, 1996 By: /s/ Jay P. Gilbertson
Jay P. Gilbertson, Director
Dated: December 23, 1996 By: /s/ Richard D. Jackson
Richard D. Jackson, Director
Dated: December 23, 1996 By: /s/ George A. Poole, Jr.
George A. Poole, Jr., Director
Dated: December 23, 1996 By: /s/ Lewis Solomon
Lewis Solomon, Director
21
APPENDIX A
Annual Report on Form 10-K
Anacomp, Inc.
Page
Selected Financial Data .......................................................................... A-2
Market Price and Dividend Information ............................................................ A-2
Management's Discussion and Analysis of Financial Condition and Results of Operations ............ A-3
Report of Independent Public Accountants ......................................................... A-10
Consolidated Balance Sheets -- September 30, 1996 and 1995 ....................................... A-11
Consolidated Statements of Operations -Four Months Ended September 30, 1996, Eight
Months Ended May 31, 1996, Twelve Months Ended September 30, 1995 and 1994 ..................... A-12
Consolidated Statements of Cash Flows -- Four Months Ended September 30, 1996, Eight
Months Ended May 31, 1996, Twelve Months Ended September 30, 1995 and 1994 ..................... A-13
Consolidated Statements of Stockholders' Equity (Deficit) -- Four Months Ended September 30, 1996,
Eight Months Ended May 31, 1996, Twelve Months Ended September 30, 1995 and 1994 ............... A-15
Notes to Consolidated Financial Statements ....................................................... A-16
ANACOMP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The following Selected Financial Data should be read in conjunction with Item 1,
"Business", of Part I of this Annual Report on Form 10-K, and with the Notes to
Consolidated Financial Statements:
Reorganized
Company Predecessor Company
Four Months Ended Eight Months Fiscal Year Ended September 30,
September 30, Ended May 31,
(Dollars in thousands, except per share 1996 1996 1995 1994 1993 1992
amounts)
---
Revenues .............................................. $ 151,542 $ 334,598 $591,189 $592,599 $590,208 $628,940
Income (loss) before extraordinary credit and
cumulative effect of accounting change ............... (22,009) 112,528 (238,326) 6,955 11,691 18,221
Extraordinary credit .................................. -- 52,442 -- -- 6,900 8,700
52,442
Cumulative effect on prior years of a change
in accounting for income taxes ....................... -- -- -- 8,000 --
Net income (loss) ..................................... (22,009)(a) 164,970 (b) (238,326) 14,955 18,591 26,921
Earnings (loss) per common and common equivalent share:
Net income (loss) ..................................... $ (2.19) (c) (c) (c) (c) (c)
Cash dividends per common share ....................... -- -- -- --
(a) The net loss for the four months ended September 30, 1996, includes $25.7
million of Reorganization Asset amortization.
(b) The net income for the eight months ended May 31, 1996, includes $92.8
million of Reorganization items as more fully discussed in Notes 3 and 4 4
to the accompanying consolidated financial statements.
(c) Due to the implementation of Fresh Start Reporting, per share data for the
Predecessor Company has been excluded as they are not comparable.
As of September 30,
----------------------------------------------------------------
Reorganized
Company Predecessor Company
------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------------------
Current assets $147,530 $175,193 $214,129 $218,011 $244,434
Current liabilities 152,996 578,857 208,313 187,082 198,685
Working capital (5,466) (403,664) 5,816 30,929 45,749
Total assets 435,421 421,029 658,639 643,548 681,561
Long-term debt, net of current 217,044 -- 366,625 404,738 429,140
portion
Redeemable preferred stock -- 24,574 24,478 24,383 24,287
Stockholders' equity (deficit) 58,569 (188,243) 49,756 13,799 8,290
MARKET PRICE AND DIVIDEND INFORMATION
Anacomp, Inc.'s common stock is traded on The NASDAQ Stock Market
("NASDAQ") under the ticker symbol "ANCO." The high and low closing prices (as
reported by NASDAQ) for the Company's common stock were as follows:
HIGH LOW
Three months ended:
September 30, 1996 $11.13 $7.63
The Company's borrowing agreements prohibit the payment of cash dividends
on common shares. The number of stockholders of record as of December 16, 1996
was 229. The number of beneficial stockholders of record as of December 16, 1996
was approximately 1,200.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Recent Developments
On June 4, 1996, the Company emerged from bankruptcy proceedings under its
Third Amended Joint Plan of Reorganization (the "Reorganization"). On such date,
the Company canceled its existing secured debt and subordinated debt, including
15% Senior Subordinated Notes, 13.875% Convertible Subordinated Debentures and
9% Convertible Subordinated Debentures, and its equity securities, including
common stock, common stock purchase rights, preferred stock and warrants, and
distributed to its creditors approximately $22 million in cash, $112.2 million
principal amount of its 11-5/8% Senior Secured Notes due 1999 (the "Senior
Secured Notes"), $160 million principal amount of its 13% Senior Subordinated
Notes due 2002 (the "Senior Subordinated Notes"), 10 million shares of new
common stock, par value $.01 per share (the "New Common Stock"), and warrants to
purchase 362,694 shares of New Common Stock at a price of $12.23 per share for a
period of five years from June 4, 1996. The Plan of Reorganization resulted in a
reduction of approximately $173 million in principal and accrued interest on the
Company's debt obligations and in liquidation amount and accrued dividends on
its preferred stock. The resulting capital structure reduced the Company's
interest expense by approximately $30 million per year.
The process began January 5, 1996, when Anacomp filed a Prenegotiated Plan
of Reorganization with the U.S. Bankruptcy Court in Delaware under Chapter 11 of
the U.S. Bankruptcy Code. The Company was in default under substantially all of
its debt agreements as a result of its failure to make $89.7 million of
principal payments scheduled for April 26, 1995 and October 26, 1995 on the
senior secured credit facilities (including $60 million relating to the
revolving loan agreement which expired on October 26, 1995), $11.4 million of
principal and interest payments on the 9% Convertible Subordinated Debentures
which were due January 15, 1996, $34.1 million of interest payments scheduled
for May 1, 1995 and November 1, 1995 on its Senior Subordinated Notes, and $3.2
million of interest payments scheduled for July 15, 1995 and January 15, 1996 on
the 13.875% Subordinated Debentures, as well as certain financial covenant
violations, and the cross-default provisions of the other debt agreements.
Results of Operations
On May 20, 1996 (the "Confirmation Date"), the Company's Plan was confirmed
by the United States Bankruptcy Court and the Company emerged from bankruptcy on
June 4, 1996. As a result of the Reorganization, the recording of the
restructuring transaction and the implementation of Fresh Start Reporting, the
Company's results of operations after May 31, 1996 (the cutoff date used for
financial reporting purposes) are not comparable to results reported in prior
periods. See Note 3 to the accompanying consolidated financial statements for
information on consummation of the Plan of Reorganization and implementation of
Fresh Start Reporting.
To facilitate a meaningful comparison of the Company's quarterly and
year-to-date operating performance in fiscal years 1996 and 1995, the following
discussion of results of operations on a consolidated basis is presented on a
traditional comparative basis for all periods. Consequently, the current year's
information presented below does not comply with accounting requirements for
companies upon emergence from bankruptcy, which requirements call for separate
reporting for the newly reorganized company and the predecessor company.
23
CONSOLIDATED RESULTS OF OPERATIONS
Anacomp, Inc. and Subsidiaries
(Dollars in thousands, except per share amounts) Year ended September 30, 1996 (a) 1995 1994
Revenues:
Services provided.................................................................... $189,257 $219,881 $223,511
Equipment and supply sales........................................................... 296,883 371,308 369,088
486,140 591,189 592,599
Operating costs and expenses:
Costs of services provided........................................................... 104,499 126,493 122,628
Costs of equipment and supplies sold................................................. 226,623 290,842 274,575
Selling, general and administrative expenses......................................... 93,514 132,459 115,819
Amortization of reorganization asset................................................. 25,663 ---- ----
Special charges...................................................................... ---- 136,889 ----
Restructuring charges................................................................ ---- 32,695 ----
450,299 719,378 513,022
Income (loss) before interest, other income, reorganization items, income taxes,
extraordinary credit and cumulative effect of accounting change...................... 35,841 (128,189) 79,577
Interest income.......................................................................... 2,573 2,000 3,144
Interest expense and fee amortization.................................................... (39,629) (70,938) (67,174)
Financial restructuring costs............................................................ ---- (5,987) ----
Other income (expense)................................................................... 6,995 (212) (192)
(30,061) (75,137) (64,222)
Income (loss) before reorganization items, income taxes, extraordinary credit,
and cumulative effect of accounting change........................................... 5,780 (203,326) 15,355
Reorganization items..................................................................... 92,839 ---- ----
Income (loss) before income taxes, extraordinary credit and cumulative effect
of accounting change................................................................. 98,619 (203,326) 15,355
Provision for income taxes............................................................... 8,100 35,000 8,400
Income (loss) before extraordinary credit and
cumulative effect of accounting change............................................... 90,519 (238,326) 6,955
Extraordinary credit - gain on discharge of indebtedness, net of taxes................... 52,442 ---- ----
Cumulative effect on prior years of a change in accounting
for income taxes..................................................................... ---- ---- 8,000
Net income (loss)........................................................................ 142,961 (238,326) 14,955
Preferred stock dividends and discount accretion......................................... 540 2,158 2,158
Net income (loss) available to common stockholders....................................... $142,421 $(240,484) $12,797
(a) This column reflects the combination of historical results for the eight
months ended May 31, 1996, for the Predecessor Company and for the four months
ended September 30, 1996, for the Successor Company.
24
Results of Operations-Fiscal 1996, 1995 and 1994
General
Anacomp reported net income of $143 million for the year ended September
30, 1996 as compared to a net loss of $238.3 million and net income of $15
million for the years ended September 30, 1995 and 1994, respectively. Included
in the fiscal 1996 income are reorganization items of $92.8 million and a $52.4
million extraordinary gain resulting from the discharge of indebtedness.
Included in the fiscal 1995 loss are special charges of $136.9 million,
representing a write-off of goodwill of $108 million and $28.9 million of costs
associated with software investments (See Notes 8 and 18 to the accompanying
consolidated financial statements). Also included in the fiscal 1995 loss is a
$29 million deferred tax provision and $32.7 million of restructuring charges.
Earnings before interest, other income, reorganization items, extraordinary
credits, restructuring charges, special charges, taxes, depreciation and
amortization ("EBITDA") was $84.2 million for the year ended September 30, 1996
as compared to $77.2 million and $114.2 million for the years ended September
30, 1995 and 1994 respectively.
Total revenues for fiscal 1996 of $486.1 million represent a $105.1 million
decrease from fiscal 1995. Approximately $60.1 million of the decrease is due to
the discontinuance or downsizing of certain product lines including Image
Conversion Services ("ICS") ($20 million), flexible diskette media ($20.2
million), reader and reader printer products ($12.7 million) and source document
film ($7.2 million).
Total revenues for fiscal 1995 decreased $1.4 million from the prior fiscal
year. Revenues from sales of magnetics products increased $29.5 million
resulting from the acquisition of Graham Magnetics, Inc. ("Graham Magnetics") in
May 1994. In addition, the acquisition of the COM services customer base of 14
data service centers from National Business Systems, Inc. ("NBS") on January 3,
1994 contributed incremental revenues of approximately $2.7 million to the
fiscal 1995 results. Offsetting these contributions were decreases in
micrographics supplies, COM systems, maintenance services and other revenues.
Anacomp's fiscal 1994 revenues totaled $592.6 million. The Graham Magnetics
acquisition contributed $22.4 million to fiscal 1994 revenues and NBS
contributed $9.1 million to fiscal 1994 revenues.
Selling, general and administrative expenses ("S,G&A") were 19.2% of
revenues in fiscal 1996 compared to 22.4% in fiscal 1995. The decrease in S,G&A
reflects the cost reductions implemented in late fiscal 1995 as part of the
Company's reorganization. Selling, general and administrative expenses were
16.4% of revenues in 1994.
The Company has reclassified certain operating costs within costs of
services provided, costs of equipment and supplies sold and S,G&A in fiscal 1995
and fiscal 1994 to conform with the fiscal 1996 presentation.
1995 Special Charges
As mentioned above, included in the operating results for fiscal 1995 are
special charges totaling $136.9 million, including the write-off of a portion of
goodwill related to micrographics products. During fiscal 1995, Anacomp
announced several significant events which are summarized as follows:
On April 6, 1995, the Company announced that it was withdrawing its
proposed offering of $225 million senior secured notes previously announced on
January 23, 1995.
25
On April 27, 1995, the Company announced that it had agreed with its Senior
Secured Lenders to make its current interest payment of $2 million on its Old
Senior Secured Debt while continuing to negotiate the rescheduling of all or a
substantial portion of the $20 million scheduled amortization payment due April
26, 1995, which the Company failed to make, and the waiver of certain financial
covenant violations as of March 31, 1995. The Company also announced that until
an agreement was reached with its Senior Secured Lenders (and Holders of Old
Senior Subordinated Notes) the Company would not make its $16.9 million interest
payment on the Old Senior Subordinated Notes scheduled for May, 1995 and would
defer making dividend payments on the Old Preferred Stock.
On May 15, 1995, in connection with announcing a second quarter loss of
$8.2 million, the Company announced plans for a restructuring of its operations
which would include several cost cutting measures and personnel reductions. The
Company also announced the appointment of a new president.
These developments significantly constrained Anacomp's ability to finance
certain previously projected activities. In addition, in 1995, Anacomp failed to
achieve its original projections of operating results and experienced lower than
expected sales of major new software products which were first introduced in
January 1995. In light of Anacomp's withdrawn note offering, disappointing
financial performance and default on its indebtedness, the Company prepared a
new operating plan.
Based on the events discussed above and in connection with the change in
accounting discussed in Note 1 to the accompanying consolidated financial
statements, Anacomp determined that goodwill had been impaired and measured the
impairment based on the fair value approach discussed in Note 1. As required by
generally accepted accounting principles, this accounting change, which amounted
to a charge of $108 million, was recorded as a change in estimate of goodwill
and was included in the results of operations during fiscal 1995.
Prior to fiscal 1996, Anacomp invested and capitalized over $20.0 million
related to the development of software to provide advanced capabilities for the
XFP 2000 related to the processing of Xerox and IBM print steams. These software
enhancements are referred to as the Xerox Compatibility Feature ("XCF") and the
Advanced Function Presentation ("AFP") feature. XCF was introduced at the
beginning of the second quarter of fiscal 1995 and AFP at the beginning of the
fourth quarter of fiscal 1995. Initial sales of the XCF product were
significantly below expectations, as were projections for AFP. As a result,
during 1995 Anacomp wrote off $20.3 million of deferred software costs and
established a reserve of $8.6 million (none of which exists at September 30,
1996) for future payments to IBM Pennant Systems for software royalty and system
support obligations which were not recoverable based on revised projections. See
Note 18 to the accompanying consolidated financial statements.
Results of Operations - Products and Services
Output Services
Output services revenues, which accounted for 21% of Anacomp's revenues in
fiscal 1996, were down $8.4 million compared to fiscal 1995 (excluding the
effect of the ICS sale), primarily due to a 10% decrease in volume. Output
services revenues accounted for 22% of Anacomp's revenues in fiscal 1995.
Volumes were increased in fiscal 1995 due in part to the acquisition of the COM
services customer base of 14 data service centers from NBS. Output services
revenues increased 5% in fiscal 1994 on volume increases of 10%. The increase in
fiscal 1994 volume is the result of the NBS acquisition. Decreasing prices
adversely affected Anacomp's output services business in fiscal 1996, 1995 and
1994.
Output services gross margins as a percent of revenue decreased 1% in
fiscal 1996, 5% in fiscal 1995 and 2% in fiscal 1994.
26
Technology Services
Technology services revenues, which accounted for 17% of the Company's
revenues in fiscal 1996, are derived principally from the maintenance of COM
recorders and duplicators. Such revenues decreased 5% in fiscal 1996 when
compared to fiscal 1995 primarily due to the effect of replacing older
generation COM systems with the XFP 2000, which has a capacity significantly
greater than the previous generation COM systems. Technology services accounted
for 15% of fiscal 1995 revenues and were down 5% from fiscal 1994. Technology
services revenues increased $3.5 million in fiscal 1994. The improvement in
fiscal 1994 is largely the result of the addition of a national data service
center company to Anacomp's customer base.
Gross margins increased nearly 7% in fiscal 1996 due primarily to
reductions in costs associated with spare parts and personnel costs.
Output Systems
Output systems revenues, which accounted for 7% of the Company's revenues
in fiscal 1996, decreased $18.5 million with the sale or lease of 118 XFP 2000
systems in fiscal 1996 compared to 153 systems in fiscal 1995. Included in
output systems revenues in fiscal 1995 is $3.5 million of sales of equipment for
use in Anacomp data centers under sale and leaseback arrangements. Output
systems revenues decreased 9% in fiscal 1995 with the sale or lease of 153 XFP
2000 systems compared to 165 systems in fiscal 1994. Output systems revenues
decreased 25% in fiscal 1994 because of the decline in sales or leases of XFP
2000 output systems from 274 systems in fiscal 1993. The decline in fiscal 1994
was partly the result of reduced original equipment manufacturer ("OEM")
shipments (25 systems in fiscal 1994 compared to 67 in fiscal 1993).
Output systems gross margins improved in fiscal 1996, fiscal 1995 and
fiscal 1994 despite reduced revenues as a result of product mix of new and used
systems in fiscal 1996 and higher average selling prices in fiscal 1995 and
1994.
Micrographics Supplies
Micrographics supplies revenues, which accounted for 31% of the Company's
revenues in fiscal 1996, decreased 21% compared to fiscal 1995 principally as a
result of the discontinuance and downsizing of product lines. Micrographics
supplies revenues were 32% and 35% of the Company's revenues in fiscal 1995 and
1994, respectively. Micrographics supplies revenues decreased 7% in fiscal 1995
and 8% in fiscal 1994, principally due to reduced demand for duplicate film,
readers and reader/printers.
Micrographics supplies gross margins as a percent of revenue increased 5%
in fiscal 1996 as a result of changes in product mix due primarily to the sale
and downsizing of product lines. Micrographics supplies gross margins decreased
4% in fiscal 1995.
Magnetic Media
Magnetic media revenues, which accounted for 23% of the Company's revenues
in fiscal 1996, decreased $16.2 million compared to fiscal 1995. The decrease is
due to the closure of the Omaha, Nebraska factory, which produced flexible
diskette media, as well as reduced unit sales of open reel tape. Magnetic media
revenues accounted for 22% of the Company's revenues in fiscal 1995. Fiscal 1995
magnetic media revenues increased $31.9 million over fiscal 1994. The increase
is due to the contribution from the acquisition of Graham Magnetics in May 1994.
The acquisition of Graham Magnetics in May 1994 was the primary reason for a 36%
increase in fiscal 1994 magnetic media revenues over fiscal 1993. Graham
Magnetics manufactured certain magnetics products at its facility in Graham,
Texas. Anacomp has shifted all its U.S. production of those products from its
Omaha, Nebraska plant to the Graham Magnetics facility. The costs associated
with this relocation were not significant. The consolidation resulted in
improved manufacturing efficiencies and overall headcount reduction.
Magnetic media gross margins have remained level over the past 3 years at
approximately 16%.
27
Results of Operations - Other
Interest
Interest expense and fee amortization amounted to $39.6 million in fiscal
1996 compared to $70.9 million in fiscal 1995. The decrease relates to the
discontinuance of interest accrued on the predecessor Company's old subordinated
debt during the bankruptcy proceedings, as well as reduced interest expense on
the new debt instruments.
Interest expense and fee amortization was $70.9 million in fiscal 1995
compared to $67.2 million in fiscal 1994 due to $3.3 million of default interest
and interest on unpaid scheduled interest on the Old Senior Secured Debt as well
as the Old Senior Subordinated Notes which was required by the terms of the
various debt agreements.
Income Taxes
The Company adopted Financial Accounting Standards No. 109, Accounting for
Income Taxes, in the first quarter of fiscal year 1994. The adoption resulted in
a one-time increase to income of $8 million reflecting the cumulative effect on
prior years of this accounting change. In addition, the Company recorded a
deferred tax asset of $95 million representing the U.S. federal and state tax
savings from net operating loss carryforwards ("NOLs") and tax credits. The
Company also recorded a valuation allowance of $60 million, reducing the
deferred tax asset to $35 million. In determining the valuation allowance, the
Company assumed pre-tax income at levels they were experiencing at that time and
considered the impact of the reversal of temporary differences and the periods
in which NOL carryforward benefits expire.
The provision for income taxes in 1996 includes $6.1 million on earnings of
Anacomp's foreign subsidiaries and $2 million of domestic income taxes required
primarily related to the alternative minimum tax and state and local taxes. The
effective rate as a percentage of income before reorganization items,
extraordinary credit, and cumulative effect of accounting change (8.2%) is lower
than the U.S. statutory rate because of non-taxable reorganization income
partially offset by increases resulting from non-deductible amortization.
Included in the provision for income taxes in fiscal 1995 is a deferred tax
provision of $29 million. The deferred tax provision includes U.S. tax on
undistributed foreign earnings of $9 million and a write-off of net deferred tax
assets of $20 million. This write-off results from the uncertainty regarding the
financial restructuring that was in progress and, accordingly, the uncertainty
regarding the ultimate benefit to be derived from Anacomp's tax loss
carryforwards. The remaining components of the provision for income taxes in
1995 were taxes of $4.8 million on earnings of Anacomp's foreign subsidiaries
and a tax reserve adjustment of $1.2 million.
Income taxes as a percentage of income from operations was 55% in fiscal
1994. In fiscal 1994, income tax expense was reduced $1.2 million, as a result
of the favorable settlement and disposition of previously established tax
reserves. The effective tax rate was higher than the U.S. statutory rate because
of amortization of goodwill, which is not deductible for tax purposes, and
generally higher foreign tax rates. See Note 17 to the accompanying consolidated
financial statements.
28
Liquidity and Capital Resources Liquidity and Capital Resources
Anacomp's working capital at September 30, 1996, excluding the current
portion of long-term debt, was $26.4 million compared to a $13.8 million deficit
at September 30, 1995. To facilitate comparison of cash flow activity for fiscal
1996 to fiscal 1995, cash flows for the eight months ended May 31, 1996 and the
four months ended September 30, 1996, as discussed in the accompanying
consolidated statements of cash flows, have been combined for the following
discussion. Net cash provided by operating activities increased to $49.8 million
for fiscal year ended September 30, 1996 compared to $19.9 million in the
comparable prior period, due primarily to significant reductions in receivables
and inventories as well as non-payment of interest on subordinated debt prior to
the Reorganization. Net cash provided by investing activities increased to $3.9
million in the current period, compared to $3.1 million in the comparable prior
period.
Net cash used in financial activities increased to $35.5 million in fiscal
1996 compared to $23.6 million in fiscal 1995. The current period includes a $13
million repayment of debt with proceeds from the sale of the ICS Division.
The Company's cash balance (including restricted cash) as of September 30,
1996 was $47.8 million compared to $19.4 million at September 30, 1995.
Subsequent to September 30, 1996, the Company successfully completed a rights
offering for approximately 3.6 million shares of New Common Stock. The rights
offering generated approximately $25 million in cash, which will be used for the
acquisition of businesses, assets and technologies.
Prior to the Chapter 11 filing, the Company was experiencing a liquidity
shortfall caused by continued declining revenues and a highly leveraged balance
sheet. Upon emergence from bankruptcy proceedings the Company's pre-petition
liquidity problems were improved.
The Company believes that its cash on hand and cash generated from
operations will be sufficient to fund its debt service requirements, acquisition
strategies and working capital requirements in the foreseeable future.
On November 20, 1996, the Company reached agreement with Lehman Brothers
for the refinancing of the Company's 11-5/8% Senior Secured Notes. Lehman
Brothers has agreed to underwrite a new $115 million debt facility to replace
the existing Senior Secured Notes, which had a balance outstanding of $97.9
million at September 30, 1996. The new debt facility will consist of $90 million
in term loans and a revolver of up to $25 million. The refinancing requires the
consent of Anacomp's 13% Senior Subordinated Noteholders. The consent
solicitation period ends January 17, 1997.
Forward - Looking Statements
The statements contained in this filing on Form 10-K that are not
historical facts are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act. Actual results may differ materially
from those included in the forward-looking statements.
29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Anacomp, Inc.:
We have audited the accompanying consolidated balance sheets of Anacomp,
Inc. (an Indiana corporation) and subsidiaries as of September 30, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the four months ended September 30, 1996,
the eight months ended May 31, 1996 and the twelve months ended September 30,
1995 and 1994. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in Note 2 to the consolidated financial statements,
effective June 4, 1996, the Company emerged from protection under Chapter 11 of
the U.S. Bankruptcy Code pursuant to a Reorganization Plan which was confirmed
by the Bankruptcy Court on May 20, 1996. In accordance with AICPA Statement of
Position 90-7, the Company adopted "Fresh Start Reporting" whereby its assets,
liabilities and new capital structure were adjusted to reflect estimated fair
values as of May 31, 1996. As a result, the consolidated financial statements
for the periods subsequent to May 31, 1996 reflect the Successor Company's new
basis of accounting and are not comparable to the Predecessor Company's
pre-reorganization consolidated financial statements.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Anacomp,
Inc. and subsidiaries as of September 30, 1996 and 1995, and the results of
their operations and their cash flows for the four months ended September 30,
1996, the eight months ended May 31, 1996 and the twelve months ended September
30, 1995 and 1994 in conformity with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, effective
June 30, 1995, the Company changed its method of accounting for the measurement
of goodwill impairment.
Indianapolis, Indiana, Arthur Andersen LLP
November 15, 1996
30
CONSOLIDATED BALANCE SHEETS
Anacomp, Inc. and Subsidiaries
Reorganized Predecessor
Company Company
(Dollars in thousands, except per share amounts) As of September 30, 1996 1995
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 38,198 $ 19,415
Restricted cash .......................................................... 9,597 ----
Accounts and notes receivable, less allowances for doubtful
accounts of $6,459 and $7,367, respectively......................... 58,806 90,091
Current portion of long-term receivables.................................. 4,690 6,386
Inventories............................................................... 31,856 53,995
Prepaid expenses and other................................................ 4,383 5,306
Total current assets.......................................................... 147,530 175,193
Property and equipment, at cost less accumulated depreciation and
amortization of $3,696 and $96,898, respectively......................... 27,102 44,983
Long-term receivables, net of current portion................................. 10,632 12,322
Excess of purchase price over net assets of businesses acquired
and other intangibles, net................................................ 2,285 160,315
Reorganization value in excess of identifiable assets (See Note 3) 240,344 ----
Other assets.................................................................. 7,528 28,216
$ 435,421 $ 421,029
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt......................................... $ 31,848 $ 389,900
Accounts payable.......................................................... 48,090 57,368
Accrued compensation, benefits and withholdings........................... 13,728 20,891
Accrued income taxes...................................................... 11,930 9,365
Accrued interest.......................................................... 10,586 40,746
Other accrued liabilities................................................. 36,814 60,587
Total current liabilities..................................................... 152,996 578,857
Long-term debt, net of current portion........................................ 217,044 ----
Other noncurrent liabilities.................................................. 6,812 5,841
Total noncurrent liabilities.................................................. 223,856 5,841
Commitments and contingencies (See Note 18)
Redeemable preferred stock, $.01 par value, issued and outstanding
500,000 shares (aggregate preference value of $25,000)........................ ---- 24,574
Stockholders' equity (deficit):
Preferred stock, 1,000,000 shares authorized, none issued................. ---- ----
Common stock, $.01 par value; 20,000,000 and 100,000,000 shares authorized
respectively; 10,099,050 and 46,187,625 issued, respectively.......... 101 462
Capital in excess of par value............................................ 80,318 182,725
Cumulative translation adjustment (from May 31, 1996 for Reorganized Company) 159 1,329
Accumulated deficit (from May 31, 1996 for Reorganized Company)........... (22,009) (372,759)
Total stockholders' equity (deficit).......................................... 58,569 (188,243)
$ 435,421 $ 421,029
See notes to consolidated financial statements.
31
CONSOLIDATED STATEMENTS OF OPERATIONS
Anacomp, Inc. and Subsidiaries
Reorganized
Company Predecessor Company
Four Months Eight Months Twelve Months
Ended Ended Ended
September 30, May 31, September 30,
(Dollars in thousands, except per share amount) 1996 1996 1995 1994
REVENUES:
Services provided.................................................... $ 59,055 $130,202 $219,881 $223,511
Equipment and supply sales............................................ 92,487 204,396 371,308 369,088
151,542 334,598 591,189 592,599
OPERATING COSTS AND EXPENSES:
Costs of services provided........................................... 31,858 72,641 126,493 122,628
Costs of equipment and supplies sold................................. 70,097 156,526 290,842 274,575
Selling, general and administrative expenses......................... 29,688 63,826 132,459 115,819
Amortization of reorganization asset................................. 25,663 ---- ---- ----
Special charges (See Note 1)......................................... ---- ---- 136,889 ----
Restructuring charges (See Note 6)................................... ---- ---- 32,695 ----
157,306 292,993 719,378 513,022
Income (loss) before interest, other income, reorganization items, income taxes,
extraordinary credit and cumulative
effect of accounting change.......................................... (5,764) 41,605 (128,189) 79,577
Interest income.......................................................... 997 1,576 2,000 3,144
Interest expense and fee amortization.................................... (12,869) (26,760) (70,938) (67,174)
Financial restructuring costs (See Note 7)............................... ---- ---- (5,987) ----
Other income (expense)................................................... 27 6,968 (212) (192)
(11,845) (18,216) (75,137) (64,222)
Income (loss) before reorganization items, income taxes,
extraordinary credit, and cumulative effect of accounting change..... (17,609) 23,389 (203,326) 15,355
Reorganization items (See Note 4) ....................................... ---- 92,839 ---- ----
Income (loss) before income taxes, extraordinary credit and cumulative effect
of accounting change................................................. (17,609) 116,228 (203,326) 15,355
Provision for income taxes............................................... 4,400 3,700 35,000 8,400
Income (loss) before extraordinary credit and
cumulative effect of accounting change............................... (22,009) 112,528 (238,326) 6,955
Extraordinary credit - gain on discharge of indebtedness, net of taxes
(See Note 3) ........................................................ ---- 52,442 ---- ----
Cumulative effect on prior years of a change in accounting
for income taxes..................................................... ---- ---- ---- 8,000
Net income (loss)........................................................ (22,009) 164,970 (238,326) 14,955
Preferred stock dividends and discount accretion......................... ---- 540 2,158 2,158
Net income (loss) available to common stockholders....................... $(22,009) $164,430 $(240,484) $12,797
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $(2.19)
See notes to consolidated
financial statements.
57
CONSOLIDATED STATEMENTS OF CASH FLOWS
Anacomp, Inc. and Subsidiaries Reorganized
Company Predecessor Company
Four Months Ended Eight Months Twelve Months
Ended Ended
September 30, May 31, September 30,
(Dollars in thousands) 1996 1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................................... $ (22,009) $ 164,970 $ (238,326) $ 14,955
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Extraordinary credit................................................. ---- (52,442) ---- ----
Non-cash reorganization items........................................ ---- (107,352) ---- ----
Depreciation and amortization........................................ 31,610 18,788 43,375 40,649
Cumulative effect of a change in accounting for income taxes......... ---- ---- ---- (8,000)
Provision (benefit) for losses on accounts receivable................ 482 110 2,742 (695)
Provision for inventory valuation.................................... ---- ---- 10,956 ----
Non-cash charge in lieu of taxes..................................... 1,300 ---- ---- ----
Deferred taxes....................................................... ---- ---- 29,000 6,000
Special charges (See Note 1)......................................... ---- ---- 136,889 ----
Gain on sale of ICS Division......................................... ---- (6,202) ---- ----
Other................................................................ (175) 997 6,308 776
Restricted cash requirements............................................. (2,755) (6,842) ---- ----
Change in assets and liabilities net of effects from acquisitions:
Decrease in accounts and long-term receivables..................... 5,637 24,624 30,948 3,040
Decrease (increase) in inventories and prepaid expenses............ 10,416 11,174 (1,612) 15,254
Decrease (increase) in other assets................................ 1 1,094 (8,207) (11,349)
Increase (decrease) in accounts payable and accrued expenses....... (17,283) (5,077) 11,465 (3,623)
Increase (decrease) in other noncurrent liabilities................ 4,671 (5,899) (3,626) (4,323)
Net cash provided by operating activities......................... 11,895 37,943 19,912 52,684
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of other assets..................................... ---- ---- 18,777 7,805
Proceeds from sale of ICS Division..................................... ---- 13,554 ---- ----
Purchases of property, plant and equipment............................. (2,224) (3,599) (14,372) (18,868)
Payments to acquire companies and customer rights...................... (3,844) ---- (1,262) (14,565)
Net cash provided by (used in) investing activities............... (6,068) 9,955 3,143 (25,628)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and warrants.................... (139) ---- 743 1,484
Proceeds from revolving line of credit and long-term borrowing......... ---- 2,656 22,529 39,000
Principal payments on long-term debt................................... (22,646) (15,332) (45,859) (71,095)
Preferred dividends paid............................................... ---- ---- (1,031) (2,062)
- ----------------------------------------------------------------------------
Net cash used in financing activities............................. (22,785) (12,676) (23,618) (32,673)
- ----------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................................... (172) 691 107 566
- ----------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... (17,130) 35,913 (456) (5,051)
- ----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........................... 55,328 19,415 19,871 24,922
- ----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................. $ 38,198 $ 55,328 $ 19,415 $ 19,871
- ----------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Reorganized
Company Predecessor Company
Four Months Eight Months Twelve Months
Ended Ended Ended
September 30, May 31, September 30,
(Dollars in thousands) 1996 1996 1995 1994
Cash paid during the period for:
Interest............................................................... $ 5,581 $ 11,613 $ 39,426 $ 57,781
Income taxes........................................................... $ 2,942 $ 3,045 $ 4,128 $ 2,007
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
See Note 3 for discussion of non-cash activity related to Fresh Start
Reporting and the Reorganization. During 1996, 1995, and 1994 the Company
acquired companies and rights to provide future services. In conjunction with
these acquisitions, the purchase price consisted of the following:
Reorganized
Company Predecessor Company
Four Months Eight Months Twelve Months
Ended Ended Ended
September 30, May 31, September 30,
(Dollars in thousands)
Cash paid.............................................................. $ 3,844 $ ---- $ 1,262 $ 14,565
Credit memos issued.................................................... ---- ---- ---- 3,085
Notes payable issued................................................... 500 ---- ---- 4,290
Stock issued........................................................... ---- ---- ---- 17,201
Total fair value of acquisitions....................................... $ 4,344 $ ---- $ 1,262 $ 39,141
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Anacomp, Inc. and Subsidiaries
Capital in Cumulative
Common stock excess of translation Accumulated
(Dollars in thousands) par value adjustment Deficit Total
BALANCE AT SEPTEMBER 30, 1993 - Predecessor Company.......... $406 $163,209 $(4,744) $(145,072) $13,799
Common stock issued for purchases under the
Employee Stock Purchase Plan............................... 3 872 ---- ---- 875
Exercise of stock options.................................... 3 606 ---- ---- 609
Preferred stock dividends.................................... ---- ---- ---- (2,062) (2,062)
Accretion of redeemable preferred stock discount............. ---- ---- ---- (96) (96)
Translation adjustments for twelve months.................... ---- ---- 4,475 ---- 4,475
NBS stock issuance........................................... 20 7,380 ---- ---- 7,400
Graham stock issuance......................................... 25 9,776 ---- ---- 9,801
Net income for the twelve months.............................. ---- ---- ---- 14,955 14,955
BALANCE AT SEPTEMBER 30, 1994 - Predecessor Company 457 181,843 (269) (132,275) 49,756
Common stock issued for purchases under the
Employee Stock Purchase Plan................................ 3 689 ---- ---- 692
Exercise of stock options..................................... 1 50 ---- ---- 51
Preferred stock dividends..................................... ---- ---- ---- (2,062) (2,062)
Accretion of redeemable preferred stock discount.............. ---- ---- ---- (96) (96)
Translation adjustments for twelve months..................... ---- ---- 1,598 ---- 1,598
Graham stock issuance......................................... 1 143 ---- ---- 144
Net loss for the twelve months................................ ---- ---- ---- (238,326) (238,326)
BALANCE AT SEPTEMBER 30, 1995 - Predecessor Company........... 462 182,725 1,329 (372,759) (188,243)
Preferred stock conversion.................................... 11 7,893 ---- ---- 7,904
Preferred stock dividends..................................... ---- ---- ---- (516) (516)
Accretion of redeemable preferred stock discount.............. ---- ---- ---- (24) (24)
Translation adjustment for eight months....................... ---- ---- (1,560) ---- (1,560)
NBS stock issuance............................................ 11 (11) ---- ---- ----
Reorganization................................................ (484) (190,607) 231 208,329 17,469
New stock issuance............................................ 100 79,666 ---- ---- 79,766
Net income for eight months................................... ---- ---- ---- 164,970 164,970
BALANCE AT MAY 31, 1996 - Reorganized Company................ 100 79,666 ---- ---- 79,766
Common stock issued for restricted stock award................ 1 791 ---- ---- 792
Fees associated with rights offering.......................... ---- (139) ---- ---- (139)
Translation adjustment for four months........................ ---- ---- 159 ---- 159
Net loss for four months...................................... ---- ---- ---- (22,009) (22,009)
BALANCE AT SEPTEMBER 30, 1996 - Reorganized Company........... $101 $80,318 $159 $(22,009) $58,569
See notes to consolidated financial statements.
32
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Anacomp, Inc. and Subsidiaries
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
The consolidated financial statements include the accounts of Anacomp, Inc.
("Anacomp" or the "Company") and its wholly-owned subsidiaries. Material
intercompany transactions have been eliminated. Certain amounts in the prior
year consolidated financial statements have been reclassified to conform to the
current presentation.
Due to the Reorganization and implementation of Fresh Start Reporting, the
consolidated financial statements for the Reorganized Company (period starting
May 31, 1996) are not comparable to those of the Predecessor Company. For
financial reporting purposes, the effective date of the emergence from
bankruptcy is considered to be the close of business on May 31, 1996.
A black line has been drawn on the accompanying consolidated financial
statements to distinguish between the Reorganized Company and the Predecessor
Company.
Foreign Currency Translation
Substantially all assets and liabilities of Anacomp's international
operations are translated at the year-end exchange rates; income and expenses
are translated at the average exchange rates prevailing during the year.
Translation adjustments are accumulated in a separate section of stockholders'
equity. Foreign currency transaction gains and losses are included in net
income.
Segment Reporting
Anacomp operates in a single business segment: providing equipment,
supplies and services for information management, including storage, processing
and retrieval.
Significant Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Revenue Recognition
Revenues from sales of products and services or from lease of equipment
under sales-type leases are recorded based on shipment of products or
performance of services. Under sales-type leases, the present value of all
payments due under the lease contracts is recorded as revenue, cost of sales is
charged with the book value of the equipment plus installation costs, and future
interest income is deferred and recognized over the lease term. Revenues from
maintenance contracts are deferred and recognized in earnings on a pro rata
basis over the period of the agreements.
33
Inventories
Inventories are stated at the lower of cost or market, with cost being
determined by methods approximating the first-in, first-out basis.
The cost of the inventories is distributed as follows:
Reorganized Company Predecessor Company
(Dollars in thousands) September 30, 1996 1995
Finished goods................... $ 22,557 $ 38,702
Work in process.................. 2,748 4,955
Raw materials and supplies....... 6,551 10,338
$ 31,856 $ 53,995
Restricted Cash
Restricted cash represents cash reserved as collateral for letters of
credit issued by the Company or cash held in escrow primarily to secure certain
contingent obligations of the Company. The contingent obligations are primarily
related to environmental liabilities and certain insurance policies.
Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization
of property and equipment are generally provided under the straight-line method
for financial reporting purposes over the shorter of the estimated useful lives
or the lease terms. Tooling costs are amortized over the total estimated units
of production, not to exceed three years. In accordance with Fresh Start
Reporting, property and equipment were reflected at fair market values as of May
31, 1996 (See Note 3).
Debt Issuance Costs
The Company capitalizes all costs related to its issuance of debt and
amortizes those costs using the effective interest method over the life of the
related debt instruments. Debt issuance costs were $200,000 and $12.7 million at
September 30, 1996 and 1995, respectively, and are included in "Other assets" in
the accompanying Consolidated Balance Sheets. During the eight months ended May
31, 1996 and fiscal years 1995 and 1994, the Company amortized $1 million, $5.7
million and $5.3 million, respectively, of debt issuance costs which are
included in "Interest expense and fee amortization" in the accompanying
Consolidated Statements of Operations. Also, in accordance with AICPA Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" (SOP 90-7), the Company wrote-off deferred debt issuance costs
of $11.1 million upon the date of the bankruptcy filing. These costs are
included in "Reorganization Items" in the accompanying Consolidated Statements
of Operations for the eight months ended May 31, 1996.
34
Goodwill
Excess of purchase price over net assets of businesses acquired
("goodwill") is amortized on the straight-line method over the estimated periods
of future demand for the related products acquired. Goodwill at September 30,
1996 is being amortized over a three year period. Effective with Fresh Start
Reporting, the Company now measures impairment based on future cash flows of the
related products.
For the Predecessor Company, effective June 30, 1995, Anacomp elected to
modify its method of measuring goodwill impairment to a fair value approach. If
it was determined that impairment had occurred, the excess of the unamortized
goodwill over the fair value of the goodwill applicable to the business unit was
charged to operations. For purposes of determining fair value, the Company
valued the goodwill using a multiple of cash flow from operations based on
consultation with its investment advisors. Anacomp concluded that fair value was
a better measurement of goodwill considering the Company's highly leveraged
financial condition. As discussed in Note 8, Anacomp revised its projected
operating results in fiscal 1995 which, along with applying Anacomp's revised
goodwill accounting policy, resulted in a write-off of $108 million of goodwill
for the year ended September 30, 1995. This write-off is reflected in "Special
charges" in the accompanying Consolidated Statement of Operations.
Reorganization Value in Excess of Amounts Allocated to Identifiable Assets
As more fully discussed in Note 3, the Company has "reorganization value in
excess of amounts allocated to identifiable assets" of $240,344 at September 30,
1996. This asset is being amortized over a 3.5 year period beginning May 31,
1996. The carrying value of the Reorganization Asset will be periodically
reviewed if the facts and circumstances suggest that it may be impaired. The
Company will measure the impairment based upon future cash flows of the Company
over the remaining amortization period.
Other Intangibles
Other intangibles of $21.3 million, net of accumulated amortization of
$16.1 million, at September 30, 1995, represent the purchase of the rights to
provide microfilm or maintenance services to certain customers and were being
amortized on a straight-line basis over 10 years. These unamortized costs were
evaluated for impairment each period by determining their net realizable value.
As discussed in Note 3, in connection with Fresh Start Reporting, the Company
wrote-off the remaining balance of other intangibles at May 31, 1996.
Research and Development
The engineering costs associated specifically with research and development
programs are expensed as incurred, and amounted to $1.3 million for the four
months ended September 30, 1996, $2.4 million for the eight months ended May 31,
1996, $2.2 million in 1995, and $3 million in 1994. The Company supports several
engineering processes, including basic technological research, product
development and sustaining engineering support for existing customer
installations. The majority of the operating costs for engineering programs in
fiscal years 1995 and 1994 related to continued software development for the XFP
2000 COM recorder, which were recorded as deferred software costs.
Deferred software costs are the capitalized costs of software products to
be sold in future periods with COM systems or as stand alone product for current
COM systems users. The unamortized costs are evaluated for impairment each
period by determining their net realizable value. Such costs are amortized over
the greater of the estimated units of sale or under the straight-line method not
to exceed five years. Due to lower than expected sales of new software products
introduced in 1995, Anacomp revised its projected future sales and operating
results of software products through 1999. As a result, during 1995 Anacomp
wrote off $20.3 million of deferred software costs and established a reserve of
$8.6 million (none of which exists at September 30, 1996) for future payments to
IBM Pennant Systems for software royalty and system support obligations which
are not recoverable based on these revised projections (See Note 18). These
charges are reflected in "Special charges" in the accompanying Consolidated
Statement of Operations for the fiscal year ended September 30, 1995.
Unamortized deferred software costs remaining as of September 30, 1996 total
$4.2 million and are included in "Other assets" on the accompanying Consolidated
Balance Sheets.
35
Sale-Leaseback Transactions
Anacomp entered into sale-leaseback transactions of $19.3 million in 1995
and $11.9 million in 1994 relating to COM systems installed in the Company's
data service centers. Part of the proceeds were treated as fixed asset sales and
the remainder as sales of equipment. Revenues of $3.5 million and $5.6 million
were recorded for the years ended September 30, 1995 and 1994, respectively. All
profits were deferred and were being recognized over the applicable leaseback
periods. In connection with Fresh Start Reporting as discussed in Note 3, the
deferred profit amount was reduced to zero. Concurrently, the Company
established an unfavorable lease reserve related to these leases in the amount
of $8.6 million. The unfavorable lease reserve is being amortized over the
applicable lease periods.
Accrued Lease Reserves
Other noncurrent liabilities include reserves established for unfavorable
facility and equipment lease commitments, vacant facilities and related future
lease costs. Total obligations recorded for these unfavorable lease commitments
and future lease and related costs at their estimated amounts were $11.4 million
and $7.5 million at September 30, 1996 and 1995, respectively. The current
portion of these obligations was $6.8 million and $2 million as of September 30,
1996 and 1995, respectively, and is included in "Other accrued liabilities" and
"Accounts payable" in the accompanying Consolidated Balance Sheets.
Income Taxes
In general, Anacomp's practice has been to reinvest the earnings of its
foreign subsidiaries in those operations and to repatriate those earnings only
when it was advantageous to do so. In 1995, Anacomp changed its practice whereby
the Company now repatriates these earnings. As a result, Anacomp recorded
deferred taxes of $8.8 million on all undistributed foreign earnings in 1995.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). FAS 109 mandates the liability method for computing deferred income taxes
and requires that the benefit of certain loss carryforwards be estimated and
recorded as an asset unless it is "more likely than not" that the benefit will
not be realized. Another principal difference is that changes in tax rates and
laws will be reflected in income from continuing operations in the period such
changes are enacted.
Anacomp adopted FAS 109 in the first quarter of fiscal 1994. Under FAS 109,
the Company recorded a significant deferred tax asset in 1994 to reflect the
benefit of loss carryforwards that could not be recognized under prior
accounting rules. The recording of this asset reduced goodwill and increased
income as discussed in more detail in Note 17. During 1995, the valuation
allowance was increased to reduce the deferred tax asset to zero as a result of
the Company's deteriorating financial condition.
Consolidated Statements of Cash Flows
Anacomp considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. These temporary
investments, primarily repurchase agreements and other overnight investments,
are recorded at cost, which approximates market.
36
NOTE 2.
FINANCIAL REORGANIZATION:
On May 20, 1996 (the "Confirmation Date"), the U.S. Bankruptcy Court
confirmed the Company's Third Amended Joint Plan of Reorganization (the
"Reorganization"), and on June 4, 1996, the Company emerged from bankruptcy.
Pursuant to the Reorganization, on such date certain indebtedness of the Company
was canceled in exchange for cash, new indebtedness, and /or new equity
interests, certain indebtedness was reinstated, certain other prepetition claims
were discharged, certain claims were settled, executory contracts and unexpired
leases were assumed or rejected, and the members of a new Board of Directors of
the Company were designated. The Company simultaneously distributed to creditors
approximately $22 million in cash, $112.2 million principal amount of its
11-5/8% Senior Secured Notes due 1999 (the "Senior Secured Notes") and $160
million principal amount of its 13% Senior Subordinated Notes due 2002 (the
"Senior Subordinated Notes"), equity securities consisting of 10 million shares
of new common stock and 362,694 warrants, each of which is convertible into
1.0566 shares of new common stock during the five year period ending June 3,
2001 at an exercise price of $11.57 per share.
The process began January 5, 1996, when Anacomp filed a Prenegotiated Plan
of Reorganization with the U.S. Bankruptcy Court in Delaware under Chapter 11 of
the U.S. Bankruptcy Code. The Company was in default under substantially all of
its debt agreements as a result of its failure to make $89.7 million of
principal payments scheduled for April 26, 1995 and October 26, 1995 on the
senior secured credit facilities (including $60 million relating to the
revolving loan agreement which expired on October 26, 1995), $11.4 million of
principal and interest payments on the 9% Convertible Subordinated Debentures
which were due January 15, 1996, $34.1 million of interest payments scheduled
for May 1, 1995 and November 1, 1995 on its Senior Subordinated Notes, and $3.2
million of interest payments scheduled for July 15, 1995 and January 15, 1996 on
the 13.875% Subordinated Debentures, as well as certain financial covenant
violations, and the cross-default provisions of the other debt agreements.
As noted above, upon emerging from bankruptcy, the Company's Revolving
Loan, Multi-Currency Revolving Loan, Term Loans, Series B Senior Notes, 15%
Senior Subordinated Notes, 13.875% Convertible Subordinated Debentures and 9%
Convertible Subordinated Debentures were canceled. In addition, the Company's
8.25% Cumulative Convertible Redeemable Exchangeable Preferred Stock, Common
Stock, Warrants and Stock Options were canceled. In connection therewith, the
Company issued new debt and equity securities as mentioned above and described
in more detail in Notes 14 and 16.
NOTE 3.
FRESH START REPORTING:
As of May 31, 1996, the Company adopted Fresh Start Reporting in accordance
with SOP 90-7. Fresh Start Reporting resulted in material changes to the
Consolidated Balance Sheet, including valuation of assets, intangible assets
(including goodwill) and liabilities at fair market value and valuation of
equity based on the appraised reorganization value of the ongoing business.
The Company's reorganization value of $350 million (the approximate fair
value) was based on the consideration of many factors and various valuation
methods, including discounted cash flows, selected publicly traded Company
market multiples, selected acquisition transaction multiples and other
applicable ratios and valuation techniques believed by the Company's management
and its financial advisors to be representative of the Company's business and
industry. The excess of the reorganization value over the fair value of
identifiable assets and liabilities is reported as "Reorganization value in
excess of identifiable assets" in the accompanying Consolidated Balance Sheets
and is being amortized over a three and a half year period. The Company obtained
an independent appraisal of certain property and equipment to support the fair
values of such assets.
The Reorganization and the adoption of Fresh Start Reporting resulted in
the following adjustments to the Company's Consolidated Balance Sheet for the
period ended May 31, 1996:
Predecessor Reorganized
Company Reorganization and Company
May 31, Fresh Start Adjustments May 31,
(Dollars in thousands) 1996 Debit Credit 1996
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Total current assets....................................... $179,457 $ ---- $1,881(a) $177,576
Property and equipment (net)............................... 35,619 ---- 7,754(b) 27,865
Long-term receivables...................................... 9,411 ---- ---- 9,411
Excess of purchase price over net assets of businesses
acquired and other intangibles........................... 153,864 ---- 124,864(c) ----
29,000(d)
Reorganization value in excess of identifiable assets...... ---- 267,460(e) ---- 267,460
Other assets............................................... 12,862 ---- 4,384(f) 7,878
600(g)
$391,213 $267,460 $168,483 $490,190
Predecessor Reorganized
Company Reorganization and Company
May 31, Fresh Start Adjustments May 31,
(Dollars in thousands) 1996 Debit Credit 1996
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt........................ $380,554 $379,256(h) $36,076(i) $37,374
Accrued interest......................................... 52,696 48,500(h) ---- 4,196
Accounts payable and other accrued liabilities........... 130,179 ---- 3,673(j) 133,852
----------------------------------------------------------
Total current liabilities.................................. 563,429 427,756 39,749 175,422
----------------------------------------------------------
Total noncurrent liabilities............................... 5,130 ---- 229,872(i) 235,002
Redeemable preferred stock and accrued dividends........... 18,241 18,241(k) ---- ----
Stockholders' equity (deficit):
Common stock............................................. 484 484(l) 100(m) 100
Capital in excess of par value........................... 190,607 190,607(l) 79,666(m) 79,666
Cumulative translation adjustment........................ (231) ---- 231(l) ----
Retained earnings (deficit).............................. (386,447) 29,000(d)334,005(l) ----
81,442(n)
==========================================================
$391,213 $666,088 $765,065 $490,190
==========================================================
Explanations of the above adjustment columns are as follows:
a) To adjust current assets to fair market value.
b) To adjust property and equipment to estimated current fair value.
c) To reflect the write-off of excess of purchase price over net assets of
businesses acquired and other intangibles.
d) To provide income tax expense for gain on discharge of indebtedness,
reflected as a reduction in the goodwill of the Predecessor Company related to
the utilization of pre-acquisition NOLs.
e) To establish the reorganization value in excess of identifiable assets.
The reorganization value in excess of identifiable assets is calculated below
(in thousands):
New debt $270,234
New equity 79,766
Reorganization Value 350,000
Plus: Fair value of identifiable liabilities 140,190
Less: Fair value of identifiable assets (222,730)
$267,460
f) To adjust other long-term assets to fair market value.
g) To write-off the remaining debt issue costs.
h) To reflect the cancellation of the old debt and related accrued
interest.
i) To reflect issuance of new current and long-term debt.
j) To adjust current liabilities to fair market value.
k) To reflect the cancellation of the old preferred stock.
l) To reflect the elimination of stockholders' equity of the Predecessor
Company.
m) To reflect the issuance of 10 million shares of new common stock (par
value $.01) at estimated fair market value.
n) To reflect the extraordinary credit resulting from discharge of
indebtedness. The extraordinary credit, net of taxes, is calculated below (in
thousands):
Historical carrying value of old debt securities $379,256 Historical
carrying value of related accrued interest 48,500 Unamortized portion
of deferred debt issuance costs (600) Market value of consideration
exchanged for the old debt:
Plan securities (face value $279,691) (265,948)
New common stock (10 million new shares issued) (79,766)
81,442
Tax provision (d) (29,000)
Extraordinary credit $ 52,442
38
The following Pro Forma Condensed Financial Information for the twelve
months ended September 30, 1996 and 1995, have been prepared giving effect to
the sale of the Image Conversion Services ("ICS") Division and the adjustments
related to the consummation of the Reorganization for interest expense and
intangible asset amortization. The Condensed Financial Information was prepared
as if the Pro Forma adjustments had occurred on October 1, 1995 and October 1,
1994, respectively. This information does not purport to be indicative of the
results which would have been obtained had such transactions in fact been
completed as of the date hereof and for the periods presented or that may be
obtained in the future.
Anacomp, Inc. and Subsidiaries
Pro Forma Condensed Financial Information
Pro Forma Pro Forma
Twelve Months Twelve Months
Ended Ended
September 30, September 30, 1995
(Dollars in thousands) 1996
Total Revenues $484,637 $ 569,668
Operating costs and expenses 493,291 763,514
Loss before interest, other income, reorganization items,
income taxes and extraordinary credit (8,654) (193,846)
Interest expense and fee amortization (41,327) (44,301)
Net loss available to common stockholders (53,713) (277,346)
NOTE 4.
REORGANIZATION ITEMS:
In accordance with SOP 90-7, expenses of the Predecessor Company resulting
from the Chapter 11 Reorganization are reported separately as reorganization
items in the accompanying Consolidated Statement of Operations, and are
summarized below:
May 31, 1996
(Dollars in thousands) Eight Months Ended
Write-off of deferred debt issue costs and discounts $(17,551)
Adjustment of assets and liabilities to fair market value 124,903
Legal and professional fees associated with bankruptcy (14,944)
Interest earned on accumulated cash 431
$ 92,839
NOTE 5.
SALE OF ICS DIVISION:
Effective November 1, 1995, Anacomp sold its ICS Division for approximately
$13.5 million, which resulted in a net gain to the Company of $6.2 million that
is reflected in other income (expense) in the accompanying Consolidated
Statement of Operations. The proceeds from this sale were used to reduce the
principal balance on certain senior debt. The ICS Division performed source
document microfilm services at several facilities around the country generating
approximately $20 million of revenues per year.
NOTE 6.
RESTRUCTURING CHARGES:
Included in the operating results for 1995 are restructuring charges of
$32.7 million. These charges were the result of the Company's reassessment of
its strategy for ongoing financial improvement and a decision to downsize or
exit certain areas of its business. Specifically, the Company closed its Omaha,
Nebraska magnetic media manufacturing facility, exited the manufacture of
readers and reader/printers at its San Diego, California manufacturing facility
and reduced headcount worldwide. The restructuring charges included severance
costs of $5.9 million, which included personnel related to magnetics media
manufacturing, reader and reader/printer manufacturing and other various
personnel associated with the worldwide headcount reduction. Approximately 400
people were terminated pursuant to these plans. Also included in restructuring
charges were inventory write downs of $9.1 million, excess facility reserves of
$7.7 million and other reserves of $10 million. The Company completed these
restructuring activities during fiscal 1996. The actual costs associated with
the restructuring did not vary significantly from the previously reported
amounts.
NOTE 7.
FINANCIAL RESTRUCTURING COSTS:
On April 6, 1995, Anacomp announced that it had withdrawn its proposed
offering of $225 million Senior Secured Notes and a related offer to purchase up
to $50 million of the Company's outstanding 15% Senior Subordinated Notes. The
offering would have deferred an aggregate of $153 million in scheduled principal
payments in fiscal years 1995 through 1998, thereby providing Anacomp with
increased liquidity and additional cash for product development. Costs directly
related to these activities of $6 million are included as "Financial
restructuring costs" in the accompanying Consolidated Statements of Operations
for fiscal year 1995.
NOTE 8.
EXCESS OF PURCHASE PRICE OVER NET ASSETS
OF BUSINESSES ACQUIRED (GOODWILL):
Goodwill related to the micrographics business as of September 30 is
summarized as follows (dollars in thousands):
Reorganized Predecessor
Company Company
--------------- ---------------
1996 1995
Goodwill $2,419 $315,561
Less goodwill write-off ---- (108,000)
Less accumulated amortization (134) (73,988)
$2,285 $133,573
Anacomp failed to achieve its original projections of fiscal 1995 operating
results and experienced lower than expected sales of new software products first
introduced in January 1995. In light of Anacomp's withdrawn note offering,
disappointing financial performance and default on its indebtedness, the Company
prepared a revised business plan and operating forecast through 1999.
Based on these developments and in connection with the change in accounting
discussed in Note 1, Anacomp determined that goodwill had been impaired and
measured the impairment based on a fair value approach. As required by generally
accepted accounting principles, this accounting change, which amounted to a
charge of $108 million, was recorded as a change in estimate and was included in
the results of operations for the quarter ended June 30, 1995.
NOTE 9.
FAIR VALUES OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, requires disclosure of fair value information
for certain financial instruments. The carrying amounts for trade receivables
and payables are considered to be their fair values. The carrying amounts and
fair values of the Company's other financial instruments at September 30, 1996,
and 1995, are as follows:
Reorganized Company Predecessor Company
September 30, 1996 September 30, 1995
(Dollars in thousands) Carry Amount Fair Value Carry Amount Fair Value
Long-Term Debt:
11-5/8% Senior Note $ 97,902 $ 97,902 $ ---- $ ----
Revolving Loan ---- ---- 31,328 31,328
Multicurrency Revolving Loan ---- ---- 28,813 28,813
Term Loans ---- ---- 13,039 13,039
Series B Senior Notes ---- ---- 58,908 58,908
13% Senior Subordinated Note 147,058 163,829 ---- ----
15% Senior Subordinated Notes ---- ---- 220,281 181,224
13.875% Convertible
Subordinated Debentures ---- ---- 21,155 4,376
9% Convertible Subordinated
Debentures ---- ---- 10,479 1,880
Redeemable Preferred Stock ---- ---- 24,574 ----
The September 30, 1996 estimated fair value of Long-Term Debt was based on
quoted market values or discounted cash flow.
The September 30, 1995 estimated fair values of Long-Term Debt and
Redeemable Preferred Stock were based on a restructuring proposal prepared as a
result of discussion and negotiations with representatives of the lenders at
that time in connection with a "prepackaged" plan of reorganization.
39
NOTE 10.
ACQUISITIONS:
During the three years ended September 30, 1996, Anacomp made the
acquisitions set forth below, each of which has been accounted for as a
purchase. The consolidated financial statements include the operating results of
each business from the date of acquisition. Pro forma results of operations have
not been presented because the effects of these acquisitions were not
significant.
Fiscal 1996
During fiscal 1996, Anacomp acquired certain assets of a micrographics
equipment and supplies business. The acquisition was effective July 15, 1996 and
total consideration was $4.3 million, of which approximately $2.4 million was
assigned to excess of purchase price over net assets acquired. The consideration
consisted of $3.8 million in cash and a one-year note payable of $500,000 which
accrues interest at prime plus 2.75%.
Fiscal 1995
During fiscal 1995, Anacomp made no significant acquisitions.
Fiscal 1994
During fiscal 1994, Anacomp acquired 16 data service centers or the related
customer base (all were incorporated with existing Anacomp service centers), a
magnetics media manufacturing company and the customer base of a micrographics
supplies business. Total consideration for these acquisitions was $39.1 million,
of which approximately $24.2 million was assigned to excess of purchase price
over net assets of businesses acquired and other intangible assets. In
connection with these acquisitions, Anacomp issued $17.2 million of its common
stock and increased debt and accrued liabilities by $4.3 million.
National Business Systems
One of the acquisitions included above was the purchase of the COM services
customer base of 14 data service centers operated by National Business Systems,
Inc. ("NBS"). The acquisition was effective on January 3, 1994, and the
acquisition cost consisted of the following (dollars in thousands):
Cash paid to NBS shareholders $ 7,400
Common stock issued to NBS shareholders 7,400
Acquisition costs incurred 416
$ 15,216
Anacomp issued 1,973,000 common shares to the NBS shareholders at a price
of $3.75 per share. As part of the acquisition agreement, Anacomp agreed to
provide stock price protection at the end of two years on those shares so
designated by the NBS shareholders (1,128,000 of the shares issued were subject
to this protection). Related to this price protection, on February 15, 1996,
Anacomp issued 1,127,143 additional shares of stock to NBS shareholders. As a
result of the Reorganization, discussed in Note 2, this price protection is no
longer in effect.
Graham Magnetics
Another of the acquisitions included above was the purchase of Graham
Acquisition Corporation ("Graham"), a magnetics media manufacturing company. The
acquisition was effective on May 4, 1994, and the acquisition cost consisted of
the following (dollars in thousands):
Common stock issued to Graham shareholders..............$ 8,515
Common stock issued for a note payable................... 1,286
Issuance of note payable to a creditor................... 4,240
Cash paid to retire bank debt............................ 5,540
Acquisition costs incurred.............................. 689
$ 20,270
Anacomp issued 2,129,000 common shares to the Graham shareholders based on
an agreed upon per share price. However, to determine the acquisition cost, the
shares were valued at the market price on the date of closing.
Contingent consideration of $7.6 million was payable in Anacomp common
stock and was based upon defined future earnings through September 1997. The
contingent consideration amount was $144,000 for fiscal 1994 and zero for fiscal
1995. As a result of the Reorganization, discussed in Note 2, this contingency
is no longer in effect.
Anacomp also issued 360,000 common shares to a Graham creditor at $3.57 per
share to reduce the note payable to $4.2 million. The note was unsecured and
bore interest at 10%. Principal payments of $345,000 plus accrued interest were
payable quarterly beginning July 15, 1994. The note holder could at any time
require Anacomp to prepay any amount of the note by issuing common stock. The
shares of common stock to be issued were equal to the prepayment amount divided
by $3.57. In connection with the Plan of Reorganization, the original note was
canceled and a new promissory note was issued in the amount of $1.2 million. The
note did not bear interest and was payable in two installments; $800,000 due
within thirty days of the effective date of the bankruptcy, and $400,000 due on
or before October 30, 1996. The outstanding note balance was $400,000 and $2.5
million at September 30, 1996 and 1995, respectively. The note was paid off
subsequent to September 30, 1996.
NOTE 11.
SKC AGREEMENT:
Anacomp has entered into a supply agreement (the "Supply Agreement") with
SKC America, Inc., a New Jersey corporation ("SKCA"), and SKC Limited ("SKCL"),
an affiliated corporation of SKCA organized pursuant to the laws of the Republic
of Korea. SKCA and SKCL are collectively referred to as "SKC". The Supply
Agreement expires in December 2003. Pursuant to the Supply Agreement, Anacomp
purchases substantially all of its requirements for coated duplicate microfilm
from SKC. Pursuant to the Supply Agreement, SKC also provides the Company with a
substantial portion of its polyester requirements for its magnetic media
products.
In connection with the Supply Agreement, SKC also provided the Company with
a $25 million trade credit facility (secured by up to $10 million of products
sold to the Company by SKC), all of which is outstanding at September 30, 1996.
The trade credit arrangement bears interest at 2.5% over the prime rate of The
First National Bank of Boston (10.75% as of September 30, 1996).
In connection with an amendment to the Supply Agreement as of the effective
date under the Plan of Reorganization, the Company agreed to certain price
increases, retroactive to 1994, and agreed to make the following deferred
payments related to the retroactive price increases to SKC (which are accrued in
"Other accrued liabilities" in the accompanying Consolidated Balance Sheets):
(a) $400,000 in 1997: (b) $600,000 in 1998; (c) $800,000 in 1999; (d) $800,000
in 2000; and (e) 1,000,000 in 2001.
41
NOTE 12.
PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
Reorganized Predecessor
Estimated Useful Company Company
(Dollars in thousands) September 30, Life in Years 1996 1995
- ----------------------------------------------------------- --------------------- ---------------------- -----------------------
Land and buildings.................................... 10 - 40 $ 3,148 $ 5,283
Office furniture...................................... 3 - 12 2,499 12,141
Manufacturing equipment and tooling................... 2 - 10 4,161 31,351
Field support spare parts............................. 4 - 7 5,852 21,764
Leasehold improvements................................ Term of Lease 852 10,782
Equipment leased to others............................ 2 - 4 467 1,838
Processing equipment.................................. 3 - 12 13,819 58,722
30,798 141,881
Less accumulated depreciation and amortization........ (3,696) (96,898)
$27,102 $ 44,983
NOTE 13.
LONG-TERM RECEIVABLES:
Long-term receivables consist of the following:
Reorganized Company Predecessor Company
(Dollars in thousands) September 30, 1996 1995
- ---------------------------------------------------------------------------------- ---------------------- ---------------------
Lease contracts receivable................................................... $ 12,546 $ 15,678
Notes receivable from asset sales............................................ 2,260 2,619
Other........................................................................ 516 411
15,322 18,708
Less current portion......................................................... (4,690) (6,386)
$ 10,632 $ 12,322
Lease contracts receivable result from customer leases of products under
agreements which qualify as sales-type leases. Annual future lease payments to
be received under sales-type leases are as follows:
(Dollars In thousands) Year ended September 30,
1997............................................................. $ 5,540
1998............................................................. 4,503
1999............................................................. 2,805
2000............................................................. 1,370
2001............................................................. 566
14,784
Less deferred interest........................................... (2,238)
$12,546
42
NOTE 14.
LONG-TERM DEBT:
Long-term debt is comprised of the following:
Reorganized Predecessor
Company Company
(Dollars in thousands) September 30, 1996 1995
- ---------------------------------------------------------------------------------- ---------------------- ---------------------
11-5/8% Senior Secured Notes................................................. $ 97,902 $ ----
13% Senior Subordinated Notes (net of unamortized discount of $12,942) 147,058 ----
Revolving Loan at 8.63%...................................................... ---- 31,328
Multicurrency Revolving Loan at 8.44%........................................ ---- 28,813
Term Loans at 8.56%.......................................................... ---- 13,039
Series B Senior Notes at 12.25%.............................................. ---- 58,908
15% Senior Subordinated Notes (net of unamortized discount of
$4,619).................................................................. ---- 220,281
13.875% Convertible Subordinated Debentures (net of unamortized discount of
$2,077).................................................................. ---- 21,155
9% Convertible Subordinated Debentures ...................................... ---- 10,479
Non-interest bearing installment note payable due October 30, 1996........... 400 2,513
Other........................................................................ 3,532 3,384
248,892 389,900
Less current portion......................................................... (31,848) (389,900)
$217,044 $ ----
Senior Secured Notes
In connection with the Reorganization, the Company issued $112.2 million
aggregate principal amount of 11- 5/8% Senior Secured Notes due September 30,
1999. Interest is payable on March 31 and September 30 each year. The Company
pre-paid the September 30, 1996, installment of $14.3 million on September 3,
1996. The Company is required to redeem the remaining notes at par on each
interest payment date according to the following schedule (in thousands):
March 31, 1997 $14,286
September 30, 1997 16,163
March 31, 1998 16,161
September 30, 1998 17,100
March 31, 1999 17,100
September 30, 1999 17,092
$97,902
The Senior Secured Notes are redeemable at the option of the Company, in
whole or in part, at any time, at 100% of the principal amount thereof, plus
accrued and unpaid interest. The Company is required in certain circumstances to
make offers to purchase the Senior Secured Notes then outstanding at a purchase
price equal to 100% of the principal amount thereof, plus accrued and unpaid
interest, with the net cash proceeds of certain sales or other distributions of
assets by the Company or certain of its subsidiaries. Also, upon a change of
control, the Company is required to make an offer to purchase the Senior Secured
Notes then outstanding at a purchase price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest.
The Senior Secured Notes are senior secured obligations of the Company and
will rank pari passu with all other existing and future senior obligations of
the Company, and senior to all existing and future subordinated or junior
indebtedness of the Company. The collateral securing the Senior Secured Notes
consists of substantially all of the assets of the Company and all future
acquired assets of the Company to the extent such assets are acquired by the
Company without secured financing.
43
The indenture related to the Senior Secured Notes contains covenants
limiting among other things, (i) the incurrence of additional indebtedness by
the Company and certain of its subsidiaries, (ii) the payment of dividends on,
and the redemption of, capital stock of the Company and certain of its
subsidiaries, (iii) the redemption of certain subordinated obligations of the
Company and certain of its subsidiaries and the making of certain investments by
the Company and certain of its subsidiaries, (iv) the sale by the Company and
certain of its subsidiaries of assets and certain subsidiary stock, (v)
transactions between the Company and its affiliates, (vi) liens on the
collateral securing the Senior Secured Notes, (vii) consolidations and mergers
and transfers of all or substantially all of the Company's and certain of its
subsidiaries' assets and (viii) capital expenditures. All of the limitations and
prohibitions are subject to a number of qualifications and exceptions.
The indenture also contains a covenant requiring the Company to maintain a
minimum interest coverage ratio. At September 30, 1996, the Company was in
compliance with all covenants under the Senior Secured Notes indenture.
Senior Subordinated Notes
In connection with the Reorganization, the Company issued $160 million
aggregate principal amount of 13% Senior Subordinated Notes due June 2002. This
debt was recorded at its estimated fair value of $146.3 million. The difference
between the aggregate principal amount and the fair value of the debt will be
amortized as a charge to interest expense over the life of the debt. Interest is
payable on June 30 and December 31 each year, beginning on December 31, 1996.
For the interest payable on December 31, 1996 and June 30, 1997, the Company
will provide Payment-In-Kind ("PIK") notes in satisfaction of its interest
obligation rather than a cash settlement. The PIK notes will have a principal
amount corresponding to the amount of interest due on the notes on the related
interest payment date.
The Company is required to redeem prior to June 30, 2001 the principal
amount of the Senior Subordinated Notes equal to the aggregate principal amount
of PIK notes issued prior to such date, plus any accrued and unpaid interest on
the PIK notes, at a redemption price equal to the price that would be then
applicable in the case of an optional redemption. The remaining Senior
Subordinated Notes are redeemable at the option of the Company, in whole or in
part, at any time, at various redemption prices ranging from 103% to 101.5% of
the principal amount thereof through December 31, 2001. Thereafter, the Senior
Subordinated Notes may be redeemed at the aggregate principal amount thereof.
Also, upon a change in control, the Company is required to make an offer to
purchase the Senior Subordinated Notes then outstanding at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest.
The Senior Subordinated Notes are unsecured senior subordinated obligations
of the Company and rank pari passu with all other existing and future
subordinated obligations of the Company. The payment of principal and interest
is subordinated and subject to the prior payment in full of the Company's senior
indebtedness.
The indenture related to the Senior Subordinated Notes contains covenants
limiting, among other things, (i) the incurrence of additional indebtedness by
the Company and certain of its subsidiaries, (ii) the payment of dividends on,
and the redemption of, capital stock of the Company and certain of its
subsidiaries, (iii) the redemption of certain subordinated obligations of the
Company and certain of its subsidiaries and the making of certain investments of
the Company and certain of its subsidiaries, (iv) the sale by the Company and
certain of its subsidiaries of assets and certain subsidiary stock, (v)
transactions between the Company and its affiliates, (vi) sale/leaseback
transactions by the Company and certain of its subsidiaries, (vii)
consolidations and mergers and transfers of all or substantially all of the
Company's and certain of its subsidiaries' assets and (viii) capital
expenditures. All of the limitations and prohibitions are subject to a number of
qualifications and exceptions. The indenture also contains a covenant requiring
the Company to maintain a minimum interest coverage ratio. At September 30,
1996, the Company was in compliance with all covenants under the Senior
Subordinated Notes indenture.
44
NOTE 15.
REDEEMABLE PREFERRED STOCK:
Anacomp issued 500,000 shares of 8.25% Cumulative Convertible Redeemable
Exchangeable Preferred Stock (the "Preferred Shares") in a 1987 private
placement. Each Preferred Share had a preference value of $50 and was
convertible into Anacomp common stock at a conversion price of $7.50. The
Preferred Shares were recorded at fair value on the date of issuance less issue
costs. The excess of the preference value over the carrying value was accreted
by periodic charges to retained earnings over the original life of the issue. At
September 30, 1995, 500,000 shares were issued and outstanding. In connection
with the Reorganization discussed in Note 2 , the Preferred Shares were
canceled.
NOTE 16.
CAPITAL STOCK:
Reorganized Company
Preferred Stock
The Board of Directors of the Company has the ability, at its discretion,
to create one or more series of Preferred Stock and shall determine the
preferences, limitations, and relative voting and other rights of one or more
series of Preferred Stock.
Stock Option Plans
On July 22, 1996, the Company's Board of Directors approved the 1996
Restructure Recognition Incentive Plan. Under this plan, effective August 22,
1996, the Company awarded to employees 947,500 stock options to acquire new
common stock and 99,050 shares of restricted new common stock.
With regard to the stock options, the options were granted an exercise
price of $4.63 per share of new common stock which will result in approximately
$3.2 million of compensation expense over the vesting period of the options
based on the market value of the stock at August 22, 1996. 75% of the options
vest ratably during the period from June 30, 1997 to June 30, 1999. 25% of the
options vest on September 30, 1999, provided certain performance goals have been
met; otherwise the options vest on June 30, 2003. During 1996, approximately
$975,000 was recognized as compensation expense related to the options. The
options expire 10 years after the date of the grant. As of September 30, 1996,
none of the options were exercisable.
With regard to the restricted shares of new common stock, the shares vest
immediately and thus the Company recognized approximately $0.8 million of
compensation expense immediately upon granting the award based on the market
value of the Company's stock on August 22, 1996. The shares are restricted from
sale or transfer by the recipient employees until September 30, 1997. Effective
December 6, 1996, 34,650 shares of restricted stock were returned by employees
to the Company.
In addition, on August 22, 1996, the Company's Board of Directors approved
the 1996 Long-Term Incentive Plan, which provides for the future issuance of
various forms of stock related awards including options, stock appreciation
rights and restricted shares. The Company has reserved 1,400,000 shares of new
common stock for future issuance under this plan. Future awards, including the
nature of the awards and related exercise prices, are to be determined at the
discretion of the Compensation Committee of the Board of Directors in accordance
with the plan provisions. As of September 30, 1996, no awards were issued
related to this plan. Subsequent to September 30, 1996, 438,179 stock option
awards were made to certain Executive Officers and Non-Employee Directors. At
current market value on the date of grant.
45
Warrants
In connection with the Reorganization discussed in Note 2, Anacomp issued
362,694 new warrants to certain creditors and previous common and preferred
stockholders. Each new warrant was convertible into one share of new common
stock at an exercise price of $12.23 per share. In connection with the rights
offering discussed in Note 25, each new warrant is now convertible into 1.0566
shares of new common stock at an exercise price of $11.57 per share. The new
warrants expire on June 3, 2001.
Other Items
At September 30, 1996, approximately 1.3 million shares of Anacomp new
common stock were reserved for exercise of stock options, exercise of warrants
and other corporate purposes.
Predecessor Company
Stock Option Plans
Anacomp's stock option plans provided that the exercise price of the
options be determined by the Board of Directors (the "Board"), and in no case be
less than 100% of fair market value at the time of grant for qualified options,
or less than the par value of the stock for non-qualified options. An option
could be exercised subject to such restrictions as the Board may impose at the
time the option was granted. In any event, each option terminated not later than
10 years after the date on which it was granted.
No shares were available for grant at May 31, 1996. Shares available for
grant under the plans were 1,401,328 and 725,827 at September 30, 1995 and 1994,
respectively. Options outstanding, were as follows:
Option Price
Shares Per Share
- --------------------------------------------------------------------------- ------------------- --------------------------
Outstanding at September 30, 1993..................................... 4,414,528 $ 1.000 - $9.000
Granted............................................................... 205,381 2.750 - 4.000
Canceled.............................................................. (81,908) 1.000 - 7.875
Expired............................................................... (23,096) 2.000 - 7.875
Excercised............................................................ (306,646) 1.000 - 3.375
------------------- --------------------------
Outstanding at September 30, 1994..................................... 4,208,259 1.000 - 9.000
Granted............................................................... 1,355,736 .563 - 2.500
Canceled.............................................................. (2,010,753) .563 - 4.750
Expired............................................................... (20,484) 2.000 - 4.500
Excercised............................................................ (24,863) .563 - 2.000
------------------- --------------------------
Outstanding at September 30, 1995..................................... 3,507,895 .563 - 9.000
Granted............................................................... 677,181 .313 - .313
Canceled.............................................................. (4,182,076) .313 - 9.000
Expired............................................................... (3,000) 2.000 - 3.500
------------------- --------------------------
Outstanding at May 31, 1996........................................... ---- $ ---- - $ ----
=================== ==========================
All options existing at May 31, 1996 were canceled in connection with the
Company's Reorganization discussed in Note 2.
Warrants
In October 1990, Anacomp issued 6,825,940 warrants ("Old Warrants") to
holders of the 15% Senior Subordinated Notes. Each Old Warrant entitled the
holder to purchase one common share at a price of $1.873 and was exercisable
through November 11, 2000, the date of expiration. In connection with the
Reorganization discussed in Note 2, the Old Warrants were canceled.
46
NOTE 17.
INCOME TAXES:
The components of income (loss) before income taxes and extraordinary
credit were:
Reorganized Company Predecessor Company
---------------------- -------------------------------------------
Four Months Ended Eight Months Twelve Months Ended
Ended September 30,
(Dollars in thousands) September 30, 1996 May 31, 1996 1995 1994
- ------------------------------------------------ ---------------------- ----------------- ------------- ------------
United States.................................. $(21,602) $112,100 $(209,151) $7,143
Foreign........................................ 3,993 4,128 5,825 8,212
$(17,609) $116,228 $(203,326) $15,355
The components of income tax expense after utilization of net operating
loss carryforwards and the adjustment of tax reserves are summarized below:
Reorganized Company Predecessor Company
----------------------- -------------------------------------------------
Four Months Eight Months Twelve Months Ended
Ended Ended September 30,
--------------------------------
(Dollars in thousands) September 30, 1996 May 31, 1996 1995 1994
- --------------------------------------------- ----------------------- ---------------- --------------- ----------------
Current:
Federal................................. $ 600 $ --- $ ---- $ ----
Foreign................................. 2,400 3,700 4,800 3,300
State................................... 100 --- ---- 300
3,100 3,700 4,800 3,600
Tax reserve adjustment...................... ---- --- 1,200 (1,200)
Non-cash charge in lieu of taxes ........... 1,300 ---- 29,000 6,000
$ 4,400 $3,700 $35,000 $8,400
In addition, for the eight months ended May 31, 1996, there was an
additional expense of $29 million related to the tax liability associated with
the gain on discharge of indebtedness. This liability was offset by the
utilization of net operating loss carryforwards ("NOLs"). See Note 3 for further
discussion.
47
The following is a reconciliation of income taxes calculated at the United
States federal statutory rate to the provision for income taxes:
Reorganized Predecessor Company
Company
----------------- ----------------------------------------
Four Eight Twelve Months Ended
Months Months September 30,
----------------------------
Ended September Ended May
30, 31,
(Dollars in thousands) 1996 1996 1995 1994
Provision for income taxes at U.S. statutory rate................. (6,200) $ 40,700 $(71,200) $ 5,374
Non taxable reorganization income............................... ---- (43,700) --- -----
Increase in deferred tax asset valuation allowance............... ---- ---- 51,400 ----
Nondeductible amortization and write-off of intangible assets. 8,300 2,500 40,500 3,175
State and foreign income taxes..................................... 1,200 2,300 2,800 821
U.S. tax on distributed and undistributed foreign earnings... ---- ---- 12,300 ----
Tax reserve adjustment............................................. ---- ---- 1,200 (1,200)
Tax effect of pre-reorganization loss not available due to
ownership change................................................... ---- 2,100 ---- ----
Alternative minimum tax............................................ 1,000 ---- ---- ----
Other.............................................................. 100 (200) (2,000) 230
$ 4,400 $ 3,700 $ 35,000 $ 8,400
The Company adopted FAS 109 in the first quarter of fiscal 1994 and
recorded a deferred tax asset of $95 million representing the federal and state
tax savings from NOLs and tax credits. The Company also recorded a valuation
allowance of $60 million reducing the deferred tax asset to a net $35 million.
Recognition of the deferred tax asset reduced goodwill by $27 million and
provided a cumulative effect increase to income of $8 million. During 1994, the
net deferred tax asset was reduced to $29 million, reflecting usage of the asset
to reduce income taxes payable by $6 million. During 1995, tax effects of future
differences and carryforwards increased from $86 million to $108.4 million, an
increase of $22.4 million resulting from the tax effect of the 1995 taxable loss
($5.6 million) and the tax effect of an increase in cumulative temporary
differences ($16.8 million) between income reported for financial reporting
purposes and for tax purposes. The valuation allowance was increased from $57
million to $108.4 million to reduce the net deferred tax asset to zero as a
result of the uncertainty associated with the utilization of these assets in
future periods due to the Company's deteriorating financial condition prior to
the bankruptcy.
During 1996, tax effects of future differences and carryforwards decreased
from $108.4 million to $85.4 million, a decrease of $23 million resulting
primarily from the tax effect of a reduction in the Reorganized Company's NOLs
due to cancellation of indebtedness in connection with the bankruptcy
reorganization ($24.5 million) and the tax effect of the 1996 taxable income
($8.5 million) offset by an increase in tax credits, principally foreign tax
credits ($9 million).
The components of deferred tax assets and liabilities at September 30, 1996
and September 30, 1995 are as follows:
Reorganized Company Predecessor Company
September 30, September 30,
Net Deferred Tax Asset (Dollars in thousands) 1996 1995
- ---------------------------------------------------------------------------------- ---------------------- ---------------------
Tax effects of future tax deductible differences related to:
Inventory reserves....................................................... $ 7,000 $ 5,700
Depreciation............................................................. 1,600 1,700
Building reserves........................................................ 500 1,800
EPA reserve.............................................................. 2,500 2,500
Sale/leaseback of assets................................................. 700 2,800
Restructuring activities................................................. 1,200 8,000
Asset sale............................................................... 2,600 3,200
Capitalized software..................................................... ---- 1,600
Bad debt reserve......................................................... 1,800 2,100
Other net deductible differences......................................... 7,800 5,500
Tax effects of future differences related to:
Undistributed foreign earnings........................................... ---- (8,800)
Leases................................................................... (2,100) (3,300)
Capitalized software..................................................... (2,700) ----
Net tax effects of future differences 20,900 22,800
Tax effects of carryforward benefits:
Federal net operating loss carryforwards................................. 47,900 78,600
Federal general business tax credits..................................... 3,600 3,000
Foreign tax credits...................................................... 13,000 4,000
Tax effects of carryforwards 64,500 85,600
Tax effects of future taxable differences and carryforwards.................. 85,400 108,400
Less deferred tax asset valuation allowance.................................. (85,400) (108,400)
Net deferred tax asset....................................................... $ ---- $ ----
At September 30, 1996, the Reorganized Company has NOLs of approximately
$133 million available to offset future taxable income. This amount will
increase to $191 million as certain termporary differences reverse in future
periods. Usage of these NOLS by the Reorganized Company is limited to
approximately $4 million annually. However, the Reorganized Company may
authorize the use of other tax planning techniques to utilize a portion of the
remaining NOLs before they expire. In any event, the Reorganized Company expects
that substantial amounts of the NOLs will expire unused.
The Reorganized Company has tax credit carryforwards of approximately $16.6
million. These tax credits are principally foreign tax credit carryforwards
resulting from inclusion of the accumulated earnings and profits of the
Reorganized Company's foreign subsidiaries in U.S. taxable income in 1996. The
Reorganized Company expects that these credits will expire unused.
The tax benefits of pre-reorganization net deferred tax assets will be
reported first as a reduction of "Reorganization value in excess of identifiable
assets" and then as a credit to equity. These tax benefits will not reduce
income tax expense.
49
NOTE 18.
COMMITMENTS AND CONTINGENCIES:
Anacomp has commitments under long-term operating leases, principally for
building space and data service center equipment. Lease terms generally cover
periods from five to twelve years. The following summarizes the future minimum
lease payments under all noncancelable operating lease obligations, including
the unfavorable lease commitments and vacant facilities discussed in Note 1,
which extend beyond one year:
(Dollars in thousands) Year ended September 30,
-----------------------------------------------------------------
1997....................................... $ 18,307
1998....................................... 14,350
1999....................................... 5,561
2000....................................... 2,087
2001....................................... 1,097
2002 and thereafter........................ 7,387
48,789
Lessliabilities recorded as of September 30, 1996 related to
unfavorable lease commitments and future lease costs for vacant
facilities ($6,831 reflected in current liabilities) (11,439)
$ 37,350
The total of future minimum rentals to be received under noncancelable
subleases related to the above leases is $1.2 million. No material losses in
excess of the liabilities recorded are expected in the future.
In November 1993, Anacomp and Pennant Systems, a division of IBM, announced
a joint effort to develop software which will allow Anacomp's XFP 2000 to
process and image IBM Advanced Function Presentation ("AFP") formatted data.
This program resulted in the XFP 2000 being able to output AFP data streams,
including those containing fonts, logos, signatures and other images, onto
microfiche.
As consideration for the development of the AFP, Anacomp paid Pennant
Systems a development fee of $6.5 million. Anacomp was also required to pay
Pennant Systems minimum annual royalty payments for the licensed system
installations for six years and for ongoing system support which began in
December 1995 and continued for 10 years. As of September 30, 1995, Anacomp
established a reserve of $7.7 million for future payments to Pennant Systems for
software royalty and systems support obligations which were not recoverable as
more fully discussed in Note 1. In connection with the Company's financial
restructuring during 1996, this contract was renegotiated with Pennant and,
accordingly, no reserve requirements exist at September 30, 1996. The
renegotiated contract requires Anacomp to make future license fee payments to
Pennant Systems of $625,000 annually through fiscal year 1999.
The Company sold $10.5 million and $5.9 million of lease receivables in the
twelve months ended September 30, 1995 and 1994, respectively. Under the terms
of the sale, the purchasers have recourse to the Company should the receivables
prove to be uncollectable. The amount of recourse at September 30, 1996 is $5.3
million.
Anacomp also is involved in various claims and lawsuits incidental to its
business and management believes that the outcome of any of those matters will
not have a material adverse effect on its consolidated financial position or
results of operations.
NOTE 19.
SUPPLEMENTARY INCOME STATEMENT INFORMATION:
Reorganized
Company Predecessor Company
----------------- ---------------------------------------------
Four Months Eight Months Ended Twelve Months Ended
Ended September 30,
-------------------------
September 30, May 31,
(Dollars in thousands) 1996 1996 1995 1994
Maintenance and repairs............................... $ 3,505 $ 7,243 $ 16,609 $ 12,759
Depreciation and amortization:
Property and equipment............................. 3,696 8,573 19,406 17,524
Deferred software costs............................ 297 1,883 3,449 3,673
Intangible assets.................................. 25,853 6,841 13,143 13,418
Rent and lease expense................................ 5,936 13,958 23,755 19,371
NOTE 20.
OTHER ACCRUED LIABILITIES:
Other accrued liabilities consist of the following:
Reorganized Predecessor
Company Company
(Dollars in thousands) September 30, 1996 1995
Deferred profit on sale/leaseback transactions........................... $ ---- $ 14,559
Unfavorable lease commitment related to sale/leaseback transactions...... 4,550 ----
EPA reserve.............................................................. 6,961 7,350
Software license reserve................................................. ---- 7,672
Other.................................................................... 25,303 31,006
$36,814 $ 60,587
Xidex Corporation, a predecessor company of Anacomp, 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. The EPA reserve noted
above relates to its estimated liability for cleanup costs for the
aforementioned locations and other sites. No material losses are expected in
excess of the liabilities recorded above.
NOTE 21.
EARNINGS (LOSS) PER SHARE:
The computation of earnings (loss) per share is based upon the weighted
average number of common shares outstanding during the period plus (in periods
in which they have a dilutive effect) the effect of common shares contingently
issuable, primarily from stock options and exercise of warrants. Fully diluted
earnings (loss) per share also reflect additional dilution related to stock
options due to the use of the market price at the end of the period, when higher
than the average price for the period. For the four months ended September 30,
1996, only primary earnings per share is presented due to the loss reported for
the period.
The weighted average number of common shares outstanding and net income
(loss) per common share for periods prior to May 31, 1996 have not been
presented because, due to the Reorganization and implementation of Fresh Start
Reporting, they are not comparable to subsequent periods.
50
The weighted average number of common and common equivalent shares used to
compute earnings per share is:
Four Months Ended September 30, 1996
Common and common equivalent shares....................... 10,033,576
NOTE 22.
INTERNATIONAL OPERATIONS:
Anacomp's international operations are conducted principally through
subsidiaries, a substantial portion of whose operations are located in Western
Europe. Information as to U.S. and international operations for the four months
ended September 30, 1996, the eight months ended May 31, 1996 and the twelve
months ended September 30, 1995 and 1994 is as follows:
Four Months Ended September 30, 1996 - Reorganized Company
(Dollars in thousands) U.S. International Elimination Consolidated
- --------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Customer sales................................. $102,733 $ 48,809 $ ---- $151,542
Inter-geographic............................... 4,449 ---- (4,449) ----
Total sales.................................... $107,182 $ 48,809 $ (4,449) $151,542
Operating income............................... $(12,401) $ 6,637 $ ---- $ (5,764)
Identifiable assets............................ $390,088 $ 45,333 $ ---- $435,421
Eight Months Ended May 31, 1996 - Predecessor Company
(Dollars in thousands) U.S. International Elimination Consolidated
- --------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Customer sales................................. $227,742 $106,856 $ ---- $334,598
Inter-geographic............................... 12,592 ---- (12,592) ----
Total sales.................................... $240,334 $106,856 $ (12,592) $334,598
Operating income............................... $ 34,990 $ 6,615 $ ---- $ 41,605
Twelve Months Ended September 30, 1995 - Predecessor Company
(Dollars in thousands) U.S. International Elimination Consolidated
- --------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Customer sales................................. $ 404,239 $ 186,950 $ ---- $ 591,189
Inter-geographic............................... 24,973 ---- (24,973) ----
Total sales.................................... $ 429,212 $ 186,950 $ (24,973) $ 591,189
Operating income (loss)........................ $ (135,811) $ 7,622 $ ---- $ (128,189)
Identifiable assets............................ $ 350,310 $ 70,719 $ ---- $ 421,029
Twelve Months Ended September 30, 1994 - Predecessor Company
(Dollars in thousands) U.S. International Elimination Consolidated
- --------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Customer sales................................. $ 421,339 $ 171,260 $ ---- $ 592,599
Inter-geographic............................... 23,726 ---- (23,726) ----
Total sales.................................... $ 445,065 $ 171,260 $ (23,726) $ 592,599
Operating income............................... $ 60,794 $ 18,783 $ ---- $ 79,577
Identifiable assets............................ $ 590,743 $ 67,896 $ ---- $ 658,639
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NOTE 23.
QUARTERLY FINANCIAL DATA (UNAUDITED):
Predecessor Company Reorganized Company
---------------------------------------------- ------------------------------
Two Months One Month
Ended Ended
(Dollars in thousands, except per share amounts) First Second May June 30, Fourth Quarter
Quarter Quarter 31, 1996
1996
- --------------------------------------------------- --------------- ---------------- ------------- -------------- ---------------
Fiscal 1996
Revenues....................................... $130,265 $125,911 $ 78,422 $ 36,786 $114,756
Gross profit................................... 40,666 40,411 23,903 11,895 37,692
Income (loss) before extraordinary credit...... 1,053 (10,731) 122,206 (4,372) (17,637)
Extraordinary credit:
Gain on discharge of indebtedness.............. ---- ---- 52,442 ---- ----
Net income (loss).............................. 1,053 (10,731) 174,648 (4,372) (17,637)
Preferred stock dividends and discount
accretion.................................. -------------- --------------- ------------ ------------- --------------
540 ---- ---- ---- ----
Net income (loss) available to common
stockholders...............................
$ 513 $(10,731) $174,648 $ (4,372) $(17,637)
Earnings per common share (primarily and fully diluted):
Net loss available to common
stockholders...............................
$ (.44) $ (1.75)
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------- ---------------- -------------- ---------------
Fiscal 1995 - Predecessor Company
Revenues....................................... $151,812 $151,489 $ 148,933 $ 138,955
Gross profit................................... 49,406 45,945 45,931 32,482
Net income (loss).............................. 281 (7,664) (138,829) (92,114)
Preferred stock dividends and discount
accretion.................................. 540 539 540 539
Net loss to common stockholders................ $ (259) $ (8,203) $(139,369) $ (92,653)
52
NOTE 24.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES:
The following is a summary of activity in the Company's valuation and
qualifying accounts and reserves for the periods ended September 30, 1996 and
May 31, 1996 and for the twelve months ended September 30, 1995 and 1994:
Balance at Charged to Balance at
beginning of costs and end of period
Description period expenses Deductions
- --------------------------------------------------- -------------- --------------- -------------- --------------
(Dollars in thousands)
Four Months Ended September 30, 1996 - Reorganized Company
Allowance for doubtful accounts............ $ 7,464 $ 388 $ 1,393[1] $ 6,459
Eight Months Ended May 31, 1996 - Predecessor Company
Allowance for doubtful accounts............ $ 7,367 $ 253 $ 156[1] $ 7,464
Twelve months ended September 30, 1995 - Predecessor Company
Allowance for doubtful accounts............ $ 3,550 $ 4,670 $ 853[1] $ 7,367
Twelve months ended September 30, 1994 - Predecessor Company
Allowance for doubtful accounts............ $ 4,245 $ (268) $ 427[1] $ 3,550
[1] Uncollectable accounts written off, net of recoveries.
53
NOTE 25.
RIGHTS OFFERING:
On October 30, 1996, the Company completed a rights offering to its
existing shareholders resulting in the issuance of 3.6 million shares of new
common stock. For each share of Anacomp new common stock held as of the close of
business on September 18, 1996, the Company distributed 0.36 rights to purchase
additional shares of new common stock at a subscription price of $6.875 per
share. The Company will use the proceeds of the rights offering, approximately
$25 million, for the acquisition of businesses, assets and technologies.
NOTE 26.
SUBSEQUENT EVENTS (Unaudited):
On November 20, 1996, the Company reached agreement with Lehman Brothers
for the refinancing of the Company's 11-5/8% Senior Secured Notes. Lehman
Brothers has agreed to underwrite a new $115 million debt facility to replace
the existing Senior Secured Notes, which had a balance outstanding of $97.9
million at September 30, 1996. The new debt facility will consist of $90 million
in term loans and a revolver of up to $25 million. The refinancing requires the
consent of Anacomp's 13% Senior Subordinated Noteholders. The consent
solicitation period ends January 17, 1997.
Subsequent to September 30, 1996, the company acquired the customer bases
and other specified assets of three businesses: Archive Storage, Inc. ("ASI"),
Precision Data Services, Inc. ("PDS") and Integra Technologies Corporation
("ITC").
ASI is a Massachusetts company that specializes in the long-term storage of
critical business records. The ASI purchase price consisted of $180,000 cash at
closing, the assumption of a $70,000 debt obligation, and a contingent cash
payment of up to $500,000 based on future earnings of Anacomp's storage
business.
PDS is a service bureau in New York specializing in Computer Output to
Microfilm ("COM"). The PDS purchase price was $1.7 million cash at closing.
ITC is a Massachusetts company that provides maintenance services relating
to ITC equipment sold for the cleaning, testing, certifying and degaussing of
computer tape. The ITC purchase price consisted of $1.5 million cash at closing,
the assumption of a $600,000 deferred revenue liability, and a contingent cash
payment of up to $2.7 million based on future revenues of the ITC business.
54