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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, 1997 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) (Zip
Code)
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 19, 1997: Common stock par value $.01 per share,
$215,202,312.
Common Stock outstanding as of December 19, 1997 was 13,828,261 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement relating to the registrant's 1998
Annual Meeting of Shareholders to be held on February 10, 1998, have been
incorporated by reference in Part III of this Annual Report on Form 10-K.
PART I
ITEM 1. BUSINESS
Overview
Anacomp, Inc. ("Anacomp" or the "Company") is a leading provider of
products and services that enable organizations to effectively and efficiently
manage their documents. The Company does business with approximately 15,000
customers in more than 65 countries. The Company offers a broad range of
short-term and long-term solutions for the conversion, storage, and retrieval of
computer data and images utilizing micrographic, magnetic media and, to an
increasing extent, electronic technologies.
Anacomp has built a strong reputation as the world's leading
full-service provider of film-based (micrographic) systems, services, and
supplies. Micrographics is the conversion of information stored in electronic
form or on paper to microfilm or microfiche. 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. Anacomp's primary micrographics focus is Computer-Output-to-Microfilm
("COM") solutions, and the Company believes it possesses worldwide COM market
share in excess of 40%. COM involves the high-speed conversion of coded data
directly from a computer or magnetic tape to microfilm or microfiche.
The Company has an extensive installed base of COM equipment, which
management estimates to be in excess of 55% of the systems in use worldwide.
This installed base, together with the Company's strong customer relationships,
provide the Company with what management believes to be a substantial recurring
revenue stream from COM maintenance and supplies. For customers that prefer
outsourcing solutions, the Company provides COM services through its network of
42 service centers in the United States and six international centers.
The Company has established itself as a leading provider of Compact
Disc ("CD") solutions for document management applications through the growth of
its ALVA(TM) CD ("ALVA") services as well as the Company's acquisition in 1997
of Data/Ware Development, Inc. ("Data/Ware"), a leading manufacturer and
supplier of CD output systems. CD services are offered at a majority of the
Company's service centers around the world, and this business has enjoyed
healthy growth over the past two years. The Company's Data/Ware CD systems
generally are sold to businesses with high-volume CD output needs. The Company
believes it can enhance sales of Data/Ware CD systems by leveraging its customer
relationships and capital equipment expertise.
The Company is a leading provider of half-inch computer tape (magnetic
media) products for larger computing systems, with manufacturing plants in the
United States and in Europe. To at least partially offset the mature market
trends for many of the magnetic media products, the Company plans to invest in
technology to assemble newer-generation metal particle tape cartridges and to
significantly increase the magnetic media-related services it offers to
customers.
Overall, the Company plans to maintain its leadership position in
traditional information management solutions while continuing to capitalize on
its expertise and customer base to add new products and services. This migration
toward faster growth areas of the document management industry is being
accomplished through internal product development, strategic alliances and
acquisitions of companies and technology.
History & Recent Developments
Anacomp was incorporated in Indiana in 1968. In the 1970s and 1980s,
Anacomp became the leader in the COM services portion of the document management
industry through acquisitions and internal growth. In 1987, the Company became
the world's leading manufacturer of COM systems by acquiring DatagraphiX, Inc.
In 1988, Anacomp acquired Xidex Corporation ("Xidex"), a leading
manufacturer of magnetic media products, duplicate microfilm, and microfilm
readers and reader/printers. Primarily due to substantial debt incurred as a
result of the Xidex acquisition, the Company filed for bankruptcy protection
under Chapter 11 of the U.S. Bankruptcy Code on January 5, 1996. The Company
emerged from Chapter 11 under its Plan of Reorganization on June 4, 1996 with
significantly reduced debt, lower interest payments, a new financial structure,
a new Board of Directors and management and a new business strategy. Subsequent
to the Company's emergence from Chapter 11, the Company has refinanced both its
senior and subordinated debt, further reducing its annual cash interest payments
and enhancing the Company's liquidity.
Recently, in addition to enhancing its traditional micrographics
products and services, the Company has significantly expanded its electronic
document management solutions. Initiatives include the development of ALVA
services; the acquisition of CD businesses, including Data/Ware and
Com-informatic AG ("Com-informatic"), a leading Swiss developer and installer of
Computer Output to Laser Disc ("COLD") and imaging digital solutions; reseller
agreements for the distribution of foldering, report distribution, COLD, and
imaging solutions; and the acquisition of Cambridge Technology Group, Inc.
("Cambridge Technology"), developers of a leading software application for the
trust/custody financial market.
Document Management Industry
Anacomp operates within the document management industry, which the
Company believes to be in excess of $8 billion worldwide. Industry suppliers
provide products and services used in the conversion, storage, and retrieval of
computer data and images. Users of these solutions must balance the ease of
accessibility of information with the cost of storing and accessing that
information.
This balancing and the Company's industry 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, customer requirements for frequency of retrieval and speed of
delivery decline. To achieve the greatest degree of cost-effectiveness and
efficiency, organizations migrate their information across several different
delivery systems over the life of the information.
(GRAPH IS NOT AVAILABLE)
Generally, newly created information is the most frequently accessed,
requiring a high-speed storage media such as magnetic disk (i.e., DASD). As the
information begins to age, it often is first migrated to optical disk or CD,
which offers high storage capacity and quick access to information at a lower
cost than DASD. As the need to access information becomes more infrequent, the
information often is next 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
migrated to microfilm or microfiche, which offers very low storage costs for
both archival and non-archival applications.
Anacomp's array of products and services is designed to help
organizations optimize how they store, deliver, and migrate their information
across this entire life cycle. The Company believes that vendor consolidation
and a gradual shift toward integrated solutions will favor suppliers that can
provide a broad, technologically advanced suite of products and services across
the entire cycle. The Company also believes that this market will continue to
favor suppliers with a fully developed domestic and international infrastructure
that allows them to serve large customers and to benefit from economies of
scale.
Additionally, competitive pressures on organizations served by Anacomp
have steadily increased the demand for outsourcing 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 document
management and storage systems and maintain flexibility to migrate their
information as new products and technologies become available. Anacomp believes
this trend toward outsourcing should have a positive impact on many of the
output services offered by the Company. Moreover, the Company seeks to
differentiate itself from other service providers through feature-rich
offerings, high levels of customer service, and value-added consulting services.
Traditionally, film-based imaging solutions (micrographics and
particularly COM) have provided the most cost-effective means of document
storage and retrieval for information-intensive organizations such as banks,
insurance companies, financial service companies, retailers, healthcare
providers, and government agencies. However, the continued expansion of computer
technology to users' desktops has resulted in the development of many viable
electronic alternatives to micrographics, particularly for applications that
require frequent document access. The Company believes that many organizations
will continue to migrate to electronic solutions for active records management,
but that over the next few years micrographics technology will continue to be
competitive in a wide range of applications. Over a longer term, the Company
believes micrographics technology will be viewed predominately as a reliable and
cost-effective method for long-term storage.
The Company's primary business strategy is to capitalize on these
trends by leveraging its document management expertise and its competitive
strengths to provide newer electronic products and services, while maintaining
its leading market position in COM solutions as well as magnetic media products
and services. In addition, the Company plans to expand its consulting and
professional services to better assist its customers in developing tailored
document management and migration strategies.
Competitive Strengths
Strong Customer Relationships
Since its inception, Anacomp has developed long-term relationships (in
excess of five years) with many of its customers. Among the Company's current
long-term customers are Aetna Inc., AT&T Corp., Automatic Data Processing, Inc.,
BankAmerica Corporation, Citicorp, Daimler-Benz AG, Deutsche Bank AG, Electronic
Data Systems Corporation, FMR Corp., General Electric Capital Corporation, IBM,
Eastman Kodak Company, and Travelers Group Inc. The terms of the contractual
relationships with these customers vary; however, they typically provide for
minimum quantities, pricing structure, terms of one or more years, and automatic
renewal. No single customer accounted for 10% or more of the Company's revenues
in fiscal 1997.
The Company believes that the strength of its customer relationships
results from consistently meeting or exceeding its customers' document
management needs and expectations. The Company manages these customer
relationships through a worldwide sales force of approximately 200 individuals
as well as extensive distributor networks.
Leading Market Shares
Within the document management industry worldwide, the Company believes
that it is the largest manufacturer and distributor of COM systems; the largest
provider of COM maintenance services and supplies; the second largest provider
of COM services; the largest manufacturer of half-inch computer tape products;
and the largest provider of CD output solutions. The Company believes that its
market position and customer base provides the necessary platform to introduce
new and complementary information management products and services.
Installed Base of Equipment
The Company believes it has the world's largest installed base of COM
equipment, with an estimated market share of 55%. In addition, the Company has a
significant installed base of Data/Ware CD systems. These installed bases,
together with the Company's strong customer relationships, provide the Company
with what it believes to be substantial recurring revenues from maintenance
services and supplies sales.
Broad Product Offering
In recent times, the Company has introduced new products and services
in order to create a broad product offering across the entire information life
cycle. In addition to enhancing its traditional COM products (through
innovations such as DragonCOM(TM), a modified COM system capable of processing
Asian languages, and Image Direct(TM), a software enhancement for processing
images), the Company has become a premier provider of CD output solutions
through the development of ALVA CD services and the acquisition of Data/Ware CD
systems. The Company also plans to expand and introduce complementary services
related to its existing offerings, including archival storage services and
magnetic media-related services.
Experienced Management Team
The Company's relatively new senior management team is led by Ralph W.
Koehrer, who became the Company's President in January 1997 and Chief Executive
Officer in May 1997. This management team has more than 300 cumulative years of
experience in the document management industry and is highly committed to
executing the Company's new business strategy. As the Company evolves, it
continues to recruit managers from other highly successful companies and to
promote from within where appropriate.
Products and Services
Anacomp operates in a single industry generally known as document
management, and it offers a wide range of products and services within this
industry. These solutions can be grouped into five major families: output
services, output systems, technical services, micrographics supplies, and
magnetic media.
The table below shows Anacomp's revenues for each of these product
families for the last three fiscal years. The information is presented on a
traditional comparative basis for the year ended September 30, 1996 and 1995, to
facilitate a meaningful comparison to fiscal year 1997. Consequently, the fiscal
1996 and 1995 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,
1997 1996 1995
(Dollars in Thousands)
---------------------------------------------------------------------------------
Output Services $103,595 22% $103,733 21% $132,144 22%
Technical Services 77,123 17 82,105 17 86,175 15
Output Systems 36,739 8 32,794 7 51,276 9
Micrographics Supplies 131,615 29 150,449 31 190,621 32
Magnetic Media 102,823 22 112,187 23 128,353 22
Other 10,615 2 4,872 1 2,620 --
$462,510 100% $486,140 100% $591,189 100%
- ------------------------------- -------------- ------------ -------------- --------- ---------------- -----------
Output Services
The principal output services delivered by Anacomp are COM services and
ALVA CD services, which are delivered through the Company's 48 service centers
throughout the world. Output services are sold by Anacomp's direct sales forces
in the United States, Canada, and Europe. The Company recently has acquired or
started several small COM and CD service centers as part of its strategy to
increase its market share in specific locations and in the maturing COM services
business. The Company also has introduced, on a modest basis, archival and print
& mail services.
The Company has a large base of output services customers that has
proved to be loyal to the Company in the past. Clients include banks, insurance
companies, financial service companies, retailers, healthcare providers, and
government agencies. No one customer accounted for more than 10% of the
Company's output services revenues in fiscal 1997. The typical service contract
is exclusive, lasts one year with a one-year automatic renewal period, and
provides for usage-based monthly fees, subject to increase on 30 days' notice.
The Company believes that approximately 75% of the Company's COM services
customers are subject to contracts and that approximately 90% of these contracts
are renewed annually.
Competition for output services customers traditionally has been
limited to service companies with operations within a 50-mile radius of a
customer, partially because most customers have required that their information
(usually stored on computer tape) be physically picked up by the service
provider and partially because of the desire for rapid turnaround of the output
media. This traditional model may be changing, however, with the advent of
readily available data transmission capabilities and the increased usage of
electronic desktop delivery solutions for quick turnaround needs. Anacomp and
First Image Management Company ("First Image") (which the Company believes has
approximately 50 output service centers in the United States) are the two
largest national output services providers. The remainder of the market is
served by regional or local output service centers.
COM Services. COM services, the delivery of micrographics outsourcing
services, represents the largest component of Anacomp's output services. The
Company believes that COM services providers processed over 45 billion images in
1995, generating over $350 million in revenues. The Company believes it holds an
estimated 25% to 30% market share, second only to First Image.
On a daily basis, Anacomp's service centers receive thousands of
computer tapes and, increasingly, electronic downloads from customers. This
information (both text and graphics) is converted to 16mm microfilm or to
microfiche, which is a four 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 COM services and a
more competitive market, in fiscal 1995 the Company completed installation of
XFP2000 COM systems in all of its 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.
ALVA CD Services. Although still a relatively small percentage of the
Company's revenues, Anacomp quickly has become a significant provider of digital
output services since entering this emerging market in fiscal 1995. Competition
in this industry is highly fragmented, and Anacomp believes it is the second
largest U.S. provider of CD output services.
Anacomp's CD services provide customers with a high-capacity storage
and delivery solution for applications requiring frequent, high-speed
information retrieval. Customer documents, such as invoices and statements, are
indexed and stored on recordable compact discs (known as CD-Recordable or CD-R
discs.) In addition to indexed CD output, ALVA also includes sophisticated
Windows NT-based software for accessing and retrieving the data. ALVA is
available at the majority of the Company's service centers in the United States
and at selected locations internationally.
The Company believes that its ALVA solution has significant advantages
over competing products, primarily due to the Company's network of service
centers, its extensive knowledge of applications and indexing expertise, and
ALVA's flexible and easy-to-use user interface. In addition, Anacomp's
acquisition of Data/Ware provides an opportunity for the Company to create a
"best-of-breed" product that further extends ALVA's value in the marketplace.
Archival and Print &Mail Services. Anacomp provides archival storage
services at several of its service centers in the United States, providing for
the long-term storage of original microfilmed records for its COM services
customers. The media is stored in a secure vault within the 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 also offers the storage of other media (including paper and
computer tape) at an underground, climate-controlled storage vault in
Massachusetts acquired in October 1996 from Archive Storage, Inc. As a result of
this acquisition, the Company also acquired expertise in records management and
disaster recovery consulting services, which helps customers ensure they are
storing the right information on the most cost-effective media for the
appropriate periods of time.
Anacomp offers limited print & mail services - for paper documents such
as invoices and statements -- to its customers through a Company-owned
print-and-mail service center in Europe as well as through relationships with
third party providers.
The Company does not believe it has significant market shares in either
archival storage services or Print & Mail services.
Technical Services
Anacomp provides round-the-clock maintenance services through
approximately 400 highly trained service employees in the United States, Canada,
and Europe. Internationally, some of these services may be provided by employees
of the Company's distributors.
The Company believes that it maintains virtually all of its own
installed base of COM systems, as well as a large percentage of COM systems
built by other companies. In addition, the Company provides maintenance services
for other micrographics-related devices and, increasingly, non-micrographics
equipment. Since many customers tend to use the maintenance services of the
supplier that installed the system, maintenance revenues traditionally have been
a function of new COM system sales and the size of the installed base. Anacomp
believes that its COM maintenance market share is approximately 65% in the
United States, 50% in Europe, and 15% in the Americas (excluding the United
States) and Asia.
As sales of COM systems mature, the Company's strategy is to leverage
its maintenance infrastructure by expanding the technical services it provides
for non-micrographics equipment. Recent additions to the Company's maintenance
base include tape drives and automated tape libraries, tape cleaning and
conversion equipment, and optical storage systems (jukeboxes). The Company added
maintenance of high-speed laser printers to its offering with the acquisition of
a small laser printer maintenance provider in December 1997.
Recently, the Company has identified professional and consulting
services as potential growth areas. The Company's business strategy calls for
professional services to be offered as an adjunct to Company-provided products
and services and for consulting services to be a stand-alone business offering
customers a sophisticated level of guidance about document management strategies
and solutions.
Output Systems
The principal output systems products delivered by Anacomp are COM
systems; CD systems; and COLD, imaging, and report distribution software. The
Company sells these products through its direct sales forces in the United
States, Canada, and Europe and through distributors in Latin America, Europe,
and Asia. No single customer accounted for more than 10% of the Company's output
system sales in fiscal 1997.
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% 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 significant recurring revenues.
The Company's XFP2000 is the most advanced COM recorder on the market
and has enabled the Company to capture what it believes to be an estimated 57%
of all new COM systems sold or leased. The XFP2000 is faster and more reliable
than previous COM recorders and, through its laser technology, has the
capability to generate precise reproductions of any image. The Company sold or
leased 135 new and used XFP2000 systems in fiscal 1997, compared to 122 systems
in fiscal 1996.
In fiscal 1996, Anacomp introduced DragonCOM, a version of the XFP2000
for the Asian market, which is capable of processing Chinese, Korean, Taiwanese,
Japanese and other ideographic languages utilizing the popular IBM AFP
architecture. The Company is marketing DragonCOM to customers in Asia through an
agreement with the Asia-Pacific region of the Eastman Kodak Company ("Kodak").
Through the end of fiscal 1997, Kodak had purchased 11 DragonCOM systems and had
a remaining commitment to purchase 39 additional DragonCOM systems over the next
three years.
Anacomp also has developed and currently markets several software
enhancements to the XFP2000, including products that emulate IBM and Xerox laser
print streams. AFP software, developed in conjunction with IBM, enables the
XFP2000 to process and image AFP formatted data streams used by IBM high-speed
mainframe laser printers. XCF software, developed in partnership with Xerox
Corporation, enables the XFP2000 to process the same data stream used by Xerox
high-speed, high-volume laser printers. In addition, Anacomp recently introduced
its Image Direct application for the XFP2000, which enables users to output
document images directly to microfilm from desktop workstations. The initial
release of Image Direct supports TIFF images, the most popular bitmap format in
use today; additional format compatibility is expected in future releases.
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 service centers. While the majority of COM
systems are sold outright, customers are increasingly selecting leasing plans
and monthly usage options.
In international markets, the Company sells COM systems through wholly
owned operating subsidiaries and, in countries in which the Company does not
have a subsidiary, through dealers and agents. In 1994, Kodak became the
Company's exclusive distributor in Asia (other than Japan) and Australia..
International sales accounted for approximately 52% of the Company's fiscal 1997
COM System revenues, with sales in Asia, Germany and France accounting for
approximately 17%, 10% and 10%, respectively; however, no single country was
responsible for 10% or more of the Company's total revenues in fiscal 1997.
The Company's primary competitors in the sale of COM systems are
Agfa-Gevaert AG ("Agfa") and Micrographic Technology Corporation. The Company
believes that it sells approximately 57% of all new COM systems sold worldwide,
including those sold through its OEM arrangement with Kodak. Competition is
based principally on product features, as well as on such factors as product
quality, service, and price. The Company's large installed base is an important
competitive advantage in the sale of new COM systems, because changing from one
manufacturer's COM system to another is difficult due to software conversion and
operator training costs.
CD Systems. Anacomp became a leading provider of CD output systems for
mainframe and client/server computer environments through its acquisition in
fiscal 1997 of Data/Ware. The Company's flagship Data/Ware products, the
Enterprise Authoring System ("EAS") and the Server/Enterprise Authoring System
("S/EAS"), provide companies with in-house solutions for the highly automated
output of documents to CDs.
The Company's CD output systems are sold by its direct sales force
worldwide and also by distributors in Europe, Latin America, and Asia. Because
of the similarity between the Company's CD and COM systems relating to target
markets, applications, and sales cycle, the Company believes it can leverage its
extensive COM knowledge and customer relationships to increase sales of CD
systems. In addition, the Company intends to begin maintenance services for its
Data/Ware CD systems, creating a recurring revenue stream for installed units.
The Company's primary competitors in the sale of high-volume CD output
systems are Young Minds, Inc., Rimage Corporation, and, to a lesser extent,
Kodak. Kodak's product primarily competes in mid-range applications. In the
high-volume CD system market, the Company believes that it and Young Minds have
the largest market shares. The Company also has a significant installed base of
CD output systems.
Electronic Delivery Solutions. Anacomp is working actively to bring to
market a wide range of electronic delivery solutions. The Company provides COLD
and imaging solutions through its recent acquisition of Com-informatic -- the
leading COM services provider in Switzerland and also a developer of advanced
COLD and imaging products - as well as through a reseller arrangement in the
United States.
The Company also markets an integrated system for document management
which is sourced from a third party under the brand names Folders and EOS (an
acronym for enterprise output systems). Launched by the Company in 1995, Folders
and EOS provide document management solutions for mainframe/host computing
environments that allow organizations with significant document access
requirements to expedite retrieval regardless of the document's location. As the
name indicates, Folders is software that creates electronic document folders,
allowing users to organize and store electronic documents. EOS provides for the
storage and distribution of electronically generated reports (often voluminous),
thereby enabling users to avoid paper storage of such reports and to distribute
all or selected portions of reports throughout an organization.
In addition, the Company recently purchased Cambridge Technology,
developers of SPAR(TM) (Securities, Processing, Accounting and Reporting), an
advanced securities-related accounting software application for the
international trust/custody market. The Company believes that it can increase
sales of SPAR by leveraging its global sales and support infrastructure as well
as its extensive experience and contacts with financial customers. The Company
plans to purchase other software applications synergistic with its current
business as opportunities arise.
Although there are numerous competitors providing a variety of
electronic delivery solutions, the Company believes it can be among the first to
offer a complete range of solutions - both analog and digital that address all
of a customer's document management needs.
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. These products are sold through Anacomp's
direct sales forces and through distributor channels.
The Company also markets a complete line of microfilm/microfiche
readers. Many of these products have become only marginally profitable in recent
years. To increase profitability, the Company signed an agreement to outsource
the manufacture of readers and reader/printers beginning in fiscal 1996 as
demand and margins for these products continued to decline. Additionally, the
Company ceased production of its DS 300 reader/scanner in fiscal 1996 after
completing a build-out of inventory. These decisions resulted in a significant
one-time write-off in fiscal 1995. However, the Company continues to offer these
types of products to its customers on a reseller basis.
The Company supplies proprietary wet and dry original halide film used
in its XFP series of COM systems and proprietary wet and dry original halide
film for its X-series, an earlier generation of Anacomp COM systems. All
original microfilm for the Company's COM systems is manufactured for the Company
by Kodak under an exclusive supply agreement in what the Company considers to be
a proprietary package. The Company believes it can maintain its market share of
XFP2000 film sales going forward because of the complexity of the manufacturing
process, the Company's patents on its proprietary canister, and the industry's
interest in other segments of the film business.
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 believes that its share of this estimated $75
million worldwide market is approximately 67%, 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% share of the worldwide
duplicate film market. For fiscal 1997, the Company believes that Kodak
accounted for approximately 32% and First Image accounted for approximately 12%
of the Company's shipments of duplicate microfilm.
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. The Company 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
Corporation ("Imation"), formerly part of 3M. For non-OEM sales of the XFP2000,
the Company is the exclusive supplier of original microfilm because of the
proprietary nature of the canister in which the film is placed. Anacomp believes
that it sells its consumable supplies directly to more than 90% of its worldwide
installed base. In fiscal 1996, the Company acquired the assets of one of its
competitors, COM Products, Inc. ("CPI"), providing the Company with a more
diverse customer base. In fiscal 1997, the Company acquired the assets of
Comstor Technology, Inc., a provider of spare parts, refurbished COM systems,
and supplies for the COM marketplace.
International sales in fiscal 1997 accounted for 43% of the Company's
total micrographics supplies revenues. In international markets, the Company
offers supplies through wholly owned operating subsidiaries and, in countries in
which the Company does not have a subsidiary, through a network of distributors.
Anacomp believes that it has an estimated 33% of the micrographics supplies
market in Europe and an estimated 39% 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 magnetic
media products such as open reel tape; 3480, 3490E, and 3590 tape cartridges;
DLT tape cartridges; TK 50/52 CompacTape; quarter-inch, 4mm, and 8mm back-up
tape cartridges; and voice logging and instrumentation tape.
The Company is the world's largest manufacturer of chromium dioxide
half-inch tape products (open reel tape, 3480, 3490E, and TK 50/52), widely used
by organizations for the near-line and off-line storage of business data. These
products are manufactured at Company facilities in Graham, Texas and Brynmawr,
Wales. The Company is developing partnerships to enable it to participate in the
next generation of magnetic media products, particularly half-inch metal
particle tape (3590 cartridges), and it plans to make modest investments in this
area. The Company also plans to expand the magnetic media services it offers to
its customers; such services include labeling, initialization, library planning,
media cleaning and conversion, and disaster recovery.
Anacomp sells its magnetics products through a worldwide distributor
network and, to a lesser extent, through parts of the Company's direct sales
force. The Company markets these products under the Memorex, Dysan, Graham, and
StorageMaster brand names, and it also is a leading OEM for many of the magnetic
media products it manufactures.
The Company has leading manufacturing and market shares for the
products it makes. The Company has no significant competitors with respect to
the manufacture of open reel tape, and its worldwide manufacturing and market
shares for 3480 and 3490E cartridges are estimated at 38% and 35%, respectively.
The Company's major competitors for half-inch tape cartridges are Imation and
Emtech Magnetics GmbH (formerly BASF Magnetics GmbH).
Engineering, Research, and Development
Anacomp's engineering costs, including research and development, were
$4.8 million in fiscal 1997, compared to $3.7 million in fiscal 1996 and $2.2
million in fiscal 1995. The Company expects its current research and development
efforts to increase as it introduces new electronic and applications solutions.
Costs associated with these efforts will be tempered by the Company's plan to
acquire the rights to core technologies whenever possible.
Major projects in fiscal 1997 included the substantial completion of
the Company's DragonCOM system, a version of the XFP2000 for the Asian market
that is capable of processing double-byte ideographic languages; efforts to
improve the speed and expand the functionality of the Company's Image Direct
bitmapping initiative; continued development of the Company's "Pegasys"
initiative to automate the Company's service centers and to develop advanced
transmission capabilities for these centers; uncompleted efforts to develop a
customer service application; and various engineering efforts inherited as a
result of the Company's acquisition of Data/Ware including research into
emerging DVD technology as it relates to document storage.
The Company 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 the Company believes
that the protection provided by these patents, licenses, and proprietary
information is important, it 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 value-added benefits
to customers.
Raw Materials and Suppliers
Polyester is the principal raw material used in the manufacture of both
microfilm and magnetic media products. Costs for polyester remained generally
stable in fiscal 1997, as a result of a relative balance between supply and
demand. There can be no assurance, however, that the current trend will
continue.
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 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, which was reduced to $15 million in
fiscal 1997, 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 paid in 1997; $600,000 due in 1998; $800,000 due in 1999; $800,000 due
in 2000; and $1,000,000 due in 2001.
Pursuant to the SKC agreement, the Company is required to purchase a
substantial portion of its polyester requirements for its magnetic media
products. While the Company could purchase certain of these magnetics polyester
products from vendors other than SKC, SKC currently is the sole source for
polyester used by the Company to manufacture many magnetic media products,
including open reel tape.
Anacomp's XFP2000 COM system utilizes a proprietary, patented original
film canister, and the original film used in that canister is supplied
exclusively by 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 the Company has from time to time
purchased original microfilm utilized in those older COM recorders from other
suppliers.
Industry Segments & 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 document management, including storage, processing, and
retrieval. Financial information concerning the Company's operations in
different geographical areas is included in Note 21 to the consolidated
financial statements.
ITEM 2. PROPERTIES
Anacomp maintains corporate offices in Carmel, Indiana (metropolitan
Indianapolis) and in Poway, California (metropolitan San Diego). Micrographics
manufacturing, engineering, customer service, marketing and product maintenance
facilities are all located in Poway, California. Anacomp's magnetics
manufacturing facilities are located in Graham, Texas and Brynmawr, Wales. All
of Anacomp's facilities have received international recognition for quality
standards, earning International Standards Organization ("ISO") 9002
certification.
The following table indicates the square footage of Anacomp's
facilities:
OPERATING OTHER CORPORATE
FACILITIES FACILITIES FACILITIES TOTAL
United States:
- ------------------------------
Leased................. 646,032 90,953 47,127 784,112
- ------------------------------
Owned.................. 147,420 15,630 ---- 163,050
------- ------ ---------- -------
- ------------------------------
793,452 106,583 47,127 947,162
------- ------- ------ -------
- ------------------------------
International:
- ------------------------------
Leased................. 121,870 29,410 ---- 151,280
- ------------------------------
Owned.................. 137,853 ---- ---- 137,853
------- ---------- ---------- -------
- ------------------------------
259,723 29,410 ---- 289,133
------- ------ ---------- -------
- ------------------------------
Total................ 1,053,175 135,993 47,127 1,236,295
========= ======= ====== =========
Other Facilities consist primarily of leased space of abandoned
facilities. Approximately 122,908 square feet of the Other Facilities have been
sublet to others. Anacomp also leases standard 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.
During October 1997 the Company re-negotiated a significant lease for
its Poway, California facility. Pursuant to the amended lease, the Company will
expand the space it currently occupies (approximately 170,000 square feet) to
include the entire facility (333,485 square feet). The new lease is effective
January 1, 1998, and has an initial term of ten years, at the end of which time
it may be renewed for successive five-year terms. As discussed in Note 24 to the
Consolidated Financial Statements the expanded space will primarily be utilized
for the consolidation/relocation of the Company's Indianapolis, Indiana
corporate offices.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are potential or 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 such liability, to
the extent not provided for through insurance or otherwise, will not have a
material adverse effect on the financial statements of the Company.
In the section entitled Management's Discussion and Analysis of the
Results of Operations and Financial Condition, Legal Proceedings, of the
Prospectus included in the Company's Registration Statement on Form S-4, filed
on April 16, 1997 (file number 333-25281), the Company described three legal
proceedings to which it was then a party: (1) the "DTSC Matters," pursuant to
which the California Department of Toxic Substances Control and the California
Regional Water Quality Control Board, San Francisco Bay Region, sought civil
penalties and injunctive relief against the Company for alleged environmental
law violations with respect to Anacomp's Sunnyvale, California facility, and
sought to impose certain clean-up obligations upon the Company with respect to
such facility; (2) the "Customs Claim," pursuant to which the United States
Customs Service ("Customs") sought the repayment of what Customs believed were
duty drawback claims improperly refunded to Anacomp; and (3) the "Contract
Claim," pursuant to which Smith Barney, Inc. ("Smith Barney") sought additional
fees from the Company which Smith Barney allegedly earned for services that it
provided in connection with Anacomp's financial restructuring period. All three
of these matters have now been settled to the satisfaction of the Company, which
settlements did not have a material adverse affect on its financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the three months ended September 30,
1997, to a vote of Anacomp's security holders through the solicitation of
proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company, their ages (as of
Decemer 19, 1997) and positions are listed below:
NAME AGE POSITION
Ralph W. Koehrer 52 President, Chief Executive Officer
and Director
Donald L. Viles 51 Executive Vice President and Chief
Financial Officer
William C. Ater 57 Senior Vice President,
Chief Administrative Officer
and Secretary
Jeffrey R. Cramer 44 Senior Vice President and
General Manager -
Technical Services Cluster
Ray L. Dicasali 49 Senior Vice President and
Chief Technology Officer
George C. Gaskin 38 Senior Vice President
and General Counsel
Mary Jane Grinstead 47 Senior Vice President and
General Manager -
North America West
Richard V. Keele 48 Senior Vice President and
General Manager - CDS Cluster
Stephen C. Manske 52 Senior Vice President, COFI Cluster
Kevin M. O'Neill 43 Senior Vice President,
Business Development and Strategy
Gary M. Roth 55 Senior Vice President and
General Manager -
Magnetics Cluster
T. Randy Simmons 50 Senior Vice President and
General Manager - CED Cluster
Emery E. Skarupa 45 Senior Vice President,
Manufacturing and Materials
Donald W. Thurman 51 Senior Vice President and
General Manager -
North America East
Peter Williams 45 Senior Vice President and
General Manager -
International Group
Jeffrey S. Withem 38 Senior Vice President,
Communications
Thomas L. Brown 41 Vice President and Treasurer
K. Gordon Fife 52 Vice President - Tax
The business experience of each executive officer 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.
Ralph W. Koehrer was elected Chief Executive Officer and Director
(effective May 1, 1997) on April 29, 1997 and President (effective January 6,
1997) on December 10, 1996. Prior to joining the Company, Mr. Koehrer was with
Automatic Data Processing, Inc. ("ADP") for eleven years, most recently as
Corporate Vice President of ADP and as President of ADP's Information and
Processing Services division.
Donald L. Viles was elected Executive Vice President and Chief
Financial Officer effective March 1, 1996. From October 1985 to March 1996, he
served as Vice President and Controller.
William C. Ater was elected Senior Vice President on August 13, 1997
and Chief Administrative Officer in February 1988. He has served as Secretary
since March 1985.
Jeffery R. Cramer was elected Senior Vice President and General Manager
- - Technical Services Cluster on August 13, 1997. Mr. Cramer joined Anacomp in
July 1996 with the Company's acquisition of Com Products, Inc. ("CPI"), and
served as Senior Vice President-Business Development from February to August
1997. Prior to joining Anacomp, Mr. Cramer had served as President of CPI for
more than the past five years.
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 Chief Information Officer of Flexel. From 1989 to
1993, Mr. Dicasali was Senior Vice President and Chief Information Officer of
Dun and Bradstreet Software.
George C. Gaskin was elected Senior Vice President, General Counsel and
Assistant Secretary on November 17, 1997 after serving as Vice President - Legal
and Assistant Secretary since June 1996. From July 1990 to June 1996, Mr. Gaskin
served as Corporate Counsel and Assistant Secretary.
Mary Jane Grinstead was elected Senior Vice President and General
Manager - North America West on November 17, 1997 after joining Anacomp as
Senior Vice President - U.S. West on August 13, 1997. Ms. Grinstead was
previously Senior Vice President of Distribution and Operations for Ardis, a
subsidiary of Motorola Corp., for more than the past five years.
Richard V. Keele was elected Senior Vice President and General Manager -
CDS Cluster on August 13, 1997. Mr. Keele joined Anacomp in January 1997 with
the Company's acquisition of Data/Ware, and was elected President - Data/Ware
Group on February 3, 1997. Mr. Keele had previously served as President of
Data/Ware for more than five years.
Stephen C. Manske was elected Senior Vice President, COFI Cluster on
November 17, 1997. Mr. Manske had previously served as Senior Vice President -
Business Development from June 1996 to August 1997. Prior to that, Mr. Manske
was Vice President - Emerging Technologies from August 1993 to June 1996, and
Director, Advanced Technology Development from July 1989 to August 1993.
Kevin M. O'Neill was elected Senior Vice President, Business
Development and Strategy on August 13, 1997 after serving as Senior Vice
President - Global Marketing since June 1996. Mr. O'Neill had previously served
as Vice President - 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.
Gary M. Roth was elected Senior Vice President and General Manager -
Magnetics Cluster on November 17, 1997 after serving as President -
International Group since October 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.
Thomas R. Simmons was elected Senior Vice President and General Manager
- - CED Cluster on August 13, 1997 after serving as President - U.S. Group since
October 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.
Emery Skarupa was elected Senior Vice President, Manufacturing and
Materials on August 13, 1997. Mr. Skarupa joined the Company in November 1993 as
Director of Purchasing and was promoted to Vice President of Materials in May of
1996. Prior to joining Anacomp, Mr. Skarupa served as Director of Materials for
Abex Aerospace, a division of Abex Corp., from January 1991 to November 1993.
Donald W. Thurman was elected Senior Vice President and General Manager
- - North America East on November 17, 1997. Mr. Thurman served as Senior Vice
President - U.S. East from August 13, 1997 to November 17, 1997, and as Region
Vice President - U.S. Group from October 1996 to August 13, 1997. From November
1993 to October 1995, Mr. Thurman was Senior Vice President of Marketing and
Business Development for First Image. He served as General Manager of The
Software Factory from January to November 1993 and previously served as a Senior
Vice President of the Company from January 1990 to January 1993.
Peter Williams was elected Senior Vice President and General Manager -
International Group on November 17, 1997 after serving as President - Magnetics
Group since October 1995. Previously, he served as General Manager - Magnetics
European Group from 1993 to September 1995. Prior to that, he served from 1990
to 1993 as Vice President, Wales Operations - Magnetics.
Jeffrey S. Withem was elected Senior Vice President, Communications on
August 13, 1997 after serving as Vice President, Planning and Communications and
Chief of Staff since June 1996. Mr. Withem was Vice President Strategic Planning
and Corporate 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 - Financial Reporting and Analysis for the Company from March 1991.
K. Gordon Fife was elected Vice President - Tax in October 1985.
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-3 of this Annual Report on Form 10-K.
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-4 to A-10 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-11 to A-43 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 1998 Annual Meeting of Shareholders to be held
February 10, 1998. Certain information relating to executive officers of the
Company appears on pages 14 through 16 hereof.
ITEM 11. EXECUTIVE 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.
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, 1997 and 1996.
Consolidated Statements of Operations - Twelve Months Ended
September 30, 1997, Four Months Ended September 30, 1996, Eight
Months Ended May 31, 1996, Twelve Months Ended September 30, 1995.
Consolidated Statements of Cash Flows - Twelve Months Ended
September 30, 1997, Four Months Ended September 30, 1996, Eight
Months Ended May 31, 1996, Twelve Months Ended September 30, 1995.
Consolidated Statements of Stockholders' Equity - Twelve Months
Ended September 30, 1997, Four Months Ended September 30, 1996,
Eight Months Ended May 31, 1996, Twelve Months Ended September 30,
1995.
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, 1997, 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 listed document filed with
the Securities and Exchange Commission. Previously unfiled documents
are noted with an asterisk (*):
(2) Changes in Securities:
Third Amended Joint Plan of Reorganization of the Company and certain
of its subsidiaries, incorporated by reference to the Company's Form
8-A filed on May 15, 1996 (File No. 0-7641).
(3) Articles of Incorporation and Bylaws:
a) The Amended and Restated Articles of Incorporation, incorporated
by reference to the Company's Form 8-K filed on June 19, 1996
(File No. 1-8328).
b) The Amended and Restated Bylaws, incorporated by reference to the
Company's Form 8-K filed on June 19, 1996 (File No. 1-8328).
(4) Instruments defining the rights of security holders, including indentures:
(a) Warrant Agreement, dated as of June 4, 1996, between the Company
and ChaseMellon Shareholder Services, L.L.C., incorporated by
reference to the Company's Form 8-K filed on June 19, 1996 (File
No. 1-8328).
(b) Indenture, dated as of March 24, 1997, between the Company and IBJ
Schroder Bank & Trust Company, as trustee, relating to the
Company's 10 7/8% Senior Subordinated Notes due 2004, incorporated
by reference to the Company's Form S-4 filed on April 16, 1997
(File No. 333-25281).
(c) Purchase Agreement, dated March 19, 1997, between the Company and
NatWest Capital Markets Limited, relating to the Company's 10 7/8%
Senior Subordinated Notes due 2004, incorporated by reference to
the Company's Form S-4 filed on April 16, 1997 (File No.
333-25281).
(d) Exchange and Registration Rights Agreement, dated March 19, 1997,
between the Company and NatWest Capital Markets Limited, relating
to the Company's 10 7/8% Senior Subordinated Notes due 2004,
incorporated by reference to the Company's Form S-4 filed on April
16, 1997 (File No. 333-25281).
(e) Form Letter of Transmittal, relating to the Company's 10 7/8%
Senior Subordinated Notes due 2004, incorporated by reference to
the Company's Form S-4 filed on April 16, 1997 (File No.
333-25281).
(10) Material Contracts:
(a) Employment Agreement, effective January 6, 1997, between the
Company and Ralph W. Koehrer . incorporated by reference to the
Company's Form S-4 filed on April 16, 1997 (File No. 333-25281).
(b) Employment Agreement, effective March 1, 1992, between the Company
and Thomas R. Simmons incorporated by reference to the Company's
Form 10-K for the year ended September 30, 1993.
(c) Employment Agreement, effective February 15, 1996, between the
Company and Donald L. Viles incorporated by reference to the
Company's Form 10-K for the year ended September 30, 1996.
(d) *Employment Agreement, effective October 1, 1992, between the
Company and Gary M. Roth.
(e) *Employment agreement, effective May 15, 1996, between the Company
and Ray L. Dicasali.
(f) Common Stock Registration Rights Agreement, dated as of June 4,
1996 by and among the Company and the Holders of Registrable
Shares. Incorporated by reference to the Company's Form 8-K filed
on June 19, 1996 (File No. 1-8328).
(g) Amended and Restated Master Supply Agreement, dated October 8,
1993, among Anacomp, Inc., SKC America, Inc. and SKC Limited
incorporated by reference to the Company's Form 10-K for the year
ended September 30, 1993.
(h) Credit and Guarantee Agreement, dated as of February 28, 1997,
among the Company, certain foreign subsidiary borrowers, the
several banks and other financial institutions from time to time
parties thereto, Lehman Commercial Paper Inc., as arranger and
syndication agent, and The First National Bank of Chicago, as
administrative agent incorporated by reference to the Company's
Form S-4 filed on April 16, 1997 (File No. 333-25281).
(i) Guarantee and Collateral Agreement, dated as of February 28, 1997,
made by the Company in favor of The First National Bank of Chicago
incorporated by reference to the Company's Form S-4 filed on April
16, 1997 (File No. 333-25281).
(j) First Cumulative Amendment to the Amended and Restated Master
Supply Agreement, dated May 17, 1996, by and among the Company,
SKC America, Inc. and SKC Limited incorporated by reference to the
Company's Form S-4 filed on April 16, 1997 (File No. 333-25281).
(11)*Statement re: computation of per share earnings.
(21)*Subsidiaries of the registrant.
(27)*Financial data schedule (Required for electronic filing only).
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/ Ralph W. Koehrer
Ralph W. Koehrer
President, Chief Executive
Officer and Director
December 29, 1997
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 29, 1997 By: /s/ Ralph W. Koehrer
-------------------------
Ralph W. Koehrer
President, Chief Executive
Officer and Director
Dated: December 29, 1997 By: /s/ Donald L. Viles
-----------------------
Donald L. Viles,
Executive Vice President
and Chief Financial Officer
Dated: December 29, 1997 By: /s/ Richard D. Jackson
--------------------------
Richard D. Jackson,
Co-Chairman of the Board
Dated: December 29, 1997 By: /s/ Lewis Solomon
----------------------
Lewis Solomon,
Co-Chairman of the Board
Dated: December 29, 1997 By: /s/ Talton R. Embry
-----------------------
Talton R. Embry, Director
Dated: December 29, 1997 By: /s/ Darius W.Gaskins,Jr
---------------------------
Darius W. Gaskins, Jr.,
Director
Dated: December 29, 1997 By: /s/ Jay P. Gilbertson
-------------------------
Jay P. Gilbertson, Director
Dated: December 29, 1997 By:/s/ George A. Poole, Jr.
---------------------------
George A. Poole, Jr.,
Director
APPENDIX A
Annual Report on Form 10-K
Anacomp, Inc.
Page
Selected Financial Data.................................................. A-2
Market Price and Dividend Information.................................... A-3
Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. A-4
Report of Independent Public Accountants................................. A-11
Consolidated Balance Sheets -- September 30, 1997 and 1996............... A-12
Consolidated Statements of Operations - Twelve Months Ended September 30, 1997,
Four Months Ended September 30, 1996, Eight Months Ended May 31, 1996,
Twelve Months Ended September 30, 1995................................. A-13
Consolidated Statements of Cash Flows -- Twelve Months Ended September 30, 1997,
Four Months Ended September 30, 1996, Eight Months Ended May 31, 1996, Twelve
Months Ended September 30, 1995........................................ A-14
Consolidated Statements of Stockholders' Equity (Deficit) -- Twelve Months
Ended September 30, 1997, Four Months Ended September 30, 1996,
Eight Months Ended May 31, 1996, Twelve Months Ended September 30, 1995 A-16
Notes to Consolidated Financial Statements............................... A-17
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
--------------------------------- ----------------------------------------------------
Fiscal Four Eight Months Fiscal Year Ended September 30,
--------------------------------------
Year Ended Ended Ended
September 30, September 30 May 31,
Dollars in thousands, except per share 1997 1996 1996 1995 1994 1993
amounts
- ------------------------------------------ ------------------ -------------- ------------- ------------- ------------ -----------
Revenues............................. $462,510 $151,542 $334,598 $591,189 $592,599 $590,208
Income (loss) before extraordinary items
and cumulative effect of accounting (56,850) (22,009) 112,528 (238,326) 11,691
change............................... 6,955
Extraordinary items.................. (10,961) -- 52,442 -- 6,900
Cumulative effect on prior years of a -- -- -- -- 8,000 --
change in accounting for income taxes
Net income (loss).................... (67,811) (a) (22,009) (a) 164,970 (b) (238,326) 14,955 18,591
Earnings (loss) per common and common equivalent share:
Net income (loss).................... $ (5.05) $ (2.19) (C) (C) (C) (C)
Cash dividends per common share...... -- -- -- -- -- --
(a) The net loss for the fiscal year ended September 30, 1997 and the four
months ended September 30, 1996, includes $75.8 and $25.7 million of
Reorganization Asset amortization, respectively.
(b) The net income for the eight months ended May 31, 1996, includes $92.8
million of Reorganization items and an extraordinary item of $52.4 million
as more fully discussed in Note 3 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.
Reorganized Company Predecessor Company
----------------------------- -------------------------------------------------------
As of September 30, 1997 1996 1995 1994 1993 1992
- ------------------------------------------- ---------------- ------------ ------------- ------------ -------------- -------------
Current assets....................... $159,882 $147,530 $175,193 $214,129 $218,011 $244,434
Current liabilities.................. 128,084 152,996 578,857 208,313 187,082 198,685
Working Capital...................... 31,798 (5,466) (403,664) 5,816 30,929 45,749
Total assets......................... 391,951 435,421 421,029 658,639 643,548 681,561
Long-term debt, net of current portion 247,889 217,044 -- 366,625 404,738 429,140
Redeemable preferred stock........... -- -- 24,574 24,478 24,383 24,287
Stockholders' equity (deficit)....... 14,520 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 for each quarter during the last two
fiscal years were as follows:
Fiscal Year 1997 Fiscal Year 1996
---------------------------- ------------------------
High Low High Low
First Quarter $ 9.50 $ 7.75 (1) (1)
Second Quarter 12.38 8.25 (1) (1)
Third Quarter 14.00 10.25 (1) (1)
Fourth Quarter 16.13 11.25 $11.13 $7.63
(1) Due to the Reorganization, common stock prices for the Predecessor Company
have been excluded.
The Company's borrowing agreements prohibit the payment of cash dividends on
common shares.
The number of stockholders of record as of December 19, 1997 was 157. The number
of beneficial stockholders of record as of December 19, 1997 was approximately
1600.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
On May 20, 1996 The Company's Reorganization Plan was confirmed by the
United States Bankruptcy Court and the Company emerged from bankruptcy
reorganization. The Plan of Reorganization resulted in a reduction of
approximately $174 million in principal and accrued interest on the Company's
debt obligations and in liquidation amount and accrued dividends on its
preferred stock. 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 1997, 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
prior years' 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.
CONSOLIDATED RESULTS OF OPERATIONS
Anacomp, Inc. and Subsidiaries
(Dollars in thousands, except per share amounts) Year ended September 30, 1997 1996 (a) 1995
Revenues:
Services provided.................................................................... $186,590 $189,257 $219,881
Equipment and supply sales........................................................... 275,920 296,883 371,308
462,510 486,140 591,189
Operating costs and expenses:
Costs of services provided........................................................... 97,932 104,499 126,493
Costs of equipment and supplies sold................................................. 206,582 226,623 290,842
Selling, general and administrative expenses......................................... 90,731 93,514 132,459
Amortization of reorganization asset................................................. 75,780 25,663 ----
Special charges...................................................................... ---- ---- 136,889
Restructuring charges................................................................ ---- ---- 32,695
471,025 450,299 719,378
Income (loss) from operations before interest, other income, reorganization items,
income taxes and extraordinary items.............................................. (8,515) 35,841 (128,189)
Interest income.......................................................................... 4,346 2,573 2,000
Interest expense and fee amortization.................................................... (35,896) (39,629) (70,938)
Financial restructuring costs............................................................ ---- ---- (5,987)
Other income (expense)................................................................... (1,285) 6,995 (212)
(32,835) (30,061) (75,137)
Income (loss) before reorganization items, income taxes and extraordinary items.......... (41,350) 5,780 (203,326)
Reorganization items..................................................................... ---- 92,839 ----
Income (loss) before income taxes and extraordinary items................................ (41,350) 98,619 (203,326)
Provision for income taxes............................................................... 15,500 8,100 35,000
Net income (loss) before extraordinary items............................................. (56,850) 90,519 (238,326)
Extraordinary items...................................................................... (10,961) 52,442 ----
Net income (loss)........................................................................ (67,811) 142,961 (238,326)
Preferred stock dividends and discount accretion......................................... ---- 540 2,158
Net income (loss) available to common stockholders....................................... ($67,811) $142,421 $(240,484)
Supplemental:
EBITDA (b)............................................................................... $83,662 $84,175 $77,393
(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.
(b) See definition of EBITDA on Page A-6.
Results of Operations-Fiscal 1997, 1996 and 1995
General
Anacomp reported a net loss of $67.8 million for the year ended
September 30, 1997 as compared to net income of $143 million and a net loss of
$238.3 million for the years ended September 30, 1996 and 1995, respectively.
Included in the fiscal 1997 net loss is non-cash amortization of the Company's
reorganization value asset of $75.8 million and an extraordinary loss on the
extinguishment of debt comprised of a 3% call premium and unamortized discount
on the Company's existing 13% subordinated notes totalling $11.0 million net of
income taxes.
Pursuant to a 1990 OEM agreement Kodak was obligated to purchase an
additional 151 XFP 2000 systems by October 1997 or pay a cash penalty to the
Company. The Company and Kodak negotiated an amendment to the OEM agreement,
whereby the Company accepted a $3.6 million cash payment from Kodak, which is
included in the current period results, a commitment to purchase an additional
28 XFP 2000 systems by the end of calendar 1997, and a one-time purchase of
spare parts. As of September 30, 1997, 12 systems remained to be purchased under
this agreement. Kodak purchased all the remaining XFP 2000 systems during the
quarter ended December 31, 1997.
Net income for fiscal 1996 included $25.7 million in non-cash
amortization of the Company's reorganization value asset, a gain of $92.8
million for reorganization items and an extraordinary gain resulting from the
discharge of indebtedness of $52.4 million. 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. 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, special
and restructuring charges, taxes, depreciation and amortization and
extraordinary items ("EBITDA") was $83.7 million, or 18.1% of revenues for the
year ended September 30, 1997. This compares to EBITDA of $84.2 million, or
17.3% of revenues, and $77.4 million, or 13.1% of revenues for the years ended
September 30, 1996 and 1995, respectively. Excluding the Kodak payment of $3.6
million described above, EBITDA was $80.1 million for the current period or
17.5% of revenues.
Total revenues for fiscal 1997 of $462.5 million represent a $23.6
million decrease from fiscal 1996, which had experienced a decrease from fiscal
1995 of $105 million. Approximately $9.8 million of the fiscal 1997 decrease is
due to the discontinuance and downsizing of selected product lines, including
ICS ($1.5 million), readers and reader/printers ($5.5 million), source document
film ($.5 million) and micrographics accessories ($2.3 million). The remaining
$13.8 million decrease in revenues is due primarily to the expected general
downward trend in both the micrographics supplies and magnetics product lines
offset by revenue contributions from the Company's acquisitions and new digital
products. Approximately $60.1 million of the fiscal 1996 decrease is due to the
discontinuance or downsizing of certain product lines including ICS ($20
million), flexible diskette media ($20.2 million), reader and reader printer
products ($12.7 million) and source document film ($7.2 million).
Cost of services provided as a percentage of services revenue was 52%
in fiscal 1997, compared to 55% and 58% for fiscal 1996 and 1995, respectively.
The decrease is due primarily to cost reduction efforts in maintenance services
initiated by new management. Cost of equipment and supplies sold as a percentage
of equipment and supplies sales, excluding the one-time $3.6 million payment
noted above, was 76% for fiscal years 1997 and 1996, compared to 78% for fiscal
1995.
Selling, general and administrative expenses were 20% of revenues in
fiscal 1997, excluding the one-time $3.6 million payment noted above, compared
to 19% in fiscal 1996. The slight increase was primarily the result of
amortization and transition costs associated with the Company's fiscal 1997
acquisition activity. Selling, general and administrative expenses were 22% of
revenues in fiscal 1995.
Products and Services
The following table shows Anacomp's revenues for each of its five
product families for the last three fiscal years:
Year ended September 30,
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Output Services.......................................... $103,595 22% $103,733 21% $132,144 22%
Technical Services....................................... 77,123 17 82,105 15 86,175 17
Output Systems........................................... 36,739 8 32,794 9 51,276 7
Micrographics Supplies................................... 131,615 29 150,449 32 190,621 31
Magnetic Media........................................... 102,823 22 112,187 22 128,353 23
Other.................................................... 10,615 2 4,872 1 2,620 1
----------------------------------------------------------------
Total............................................ $462,510 100% $486,140 100% $591,189 100%
=================================================================
Output Services
Output services revenues increased $1.3 million in fiscal 1997,
compared to fiscal 1996 (excluding the effect of the ICS sale). COM service
volumes increased by 9% while average selling prices decreased by 12%. Data
center acquisitions and several large customer gains have contributed to both
the increase in volumes and the decrease in average selling prices. Gross
margins as a percentage of revenue decreased by 3 percentage points due to the
aforementioned impact of lower average selling prices. Output services revenues
were down $8.4 million in fiscal 1996 compared to fiscal 1995 (excluding the
effect of the ICS sale), primarily due to an 11% decrease in volume. Decreases
in average selling prices during fiscal 1996 also adversely affected output
services gross margins as a percent of revenue, which decreased 1% from fiscal
1995 to fiscal 1996. ALVA CD services grew by $2.5 million in fiscal 1997 and
now comprise approximately 4% of total output services revenue as compared to 1%
in fiscal 1996.
Technical Services
Technical services (primarily maintenance) revenues decreased $5.0
million in fiscal 1997, compared to fiscal 1996 and $4.0 million from fiscal
1995 to fiscal 1996, in part due to the effect of replacing older generation COM
systems with the XFP, which has a significantly greater capacity than the older
COM systems. Gross margins as a percentage of revenue improved 7 percentage
points over the prior year in each of fiscal 1997 and 1996 primarily as a result
of the cost reduction efforts mentioned above.
Output Systems
Output systems revenues, which is comprised of both COM and Digital
output systems, increased $3.9 million in fiscal 1997 primarily as a result of
contributions from the Company's acquisition of Data/Ware in January 1997.
Output systems gross margins as a percentage of revenues increased by 12% due to
the change in product mix with a greater portion of sales represented by
refurbished sytems which have higher margins.
COM systems revenues in fiscal 1997 decreased by $5.4 million compared
to fiscal 1996, which had experienced an $18.5 million decrease from fiscal
1995. Included in COM systems revenues for fiscal 1995 are $3.5 million in sales
of equipment for use in Anacomp data centers under sale and leaseback
arrangements. The Company sold or leased 135 XFP2000 units in fiscal 1997
compared to 122 and 156 in fiscal 1996 and 1995, respectively. The decrease in
revenue is attributable to an increase in 1997 in the number of units shipped
under operating lease arrangements, and a decrease in the number of systems
shipped under straight sales arrangements along with a change in the mix and
pricing of new and used systems. Fiscal 1997 and 1996 gross margins as a
percentage of revenues improved several percentage points due to the change in
product mix.
Digital systems revenues in fiscal 1997 were $9.3 million with the
second quarter acquisition of Data/Ware contributing $6.4 million in revenues.
There were no digital systems sold during fiscal 1996 or 1995.
Micrographics Supplies
Micrographics supplies revenues decreased $18.8 million in fiscal 1997
compared to fiscal 1996 consistent with the projected market trends for reader
and reader/printers, original COM film, duplicate film and other accessories.
Gross margins as a percentage of revenue were comparable between periods.
Micrographics supplies revenues decreased $40.2 million from fiscal 1996 to 1995
principally as a result of the discontinuance and downsizing of product lines,
as well as the projected market trends noted above. Micrographics supplies gross
margins as a percent of revenue increased 5% in fiscal 1996 compared to fiscal
1995 as a result of changes in product mix due primarily to the sale and
downsizing of product lines.
Magnetic Media
Magnetic media revenues decreased $9.4 million in fiscal 1997 compared
to fiscal 1996. The major product categories experiencing a decrease in revenue
include 3480 tape cartridges ($5.9 million), open reel tape ($7.7 million) and
TK 50/52 tape ($2.0 million). These decreases were partially offset by the new
contributions of $5.8 million from metal particle tape products. Gross margins
as a percentage of revenue in fiscal 1997 increased slightly from fiscal 1996.
Magnetic media revenues decreased $16.2 million in fiscal 1996 compared to
fiscal 1995. The decrease was 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 gross margins had remained level in fiscal years 1996
and 1995.
Interest Expense
Interest expense and fee amortization of $35.9 million for fiscal 1997,
decreased $3.7 million over the prior year due to the Company's refinancing
efforts in fiscal 1997 and its improved debt structure as a result of the
Reorganization in fiscal 1996. Interest expense and fee amortization of $39.6
million for fiscal 1996, decreased $31.3 million compared to 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.
Income Taxes
The provision for income taxes in fiscal 1997 includes $5.4 million on
earnings of Anacomp's foreign subsidiaries and $4.2 million of domestic taxes
after considering the impact of the extrordinary loss. Of the $4.2 million net
domestic tax provision, approximately $0.7 million is currently payable. See
Note 16 to the consolidated financial statements for further discussion.
The provision for income taxes in fiscal 1996 includes $6.1 million on
earnings of Anacomp's foreign subsidiaries and $2 million of domestic income
taxes primarily related to the non-cash charge in lieu of taxes of $1.3 milion
along with 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
fiscal 1995 were taxes of $4.8 million on earnings of Anacomp's foreign
subsidiaries and a tax reserve adjustment of $1.2 million.
Liquidity and Capital Resources
During the period ended September 30, 1997, Anacomp completed the
refinancing of substantially all of its significant debt obligations (see Note
13 to the consolidated financial statements). The refinancings will result in
significant interest savings to the Company. Anacomp's cash interest cost will
now be at an annual rate of approximately $30 million as compared to
approximately $40 million upon the Company's exit from bankruptcy on May 31,
1996. The Company's debt amortization has also been significantly reduced as a
result of the refinancings. Anacomp made no principal payments on the new debt
during fiscal 1997 and now has scheduled principal payments of $8.7 million in
fiscal 1998 and $13.8 million in fiscal 1999. As of September 30, 1997, the
current portion of long-term debt was $9.6 million as compared to $31.8 million
at September 30, 1996.
Anacomp's working capital at September 30, 1997, excluding the current
portion of long-term debt was $41.4 million, compared to $26.4 million at
September 30, 1996. Net cash provided by operating activities increased to $57.8
million for the fiscal year ended September 30, 1997, compared to $49.8 million
in the comparable prior period. Net cash used in investing activities was $32.8
million in the current period, compared to net cash provided by investing
activities of $3.9 million in the comparable prior period. This change was
primarily the result of the Company using $22.4 million of cash for acquisitions
in the current period while the Company generated $13.6 million in cash from the
sale of the ICS Division in the prior period. Also, the Company increased its
capital expenditures for property, plant and equipment by $4.6 million during
the current period.
Net cash used in financing activities decreased to $5.1 million for the
fiscal year ended September 30, 1997, compared to $35.5 million in the
comparable prior period. The Company's successful rights offering of
approximately 3.6 million shares of common stock provided approximately $24.5
million in cash in the current period and the Company's debt refinancing and
principal reductions used approximately $30.1 million in net cash. Fiscal 1996
financing activities include a $13 million repayment of debt with proceeds from
the sale of the ICS Division and $24.9 million in principal reductions on debt.
The Company's cash balance (including restricted cash) as of September
30, 1997 was $65.5 million, compared to $47.8 million at September 30, 1996. The
Company also has availability of $22.6 million on its $25 million revolving
credit facility at September 30, 1997.
The Company has significant debt service obligations. The ability of
the Company to meet its debt service and other obligations will depend upon its
future performance and is subject to financial, economic and other factors, some
of which are beyond its control. However, the Company believes that 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.
Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB)
issued a pronouncement related to the calculation and disclosure of Earnings Per
Share information. This pronouncement is effective for periods ending after
December 15, 1997 and, consequently, no adjustments are reflected in the
consolidated financial statements for the period ended September 30, 1997.
Adoption of this pronouncement would not have a significant impact on EPS
reported for the twelve month period ended September 30, 1997.
In June 1997, FASB issued two additional pronouncements related to
reporting comprehensive income and disclosure of segment information. These two
pronouncements are effective for periods beginning after December 15, 1997. The
Company has not yet determined the additional disclosures specified by this
pronouncement on the consolidated financial statements for the period ended
September 30, 1977.
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, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the twelve months ended September 30, 1997,
the four months ended September 30, 1996, the eight months ended May 31, 1996
and the twelve months ended September 30, 1995. 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, 1997 and 1996, and the results of
their operations and their cash flows for the twelve months ended September 30,
1997, the four months ended September 30, 1996, the eight months ended May 31,
1996 and the twelve months ended September 30, 1995 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.
Arthur Andersen LLP
Indianapolis, Indiana,
November 14, 1997
CONSOLIDATED BALANCE SHEETS
Anacomp, Inc. and Subsidiaries
Reorganized Company
---------------------------------
(Dollars in thousands, except per share amounts) As of September 30, 1997 1996
---------------------------------
ASSETS
Current assets:
Cash and cash equivalents ...................................................................... $ 58,060 $ 38,198
Restricted cash ................................................................................ 7,433 9,597
Accounts and notes receivable, less allowances for doubtful
accounts of $5,501 and $6,768, respectively .............................................. 58,628 58,806
Current portion of long-term receivables ....................................................... 3,647 4,690
Inventories .................................................................................... 25,261 31,856
Prepaid expenses and other ..................................................................... 6,853 4,383
Total current assets ............................................................................... 159,882 147,530
Property and equipment, at cost less accumulated depreciation and
amortization of $7,257 and $3,696, respectively ............................................... 29,063 27,102
Long-term receivables, net of current portion ...................................................... 6,587 10,632
Excess of purchase price over net assets of businesses acquired
and other intangibles, net ..................................................................... 17,800 2,285
Reorganization value in excess of identifiable assets, net ......................................... 163,856 240,344
Other assets ....................................................................................... 14,763 7,528
$ 391,951 $ 435,421
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .............................................................. $ 9,595 $ 31,848
Accounts payable ............................................................................... 39,270 48,090
Accrued compensation, benefits and withholdings ................................................ 16,481 13,728
Accrued income taxes ........................................................................... 13,471 11,930
Accrued interest ............................................................................... 14,738 10,586
Other accrued liabilities ...................................................................... 34,529 36,814
Total current liabilities .......................................................................... 128,084 152,996
Non current liabilities:
Long-term debt, net of current portion ......................................................... 247,889 217,044
Other noncurrent liabilities ................................................................... 1,458 6,812
Total noncurrent liabilities ....................................................................... 249,347 223,856
Commitments and contingencies (See Note 17) Stockholders' equity :
Preferred stock, 1,000,000 shares authorized, none issued ...................................... -- --
Common stock, $.01 par value; 20,000,000 shares authorized; 13,789,764 and 10,099,050 issued and 138 101
outstanding, respectively
Capital in excess of par value ................................................................. 105,329 80,318
Cumulative translation adjustment (from May 31, 1996) .......................................... (1,128) 159
Accumulated deficit (from May 31, 1996) ........................................................ (89,819) (22,009)
Total stockholders' equity ......................................................................... 14,520 58,569
$ 391,951 $ 435,421
- -----------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Anacomp, Inc. and Subsidiaries
Reorganized Company Predecessor Company
--------------------------------------------------------
Twelve Four Eight Twelve
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, May 31, September 30
(Amounts in thousands, except per share amount) 1997 1996 1996 1995
REVENUES:
Services provided ................................................... $ 186,590 $ 59,055 $ 130,202 $ 219,881
Equipment and supply sales .......................................... 275,920 92,487 204,396 371,308
462,510 151,542 334,598 591,189
OPERATING COSTS AND EXPENSES:
Costs of services provided .......................................... 97,932 31,858 72,641 126,493
Costs of equipment and supplies sold ................................ 206,582 70,097 156,526 290,842
Selling, general and administrative expenses ........................ 90,731 29,688 63,826 132,459
Amortization of reorganization asset ................................ 75,780 25,663 -- --
Special charges ..................................................... -- -- -- 136,889
Restructuring charges ............................................... -- -- -- 32,695
471,025 157,306 292,993 719,378
Income (loss) from operations before interest, other income,
reorganization items, income taxes and extraordinary items .......... (8,515) (5,764) 41,605 (128,189)
Interest income ......................................................... 4,346 997 1,576 2,000
Interest expense and fee amortization ................................... (35,896) (12,869) (26,760) (70,938)
Financial restructuring costs ........................................... -- -- -- (5,987)
Other income (loss) ..................................................... (1,285) 27 6,968 (212)
(32,835) (11,845) (18,216) (75,137)
Income (loss) before reorganization items, income taxes and extraordinary
items ............................................................... -- (17,609) 23,389 (203,326)
(41,350)
Reorganization items .................................................... -- -- 92,839 --
Income (loss) before income taxes and extraordinary items ............... (41,350) (17,609) 116,228 (203,326)
Provision for income taxes .............................................. 15,500 4,400 3,700 35,000
Income (loss) before extraordinary items ................................ (56,850) (22,009) 112,528 (238,326)
Extraordinary items:
Gain on discharge of indebtedness, net of income taxes ............. -- -- 52,442 --
Loss on extinguishment of debt, net of income tax benefits .......... (10,961) -- -- --
Net income (loss) ....................................................... (67,811) (22,009) 164,970 (238,326)
Preferred stock dividends and discount accretion ........................ -- -- 540 2,158
Net income (loss) available to common stockholders ...................... $ (67,811) $ (22,009) $ 164,430 $(240,484)
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE:
Income (loss) available to common stockholders before extraordinary loss............$(4.23) $(2.19)
Extraordinary loss on extinguishment of debt........................... (0.82) ----
Net income (loss ) available to common shareholders.................... $(5.05) $(2.19)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Reorganized Company Predecessor Company
---------------------------------------------------
Anacomp, Inc. and Subsidiaries Twelve Four Eight Twelve
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, May 31, September 30
(Dollars in thousands).............................................. 1997 1996 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .............................................. $ (67,811) $ (22,009) $ 164,970 $(238,326)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Extraordinary items .......................................... 10,961 -- (52,442) --
Non-cash reorganization items ................................ -- -- (107,352) --
Depreciation and amortization ................................ 93,552 30,635 18,788 43,375
Non-cash compensation ........................................ 1,012 975 -- --
Provision (benefit) for losses on accounts receivable ........ (341) 482 110 2,742
Provision for inventory valuation ............................ -- -- -- 10,956
Non-cash charge in lieu of taxes ............................. 700 1,300 -- --
Deferred taxes ............................................... -- -- -- 29,000
Special charges (See Note 1) ................................. -- -- -- 136,889
Gain on sale of ICS Division ................................. -- -- (6,202) --
Other ........................................................ 6,278 (175) 997 6,308
Restricted cash requirements ..................................... 2,164 (2,755) (6,842) --
Change in assets and liabilities net of effects from acquisitions:
Decrease in accounts and long-term receivables ............. 6,687 5,637 24,624 30,948
Decrease (increase) in inventories and prepaid expenses .... 7,118 10,416 11,174 (1,612)
Decrease (increase) in other assets ........................ (953) 1 1,094 (8,207)
Increase (decrease) in accounts payable and accrued expenses 4,970 (17,283) (5,077) 11,465
Increase (decrease) in other noncurrent liabilities ........ (6,495) 4,671 (5,899) (3,626)
Net cash provided by operating activities ................. 57,842 11,895 37,943 19,912
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of other assets ............................. -- -- -- 18,777
Proceeds from sale of ICS Division ............................. -- -- 13,554 --
Purchases of property, plant and equipment ..................... (10,399) (2,224) (3,599) (14,372)
Payments to acquire companies and customer rights .............. (22,443) (3,844) -- (1,262)
Net cash provided by (used in) investing activities ....... (32,842) (6,068) 9,955 3,143
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and warrants ............ -- (139) -- 743
Proceeds from revolving line of credit and long-term borrowing . 253,853 -- 2,656 22,529
Proceeds from exercise of common stock rights .................. 24,548 -- -- --
Proceeds from exercise of stock options ........................ 412 -- -- --
Principal payments on long-term debt ........................... (271,288) (22,646) (15,332) (45,859)
Payments related to the issuance and extinguishment of debt .... (12,647) --
---------
Preferred dividends paid ....................................... -- -- -- (1,031)
---------
Net cash used in financing activities ..................... (5,122) (22,785) (12,676) (23,618)
---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............................ (16) (172) 691 107
---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................... 19,862 (17,130) 35,913 (456)
---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................... 38,198 55,328 19,415 19,871
---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... $ 58,060 $ 38,198 $ 55,328 $ 19,415
---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Reorganized Company Predecessor Company
------------------------------------------------------------
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, May 31, September 30,
(Dollars in thousands)................................................. 1997 1996 1996 1995
Cash paid during the period for:
Interest........................................................... $ 15,016 $ 5,581 $ 11,613 $ 39,426
Income taxes....................................................... $ 6,612 $ 2,942 $ 3,045 $ 4,128
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.
Reorganized Company Predecessor Company
------------------------------------------------------------
Twelve Four Eight Twelve
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, May 31, September 30,
(Dollars in thousands) 1997 1996 1996 1995
Notes payable issued............................................... ---- $ 500 ---- ----
Assets acquired by assuming liabilities............................ $ 1,553 ---- ---- ----
Interest on subordinated notes satisfied with additional notes..... $11,960 ---- ---- ----
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Anacomp, Inc. and Subsidiaries
Capital in Cumulative
Common stock excess of translation Accumulat
(Dollars in thousands) par value adjustment Deficit Total
- ---------------------------------------------------------------------------------------------------------------------
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 adjustment 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
Common stock issued for exercise of rights ........ 36 24,511 -- -- 24,547
Common stock issued for exercise of stock options . 1 500 -- -- 501
Translation adjustment for twelve months .......... -- -- (1,287) -- (1,287)
Other ............................................. -- -- -- 1 1
Net loss for twelve months ........................ -- -- -- (67,811) (67,811)
---------
BALANCE AT SEPTEMBER 30, 1997 - Reorganized Company $ 138 $ 105,329 $ (1,128) $ (89,819) $ 14,520
---------
See notes to consolidated financial statements.
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 document 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. Operating lease revenues are
recognized during the applicable period of customer usage. Revenues from
maintenance contracts are deferred and recognized in earnings on a pro rata
basis over the period of the agreements.
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
(Dollars in thousands) 1997 1996
September 30,
- --------------------------------------------------------------------------- ----------------- ----------------
Finished goods........................................................... $ 14,887 $ 22,557
Work in process.......................................................... 3,299 2,748
Raw materials and supplies............................................... 7,075 6,551
$ 25,261 $ 31,856
- ---------------------------------------------------------------------------
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. Unamortized Debt issuance costs were $6.6 million at September
30, 1997 and are included in "Other assets" in the accompanying Consolidated
Balance Sheets. During the twelve months ended September 30, 1997, the eight
months ended May 31, 1996 and the twelve months ended September 30, 1995, the
Company amortized $.9 million, $1 million and $5.7 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.
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, 1997 is
being amortized over periods of three to five years. 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. 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 $163.9 million net of
accumulated amortization of $101.4 million at September 30, 1997. 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.
Research and Development
The engineering costs associated specifically with research and development
programs are expensed as incurred, and amounted to $4.8 for the twelve months
ended September 30, 1997, $1.3 million for the four months ended September 30,
1996, $2.4 million for the eight months ended May 31, 1996 and $2.2 million for
the twelve months ended September 30, 1995. 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 year 1995 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 products for current
COM system 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 for future payments to IBM Pennant Systems for software royalty and
system support obligations which were not recoverable based on these revised
projections (See Note 17). 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, 1997 total $2.5 million and are included in "Other assets" on the
accompanying Consolidated Balance Sheets.
Sale-Leaseback Transactions
Anacomp entered into sale-leaseback transactions of $19.3 million in 1995
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 were recorded for the year ended September
30, 1995. 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 which is being amortized over the applicable lease periods.
At September 30, 1997 $4.4 million of this reserve remained to be amortized.
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 $6.2 and
$11.4 million at September 30, 1997 and 1996, respectively. The current portion
of these obligations was $4.9 and $6.8 million as of September 30, 1997 and
1996, respectively, and is included in "Other accrued liabilities" and "Accounts
payable" in the accompanying Consolidated Balance Sheets.
Income Taxes
Anacomp accounts for income taxes based on the liability method for computing
deferred income taxes. The benefit of certain loss carryforwards are estimated
and recorded as an asset unless it is "more likely than not" that the benefit
will not be realized.
During 1995, the valuation allowance was increased to reduce the Company's net
deferred tax asset to zero as a result of the Company's deteriorating financial
condition.
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.
Cash and Cash Equivalents
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.
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.
NOTE 3.
FRESH START REPORTING AND BANKRUPTCY REORGANIZATION:
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 13 and 15.
As of May 31, 1996, the Company adopted Fresh Start Reporting in accordance with
the American Institute of Certified Public Accountant's Statement of Position
90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy
Code" ("SOP 90-7"). Fresh Start Reporting resulted in material changes to the
Condensed 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 net result of the valuation of identifiable assets, the recognition of
liabilities at fair market value and the valuation of equity was the Reorganized
Company recognizing an asset "Reorganization Value in excess of identifiable
assets" totaling $267.5 million as of May 31, 1996.
As a result of the Bankruptcy Reorganization, the Predecessor Company recorded
an extraordinary gain resulting from the discharge of indebtedness of $52.4
million calculated as follows:
May 31, 1996
(Dollars in thousands)
-----------------------
Historical carrying value of old debt securities ............... $379,256
Historical carrying value of related accrued interest........... 48,500
Unamortized portion of old deferred financing costs............. (600)
Market value of consideration exchanged for the old debt:
Plan securities (face value $279,692)................... (265,948)
New common stock (10.0 million new shares issued)....... (79,766)
-----------------------
81,442
Tax provision........................................ (29,000)
-----------------------
Extraordinary gain .................................. $ 52,442
=======================
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 Statements of Operations, and are summarized
below:
Eight Months
Ended
(Dollars in thousands) May 31, 1996
---------------------------------------------------------------------- ----------------
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
================
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, 1996 September 30, 1995
(Dollars in thousands) ------------------------------------------
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.
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 5.
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 6.
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. 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 7.
EXCESS OF PURCHASE PRICE OVER NET ASSETS
OF BUSINESSES ACQUIRED (GOODWILL):
Goodwill as of September 30 is summarized as follows (dollars in thousands):
Reorganized Company
-------------------------------
1997 1996
---- ----
Goodwill............................................... $20,673 $2,419
Less accumulated amortization.......................... (2,873) (134)
$17,800 $2,285
NOTE 8.
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, 1997,
and 1996, are as follows:
Reorganized Company
--------------------------------------------------------------------
September 30, 1997 September 30, 1996
Carrying Amount Carrying Amount
(Dollars in thousands) Fair Value Fair Value
- -------------------------------------------------------
Long-Term Debt:
- -------------------------------------------------------
11-5/8% Senior Secured Notes...................... $ ---- $ ---- $ 97,902 $ 97,902
- -------------------------------------------------------
Multicurrency Revolving Loan...................... 2,439 2,439 ---- ----
- -------------------------------------------------------
Senior Secured Term Loan.......................... 55,000 55,000 ---- ----
- -------------------------------------------------------
10 7/8% Senior Subordinated Notes................. 196,611 210,160 ---- ----
- -------------------------------------------------------
13% Senior Subordinated Notes..................... ---- ---- 147,058 163,829
- -------------------------------------------------------
The September 30, 1997 and 1996 estimated fair value of Long-Term Debt was based
on quoted market values or discounted cash flow.
NOTE 9.
ACQUISITIONS:
During the three years ended September 30, 1997, 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 1997
During fiscal 1997, Anacomp acquired either the customer bases and other assets
or the stock of nine businesses. Total consideration was $25.5 million, of which
approximately $18.3 million was assigned to excess of purchase price over net
assets acquired. The aggregate purchase prices consisted of $22.4 million cash,
$1.6 million in assumed liabilities and contingent cash and/or stock payments of
up to $10.0 million based upon future operating results over the next two to
five years.
Fiscal 1996
During fiscal 1996, Anacomp acquired certain assets of one business. Total
consideration was $4.3 million, of which approximately $2.4 million was assigned
to excess of purchase price over net assets acquired. The purchase price
consisted of $3.8 million in cash and a one-year note payable of $500,000 which
accrues interest at prime.
Fiscal 1995
During fiscal 1995, Anacomp made no significant acquisitions.
NOTE 10.
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 which was reduced to $15 million in fiscal
1997 (secured by up to $10 million of products sold to the Company by SKC), all
of which is outstanding at September 30, 1997. The trade credit arrangement
bears interest at 1.75% over the prime rate of The First National Bank of Boston
(10.25% as of September 30, 1997).
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 were accrued in "Other accrued
liabilities" in the accompanying Consolidated Balance Sheets): (a) $400,000 paid
in 1997: (b) $600,000 due in 1998; (c) $800,000 due in 1999; (d) $800,000 due in
2000; and (e) 1,000,000 due in 2001.
NOTE 11.
PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
Estimated Useful Reorganized Company
(Dollars in thousands) September 30, Life in Years 1997 1996
- ----------------------------------------------------------- --------------------- ---------------------- -----------------------
Land and buildings.................................... 10 - 40 $ 3,286 $ 3,148
Office furniture...................................... 3 - 12 2,765 2,499
Manufacturing equipment and tooling................... 2 - 10 4,442 4,161
Field support spare parts............................. 4 - 7 5,875 5,852
Leasehold improvements................................ Term of Lease 645 852
Equipment leased to others............................ 2 - 4 2,185 467
Processing equipment.................................. 3 - 12 17,122 13,819
36,320 30,798
Less accumulated depreciation and amortization........ (7,257) (3,696)
$29,063 $27,102
NOTE 12.
LONG-TERM RECEIVABLES:
Long-term receivables consist of the following:
Reorganized Company
(Dollars in thousands) September 30, 1997 1996
- ---------------------------------------------------------------------------------- ---------------------- ---------------------
Lease contracts receivable................................................... $ 8,785 $ 12,546
Notes receivable from asset sales............................................ 1,279 2,260
Other........................................................................ 170 516
10,234 15,322
Less current portion......................................................... (3,647) (4,690)
$ 6,587 $ 10,632
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,
- --------------------------------------------------------------------------------
1998............................................................. $ 4,512
1999............................................................. 3,014
2000............................................................. 1,667
2001............................................................. 738
2002............................................................. 214
10,145
Less deferred interest........................................... (1,360)
$ 8,785
NOTE 13.
LONG-TERM DEBT:
Long-term debt is comprised of the following:
Reorganized Company
(Dollars in thousands) September 30, 1997 1996
- ---------------------------------------------------------------------------------- ---------------------- ---------------------
13% Senior Subordinated Notes (net of unamortized discount of $12,942) ---- 147,058
Multicurrency Revolving Loan at 6.6%......................................... 2,439 ----
Senior Secured Term Loan at 8.7%............................................. 55,000 ----
10 7/8% Senior Subordinated Notes (net of unamortized discount of
$3,389 .................................................................. 196,611 ----
Non-interest bearing installment note payable due October 30, 1996........... ---- 400
Other........................................................................ 3,434 3,532
257,484 248,892
Less current portion......................................................... (9,595) (31,848)
$247,889 $217,044
Senior Secured Credit Facility
On February 28, 1997, the Company and certain foreign subsidiaries entered into
a Credit and Guarantee Agreement (the "Credit Facility") with a syndicate of
banks and other financial institutions (collectively, the "Senior Secured
Lenders"), Lehman Commerical Paper Inc., as arranger and syndication agent, and
The First National Bank of Chicago (in its individual capacity, "First
Chicago"), as administrative agent. The Credit Facility provides for a $55
million term loan facility ("the Term Facility") and a $25 million revolving
credit facility (the "Revolving Facility"). The proceeds of the Term Facility
and available cash were used to repay the existing 11 5/8% Senior Secured Notes
due 1999 (the "Old Senior Secured Notes"). The balance of the Old Senior Secured
Notes at February 28, 1997, was $83.6 million, reflecting the prepayment of the
March 31, 1997 installment of $14.3 million made on February 20, 1997.
As of September 30, 1997, $55 million was outstanding under the Term Facility,
and $2.4 million was outstanding under the Revolving Facility. The entire
Revolving Facility is available for loans denominated in U.S. dollars and
certain foreign currencies ("Multicurrency Loans"), and up to $10 million of the
Revolving Facility is available for letters of credit of which $2.7 million was
outstanding at September 30, 1997. The Term Facility is repayable in thirteen
quarterly installments commencing March 31, 1998, with the final installment due
on March 31, 2001. The Revolving Facility terminates on February 28, 2001.
The Company may elect to have loans under the Term Facility or the Revolving
Facility bear interest at (a) the Alternate Base Rate plus 2% or (b) the
Eurodollar Rate, or in the case of Multicurrency Loans, the Eurocurrency Rate,
plus 3%. Interest is payable quarterly and at the end of the Interest Period (as
defined in the Credit Facility). The "Alternate Base Rate" for any day means the
higher of (i) the corporate base rate of interest announced by First Chicago and
(ii) the federal funds rate published by the Federal Reserve Bank of New York on
the next business day plus 1/2%. The "Eurodollar Rate" for any Interest Period
means (A) the applicable London interbank offered rate for deposits in U.S.
dollars two business days prior to the first day of the Interest Period divided
by (B) one minus the "Eurocurrency Liabilities" under Regulation D of the Board
of Governors of the Federal Reserve System. The "Eurocurrency Rate" for any
Interest Period means the rate at which First Chicago offers to place deposits
in the applicable foreign currency with first-class banks in the London
interbank market two business days prior to the first day of the Interest
Period.
The Term Facility and the Revolving Facility are secured by all of the Company's
tangible and intangible assets (including intellectual property, real property
and all of the capital stock of each of the Company's direct or indirect
domestic subsidiaries and 65% of the capital stock of each of the Company's
material direct foreign subsidiaries). All of the Company's obligations under
the Credit Facility are unconditionally guaranteed by the Company's direct or
indirect domestic subsidiaries. In addition to customary covenants, the Credit
Facility requires that the Company: (a) maintain certain ratios of Consolidated
EBITDA (as defined in the Credit Facility), (b) not incur any indebtedness other
than the 10 7/8% Senior Subordinated Notes due 2004 (the "Notes"), indebtedness
under the Credit Facility and certain other indebtedness, (c) not permit any
lien to exist on any of its property, assets or revenues, except the liens in
favor of the Senior Secured Lenders, existing liens and certain other liens (d)
not to incur any guarantee obligations, except the guarantee obligations related
to the Credit Facility and certain other guarantee obligations and (e) prohibits
payment of dividends to common shareholders.
The Company must use 25% of Consolidated Excess Cash Flow (as defined in the
Credit Facility) in fiscal 1997 and 50% of Consolidated Excess Cash Flow
thereafter to repay the Term Facility and reduce Revolving Facility commitments.
Additionally, 100% of the Net Proceeds (as defined in the Credit Facility) of
any Asset Sale (as defined in the Credit Facility) and 75% of proceeds from the
sale of Capital Stock (as defined in the Credit Facility) not used for
acquisitions or the repurchase of subordinated debt, must be applied to repay
the Term Facility and reduce the Revolving Facility commitments. The Term
Facility repayment schedule, after considering the terms of the excess cash flow
requirements, is as follows:
Year ended September 30,
(Dollars in thousands)
1998.......................................... $ 8,740
1999.......................................... 13,780
2000.......................................... 20,669
2001.......................................... 11,811
------------------------
$ 55,000
========================
10 7/8% Senior Subordinated Notes
On March 24, 1997, the Company issued $200 million of 10 7/8% Senior
Subordinated Notes ("the Notes"). The Notes were sold at 98.2071% of the face
amount to yield proceeds of $196.4 million. The proceeds of the Notes were used
to repay the existing 13% Senior Subordinated Notes due 2002, including a 3%
call premium and accrued interest, to reduce the SKC trade payable by $10
million and associated accrued interest, and to pay certain fees and expenses.
As a result of the call premium ($5.2 million) and existing discount on the 13%
notes ($11.6 million), the Company recorded an extraordinary loss on the
extinguishment of debt of $11.0 million, net of tax benefits.
The Notes are not redeemable at the option of the Company prior to April 1,
2000. On or after such date until April 1, 2003, the Notes will be redeemable at
the option of the Company in whole or in part at prices ranging from 108.156% to
102.710% plus accrued and unpaid interest. On or after April 1, 2003, the Notes
may be redeemable at 100% plus accrued and unpaid interest. Prior to April 1,
2000, the Company may, at its option, use the net cash proceeds of one or more
Public Equity Offerings (as defined in the Indenture), to redeem up to 35% of
the aggregate principal amount at a redemption price equal to 110.875% plus
unpaid interest to the date of redemption, provided that at least $130 million
of the aggregate principal amount of Notes originally issued remains outstanding
after any such redemption.
Also, upon a Change of Control (as defined in the Indenture), the Company is
required to make an offer to purchase the Notes then outstanding at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest. The Notes have no sinking fund requirements and are due in full on
April 1, 2004.
The Notes are general unsecured obligations of the Company and expressly
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined in the Indenture) of the Company. The Notes will rank pari passu
with any future Senior Subordinated Indebtedness (as defined in the Indenture)
and senior to all Subordinated Indebtedness (as defined in the Indenture) of the
Company.
The indenture relating to the Notes contains covenants related to limitations of
indebtedness of the Company and restricted subsidiaries, limitations on
restricted payments, limitations on restrictions on distributions from
restricted subsidiaries, limitations on sale of assets and restricted subsidiary
stock, limitations on liens, a prohibition on layering, limitations on
transactions with affiliates, limitations on issuance and sale of capital stock
of restricted subsidiaries, limitations of sale/leaseback transactions and
prohibits payment of dividends to common shareholders.
NOTE 14.
RIGHTS OFFERING:
On October 30, 1996, the Company completed a rights offering to its existing
shareholders that resulted in the issuance of 3.6 million shares of common
stock. For each share of Anacomp common stock held as of the close of business
on September 18, 1996, the Company distributed 0.36 rights to purchase an
additional share of common stock at a subscription price of $6.875 per share.
The Company is using the proceeds of the rights offering, approximately $25
million, for the acquisition of businesses, assets and technologies.
NOTE 15.
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 at 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 1997 and 1996,
approximately $1 million and $200,000, respectively, was recognized as
compensation expense related to the options and the above noted restricted stock
award. The options expire 10 years after the date of the grant. As of September
30, 1997, 164,950 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 after September 30, 1997.
Effective December 6, 1996, 34,650 shares of restricted stock were returned by
employees to the Company.
In addition, on February 3, 1997 the Company's shareholders 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 issuance under this plan. 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.
The Company accounts for its Stock Option Plans in accordance with APB Opinion
No. 25 ("APB 25"), under which compensation expense is recognized only to the
extent the exercise price of the option is less than the fair market value of a
share of stock at the date of grant. During 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensations (SFAS 123), which considers the stock
options as compensation expense to the Company, based on their fair value at the
date of grant. Under this new standard, the Company has the option of accounting
for employee stock option plans as it currently does or under the new method.
The Company intends to continue to use the APB 25 method for accounting, but has
adopted the disclosure requirements of SFAS 123. Had compensation costs for
these plans been determined consistant with SFAS 123, the Company's net income
would have been as follows:
Months Ended Four Months Ended
September 30, 1997 September 30, 1996
Net loss as reported................ $ (67,811) $ (22,009)
Pro forma net loss.................. $ (69,940) $ (22,096)
Pro forma loss per share............ $ (5.21) $ (2.20)
Weighted Ave.
Stock Option activity under the plan was as follows: Shares Exercise Price
- --------------------------------------------------------------------------- ------------------- --------------------------
Oustanding at June 1, 1996........................................... ---- ----
Granted............................................................... 947,500 $ 4.63
Outstanding at September 30, 1996..................................... 947,500 $ 4.63
Granted............................................................... 939,205 $ 10.64
Canceled.............................................................. (135,650) $ 4.86
Exercised............................................................. (80,000) $ 5.15
------------------- --------------------------
Outstanding at September 30, 1997..................................... 1,671,055 $ 7.96
=================== ==========================
The following information is summarized related to options outstanding at
September 30, 1997:
Weighted Ave.
Number of Range of Exercise Weighted Ave. Weighted Ave. Options Exercise Price of
Options Price Per Share Exercise Price Remaining Life Excercisable Options Excercisable
743,725 $4.63 $4.63 8.89 Years 137,500 $4.63
575,598 $7.95 - $11.13 $9.36 9.22 Years 49,253 $9.66
351,732 $12.50 - $14.63 $12.74 9.68 Years 2,000 $12.50
1,671,055
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option pricing model. The weighted average fair value of options
granted during 1997 and 1996, as well as the weighted average assumptions used
to determine the fair values are summarized below:
1997 1996
------------- ------------
Fair Value of Options Granted................... $ 6.73 $ 6.05
Risk-Free Interest Rate......................... 6.22% 6.57%
Expected Dividend Yield......................... 0% 0%
Expected Volatility............................. 40% 40%
Expected Life................................... 10 Years 10 Years
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 14, 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
On February 3, 1997, the Company's shareholders approved the Anacomp, Inc. 1997
Qualified Employee Stock Purchase Plan (the "Stock Purchase Plan"). The Stock
Purchase Plan allows qualified employees to purchase shares of the Company's
common stock at the lower of 85% of the fair market value at the date of
purchase or 85% of the fair market value on the first day of each quarterly
offering period. A maximum of 500,000 shares of common stock is available for
purchase under the Stock Purchase Plan. No shares are scheduled to be issued
prior to March 31, 1998.
At September 30, 1997, approximately 3.3 million shares of Anacomp new common
stock were reserved for exercise of stock options, exercise of warrants,
employee stock purchases 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 at September 30, 1995.
Options outstanding were as follows:
Option Price
Shares Per Share
- --------------------------------------------------------------------------- ------------------- --------------------------
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.
NOTE 16.
INCOME TAXES:
The components of income (loss) before income taxes and extraordinary credit
were:
Predecessor Company
-----------------------------------
Twelve Months Four Months Eight Months Twelve Months
Ended Ended Ended Ended
(Dollars in thousands) September 30, 1997 September 30, 1996 May 31, 1996 1995
- -------------------------------------- ---------------------- ---------------------- ---------------- ------------------
United States....................... $(53,968) $(21,602) $112,100 $(209,151)
Foreign............................. 12,618 3,993 5,825
4,128
$(41,350) $(17,609) $116,228 $(203,326)
The components of the consolidated tax provision after utilization of net
operating loss carryforwards and the adjustment of tax reserves are summarized
below:
Predecessor Company
-----------------------------------
Twelve Months Four Months Eight Months Twelve Months
Ended Ended Ended Ended
(Dollars in thousands) September 30, 1997 September 30, 1996 May 31, 1996 1995
- ----------------------------------------- -------------------- ---------------------- ---------------- ------------------
Current:
Federal......................... $ 300 $ 600 $ ---- $ ----
Foreign......................... 5,400 2,400 3,700 4,800
State........................... 400 100 ---- ----
$ 6,100 3,100 3,700 4,800
Tax reserve adjustment.............. 2,800 ---- ---- 1,200
Non-cash charge in lieu of taxes ... 700 1,300 29,000 29,000
$ 9,600 $ 4,400 $32,700 $35,000
The income tax provision is included in the Consolidated Statements of
Operations as follows:
Predecessor Company
-----------------------------------------
Twelve Months Four Months Eight Months Twelve Months
Ended Ended Ended Ended
(Dollars in thousands) September 30, 1997 September 30, 1996 May 31, 1996 September 30, 1995
- ---------------------------------------- ---------------------- ---------------------- ---------------- ------------------------
Provision for income taxes before
extraordinary items................. $ 15,500 $ 4,400 $ 3,700 $ 35,000
Extraordinary gain on discharge of
indebtedness........................ ---- ---- 29,000 ----
Extraordinary loss extinguishment of
indebtedness........................ --------------------- ---- ------------- -------------------------
(5,900) ---- ----
$ 9,600 $ 4,400 $32,700 $35,000
For the reorganized company, the non-cash charge in lieu of taxes represents the
utilization of pre-organization tax benefits which are reflected as reductions
in the reorganization asset. For the predecessor company, the non-cash charge in
lieu of taxes represents the utilization of pre-acquisition tax benefits which
are reflected as reductions to goodwill.
The following is a reconciliation of income taxes calculated at the United
States federal statutory rate to the provision for income taxes:
Twelve Four Eight Twelve
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, May 31, May 31,
(Dollars in thousands) 1997 1996 1996 1995
- ----------------------------------------------------------- ---------------- ----------------- ---------------- -----------------
Provision for income taxes at U.S. statutory rate........ $(14,203) $ (6,200) $ 40,700 $(71,200)
Non taxable reorganization income........................ ---- ---- (43,700) ---
Increase in deferred tax asset valuation allowance....... ---- ---- ---- 51,400
Nondeductible amortization and write-off of intangible
assets................................................... 24,359 8,300 2,500 40,500
State and foreign income taxes........................... 2,677 1,200 2,300 2,800
U.S. tax on distributed and undistributed foreign earnings
---- ---- ---- 12,300
Tax reserve adjustment................................... 2,800 ---- ---- 1,200
Tax effect of pre-reorganization loss not available due
to ownership change ..................................... ---- ---- 2,100 ----
Alternative minimum tax.................................. 400 1,000 ---- ----
Other.................................................... (533) 100 (200) (2,000)
$ 15,500 $ 4,400 $ 3,700 $ 35,000
- -----------------------------------------------------------
The components of deferred tax assets and liabilities at September 30, 1997 and
September 30, 1996 are as follows:
September 30, September 30,
Net Deferred Tax Asset (Dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------- ---------------------- ----------------------
Tax effects of future differences related to:
Inventory reserves....................................................... $ 9,300 $ 7,000
Depreciation............................................................. 1,900 1,600
Building reserves........................................................ 1,600 500
EPA reserve.............................................................. 2,700 2,500
Sale/leaseback of assets................................................. (900) 700
Restructuring activities................................................. (400) 1,200
Asset sale............................................................... 1,800 2,600
Bad debt reserve......................................................... 1,700 1,800
1,400 ----
Insurance..................................................................................................
Other.................................................................... 4,600 7,800
Leases................................................................... (1,600) (2,100)
Capitalized software..................................................... (2,300) (2,700)
Net tax effects of future differences........................................ 19,800 20,900
Tax effects of carryforward benefits:
Federal net operating loss carryforwards................................. 59,900 47,900
Federal general business tax credits..................................... 3,200 3,600
Foreign tax credits...................................................... 3,000 3,000
Tax effects of carryforwards................................................. 66,100 64,500
Tax effects of future taxable differences and carryforwards.................. 85,900 85,400
Less deferred tax asset valuation allowance.................................. (85,900) (85,400)
Net deferred tax asset....................................................... $ ---- $ ----
At September 30, 1997, the Reorganized Company has NOLs of approximately $149.6
million available to offset future taxable income. This amount will increase to
$199.1 million as certain temporary 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 $16.9
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.
NOTE 17.
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,
------------------------------------------------------------------------------
1998............................................................. $15,351
1999............................................................. 6,180
2000............................................................. 2,482
2001............................................................. 1,456
2002............................................................. 1,032
2003 and thereafter.............................................. 6,909
33,410
Less liabilities recorded as of September 30, 1997 related
to unfavorable lease commitments and future lease costs
for vacant facilities ($4.9 million reflected in current
liabilities)................................................. (6,197)
27,213
The total of future minimum rentals to be received under noncancelable subleases
related to the above leases is $752,000. 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
continues for 10 years. During 1995, Anacomp established a reserve of $8.6
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 such that the reserve requirements were
greatly reduced. The renegotiated contract requires Anacomp to make future
license fee payments to Pennant Systems of $625,000 annually through fiscal year
1999, of which $0.6 million is reserved at 9/30/97.
The Company sold $10.5 million of lease receivables in the twelve months ended
September 30, 1995. Under the terms of the sale, the purchasers have recourse to
the Company should the receivables prove to be uncollectable. The amount of
recourse remaining at September 30, 1997 is $1.2 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 18.
SUPPLEMENTARY INCOME STATEMENT INFORMATION:
Twelve Four Eight Twelve
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, May 31, May 31,
(Dollars in 1997 1996 1996 1995
thousands)
- ---------------------------------------------------- ------------------ ----------------- ------------------- -----------------
Maintenance and repairs........................ $ 10,550 $ 3,505 $ 7,243 $ 16,609
Depreciation and amortization:
Property and equipment...................... 10,278 3,696 8,573 19,406
Deferred software costs..................... 1,730 297 1,883 3,449
Intangible assets........................... 79,156 25,853 6,841 13,143
Rent and lease expense......................... 16,641 5,936 13,958 23,755
NOTE 19.
OTHER ACCRUED LIABILITIES:
Other accrued liabilities consist of the following:
Reorganized Company
--------------------------------
(Dollars in thousands) 1997 1996
September 30,
- -------------------------------------------------------------------------- ---------------- ---------------
Unfavorable lease commitment related to sale/leaseback transactions...... $ 3,755 $ 4,550
EPA reserve.............................................................. 6,779 6,961
Other.................................................................... 23,995 25,303
$34,529 $36,814
- --------------------------------------------------------------------------
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 20.
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 twelve months ended September 30, 1997,
and the four months ended September 30, 1996, earnings per share is presented
based on the weighted average shares outstanding before the effect of
continently issuable shares, stock options or warrants due to the losses
reported for the periods.
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.
The weighted average number of common and common equivalent shares used to
compute earnings per share is:
Twelve Months Four Months
Ended Ended
September 30, September 30,
1997 1996
=================== ====================
Common and common equivalent share... 13,432,337 10,033,576
=================== ====================
NOTE 21.
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 twelve
months ended September 30, 1997, the four months ended September 30, 1996, the
eight months ended May 31, 1996 and the twelve months ended September 30, 1995
is as follows:
Twelve Months Ended September 30, 1997 - Reorganized Company
(Dollars in thousands) U.S. International Elimination Consolidated
- --------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Customer sales................................. 301,377 161,133 ---- 462,510
Inter-geographic............................... 20,366 ---- (20,366) ----
Total sales.................................... 321,743 161,133 (20,366) 462,510
Operating income (loss)........................ (30,067) 21,552 ---- (8,515)
Identifiable assets............................ 346,487 45,464 ---- 391,951
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
NOTE 22.
QUARTERLY FINANCIAL DATA (UNAUDITED):
First Second Third Fourth
(Dollars in thousands, except per share amounts) Quarter Quarter Quarter Quarter
- ------------------------------------------------------ ---------------- --------------- -------------- --------------
Fiscal 1997 - Reorganized Company
Revenues....................................... $116,453 $114,520 $ 114,041 $ 117,496
Gross profit................................... 41,414 38,801 37,782 39,999
Income (loss) before extraordinary loss........ (12,914) (14,566) (14,856) (14,514)
Extraordinary loss on extinguishment
of debt.................................... --------------- (12,536) 875 700
----
Net loss to common stockholders................ $(12,914) $(27,102) $(13,981) $(13,814)
Earnings (loss) per common share (primarily and
fully diluted):
Net income (loss) available to common stockholders $(1.01) $(1.06) $(1.08) $(1.05)
before extraordinary loss..................
Extraordinary loss on the extinguishment of debt,
net of income tax benefit.................. --------------- -------------- ------------- -------------
---- (.92)) .06 .05
Net income (loss) available to common
stockholders............................... =============== ============== ============= =============
$ (1.02) $ (1.00)
$(1.01) $(1.98)
Predecessor Company Reorganized Company
----------------------------------------- ---------------------------
Two Months One Month
Ended Ended
(Dollars in thousands, First Second May June 30, Fourth
except per share amounts) Quarter Quarter 31, 1996 Quarter
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 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)
NOTE 23.
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 twelve months ended September 30, 1997 for the
periods ended September 30, 1996 and May 31, 1996 and for the twelve months
ended September 30, 1995:
Balance at Charged to Balance at
beginning of costs and end of period
Description period expenses Deductions
- --------------------------------------------------- -------------- --------------- -------------- --------------
(Dollars in thousands)
Twelve months ended September 30, 1997 - Reorganized Company
Allowance for doubtful accounts............ $ 6,768 $ (341) $ 926 $ 5,501
Four Months ended September 30, 1996 - Reorganized Company
================================================================================================================
Allowance for doubtful accounts............ $ 7,464 $ 388 $ 1,084[1] $ 6,768
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
[1] Uncollectable accounts written off, net of recoveries.
NOTE 24.
SUBSEQUENT EVENTS (Unaudited):
Subsequent to September 30, 1997, the Company acquired either the stock or
customer bases and other specified assets of five businesses. The aggregate
purchase prices consisted of $13.5 million cash at closing, $700,000 in deferred
cash payments and contingent cash payments of up to $7.7 million based upon
future operating results over periods up to ten years.
On November 21, 1997, the Company announced that its corporate offices in
Indianapolis, Indiana would be relocated to Poway, California (near San Diego)
during the next six to seven months. The corporate functions to be relocated
include finance, accounting, tax and management information services. The cost
of the relocation is expected to be $1 - 2 million.