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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 The fiscal year Ended December 31, 1997
Commission File Number 333-26943
ANCHOR ADVANCED PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
----------------
Delaware 04-3084238
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ANCHOR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 62-1427775
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 Northshore Drive, Suite 600 37919-4048
Knoxville, TN (zip code)
(Address of principal executive offices)
(423) 450-5300
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
11-3/4% Series B Senior Notes due 2004
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark 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]
As the Registrant's Common Stock is not publicly traded, the aggregate
market value of the voting stock held by non-affiliates of the Registrant is not
determinable.
The number of shares outstanding of the registrant's Common Stock as of
December 31, 1997 was 1,551,218.
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<PAGE>
Anchor Advanced Products, Inc. and Anchor Holdings, Inc.
Annual Report on Form 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I
- ------
Item 1. Business .............................................................. 2
Item 2. Properties ............................................................ 6
Item 3. Legal Proceedings ..................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders ................... 6
Part II
- -------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . 7
Item 6. Selected Financial Data ............................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation .................................................. 10
Item 8. Financial Statements and Supplementary Data ........................... 14
(1) Consolidated Balance Sheets for fiscal years ended December 31, 1996
and 1997........................................................... 16
(2) Consolidated Statements of Operations for fiscal years ended
December 31, 1995, 1996 and 1997 .................................. 17
(3) Consolidated Statements of Stockholders' Equity (Deficit) for
fiscal years ended December 31, 1995, 1996 and 1997 ............... 18
(4) Consolidated Statements of Cash Flows for fiscal years ended
December 31, 1995, 1996 and 1997 .................................. 19
(5) Notes to Consolidated Financial Statements ........................ 20
(6) Schedule II--Valuation & Qualifying Accounts for the years ended
December 31, 1995, 1996 & 1997 .................................... 35
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .................................................. 35
Part III
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Item 10. Directors and Executive Officers of the Registrant .................... 36
Item 11. Executive Compensation ................................................ 38
Item 12. Security Ownership of Certain Beneficial Owners and Management ........ 43
Item 13. Certain Relationships and Related Transactions ........................ 44
Part IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...... 46
Signatures ..................................................................... 48
</TABLE>
This Report contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements are
subject to certain risks and uncertainties, including without limitation those
discussed in "Factors Affecting the Company's Business, Operating Results and
Financial Condition" section herein. Such forward-looking statements speak only
as of the date on which they are made, and the Company cautions readers not to
place undue reliance on such statements.
<PAGE>
PART I
Unless the context otherwise requires, references in this Form 10-K to
"Holdings" shall mean Anchor Holdings, Inc., a Delaware corporation, references
to "Products" shall mean Anchor Advanced Products, Inc, a Delaware corporation,
references to "Anchor" or the "Company" mean the consolidated business
operations of Holdings and its subsidiaries. Products is a wholly owned
subsidiary of Holdings.
Item 1. Business
General
Anchor is a leading designer, manufacturer and packager of precision
molded plastic products for a wide range of dental, cosmetic, medical, computer
and consumer applications. Based upon its knowledge of and experience in the
industry, the Company believes that it is one of the world's largest
manufacturers of toothbrushes and a leading U.S. manufacturer of cosmetics
packaging.
Anchor began operations in 1941 as a manufacturer of cosmetic brushes for
Maybelline and, in 1958, began producing Pepsodent toothbrushes for Lever
Brothers Company, Inc. The Company was acquired in 1990 by affiliates of the
Thomas H. Lee Company and management. Since 1990, management has developed and
implemented a variety of strategic initiatives in order to enhance the
Company's long-term growth, profitability and competitiveness, including:
-- Capitalizing on its manufacturing and technical expertise and
reputation for quality and service to grow its dental business,
including introducing the Crest[RegTM] line of toothbrushes for
Procter & Gamble in 1992.
-- Consolidating its cosmetics operations in an expanded maquiladora
manufacturing facility in Matamoros, Mexico, resulting in significant
operating efficiencies and cost savings.
-- Diversifying its markets and customer base through product line
expansion and the 1994 acquisition of Mid-State.
Markets and Products
Anchor designs, manufactures and packages precision molded plastic products
for dental, cosmetics, medical device, computer component, Point of Purchase
("POP") display and consumer product markets. The Company's broad line of
products include: (i) toothbrushes and electric toothbrush heads; (ii) custom
mascara packages, nail applicators, compacts, and lipstick containers; (iii)
molded medical devices including blood filtration devices, angiographic
syringes, intravenous equipment, in-vitro diagnostic kits and surgical scrub
brushes; (iv) personal computer components including standard and custom casings
for computers, bezels and other computer components; (v) POP displays; and (vi)
other consumer products, such as shampoo bottle closures and flat panel lights.
Marketing and Sales
The Company serves its customers primarily through its direct field sales
force which includes 14 account managers and a number of market specific
commissioned sales agents. Several of the Company's largest customers are
serviced by a dedicated sales agent. Skilled customer service representatives
are located in each of the Company's facilities to maintain daily contact while
supporting the efforts of the sales force. The sales effort is overseen by
divisional sales/marketing executives.
Competition
The markets in which the Company operates are highly competitive. The
Company competes with a significant number of companies of varying sizes,
including divisions or subsidiaries of larger companies, on the basis of price,
service, quality and the ability to supply products to customers in a timely
manner. Some of these competitors have, and new competitors may have, greater
financial and other resources than the Company. Competitive pressures or other
factors, including the vertical integration by certain of the Company's major
customers of manufacturing processes traditionally outsourced to the Company,
could cause the Company to lose market share or could result in a significant
price erosion with respect to the Company's products, either of which would
have a material adverse effect on the Company's results of operations.
Furthermore, the Company's customers operate in highly
2
<PAGE>
competitive markets. To the extent the Company's major customers lose market
share in their respective markets, the Company's results of operations and
financial condition could be materially and adversely affected.
In addition to facing competition from its customers, Anchor faces
competition from a number of independent injection molding manufacturers. Some
of Anchor's major competitors in the cosmetics market compete across product
lines, while most of its competitors focus on an individual segment of the
market. Many of these competitors in the medical device and computer component
markets also compete with Anchor in the consumer and other markets. The POP
display market is served by a number of large suppliers. This market requires a
wide range of services, and the suppliers in the industry are able to perform
these services with varying degrees of self-sufficiency.
Competitive Strengths
The Company's customers are primarily large, branded consumer product
companies. Outsourcing allows Anchor's customers to optimize internal resources
and focus on their core competencies. Specifically, management believes that
customers prefer Anchor because of the following competitive strengths:
Quality Focus. Based on its knowledge of and experience in the industry,
the Company believes it is a leader in plastic injection molding and service
quality. The Company has received numerous quality service and preferred
supplier awards from its customers, including Colgate-Palmolive, Procter &
Gamble, 3M, Abbott and Compaq. Furthermore, the Company has manufactured over
one billion toothbrushes for Colgate-Palmolive and Procter & Gamble to date
without a single shipment return for manufacturing or quality defects. A major
reason for the Company's achievements is QIS initiative instituted by
management since the acquisition of the Company in 1990.
Design Capabilities. Anchor has dedicated design professionals who work
with customers to meet changing market needs. For example, the Company worked
closely with Procter & Gamble to produce the Crest Complete[RegTM] line of
toothbrushes in 1992, which uses a newly developed, proprietary fusion
technology as an alternative to the conventional staple-set technology.
Broad Manufacturing Resources. With its flexible, high capacity production
facilities, Anchor is able to meet customer demands quickly and efficiently,
producing customized products with little lead time. Anchor provides its
customers with a broad range of manufacturing services, including injection
molding, bristling, decoration and packaging. Anchor's broad customer base and
high production volumes enable it to achieve economies of scale and to maintain
in inventory a wide selection of resins and other raw materials.
Capital Investment Programs. Since 1991, Anchor has spent approximately
$47.8 million on capital investment, in large part to accommodate new product
lines by building facilities dedicated to specific products or customers. Such
programs include an expanded facility in Morristown, Tennessee for POP display
production, a facility in Round Rock, Texas for the production of computer
components and the consolidation of cosmetics production facilities in
Matamoros, Mexico.
Superior Customer Service. Anchor strives to provide a high level of
customer service which management believes exceeds the service provided by
competing injection molders or its customers' in-house manufacturing
operations. The Company uses its manufacturing resources, such as computerized
ordering systems, just-in-time production and flexible manufacturing processes,
to provide its customers with a rapid turnaround time on orders and seeks to be
responsive to any changes submitted by its customers.
As a result of these competitive strengths, Anchor enjoys a large customer
base of national consumer product companies. Each of the Company's five largest
customers in 1997 (Colgate-Palmolive, Maybelline, Procter & Gamble, Abbott and
Compaq) have been customers of the Company for an average of approximately 25
years. The Company's emphasis on customer partnerships and its long standing
relationships with its largest customers serve to create barriers to entry in
its served markets.
3
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Raw Materials
The major raw materials used in the manufacturing of the Company's products
are various plastic resins, nylon and packaging materials. Most of the raw
materials used in the Company's products are available from multiple sources.
However, several raw materials used in the Company's products are currently
obtained from single sources. Certain of the Company's contracts provide for raw
material price increases to be absorbed by these customers and the Company seeks
to pass through any increases in the cost of raw materials to its other
customers.
Customer Concentration
A significant portion of the Company's net sales to date has been derived
from a limited number of customers. The Company's three largest customers in
1997, Colgate-Palmolive, Maybelline and Procter & Gamble, each accounted for
greater than 10% of the Company's net sales in 1997 and in the aggregate
accounted for approximately 51.4% of the Company's 1997 net sales. The Company
expects that it will continue to be dependent upon a limited number of customers
for a significant portion of its revenues in future periods. As a result of this
customer concentration, the Company's business, operating results and financial
condition could be materially adversely affected by the failure of anticipated
orders to materialize, by deferrals or cancellations of orders or by its largest
customers increasing their in-house production of the Company's products or
selecting other manufacturers from whom to buy products. In addition, there can
be no assurance that revenues from customers that have accounted for significant
revenues in past periods, individually or as a group, will continue or, if
continued, will reach or exceed historic levels in any future period. The
Company's operating results may in the future be subject to substantial
period-to-period fluctuations as a consequence of such customer concentration.
Status of Key Customer Contracts
The Company has supply contracts with three of its largest customers,
Colgate-Palmolive, Procter & Gamble and Abbott. The Company's current contract
with Colgate-Palmolive, which extends through June 30, 1999, provides that
Colgate-Palmolive, one of the Company's largest customers, will self-manufacture
substantially all of one of the three product lines historically provided to it
by the Company. The Company anticipates the full effect of such
self-manufacturing will result in a decline of approximately $11 million in
annual net sales by the Company to Colgate-Palmolive by 1998. No assurance can
be given that the Company's contract with Colgate-Palmolive will be renewed upon
expiration or that any renewal of such contract will be on terms as favorable to
the Company as the current contract or that Colgate-Palmolive will not begin the
self-manufacturing of other of the Company's product lines manufactured for
Colgate-Palmolive. The loss of Colgate-Palmolive as a customer would have a
material and adverse effect on the results of operations of the Company.
The Company's current contract with Procter & Gamble, another of the
Company's largest customers, extends through December 31, 1999. Procter & Gamble
has advised the Company that it intends to self-manufacture products
historically provided to it by the Company upon expiration of such contract. The
Company nonetheless intends to seek a renewal of such contract upon expiration
and anticipates that even if a contract renewal is successfully negotiated, any
such renewal will be on terms significantly less favorable to the Company than
the current contract. No assurance can be given that the Company's contract with
Procter & Gamble will be renewed upon expiration. If the contract is not
renewed, it would have a material and adverse effect on the results of
operations of the Company. For fiscal 1997, Procter & Gamble accounted for $18.0
million, or 11.2%, of the Company's net sales and $3.9 million, or 15.5%, of the
Company's gross profit.
The Company's contract with Abbott for the manufacture of medical devices
at the Round Rock, Texas facility extends through the year 2000, with Abbott
having the option to renew such contract for additional one year terms. No
assurance can be given that the Company's contract with Abbott will be renewed
upon expiration or that any renewal of such contract will be on terms as
favorable to the Company as the current contract. The loss of Abbott as a
customer would have a material and adverse effect on the results of operations
of the Company.
Environmental Matters
The Company and its operations are subject to comprehensive and frequently
changing federal, state and local environmental and occupational health and
safety laws and regulations, including laws
4
<PAGE>
and regulations governing emissions of air pollutants, discharges of waste and
storm water, and the disposal of hazardous wastes. The Company is also subject
to liability for the investigation and remediation of environmental
contamination (including contamination caused by other parties) at properties
that it owns or operates and at other properties where the Company or its
predecessors have arranged for the disposal of hazardous substances. As a
result, the Company is involved from time to time in administrative and
judicial proceedings and inquiries relating to environmental matters. The
Company believes there are currently no pending investigations at the Company's
plants and sites relating to environmental matters, other than certain matters
for which it is being defended and indemnified by Philips Electronics North
American Corporation, its former parent. However, there can be no assurance
that the Company will not be involved in any other such proceeding in the
future and that the aggregate amount of future clean up costs and other
environmental liabilities will not be material.
Federal, state and local governments could enact laws or regulations
concerning environmental matters that increase the cost of producing, or
otherwise adversely affect the demand for, plastic products. The Company cannot
predict the environmental liabilities that may result from legislation or
regulations adopted in the future nor can the Company predict how existing or
future laws or regulations will be administered or interpreted or what
environmental conditions may be found to exist. Enactment of more stringent
laws or regulations or more strict interpretation of existing laws and
regulations could require additional expenditures by the Company, some of which
could be material. The Company does not have insurance coverage for
environmental liabilities other than in Mexico and does not anticipate
obtaining such coverage in the future.
5
<PAGE>
Item 2. Properties
Properties
The Company, headquartered in Knoxville, Tennessee, operates a total of
nine manufacturing facilities in five locations and two mold technology centers
throughout the United States and Mexico as detailed in the following table:
<TABLE>
<CAPTION>
Leased/
Location Use Square Feet Owned
- -------------------------- ---------------- ------------- --------
<S> <C> <C> <C>
Elk Grove, IL Mold making 10,000 Leased
Harlingen, TX Warehouse 45,000 Leased
Knoxville, TN Administrative 12,000 Leased
Matamoros, Mexico Manufacturing 118,000 Owned
Morristown, TN Plant "B" Manufacturing 180,000 Owned
Morristown, TN Plant "C" Manufacturing 120,000 Owned
Morristown, TN Warehouse 90,000 Leased
Round Rock, TX Manufacturing 71,300 Owned
Sanford, NC Mold making 12,500 Owned
Seagrove, NC Manufacturing 6,000 Owned
Seagrove, NC Manufacturing 43,600 Owned
Seagrove, NC Manufacturing 40,000 Owned
Seagrove, NC Manufacturing 43,600 Owned
Seagrove, NC Warehouse 31,700 Leased
Waterbury, CT Manufacturing 120,000 Owned
</TABLE>
None of the above leases expires prior to April 30, 1998.
Item 3. Legal Proceedings
The Company is party to lawsuits and administrative proceedings that arise
in the ordinary course of its business. Although the final results in all such
lawsuits and proceedings cannot be predicted, the Company currently believes
that their ultimate resolution, after taking into account the liabilities
accrued with respect to such matters, will not have a material adverse effect on
the Company's financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the last
quarter of the fiscal year ended December 31, 1997.
6
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
There is no established public trading market for the Company's common
equity.
Holders
As of March 1, 1998, the Company had approximately 1,551,218 shares of
Common Stock outstanding held by 27 stockholders of record.
Dividends
On April 2, 1997, Anchor Advanced Products, Inc. paid a dividend of $24.4
million to Holdings, and Holdings paid a dividend of $29.5 million to its
stockholders.
The Company's ability to pay future dividends is limited by the Indenture
with respect to the 11-3/4% Series B Senior Notes, the Company's $15 million
Credit Facility and the terms of other indebtedness of the Company.
Recent Sales of Unregistered Securities
During the period covered by this report, the Company issued the following
securities, none of which has been registered under the Securities Act of 1933,
as amended, pursuant to Rule 701 of the Securities Act:
(i) On April 2, 1997, the Company issued 153,300 shares of Common Stock
upon the exercise of stock options at the exercise price of $9.50 per share.
(ii) On April 2, 1997, the Company issued 380,000 shares of Common Stock
upon the exercise of warrants at the exercise price of $9.50 per share.
7
<PAGE>
Item 6. Selected Financial Data
The following table sets forth selected historical financial data of the
Company for the five years ended December 31, 1997. The selected financial data
in this table is derived from the financial statements of the Company. The data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
Notes thereto included elsewhere in this Report.
Anchor Advanced Products, Inc.
Selected Financial Data
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ------------- ------------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales .................................. $118,047 $118,267 $ 149,366 $ 156,858 $161,161
Gross Profit ............................... 20,778 18,208 24,338 27,637 25,187
Selling, general and administrative ........ 9,096 7,634 9,409 11,358 10,979
Amortization ............................... 577 1,712 1,662 1,530 1,698
-------- -------- --------- --------- --------
Operating Income ........................... 11,105 8,862 13,267 14,749 12,510
Other (Income)/Expense ..................... (110) (739) 974 408 (287)
Net Interest (Income) expense .............. 5,385 5,984 8,616 8,124 11,165
Income Taxes ............................... 2,241 1,507 1,239 2,591 794
Extraordinary Item (1) ..................... 0 334 0 0 1,210
-------- -------- --------- --------- --------
Cumulative effect of change in accounting
for income taxes .......................... (635)
Net Income (Loss) .......................... $ 4,224 $ 1,776 $ 2,438 $ 3,626 $ (372)
======== ======== ========= ========= ========
Basic Earnings per Share:
Earnings per common and equivalent
share:
Income before extraordinary item and
cumulative effect ......................... $ 3.59 $ 2.07 $ 2.39 $ 3.56 $ 0.59
Extraordinary Item ......................... $ (0.33) $ (0.85)
Cumulative effect of change in accounting
for income taxes .......................... $ 0.63
Net Income (Loss) .......................... $ 4.22 $ 1.74 $ 2.39 $ 3.56 $ (0.26)
======== ======== ========= ========= ========
Diluted Earnings per Share:
Earnings per common and equivalent
share:
Income before extraordinary item and
cumulative effect ......................... $ 3.52 $ 1.95 $ 1.87 $ 2.65 $ 0.59
Extraordinary Item ......................... $ (0.31) $ (0.85)
Cumulative effect of change in accounting
for income taxes .......................... $ 0.63
Net Income (Loss) .......................... $ 4.15 $ 1.64 $ 1.87 $ 2.65 $ (0.26)
======== ======== ========= ========= ========
Cash dividends per common share ............ $ -- $ -- $ -- $ -- $ 19.02
Balance Sheet Data:
Total assets ............................... $ 79,277 $115,065 $ 116,529 $ 115,263 $120,839
Long-term liabilities ...................... 48,328 81,376 79,314 75,851 108,286
</TABLE>
8
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<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
---------- ------------ ---------- ---------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Other Data:
EBITDA (2) .............................. $ 17,881 $ 18,439 $ 21,742 $ 23,627 $ 22,370
Depreciation & Amortization (3) ......... 6,666 8,838 9,449 9,286 9,573
Capital Expenditures .................... 6,729 5,724 6,932 8,028 8,413
Cash flow from operations ............... 8,684 6,875 8,822 13,076 16,037
Cash flow from investing activities ..... (6,711) (33,039) (6,453) (8,014) (12,999)
Cash flow from financing activities ..... (2,702) 26,844 (2,265) (4,268) 2,298
Ratio of earnings to fixed charges (4)... 2.08x 1.60x 1.43x 1.77x 1.15x
</TABLE>
- ----------------
(1) Represents loss in 1994 and 1997 on extinguishment of debt net of tax.
(2) EBITDA represents net income plus depreciation and amortization, income
taxes, net interest expense and extraordinary items. While EBITDA should
not be construed as a substitute for income from operations, net income,
or cash flows from operating activities in analyzing the Company's
operating performance, financial position or cash flows, the Company has
included EBITDA because it is commonly used by certain investors and
analysts to analyze and compare companies on the basis of operating
performance, leverage and liquidity and to determine a company's ability
to service debt. However, this measure may not be comparable to similarly
titled measures reported by other companies.
(3) Reflects depreciation and amortization less the amortization of certain
loan fees, which are included in net interest expense. See Note 4 to the
notes to the historical consolidated financial statements of the Company
included elsewhere in this Report.
(4) For purposes of calculating these ratios, earnings represent income before
income taxes, extraordinary item and cumulative effect of change in
accounting for income taxes plus fixed charges. Fixed charges consist of
interest, amortization of debt issuance costs, and the portion of rental
and lease expense that management believes is representative of the
interest component of rental and lease expense.
9
<PAGE>
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
Overview
Anchor is a leading designer, manufacturer and packager of precision
molded plastic products for a wide range of dental, cosmetic, medical, computer
and consumer applications. Based upon its knowledge of and experience in the
industry, the Company believes that it is one of the world's largest
manufacturers of toothbrushes and a leading U.S. manufacturer of cosmetics
packaging. For the year ended December 31, 1997, the Company had net sales of
$161.2 million, EBITDA of $22.4 million and net loss of $.4 million, making it
one of the largest independent plastic injection molders in North America.
Anchor's principal materials are plastic resins, nylon and packaging
materials. During periods of limited supply, Anchor has typically been able to
procure sufficient quantities of plastic resins, nylon and packaging materials
to satisfy all of its customers' needs. Anchor's gross profit is substantially
unaffected by fluctuations in plastic resin and nylon prices because the
Company historically has been successful in passing through increases in those
prices to its customers by means of corresponding changes in product pricing.
Anchor began operations in 1941 as a manufacturer of cosmetic brushes for
Maybelline and, in 1958, began producing Pepsodent toothbrushes for Lever
Brothers Company, Inc. The Company was acquired in 1990 by affiliates of the
Thomas H. Lee Company and management. Since the 1990 acquisition, the Company
has pursued a growth strategy designed to increase sales while diversifying its
revenue base. In pursuit of this strategy, Anchor acquired Mid-State in 1994,
which served to expand the Company's business into the medical device and
computer component markets.
In 1993 and 1994, Anchor invested in expanded operations in Matamoros,
Mexico, where the Company ultimately relocated much of its cosmetics packaging
operations. As the Matamoros facility came on line in 1995 and 1996, Anchor
began experiencing efficiency gains in its cosmetics segment while freeing-up
domestic capacity for other uses. This increased domestic capacity allowed the
Company to convert some of its U.S. production to its newest major product
line, POP displays, which contributed significantly to increased net sales in
1996. Also in 1996, Anchor invested in a new Round Rock, Texas, facility for
the production of computer components for Compaq.
Certain of the Company's operating data for fiscal years 1995, 1996 and
1997 are set forth below as percentages of net sales:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales ................................... 100.0% 100.0% 100.0%
Gross Profit ................................ 16.3% 17.6% 15.6%
Selling, general and administrative ......... 6.3% 7.2% 6.8%
Amortization ................................ 1.1% 1.0% 1.0%
Operating Income ............................ 8.9% 9.4% 7.8%
Other (Income)/Expense ...................... 0.7% 0.3% -0.1%
Net interest Expense ........................ 5.8% 5.2% 6.8%
Income Taxes ................................ 0.8% 1.7% 0.4%
Extraordinary Item .......................... 0.0% 0.0% 0.7%
Net Income .................................. 1.6% 2.2% -0.2%
</TABLE>
Fiscal 1997 versus Fiscal 1996
Net Sales. Net sales increased by $4.3 million, or 2.7%, to $161.2 million
for fiscal year 97 from $156.9 million for fiscal year 96, due primarily to the
continued strong volume with the L'Oreal/Maybelline group in the Cosmetics
Division, and to increased sales of medical devices. This increase was
partially offset by the anticipated drop in Colgate toothbrush sales due to in-
house manufacturing.
10
<PAGE>
Gross Profit. Gross Profit decreased by $2.4 million, or 8.7%, to $25.2
million for fiscal year 97 from $27.6 million for fiscal year 96, resulting
from the decline in the Colgate dental business, lower than expected volumes in
the Round Rock facility, the addition of lower gross margin Compaq sales, and a
$.6 million charge taken in the second quarter for renegotiation of a Mexican
labor contract.
Selling, General and Administrative. SG&A expenses decreased $.4 million,
or 3.5%, to $11.0 million for fiscal year 97 from $11.4 million for fiscal year
96, reflecting effective cost control measures.
Amortization. Goodwill and capitalized fees amortization increased by $.2
million, or 13.3%, to $1.7 million for fiscal year 97 from $1.5 million for
fiscal year 96, as a result of transaction fees incurred during the issuance of
its Senior Notes during 1997.
Operating Income. Operating income decreased by $2.2, or 15.0%, to $12.5
million for fiscal year 97 from $14.7 million for fiscal year 96 for the
reasons listed above.
Other Expense. Other expense decreased by $.7 million, or 175.0%, to $.3
million income for fiscal year 97 from $.4 million expense for fiscal year 96
reflecting income from a one time legal settlement during the fourth quarter of
1997.
Net Interest Expense. Net interest expense increased by $3.1 million, or
38.3%, to $11.2 million for fiscal year 97 from $8.1 million for fiscal year 96
due to the retirement of bank debt of $51.5 million and $21.0 million of
subordinated notes and the issuance of $100 million Senior Notes in the second
quarter. The weighted average interest increased from 10.2% to 11.75%.
Income Taxes. Income Taxes decreased by $1.8 million, or 69.2%, to $.8
million for fiscal year 97 from $2.6 million for fiscal year 96 as a result of
decreased operating income. Tax expense was 49% of income before tax primarily
because of the impact of the high effective rate for the Mexican subsidiary.
Extraordinary Item. Extraordinary Item of $1.2 million for fiscal year 97
resulted from the writeoff of $.4 million in bank fees, and a $.8 million
prepayment penalty associated with the retirement of subordinated debt, all of
which are net of tax.
Net Income. Net income decreased $4.0 million, or 111.1%, to $.4 million
loss for fiscal year 97 from $3.6 million income for fiscal year 96 as a result
of the above factors.
Fiscal 1996 versus Fiscal 1995
Net Sales. Net sales increased by $7.5 million, or 5.0%, to $156.9 million
for fiscal year 1996 from $149.4 million for fiscal year 1995, principally as a
result of inclusion of the first full year of POP display sales and an increase
in computer component sales. This increase was partially offset by a decrease
in unit sales in the dental market.
Gross Profit. Gross profit increased by $3.3 million, or 13.6%, to $27.6
million for fiscal year 1996 from $24.3 million for fiscal year 1995,
principally as a result of increased net sales in the POP display and computer
component markets as well as higher gross margins. This increase was partially
offset by a decline in gross profit in the dental market. Gross margin
increased to 17.6% for fiscal year 1996 from 16.3% in fiscal year 1995 due to
the realization of a full year of efficiency gains in the Matamoros, Mexico
manufacturing facility partially offset by inefficiencies related to the
start-up of the manufacturing facility in Round Rock, Texas. The product line
and efficiency gains from the relocation are not expected to have the
incremental contributory effect on future operating results that they have had
in the past.
Selling, General and Administrative. SG&A expenses increased by $2.0
million, or 20.7%, to $11.4 million for fiscal year 1996 from $9.4 million for
fiscal year 1995, principally as a result of professional expenses incurred in
connection with the formation of a possible joint venture in China and costs
associated with a management information systems upgrade.
Amortization. Amortization expense decreased by $0.2 million, or 7.9%, to
$1.5 million for fiscal year 1996 from $1.7 million for fiscal year 1995,
principally as a result of the expiration of certain amortized fees and
expenses incurred in the 1990 acquisition of the Company.
11
<PAGE>
Operating Income. Operating income increased by $1.4 million, or 11.2%, to
$14.7 million for fiscal year 1996 from $13.3 million for fiscal year 1995.
Other Expense. Other expense decreased by $0.6 million, or 58.1%, to $0.4
million for fiscal year 1996 from $1.0 million for fiscal year 1995,
principally as a result of relocation expenses in 1995 which were not repeated
in 1996.
Net Interest Expense. Net interest expense decreased by $0.5 million, or
5.7%, to $8.1 million for fiscal year 1996 from $8.6 million for fiscal year
1995, principally as a result of a $5.0 million pay down on the Term Loan
Agreement and greater use of LIBOR rates under such agreement.
Income Taxes. Income tax expense increased by $1.4 million, or 109.1%, to
$2.6 million for fiscal year 1996 from $1.2 million for fiscal year 1995. Income
tax expense as a percentage of pre-tax income increased to 41.0% primarily as a
result of a high effective rate of the Mexican subsidiary.
Net Income. Net income increased by $1.2 million, or 48.7%, to $3.6
million for fiscal year 1996 from $2.4 million for fiscal year 1995 as a result
of the above factors.
Liquidity and Capital Resources
The Company's liquidity requirements consist primarily of working capital
needs and capital expenditures, required payments of principal and interest on
any borrowings under the NationsBank Credit Facility and required payments of
interest on the Senior Notes and principal at maturity. The NationsBank Credit
Facility provides for revolving loans to, and the issuance of letters of credit
on behalf of the Company in an aggregate amount not to exceed $15.0 million,
$13.8 of which was available under the revolving loans and $1.2 million of which
was reserved under the letters of credit at December 31, 1997.
Cash generated by operations in 1997 was used to fund $13.0 million
purchases of property, plant and equipment, and other long-term assets. The
Company's cash grew by $5.3 million to $6.9 million for fiscal year 97 from
$1.6 million for fiscal 96. The Company believes that cash flows from operating
activities and its ability to borrow under the NationsBank Credit Facility will
be adequate to meet debt service obligations, working capital needs and planned
capital expenditures for the next fiscal year.
On April 2, 1997 the Products issued $100.0 million Senior Notes due
2004. Cash from this financing activity allowed the Products to retire $51.5
million in borrowings under the Revolving Credit and Term Loan Agreement, to
redeem $21.0 million Subordinated Notes, and to pay $22.8 million of a $29.5
million dividend which was paid on the common stock of Holdings.
Inflation and Changing Prices
Anchor's sales and costs are subject to inflation and price fluctuations.
However, because changes in the cost of plastic resins and nylon, Anchor's
principal raw materials, are generally passed through to customers, such changes
historically have not, and in the future are not expected to have a material
effect on Anchor's gross profit.
Impact of New Accounting Standards
Effective December 31, 1997, the Company implemented Statement of Financial
Accounting Standards No. 129, Disclosure of Information about Capital Structure.
The Statement consolidates disclosures required by several existing
pronouncements regarding an entity's capital structure. The Company's
disclosures are already in compliance with such pronouncements and, accordingly,
SFAS No. 129 does not require any change to existing disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information. This Statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Statement is
effective for fiscal years beginning after December 31, 1997. In the initial
year of application, comparative information for earlier years is to be
restated. The Company is evaluating SFAS No. 131 to determine the impact, if
any, on its reporting and disclosure requirements.
12
<PAGE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income. The
Statement establishes standards for reporting comprehensive income and its
components in a full set of financial statements. The Statement is effective
for fiscal years beginning after December 15, 1997. The Company currently
reports one item in stockholders' equity that would be classified as other
comprehensive income.
During February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits. The Statement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. The Statement is
effective for fiscal years beginning after December 15, 1997. Restatement of
disclosures for earlier periods for comparative purposes is required. The
Company is evaluating SFAS No. 132 to determine the impact on its reporting and
disclosure requirements.
Recent Developments
The Company entered into a letter of intent as of February 12, 1998 with
an affiliate of George T. Votis whereby such affiliate of Mr. Votis will
acquire all of the issued and outstanding Common Stock of Holdings.
The Company commenced on March 3, 1998 a solicitation of the holders of
its 11-3/4% Series B Senior Notes due 2004 seeking such holders' consent to
certain amendments to, and the waiver of certain provisions of, the Indenture
with respect to such Notes in connection with the proposed transaction with Mr.
Votis.
13
<PAGE>
Item 8. Financial Statements and Supplementary Data
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
For the years ended December 31, 1995, 1996 and 1997
with
Report of Independent Accountants
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Anchor Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Anchor
Holdings, Inc. and Subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Anchor Holdings,
Inc. and Subsidiaries as of December 31, 1996 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
February 20, 1998
15
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands except for per share data)
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash ................................................................ $ 1,578 $ 6,914
Accounts receivable, less allowance for doubtful accounts,
allowances, and returns of $998 in 1996 and $900 in 1997........... 21,400 15,574
Inventories ......................................................... 20,411 23,292
Prepaid expenses and other assets ................................... 198 195
Refundable federal income taxes ..................................... 448 1,232
Deferred income taxes ............................................... 2,023 2,080
-------- --------
Total current assets .............................................. 46,058 49,287
Property, plant, and equipment, net .................................. 52,723 53,202
Goodwill, net ........................................................ 10,395 9,569
Other assets, net..................................................... 6,087 8,781
-------- --------
$115,263 $120,839
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term liabilities ......................... $ 6,000 $ 832
Current maturities of obligations under capital leases .............. 480 382
Accounts payable .................................................... 6,120 6,119
Other accrued expenses and current liabilities ...................... 5,995 8,059
-------- --------
Total current liabilities ......................................... 18,595 15,392
Long-term debt, less current maturities .............................. 44,702 100,000
Related party long-term debt ......................................... 21,000 --
Accrued pension liability ............................................ 4,957 6,019
Deferred income taxes ................................................ 2,906 1,542
Other long-term liabilities .......................................... 2,286 725
-------- --------
Total liabilities ................................................. 94,446 123,678
-------- --------
Commitments and contingencies (Notes 6, 7, 10, and 12)
Stockholders' equity (deficit):
Common stock--par value $.01 per share; authorized
2,000,000 shares; shares issued 1,018,160 and 1,551,218,
respectively ...................................................... 10 15
Additional paid-in capital .......................................... 10,240 --
Retained earnings (deficit) ......................................... 11,145 (2,323)
Additional pension liability, net of tax of $348
in 1996 and $319 in 1997........................................... (568) (521)
Treasury stock at cost .............................................. (10) (10)
-------- --------
Total stockholders' equity (deficit) .............................. 20,817 (2,839)
-------- --------
$115,263 $120,839
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands except for per share data)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales ................................................. $149,366 $156,858 $161,161
Cost of goods sold ........................................ 125,028 129,221 135,974
-------- -------- --------
Gross profit .............................................. 24,338 27,637 25,187
Amortization expense ...................................... 1,662 1,530 1,698
Selling, general and administrative expense ............... 9,409 11,358 10,979
-------- -------- --------
Operating income .......................................... 13,267 14,749 12,510
-------- -------- --------
Other income (expense):
Gain (loss) on disposal of fixed assets .................. 23 (123) (62)
Interest expense, net .................................... (5,463) (4,931) (10,098)
Interest expense, related party .......................... (3,153) (3,193) (1,067)
Other, net ............................................... (997) (285) 349
-------- -------- --------
Total other expense, net ............................... (9,590) (8,532) (10,878)
-------- -------- --------
Income before income taxes and extraordinary item ......... 3,677 6,217 1,632
Provision for income taxes ................................ 1,239 2,591 794
-------- -------- --------
Income before extraordinary item .......................... 2,438 3,626 838
Extraordinary item--loss on early extinguishment of
debt, net of tax benefit of $742.......................... -- -- (1,210)
-------- -------- --------
Net income (loss) ...................................... $ 2,438 $ 3,626 $ (372)
======== ======== ========
Earnings per share:
Basic
Income before extraordinary item ....................... $ 2.39 $ 3.56 $ 0.59
Extraordinary item ..................................... 0.00 0.00 (0.85)
-------- -------- --------
Income (loss) .......................................... $ 2.39 $ 3.56 $ (0.26)
======== ======== ========
Weighted average common shares outstanding ............. 1,018 1,018 1,418
======== ======== ========
Diluted
Income (loss) before extraordinary item ................ $ 1.87 $ 2.65 $ 0.59
Extraordinary item ..................................... 0.00 0.00 (0.85)
-------- -------- --------
Income (loss) .......................................... $ 1.87 $ 2.65 $ (0.26)
======== ======== ========
Weighted average common shares and assumed
conversions outstanding ............................... 1,306 1,370 1,418
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
For the years ended December 31, 1995, 1996 and 1997
(in thousands)
<TABLE>
<CAPTION>
Common Stock
-----------------
Additional Retained Additional
Shares Paid-in Earnings Treasury Pension
Issued Amount Capital (Deficit) Stock Liability Total
-------- -------- ------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994 1,018 $10 $ 10,240 $ 5,081 $ -- $ (400) $ 14,931
Net income ........................ -- -- -- 2,438 -- -- 2,438
Additional pension liability ...... -- -- -- -- -- (96) (96)
Treasury stock acquired,
242.13 shares .................... -- -- -- -- (10) -- (10)
----- --- --------- --------- ----- ------ ---------
Balances, December 31, 1995 1,018 10 10,240 7,519 (10) (496) 17,263
Net income ........................ -- -- -- 3,626 -- -- 3,626
Additional pension liability ...... -- -- -- -- -- (72) (72)
----- --- --------- --------- ----- ------ ---------
Balances, December 31, 1996 1,018 10 10,240 11,145 (10) (568) 20,817
Net loss .......................... -- -- -- (372) -- -- (372)
Exercise of warrants and
options .......................... 533 5 5,061 -- -- -- 5,066
Dividend paid ..................... -- -- (15,301) (14,203) -- -- (29,504)
Tax benefit of exercise of
warrants and options ............. -- -- -- 1,107 -- -- 1,107
Reduction of pension liability .... -- -- -- -- -- 47 47
----- --- --------- --------- ----- ------ ---------
Balances, December 31, 1997 1,551 $15 $ -- $ (2,323) $ (10) $ (521) $ (2,839)
===== === ========= ========= ===== ====== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................ $ 2,438 $ 3,626 $ (372)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Deferred income taxes ................................. 60 296 (1,421)
Depreciation and amortization ......................... 9,768 9,605 10,592
Provision for doubtful accounts ....................... 356 20 (98)
Provision for inventory obsolescence .................. 450 (266) 287
(Gain) loss from disposal of fixed assets ............. (23) 123 62
Changes in assets and liabilities:
Accounts receivable ................................. (1,361) 337 5,924
Inventories ......................................... (3,909) 794 (3,169)
Prepaid and other assets ............................ (1,634) (1,798) 3
Refundable federal income taxes ..................... 154 (32) (784)
Accounts payable, accrued expense and
other liabilities .................................. 2,523 371 5,013
--------- --------- ---------
Net cash provided by operating activities......... 8,822 13,076 16,037
--------- --------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment ................ (6,932) (8,028) (8,413)
Proceeds from sale of fixed assets ....................... 479 14 --
Purchase of other long-term assets ....................... -- -- (434)
--------- --------- ---------
Net cash used in investing activities ............ (6,453) (8,014) (8,847)
--------- --------- ---------
Cash flows from financing activities:
Borrowings on long-term debt ............................. 9,886 8,647 101,529
Principal payments on long-term debt ..................... (12,569) (12,435) (73,231)
Principal payments on capital lease obligations .......... (588) (480) (623)
Exercise of options and warrants ......................... -- -- 5,066
Payments of dividends .................................... -- -- (29,504)
Proceeds (payments) from other long-term liabilities ..... 1,016 -- (939)
Shares acquired in treasury .............................. (10) -- --
Payment of bond issue costs .............................. -- -- (4,152)
--------- --------- ---------
Net cash provided by (used in) financing
activities ....................................... (2,265) (4,268) (1,854)
--------- --------- ---------
Net increase in cash ...................................... 104 794 5,336
Cash at beginning of period ............................... 680 784 1,578
--------- --------- ---------
Cash at end of period ..................................... $ 784 $ 1,578 $ 6,914
========= ========= =========
Supplemental cash flow information:
Income taxes paid ........................................ $ 1,243 $ 1,945 $ 661
Interest paid ............................................ $ 8,172 $ 7,799 $ 9,701
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands except for per share data)
Anchor Holdings, Inc. (the Company) was incorporated March 9, 1990, under
the laws of the State of Delaware. The Company's subsidiaries manufacture and
sell: brushes used in medical and dental applications; plastic and metal
packaging for the cosmetics industry; and molded plastics products, including
assembly of plastic parts and construction of molds used in the injection
molding business. Substantially all sales are made on credit without
collateral. The Company manufactures dental products in the Morristown,
Tennessee facility and cosmetics products in three facilities: Matamoros,
Mexico; Morristown, Tennessee; and Waterbury, Connecticut. The majority of the
cosmetics goods are produced in a Matamoros facility. Molded plastics products
are produced in four separate plants in Seagrove, North Carolina as well as in
a facility in Round Rock, Texas. In addition to the manufacturing facilities,
the Company operates mold technology centers in Elk Grove, Illinois and
Sanford, North Carolina.
1. Summary of Significant Accounting Policies:
The significant accounting policies followed by the Company and its
subsidiaries in the presentation of their consolidated financial statements are
summarized below:
Principles of Consolidation--The financial statements include the accounts
of Anchor Holdings, Inc. the parent holding company, its wholly owned
subsidiaries Anchor Advanced Products Foreign Sales Corporation and Anchor
Advanced Products, Inc., and its Mexican subsidiary, Cepillos de Matamoros,
S.A. de C.V. All significant intercompany balances and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents--The Company considers investments with a
maturity 90 days or less when purchased to be cash equivalents.
Inventories--Inventories are stated at the lower of cost or market. Cost
is determined using standard costs which approximate the first-in, first-out
method. Valuation allowances are provided for adjustments related to carrying
costs in excess of estimated market value and potential obsolescence.
Property, Plant, Equipment, and Depreciation--Property, plant, and
equipment are recorded at cost. Assets under capital leases are stated at the
present value of minimum lease payments at the inception of the lease.
Depreciation and amortization are provided on the straight-line basis over the
estimated useful lives of the various properties as follows:
Building and improvements ......... 30 years
Machinery and equipment ........... 10 years
Furniture and fixtures ............ 10 years
Other ............................. 4-6 years
Intangible Assets and Amortization--Intangible assets represent goodwill,
organizational expenses, loan costs, and costs allocated to noncompete
agreements arising principally from the acquisition of the Company in 1990, and
the acquisition of the assets of Mid-State Plastics, Inc. in 1994. These assets
are carried at cost and amortized on a straight-line basis over their estimated
useful lives ranging between two and fifteen years.
Pension Plans--Pension costs for defined benefit plans are determined in
accordance with Statement of Financial Accounting Standard No. 87, and include
current costs plus the amortization of transition assets over a period of 21
years. The Company funds pension costs in accordance with the plans and legal
requirements. The Company also has a defined contribution savings plan for all
domestic employees for which it matches one-half of employee contributions up
to six percent of employee compensation.
Income Taxes--Deferred tax liabilities and assets are determined based on
the difference between the financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
20
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
(in thousands except for per share data)
1. Summary of Significant Accounting Policies: (continued)
Earnings (Loss) Per Share--Effective December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128, Earnings Per
Share. The standard replaces the presentation of primary EPS with a
presentation of basic EPS and replaces the presentation of fully diluted EPS
with diluted EPS. Basic income per share is computed by dividing net income by
the weighted average number of shares of common stock outstanding. Diluted
income per share is computed by dividing net income by the weighted average
number of shares of common stock and, dilutive securities outstanding during
the respective periods. Dilutive securities represented by options and warrants
outstanding have been included in the computation. The Company uses the
treasury stock method for calculating the dilutive effect of options and
warrants.
Reclassifications--Reclassifications have been made to certain previously
reported amounts in order to conform with the current year's presentations.
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 dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Significant estimates of the Company include the
allowance for doubtful accounts, inventory obsolescence reserves and certain
self-insured retained risks. Actual results could differ from these estimates.
Impairment of Long-Lived Assets--The Company follows Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, which i)
requires that long-lived assets to be held and used be reviewed for impairment
whenever events or circumstances indicate that the carrying value of an asset
may not be recoverable, ii) requires that long-lived assets to be disposed of
be reported at the lower of the carrying amount or the fair value less costs to
sell, and iii) provides guidelines and procedures for measuring impairment
losses that are different from previously existing guidelines and procedures.
Recent Accounting Pronouncements--Effective December 31, 1997, the Company
implemented Statement of Financial Accounting Standards No. 129, Disclosure of
Information about Capital Structure. The Statement consolidates disclosures
required by several existing pronouncements regarding an entity's capital
structure. The Company's disclosures are already in compliance with such
pronouncements and, accordingly, SFAS No. 129 does not require any change to
existing disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information. This Statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Statement is
effective for fiscal years beginning after December 31, 1997. In the initial
year of application, comparative information for earlier years is to be
restated. The Company is evaluating SFAS No. 131 to determine the impact, if
any, on its reporting and disclosure requirements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income. The
Statement establishes standards for reporting comprehensive income and its
components in a full set of financial statements. The Statement is effective
for fiscal years beginning after December 15, 1997. The Company currently
reports one item in stockholders' equity that would be classified as other
comprehensive income.
During February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 132, Employers' Disclosures
about Pensions and Other Postretirement
21
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
(in thousands except for per share data)
1. Summary of Significant Accounting Policies: (continued)
Benefits. The Statement revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. The Statement is effective for fiscal years beginning after
December 15, 1997. Restatement of disclosures for earlier periods for
comparative purposes is required. The Company is evaluating SFAS No. 132 to
determine the impact on its reporting and disclosure requirements.
2. Inventories:
Inventories at December 31, 1996 and 1997, consists of:
1996 1997
----------- ----------
Raw materials ...................... $ 9,508 $ 12,026
Work in process .................... 6,254 6,306
Finished goods ..................... 5,954 6,553
-------- --------
21,716 24,885
Less valuation allowances .......... (1,305) (1,593)
-------- --------
$ 20,411 $ 23,292
======== ========
3. Property, Plant, and Equipment:
Property, plant, and equipment at December 31, 1996 and 1997, consists of:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Land .................................................... $ 1,254 $ 1,254
Buildings and improvements .............................. 17,019 17,906
Machinery and equipment ................................. 70,383 74,406
Furniture and fixtures .................................. 3,331 3,997
Leasehold improvements .................................. 938 132
Vehicles ................................................ 140 119
--------- ---------
93,066 97,814
Less accumulated depreciation and amortization .......... (40,737) (48,343)
--------- ---------
52,329 49,471
Construction in progress ................................ 394 3,731
--------- ---------
$ 52,723 $ 53,202
========= =========
</TABLE>
Depreciation and amortization of property, plant and equipment was $7,787,
$7,756 and $7,875 for the years ended December 31, 1995, 1996 and 1997,
respectively.
22
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
(in thousands except for per share data)
4. Intangible and Other Assets:
Intangible and other assets at December 31, 1996 and 1997, consist of:
<TABLE>
<CAPTION>
Estimated
Useful Lives 1996 1997
-------------- ----------- -----------
<S> <C> <C> <C>
Intangible assets:
Grant fees ............................ 3 years $ 87 $ 87
Organizational expenses ............... 5-10 years 1,539 1,539
Loan costs ............................ 5 years 1,596 1,596
Noncompete agreement .................. 3-5 years 1,250 250
Supply contract ....................... 65 months 1,000 1,000
Acquisition costs ..................... 5 years 1,043 1,043
Goodwill .............................. 15 years 12,392 12,392
Intangible pension asset .............. 37 years 2,004 2,004
Bond issue costs ...................... 7 years -- 4,152
-------- --------
20,911 24,063
Less accumulated amortization ......... (6,551) (8,383)
-------- --------
14,360 15,680
Other assets:
Cash value of life insurance .......... 2,105 2,670
Other assets........................... 17 --
-------- --------
$ 16,482 $ 18,350
======== ========
</TABLE>
Amortization expense related to intangibles totaled $1,662, $1,530 and
$2,398 for the years ended December 31, 1995, 1996 and 1997, respectively. The
1997 amortization expense includes a write-off of $700 associated with loan
costs which is included in the extraordinary loss and also includes a write-off
of $49 associated with a noncompete agreement. Amortization of loan fees that
were charged to interest expense totaled $319, $319 and $319 for the years
ended December 31, 1995, 1996 and 1997, respectively.
The intangible pension asset represents prior service cost related to the
supplemental executive retirement plan and relates to the unrecognized net
obligation at the date of initial application as described in Note 7.
5. Long-Term Debt:
On April 2, 1997, Anchor Advanced Products, Inc. issued $100.0 million of
11-3/4% Senior Notes due 2004 (the "Senior Notes"). The Company has guaranteed
the Senior Notes fully and unconditionally. The net proceeds from the sale of
the Senior Notes was $96.6 million (after deducting discounts, commissions, fees
and expenses thereof) and were used: (i) to repay in full $51.5 million in
borrowings under the Revolving Credit and Term Loan Agreement, including all
accrued interest and fees payable upon such prepayment, (ii) to pay $22.3
million to redeem $9.0 million aggregate principal amount of Senior Subordinated
Notes and $12.0 million aggregate principal amount of Junior Subordinated Notes,
each due April 30, 2000, and (iii) to pay $22.8 million of a $29.5 million
dividend on the Company's common stock. All of the outstanding 380,000 warrants
and 153,300 options were exercised prior to the payment of the dividend. The
Company also entered into a credit facility which provided for revolving loans
not to exceed $15.0 million. The proceeds from the exercise of the warrants and
options and an additional borrowing of $1.5 million under the credit facility
were used to supplement the total dividend payment. The Company had no
outstanding debt under the credit facility as of December 31, 1997.
23
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
(in thousands except for per share data)
5. Long-Term Debt: (continued)
Long-term debt at December 31, 1996 and 1997, consists of:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Borrowings under revolving credit agreement;
floating rates (a) ....................................... $15,952 $ --
Term note; floating rates (b) ............................. 34,750 --
Senior subordinated notes, due April 30, 2000 (c) ......... 9,000 --
Junior subordinated notes due April 30, 2000 (c) .......... 12,000 --
Senior notes, due April 1, 2004(d) ........................ -- 100,000
------- --------
71,702 100,000
Less current maturities ................................... 6,000 --
------- --------
$65,702 $100,000
======= ========
</TABLE>
a. This revolving credit agreement provided a number of options for
variable rate borrowings subject to potential limitations based on percentages
of inventories, receivables and outstanding letters of credit. The agreement
was paid in full during 1997.
b. This term note was paid in full during 1997.
c. This senior and junior subordinated debt was payable to certain
stockholders and was paid in full during 1997.
d. This debt is payable to bond holders, subsequent to a public debt
offering in 1997. Interest is paid semiannually on April 1 and October 1 and
has a fixed rate of 11.75%. The debt matures on April 1, 2004, at which time
the full principal amount is due.
The bonds contain restrictions on, among other things, change of
controlling interest or sale of the Company, payment of cash dividends,
redemption of capital stock, creation of liens on assets, acquisition or sale
of subsidiaries, issuance of additional debt, purchases of investments,
consolidating or selling substantially all assets, transaction with related
parties and so-called "junior" payments. The Company was in compliance with
these covenants at December 31, 1997. The bonds are collateralized by all of
the Company's assets as well as the stock of the Company and its subsidiaries.
6. Leases:
The Company leases a warehouse, land, and certain equipment under capital
leases that expire on various dates through December 2000. The net book value
of buildings, land, and equipment recorded under capital leases at December 31,
1996 and 1997, was $1,594 and $1,240, respectively. Amortization of assets held
under capital leases is included with depreciation expense.
The Company also has a noncancelable operating lease for two facilities
which requires the Company to pay all executory costs such as maintenance,
taxes, and insurance.
24
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
(in thousands except for per share data)
6. Leases: (continued)
Future minimum lease payments under noncancelable operating leases with
initial or remaining lease terms in excess of one year and the present value of
future minimum capital lease payments as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------- ----------
<S> <C> <C>
Year ending December 31:
1998 ............................................................... $438 $279
1999 ............................................................... 47 199
2000 ............................................................... -- 115
2001 ............................................................... -- 57
Thereafter ......................................................... -- --
---- ----
Total minimum lease payments ....................................... 485 $650
====
Less amounts representing interest (at rates ranging
from 10% to 11.7%) ................................................. 62
----
Present value of net minimum capital lease payments ................ 423
Less current maturities of obligations under capital leases ......... 382
----
Obligations under capital leases excluding
current installments ............................................. $ 41
====
</TABLE>
Total rent expense for operating leases for the years ended December 31,
1995, 1996 and 1997, was $1,201, $1,779 and $943, respectively.
7. Employee Benefit Plans:
The Company sponsors pension plans covering substantially all domestic
employees. Plans covering domestic salaried employees provide benefits that are
based on an employee's years of service and compensation during the five-year
period prior to retirement. The plan covering domestic hourly employees
provides benefits of stated amounts based on an employee's years of service.
Annually, the Company contributes to the plans covering domestic employees such
amounts which are actuarially determined to provide the plans with sufficient
assets to meet future benefit payment requirements. Foreign executives and
employees are covered by fully funded programs as legally required.
25
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
(in thousands except for per share data)
7. Employee Benefit Plans: (continued)
The following table sets forth the funded status of the Company's domestic
defined benefit pension plans and related amounts recognized in the Company's
consolidated balance sheets at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
----------------------- -------------------------
Salary Hourly Salary Hourly
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Benefit obligations:
Vested ....................................... $ 987 $ 1,901 $ 1,192 $2,194
Nonvested .................................... 58 41 72 105
------- -------- ------- ------
Accumulated benefit obligation ............... $ 1,045 $ 1,942 $ 1,264 $2,299
======= ======== ======= ======
Projected benefit obligation for service
rendered to date ............................. $ 1,756 $ 1,942 $ 2,142 $2,299
Plan assets at estimated fair value ........... 1,419 1,732 1,782 2,296
------- -------- ------- ------
Excess of projected benefit obligation over
plan assets .................................. (337) (210) (360) (3)
Unrecognized transition amount ................ 488 7 458 6
Unrecognized prior service cost ............... -- 110 -- 104
Unrecognized net (gain) loss .................. (523) 916 (531) 841
Unrecognized net obligation ................... -- (1,033) -- (951)
------- -------- ------- -------
Accrued (prepaid) pension cost ............. $ (372) $ 210 $ (433) $ 3
======= ======== ======= =======
</TABLE>
Plan assets consist of cash and temporary investments.
Net pension cost for the years ended December 31, 1995, 1996 and 1997,
included the following components:
<TABLE>
<CAPTION>
1995 1996 1997
------------------- ------------------- --------------------
Salary Hourly Salary Hourly Salary Hourly
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during
the period ........................................... $ 184 $ 168 $ 199 $ 182 $ 209 $ 197
Interest cost on projected benefit obligation ......... 106 109 130 131 170 155
Estimated/actual return on plan assets ................ (87) (111) (158) 14 (148) (266)
Net amortization and deferral ......................... 22 38 84 (99) 12 150
----- ------ ------ ----- ------ ------
Net pension cost ................................... $ 225 $ 204 $ 255 $ 228 $ 243 $ 236
===== ====== ====== ===== ====== ======
</TABLE>
Assumptions used in accounting for the pension plans as of December 31,
1995, 1996 and 1997, were:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- -------------------- --------------------
Salary Hourly Salary Hourly Salary Hourly
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Discount rate ....................................... 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Rate of increase in compensation levels ............. 4.0% N/A 3.9% N/A 3.9% N/A
Expected long-term rate of return on assets ......... 8.0% 9.0% 8.0% 9.0% 8.0% 8.0%
</TABLE>
26
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
(in thousands except for per share data)
7. Employee Benefit Plans: (continued)
In 1991, the Company entered into agreements with certain key executive
officers, providing for supplemental payments upon retirement, disability, or
death. The Company purchased life insurance policies to fund the liability
under these agreements, which also provide death benefits to the Company. The
following table sets forth the status of the supplemental executive retirement
plan (SERP) and related amounts recognized in the Company's consolidated
balance sheets at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation--nonvested ............ $ 4,263 $ 5,069
======== ========
Projected benefit obligation for services rendered to date .......... $ 7,401 $ 7,993
Plan assets ......................................................... -- --
-------- --------
Excess of projected benefit obligations over plan assets ............ (7,401) (7,993)
Unrecognized transition amount ...................................... 4,746 4,401
Unrecognized net obligation at date of initial application .......... (1,608) (1,477)
-------- --------
Accrued pension cost ................................................ $ (4,263) $ (5,069)
======== ========
</TABLE>
The Company intends to fund the plan through Company-owned life insurance,
which has a cash value of $2,670 at December 31, 1997; however, the insurance
policies are not considered plan assets for accounting purposes.
Net pension cost for the SERP for the years ended December 31, 1995, 1996
and 1997, consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Service cost--benefits earned during the period .......... $221 $431 $465
Interest cost on projected benefit obligations ........... 246 284 341
Net amortization ......................................... 131 130 131
---- ---- ----
$598 $845 $937
==== ==== ====
</TABLE>
The Company also sponsors defined contribution savings plans for
substantially all domestic employees. Contributions for the years ended
December 31, 1995, 1996 and 1997, approximated $456, $492 and $532,
respectively.
Pension costs for the foreign subsidiary amounted to approximately $582,
$654 and $599 for the years ended December 31, 1995, 1996 and 1997,
respectively.
27
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
(in thousands except for per share data)
8. Income Taxes:
The provision for income taxes for the years ended December 31, 1995, 1996
and 1997, consisted of the following:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Federal tax:
Current ................................... $ 939 $2,065 $1,284
Deferred .................................. 57 197 (985)
State:
Current ................................... 32 52 197
Deferred .................................. 3 99 (212)
Foreign tax ................................ 208 178 510
------ ------ ------
Total tax expense attributable to continuing
operations ................................ $1,239 $2,591 $ 794
====== ====== ======
</TABLE>
Income tax expense varies from the amount computed by applying the federal
corporate income tax rate of 34% to income before income taxes as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" income tax expense (benefit) $1,250 $2,144 $ 555
Increase (decrease) in income taxes resulting from:
Foreign sales corporation income ......................... (190) (99) (119)
State income taxes, net of federal tax effect ............ 23 99 (15)
Nondeductible portion of meals and entertainment ......... 69 48 73
Foreign income taxes ..................................... 208 178 510
Write off charitable contribution deferred asset ......... -- 75 --
Other, net ............................................... (121) 146 (210)
------ ------ ------
Actual income tax provision attributable to
continuing operations ............................... $1,239 $2,591 $ 794
====== ====== ======
</TABLE>
The components of the net deferred income tax assets and liabilities as of
December 31, 1996 and 1997, are as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------ -----------------------
Current Noncurrent Current Noncurrent
--------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Deferred tax assets:
Estimate for doubtful accounts and
returns ............................... $ 404 $ -- $ 310 $ --
Inventory allowances .................... 667 -- 796 --
Accrued expenses ........................ 860 -- 793 --
Additional pension liability ............ -- 834 -- 1,228
Contributions carryforward .............. -- -- 73 --
Net operating loss carryforward ......... 46 -- -- 598
Alternative minimum tax credits ......... -- 1,332 -- 1,377
Other ................................... 46 495 162 1,157
------ ------ ------ ------
Total deferred tax assets ............ 2,023 2,661 2,134 4,360
------ ------ ------ ------
</TABLE>
28
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
(in thousands except for per share data)
8. Income Taxes: (continued)
<TABLE>
<CAPTION>
1996 1997
------------------------ -----------------------
Current Noncurrent Current Noncurrent
--------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Property, plant and equipment ................. -- 5,567 -- 5,902
Other ......................................... -- -- 54 --
-- ----- -- -----
Total deferred tax liabilities ............. -- 5,567 54 5,902
-- ----- -- -----
Net deferred tax asset (liability) ......... $2,023 $ (2,906) $2,080 $ (1,542)
====== ======== ====== ========
</TABLE>
The Company has at December 31, 1997, $2,088 of federal and state net
operating losses available to either carryback or carryforward. Net operating
losses of approximately $1,466 remain to be carried forward to offset future
state taxable income. Approximately $1,332 of alternative minimum tax credits
may be carried forward indefinitely. The amount of unrecognized deferred tax
liability for temporary differences related to investments in foreign
subsidiaries that are essentially permanent in duration were $1,430 and $1,388
for the years ending December 31, 1996 and 1997, respectively.
9. Employee Stock Options, Warrants, and Incentives:
On October 29, 1990, the Company adopted the 1990 Time Accelerated
Restricted Stock Option Plan, as amended effective April 1, 1996 (the "1990
Plan"). A maximum of 163.3 thousand shares of the Company's common stock may be
issued pursuant to the 1990 Plan upon the exercise of options. Under the 1990
Plan, nonqualified stock options may be granted to members of senior management
of the Company and its subsidiaries. As of December 31, 1996, options to
purchase 163.3 thousand shares of the Company's common stock at exercise prices
of $9.50-$30.00 per share had been granted. The 153 thousand vested options had
been exercised as of December 31, 1997, at an exercise price of $9.50 per
share.
On June 11, 1996, the Company adopted the 1995 Time Accelerated Restricted
Stock Option Plan (the "1995 Plan"). A maximum of twenty-five thousand shares
of the Company's common stock may be issued pursuant to the 1995 Plan upon the
exercise of options. Under the 1995 Plan, nonqualified stock options may be
granted to members of senior management of the Company and its subsidiaries who
were formerly employed by Mid-State and who, at the time of adoption of the
1995 Plan, were employed in the Company's Mid-State Plastics Division. As of
December 31, 1997, all twenty-five thousand options previously granted had been
forfeited under the terms of the agreement.
Both plans are administered by the Board of Directors of the Company or a
Committee consisting of three or more directors. Subject to the provisions of
each Plan, the Board of Directors of the Company has the authority to select
optionees and determine the terms of the options granted, including (i) the
number of shares subject to such option, (ii) when the option becomes
exercisable and (iii) the exercise price of the option; provided, however, that
no option may have a term in excess of ten years and six months from the date
of grant.
The terms and conditions of an option grant are set forth in a related
option agreement. An option is not transferable by the optionee except by will
or by the laws of descent and distribution. Options granted under either plan
will terminated upon the earliest to occur of (a) ten years and six months have
elapsed since the date of the grant of the option, (b) 30 days following an
optionee's voluntary termination or termination for cause of employment with
the Company or any of its subsidiaries, or (c) 180 days following an optionee's
termination of employment without cause or due to death or disability of the
optionee.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation (SFAS 123). As
permitted by SFAS 123, the Company has
29
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
(in thousands except for per share data)
9. Employee Stock Options, Warrants, and Incentives: (continued)
chosen to apply APB Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25) and related interpretations in accounting for its Plans. No
compensation expense is recognized for the granting of options during 1996 or
1997, as calculated under APB 25. Had compensation cost for the Company's Plans
been determined based on the fair value at the grant dates for awards under the
Plans consistent with the method of SFAS 123, the Company's net income (loss)
and net income (loss) per diluted share would have been reduced to the pro
forma amounts of $3,594 and $2.53, respectively, for 1996 and $(391) and
$(0.26), respectively, for 1997. The fair value of each option grant is
estimated using the Minimum Value Method with the following assumptions used
for the 1990 and 1995 plans; risk-free interest rates of 6.46% and 6.04%,
respectively, and expected lives of ten years.
A summary of the status of the Company's 1990 Plan as of December 31,
1995, 1996 and 1997, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------- ---------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
-------- ---------------- ----------- ---------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year .......... 153 $ 9.50 163 $ 9.50 163 $ 10.76
Granted ..................... -- 10 $ 30.00 -- --
Exercised ................... -- -- 153 9.50
Forfeited ................... -- -- --
--- --- ---
Outstanding,
end of year ................ 153 $ 9.50 163 $ 10.76 10 $ 30.00
=== === ===
Options exercisable
at year-end ................ 153 153 --
Fair value of options granted
during the year ............ $ 11.96
=======
</TABLE>
A summary of the status of the Company's 1995 Plan as of December 31,
1996, and changes during the year ending on that date is presented below:
<TABLE>
<CAPTION>
1995 1996 1997
--------------------------- ------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
---------- ---------------- -------- ---------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year ............ -- 25 $ 41.30 25 $ 41.30
Granted ....................... 25 $ 41.30 -- --
Exercised ..................... -- -- --
Forfeited ..................... -- -- 25 41.30
-- -- --
Outstanding,
end of year .................. 25 $ 41.30 25 41.30 --
== == ==
Options exercisable
at year-end .................. -- --
== ==
Fair value of options granted
during the year .............. $ 5.03
======
</TABLE>
30
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
(in thousands except for per share data)
9. Employee Stock Options, Warrants, and Incentives: (continued)
The following table summarizes information about the Plan's stock options
at December 31, 1997:
<TABLE>
<CAPTION>
Number Weighted-Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Price at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
- ---------------- ------------- ------------------ ------------------ ------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 30.00 10 $ 30.00 -- --
</TABLE>
The Company had issued to the ML-Lee Funds warrants to purchase 380
thousand shares of common stock exercisable at $9.50 per share. All of these
warrants had been exercised as of December 31, 1997. Affiliates of the ML-Lee
Funds comprise the majority holders of the Company's common stock.
10. Customer Supply Agreements:
On January 11, 1991, the Company entered into an agreement with a major
customer to supply product at certain agreed-upon levels through December 1992,
with an option for the customer to extend the contract for three additional one
year periods. The customer has extended the agreement through December 31, 1999.
The agreement guarantees certain gross margin percentages in varying amounts
over the term of the agreement based upon variable labor, material and overhead
costs. The agreement is cancelable by the customer; however, if such
cancellation occurs, the customer agrees to absorb a portion of the Company's
capital investment associated with the agreement in decreasing amounts over the
term of the contract.
On July 1, 1993, the Company entered into an agreement with another major
customer to supply product at certain agreed-upon levels through December 1997,
with an option for the customer to extend the contract for three additional one
year periods. The customer has extended the agreement through December 31,
1999. The agreement guarantees certain gross margin percentages in varying
amounts over the term of the agreement based upon variable labor, material and
overhead costs. The agreement is cancelable by the customer; however, if such
cancellation occurs, the customer agrees to absorb a portion of the Company's
capital investment associated with the agreement in decreasing amounts over the
term of the contract.
In connection with the purchase of Mid-State Plastics, Inc., the Company
assumed a contract with a customer to maintain a manufacturing facility in
Texas for the production of injection molded plastic parts. The customer has
the exclusive right, unless otherwise agreed, to purchase the manufacturing
capacity of the facility. The agreement is effective until July 2000, with the
customer having the right to renew on a yearly basis. The customer guarantees
the Company 80% of capacity and if not utilized, reimburses the Company based
on a predetermined rate. In the event that production exceeds the guarantee,
the Company owes the customer an amount computed at one-half the predetermined
rate.
11. Business and Credit Concentrations:
The Company's sales are generally made on account without collateral.
Repayment terms vary based on certain conditions. The Company maintains
reserves which management believes are adequate to provide for potential credit
losses. The majority of the Company's customer base spans the United States.
31
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
(in thousands except for per share data)
11. Business and Credit Concentrations: (continued)
The Company had two customers at December 31, 1996, and three customers at
December 31, 1997, which individually had accounts receivable balances in
excess of 10% of the total accounts receivable balance. Management believes the
total accounts receivable due from these customers, which was approximately
$6,748 and $4,662 at December 31, 1996 and 1997, respectively, is fully
collectible. The respective percentage for each customer with sales in excess
of 10% of the years ended December 31, 1995, 1996 and 1997, was as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -----
<S> <C> <C> <C>
Customer A .......... 29% 24% 18%
Customer B .......... 14% 19% 24%
Customer C .......... 13% 10% 11%
</TABLE>
12. Contingencies:
The Company is subject to claims, normally employment related, in the
ordinary course of business. Management does not believe the resolution of any
such claims will result in a material adverse effect on the future financial
condition, results of operations or cash flows of the Company.
13. Fair Value of Financial Instruments:
The following methods and assumptions were used by the Company in
estimating the fair values of its financial instruments:
Current Asset and Liabilities--The carrying value of the Company's cash,
accounts receivable, accounts payable and accrued expenses approximate fair
value because of the short maturity of these instruments.
Noncurrent Liabilities--The Company estimates that the fair value of its
senior notes at December 31, 1997, is approximately $106,500, compared to the
carrying value of $100,000. In making such assessments, the Company utilized
quoted market prices.
14. Related Party Transactions:
Transactions involving related parties not otherwise disclosed herein are
as follows:
Management fees of $180 each year have been paid to Thomas H. Lee Company
during 1995, 1996 and 1997, respectively, for management and other consulting
services provided to the Company. Affiliates of the Thomas H. Lee Company
comprise the majority holders of the Company's common stock.
The Company leases warehouse space (near its facilities in Seagrove, North
Carolina) from Jack C. Lail, a shareholder during 1997. The lease terms are
month-to-month, and rent paid under the lease totaled $64 in 1997.
15. Information about the Company's Operations in Different Geographic Areas:
The Company has significant operations in Mexico as well as the United
States. The operations in Mexico do not involve sales to unaffiliated
customers. All sales for the Mexican subsidiary are to the U.S. Company and are
marked up based on a contract price, which at December 31, 1997 was 6.83%.
These sales were $6,418, $6,081, and $9,363, respectively, for the years ending
December 31, 1995, 1996 and 1997 and were eliminated in consolidation.
Identifiable assets in Mexico were $14,823 and $15,128, respectively, at
December 31, 1996 and 1997. These amounts include intercompany
receivables/payables of $835 and $1,586, which were eliminated in
consolidation.
32
<PAGE>
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
(in thousands except for per share data)
15. Information about the Company's Operations in Different Geographic Areas:
(continued)
The Company had sales to customers in foreign countries of $11,249,
$13,148 and $19,256 for the years ending December 31, 1995, 1996 and 1997.
16. Anchor Advanced Products, Inc. Separate Company Financial Statements:
As described in footnote 5, Anchor Advanced Products, Inc. issued $100,000
of 11-3/4% Senior Notes due 2004. These notes have been guaranteed fully and
unconditionally by the parent company, Anchor Holdings, Inc. The separate
financial statements of Anchor Advanced Products, Inc. are not included herein
because management has determined that they are not materially different from
those of Anchor Holdings, Inc. Summarized financial information of Anchor
Advanced Products, Inc. for the years ended December 31, 1995, 1996 and 1997,
are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current assets ............................................. $ 45,680 $ 47,502 $ 49,087
Noncurrent assets .......................................... 70,416 69,192 71,544
Current liabilities ........................................ 19,689 20,023 15,368
Noncurrent liabilities ..................................... 79,577 75,851 108,286
Net sales .................................................. 149,366 156,858 161,161
Gross profit ............................................... 24,338 27,637 25,187
Income from operations before extraordinary items .......... 2,189 3,417 583
Net income (loss) .......................................... 2,189 3,417 (627)
</TABLE>
17. Earnings Per Share:
The following table sets forth for the periods indicated the calculation
of earnings (loss) per share included in the Company's Consolidated Statements
of Income:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income before extraordinary item ................. $ 2,438 $ 3,626 $ 838
Extraordinary item ................................... -- -- (1,210)
------- ------- --------
Numerator for basic and diluted earnings per share..... $ 2,438 $ 3,626 $ (372)
======= ======= ========
Denominator:
Denominator for basic earnings per share -
weighted-average shares ............................ 1,018 1,018 1,418
Potentially dilutive common shares ................... 288 352 --
------- ------- --------
Denominator for diluted earnings per share -
adjusted weighted-average shares and dilutive
shares ............................................. 1,306 1,370 1,418
======= ======= ========
Basic
Income before extraordinary item ..................... $ 2.39 $ 3.56 $ 0.59
Extraordinary item ................................... -- -- ( 0.85)
------- ------- --------
Net income ........................................... $ 2.39 $ 3.56 $ (0.26)
======= ======= ========
Diluted
Income before extraordinary item ..................... $ 1.87 $ 2.65 $ 0.59
Extraordinary item ................................... -- -- ( 0.85)
------- ------- --------
Net income ........................................... $ 1.87 $ 2.65 $ (0.26)
======= ======= ========
</TABLE>
18. Recent Developments
The Company entered into a letter of intent as of February 12, 1998 with
an affiliate of George T. Votis whereby such affiliate of Mr. Votis will
acquire all of the issued and outstanding Common Stock of Holdings.
The Company commenced on March 3, 1998 a solicitation of the holders of
its 11-3/4% Series B Senior Notes due 2004 seeking such holders' consent to
certain amendments to, and the waiver of certain provisions of, the Indenture
with respect to such Notes in connection with the proposed transaction with Mr.
Votis.
33
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
Our report on the consolidated financial statements of Anchor Holdings,
Inc. and Subsidiaries as of December 31, 1996 and 1997, and for each of the
three years in the period ended December 31, 1997, is included on page 15 of
this Form 10-K. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule on page 35 of this
Form 10-K.
In our opinion, the financial statements schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
February 20, 1998
34
<PAGE>
Schedule II
ANCHOR HOLDINGS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Balance at Balance at
beginning Charged to Charge to end of
Description of period expense other account Deductions period
- ----------------------------------------- ------------ ------------ --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1995:
Allowance for bad debts ................ $ 503 $ 11 $ 411 $ 162 $ 764
Allowance for returns .................. 261 -- 2,008 1,969 300
Reserve for self insurance risk ........ 991 2,145 -- 2,451 685
Reserve for inventory obsolescence ..... 1,221 450 -- 100 1,571
------ ------- ------ ------- ------
$2,976 $ 2,608 $2,419 $ 4,684 $3,319
====== ======= ====== ======= ======
1996:
Allowance for bad debts ................ $ 764 $ 170 $ 156 $ 236 $ 854
Allowance for returns .................. 300 -- 2,488 2,644 144
Reserve for self insurance risk ........ 685 4,732 -- 4,074 1,343
Reserve for inventory obsolescence ..... 1,571 678 -- 944 1,305
------ ------- ------ ------- ------
$3,320 $ 5,431 $2,488 $ 7,783 $3,698
====== ======= ====== ======= ======
1997:
Allowance for bad debts ................ $ 854 $ 130 $ 218 $ 496 $ 706
Allowance for returns .................. 144 50 -- -- 194
Reserve for self insurance risk ........ 1,343 8,719 -- 9,304 758
Reserve for inventory obsolescence ..... 1,305 2,748 -- 2,460 1,593
------ ------- ------ ------- ------
$3,646 $11,647 $ 218 $12,260 $3,251
====== ======= ====== ======= ======
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
35
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Term of Office Directors of the Company are elected by the stockholders of
the Company on an annual basis and serve until their successors have been duly
elected and qualified. Executive officers of the Company are elected by the
Board of Directors on an annual basis and serve until their successors have been
duly elected and qualified. The current Directors and officers were elected on
January 2, 1998. There are no family relationships among any of the executive
officers or directors of the Company.
Holdings owns all of the capital stock of Products. The following table
sets forth certain information regarding each of the Directors and executive
officers of Products and Holdings.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Francis H. Olmstead, Jr. .......... 59 Chairman, President and Chief Executive Officer of
Holdings and Products
Robert T. Parkey .................. 61 Director and Executive Vice President of Holdings
and the Company and General Manager of Anchor
Brush Division of Products
Jack C. Lail (1) .................. 64 Director and Executive Vice President of Holdings
and Products
Geoffrey A. de Rohan .............. 41 Director and Executive Vice President of Holdings
and Products and General Manager of Anchor
Cosmetics and Mid-State Plastics Divisions of the
Issuer
Joseph M. Viglione ................ 53 Senior Vice President, Human Resources and Total
Quality of Holdings and Products
Phyllis C. Best ................... 51 Senior Vice President, Finance and Controller of
Holdings and Products
Claude J. Kyker ................... 55 Senior Vice President, Treasury/Logistics of Holdings
and Products
Thomas R. Shepherd ................ 68 Director of Holdings and Products
Scott A. Schoen ................... 39 Director of Holdings and Products
Terrence M. Mullen ................ 31 Director of Holdings and Products
</TABLE>
- ------------
(1) Mr. Lail terminated his employment with the Company and resigned as
director on or about July 28, 1997.
Francis H. Olmstead, Jr. has been Chairman, President and Chief Executive
Officer of Holdings and Products since 1990. Prior to joining Anchor, Mr.
Olmstead was Executive Vice President, Industrial/ Commercial Division of
Philips Lighting. He joined North American Philips Corporation in 1984 after
having served as Vice President and General Manager, Electrical Products
Division for Corning Glass.
Robert T. Parkey has been a Director and Executive Vice President of
Holdings and Products and General Manager of Anchor Brush Division of Products
since 1992 and was Senior Vice President of Holdings and Products from 1990 to
1992. Mr. Parkey joined the Company in 1975 and was promoted to Vice President,
Healthcare Division in 1978. Prior to joining Anchor, he was Vice President,
Sales Manager with Husky Industries, a division of Husky Oil Company.
Jack C. Lail was a Director and Executive Vice President of Holdings and
Products from 1994 to on or around July 28, 1997 and was President of Mid-State
from 1971-1994.
36
<PAGE>
Geoffrey A. de Rohan has been a Director of Holdings and Products and
General Manager of the Mid-State Plastics Division of Products since 1996 and
Executive Vice President of Holdings and Products and General Manager of the
Anchor Cosmetics Division of Products since 1995. Prior to joining Anchor, Mr.
de Rohan served as Vice President and General Manager of Wheaton Injection
Molding, President of Wheaton Plastic Products, and Vice President of
Development Health Care Market at Wheaton, Inc. from 1986 to 1995.
Joseph M. Viglione has been Senior Vice President, Human Resources and
Total Quality of Holdings and Products since 1992 and was Vice President,
Employee Relations from 1982 to 1992.
Phyllis C. Best has been Senior Vice President, Finance and Controller of
Holdings and Products since 1995 and Vice President and Controller of Holdings
and Products since 1990.
Claude J. Kyker has been Senior Vice President, Treasury/Logistics of
Holdings and Products since 1992 and was Vice President, Finance and Controller
from 1990 to 1992.
Thomas R. Shepherd has been a Director of Holdings and Products since
1990. Mr. Shepherd has been a Managing Director of and been engaged as a
consultant to the Thomas H. Lee Company since 1986. Mr. Shepherd also serves as
Executive Vice President of Thomas H. Lee Advisors I and an officer of various
other Thomas H. Lee Company affiliates. Mr. Shepherd is a director of General
Nutrition Companies, Inc. and various private corporations.
Scott A. Schoen has been a Director of Holdings and Products since 1990.
Mr. Schoen has been a Managing Director of the Thomas H. Lee Company since
1991. Mr. Schoen also serves as Vice President of Thomas H. Lee Advisors I and
Thomas H. Lee Advisors II. Mr. Schoen is a director of First Alert, Inc.,
Health o meter Products, Inc., LaSalle Re Holdings, Rayovac Corporation and
various private corporations.
Terrence M. Mullen has been a Director of Holdings and Products since
1996. Mr. Mullen is currently an Associate of the Thomas H. Lee Company and had
worked at such firm from 1992 to 1994 before rejoining it in 1996.
Messrs. Schoen, Shepherd, and Mullen serve on the Board of Directors as
the representatives of Thomas H. Lee Company, an affiliate of Thomas H. Lee
Equity Partners, L.P., ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition
Fund (Retirement Accounts) II, L.P.
37
<PAGE>
Item 11. Executive Compensation
The following table sets forth all compensation awarded to, earned by or
paid to the Company's Chairman, President and Chief Executive Officer during
1997 and each of the Company's four most highly compensated executive officers
(other than the Chairman, President and Chief Executive Officer) for 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Other Annual All Other
Name and Principal Positions Year Salary Bonus ($) Compensation ($)(1) Compensation ($)(2)
- ------------------------------ ------ ----------- ----------- --------------------- --------------------
<S> <C> <C> <C> <C> <C>
Francis H. Olmstead, Jr.
Chairman, President and
Chief Executive Officer 1997 $259,896 $380,000 $64,117 $30,465
Robert T. Parkey
Executive Vice President 1997 167,175 71,300 36,173 12,123
John J. Nugent
Executive Vice President(3) 1997 79,507 79,600 21,729 16,500
Geoffrey A. de Rohan
Executive Vice President 1997 162,916 68,400 37,128 2,776
Joseph A. Viglione
Senior Vice President 1997 110,000 31,900 37,046 21,185
Claude J. Kyker
Senior Vice President 1997 101,446 28,400 41,628 21,211
Jack C. Lail (4)
Executive Vice President 1997 83,461 48,700 730 0
</TABLE>
- ----------------
(1) Amounts shown include Company reimbursements of taxes paid by the Named
Executive Officers shown above, which were as follows: Mr. Olmstead,
$38,821; Mr. Parkey, $19,823; Mr. Nugent, $15,691; Mr. de Rohan, $9,268,
Mr. Viglione $23,901; and Mr. Kyker $25,792. Amounts shown also include
Company contributions to annuities as follows: Mr. Olmstead, $23,000; Mr.
Viglione $14,500; Mr. Kyker $15,500 and Mr. Nugent $16,500.
(2) Amounts include (i) contributions to the Company's medical plan for the
Named Executive Officers were as follows: Mr. Olmstead $7,465; Mr. Parkey
$12,123; Mr. Viglione $6,685; and Mr. Kyker $5,711; and (ii) personal
financial planning services for Mr. Olmstead $4,878; Mr. de Rohan $2,776;
Mr. Parkey $3,150; Mr. Viglione $445 and Mr. Kyker $2,635.
(3) Mr. Nugent terminated his employment with the Company on May 2, 1997.
(4) Mr. Lail terminated his employment with the Company and resigned as a
Director on or around July 28, 1997.
38
<PAGE>
Option Exercises
AGGREGATED OPTION EXERCISED IN FISCAL YEAR 1997
AND 1997 FISCAL YEAR END OPTION VALUES (1)
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options
at 1997 Year End at 1997 Year End
----------------------------- ----------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- -------------- -------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Francis H. Olmstead ..... 40,000 $740,000 0 0 $0 $0
John J. Nugent (2) ...... 28,200 521,700 0 0 0 0
Robert T. Parkey ........ 28,400 525,400 0 0 0 0
Geoffrey A. de Rohan..... 0 0 0 10,000 0 0
Jack C. Lail (3) ........ 0 0 0 6,250 0 0
Joseph M. Viglione ...... 15,560 287,860 0 0 0 0
Claude K. Kyker ......... 13,300 246,050 0 0 0 0
</TABLE>
- ----------------
(1) None of Holdings' capital stock is publicly traded. Market value of the
options was calculated on the basis of the fair market value of the
underlying securities at December 31, 1997 of $4.00 per share as
determined by Holdings' Board of Directors.
(2) Mr. Nugent terminated his employment with the Company on May 2, 1997.
(3) Mr. Lail terminated his employment with the Company and resigned as a
Director on or around July 28, 1997.
Management Stock Option Plans
1990 Time Accelerated Restricted Stock Option Plan
On October 29, 1990, Holdings adopted the 1990 Time Accelerated Restricted
Stock Option Plan, as amended effective April 1, 1996 (the "1990 Plan"). A
maximum of 163,300 shares of Holdings common stock, $.01 par value per share
("Holdings Common Stock"), may be issued pursuant to the 1990 Plan upon the
exercise of options. Under the 1990 Plan, non-qualified stock options may be
granted to members of senior management of Holdings and its subsidiaries. As of
December 31, 1997, options to purchase 163,300 shares of Holdings Common Stock
at exercise prices of $9.50-$30.00 per share have been granted.
The 1990 Plan is administered by the Board of Directors of Holdings or a
Committee consisting of three or more directors. Subject to provisions of the
1990 Plan, the Board of Directors of Holdings has the authority to select
optionees and determine the terms of the options granted, including (i) the
number of shares subject to such option, (ii) when the option becomes
exercisable and (iii) the exercise price of the option; provided, however, that
no Option may have a term in excess of ten years and six months from the date
of grant.
The terms and conditions of an Option grant are set forth in a related
option agreement (the "Option Agreement"). An Option is not transferable by the
optionee except by will or by the laws of descent and distribution. Options
granted under the 1990 Plan will terminate upon the earliest to occur of (a)
the date ten years and six months after the date of the grant of the Option,
(b) 30 days following an optionee's voluntary termination or termination for
Cause (as defined in the Shareholders' Agreement) of employment with Holdings
or any of its subsidiaries or (c) 180 days following an optionee's termination
of employment without Cause or due to death or Disability (as defined in the
Shareholders' Agreement) of the optionee. Payment of the Option exercise price
may only be made in cash or by bank cashier's check or check.
39
<PAGE>
1995 Time Accelerated Restricted Stock Option Plan
On June 11, 1996, Holdings adopted the 1995 Time Accelerated Restricted
Stock Option Plan (the "1995 Plan"). A maximum of 25,000 shares of Holdings
Common Stock may be issued pursuant to the 1995 Plan upon the exercise of
options. Under the 1995 Plan, non-qualified stock options may be granted to
members of senior management of the Company and its subsidiaries who were
formerly employed by Mid-State and who, at the time of adoption of the 1995
Plan, were employed in the Company's Mid-State Plastics Division. As of
December 31, 1997, options to purchase 25,000 shares of Holdings Common Stock
at an exercise price of $41.30 per share have been granted.
The 1995 Plan is administered by the Board of Directors of Holdings or a
Committee consisting of three or more directors. Subject to provisions of the
1995 Plan, the Board of Directors of Holdings has the authority to select
optionees and determine the terms of the options granted, including (i) the
number of shares subject to such option, (ii) when the option becomes
exercisable and (iii) the exercise price of the option; provided, however, that
no Option may have a term in excess of ten years and six months from the date
of grant.
The terms and conditions of an Option grant are set forth in a related
option agreement (the "Option Agreement"). An Option is not transferable by the
optionee except by will or by the laws of descent and distribution. Options
granted under the 1995 Plan will terminate upon the earliest to occur of (a)
the date ten years and six months after the date of the grant of the Option,
(b) 30 days following an optionee's voluntary termination or termination for
Cause (as defined in the Shareholders' Agreement) of employment with Holdings
or any of its subsidiaries or (c) 180 days following an optionee's termination
of employment without Cause or due to death or Disability (as defined in the
Shareholders' Agreement) of the optionee. Payment of the Option exercise price
may only be made in cash or by bank cashier's check or check.
Compensation of Directors
Members of the Board of Directors of the Company receive no annual fees
but are reimbursed for reasonable out-of-pocket expenses incurred in their
capacity as directors.
Employment Agreements
The Company has entered into employment agreements, effective as of April
1, 1996 (the "Agreements"), with each of Francis H. Olmstead, Jr., Robert T.
Parkey, Geoffrey A. de Rohan, Joseph M. Viglione, Claude J. Kyker and Phyllis
C. Best (each an "Employee"; collectively, the "Employees").
The initial employment terms, the base salaries for 1997 and the maximum
bonus amounts (as a percentage of base salary) are set forth below:
<TABLE>
<CAPTION>
Maximum
Employee Initial Term Base Salary Bonus(1)
- --------------------------------- -------------- ------------- ---------
<S> <C> <C> <C>
Francis H. Olmstead, Jr ......... 12/31/98 $262,500 55.0%
Robert T. Parkey ................ 12/31/98 $168,800 40.0%
Geoffrey A. de Rohan ............ 12/31/98 $165,000 40.0%
Joseph M. Viglione .............. 12/31/98 $111,000 28.5%
Claude J. Kyker ................. 12/31/98 $102,300 28.5%
Phyllis C. Best ................. 12/31/98 $100,000 25.0%
</TABLE>
- ----------------
(1) The bonus will be computed on the Company's financial and other results and
the overall performance of the Employee as determined in the sole
discretion of the Board of Directors. The bonus will be paid, if at all,
in the year following the year in which it is earned.
Upon a termination of employment due to death or disability of the
Employee, the Employee, or his estate, as the case may be, shall be entitled to
one year's base salary plus the amount of the last full-year bonus, pro-rated
to the effective date of termination. Upon a termination of employment by the
Employee for Cause (as defined in the Agreements) or termination by the Company
without Cause, the Employee
40
<PAGE>
shall be entitled to an amount equal to base salary and bonus (the amount of
the last full-year bonus), both computed to the end of the term. Upon a
termination of employment by the Employee without Cause or termination by the
Company with Cause, the Company may pay, at its sole discretion, one-half of
one year's base salary as consideration for a one-year non-competition
agreement with the Employee. Upon a termination of employment due to expiration
of the term of employment, the Company may pay, at its sole discretion, one
year's base salary as consideration for a one-year non-competition agreement
with the Employee. All severance payments pursuant to this paragraph will be
paid in quarterly installments. Further, if the Employee obtains other
employment during the period in which the Company is obligated to make
severance payments, the Company's obligation to make such payments will be
reduced by an amount equal to 75% of the total earnings such Employee makes
from such other employment.
Supplemental Executive Retirement Benefits Agreements
Each of the executive officers of the Company is party to a Supplemental
Executive Retirement Benefits Agreement (the "SERB Agreements") with the
Company. Under these agreements, such executive officers are, upon retirement
(as defined in the SERB Agreement), entitled to a life-time monthly retirement
benefit calculated based upon years of service and average salary as set forth
in the table below. The SERB Agreements also provide for spousal survival
benefit options. Lastly, in the event of the sale of substantially all the
assets of the Company or a change of control, each executive officer is entitled
to a lump sum payment in an amount equal to the actuarial equivalent of the
executive officer's normal retirement benefit unless the successor entity or
resulting controlling entity expressly assumes the obligations under the SERB
Agreement.
<TABLE>
<CAPTION>
Years of Service
Remuneration 15 20 25 30 35
- -------------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
$ 125,000 $20,625 $27,500 $34,375 $41,250 48,125
150,000 24,750 33,000 41,250 49,500 57,750
175,000 28,875 38,500 48,125 57,750 67,375
200,000 33,000 44,000 55,000 66,000 77,000
250,000 41,250 55,000 68,750 82,500 96,250
300,000 49,500 66,000 82,500 99,000 115,500
400,000 66,000 88,000 110,000 132,000 154,000
450,000 74,250 99,000 123,750 148,500 173,250
500,000 82,500 110,000 137,500 165,000 192,500
</TABLE>
- ------------
(1) The compensation covered by this plan is the average of the employee's
highest five years, selected from the last ten calendar years, of earnings,
which are defined under this plan as the total cash compensation paid to the
employee during a calendar year includible in the employee's gross income
under the Internal Revenue Code, excluding any expense reimbursements,
deferred compensation payments, lump sum severance payments, stock options,
or any distributions from any long-term incentive plan, or any long-term key
employee compensation program.
(2) The credited years of service under this plan for each of the Named
Executive Officers is as follows: Mr. Olmstead, 13; Mr. Parkey, 11; Mr. de
Rohan, 2; Mr. Nugent, 33; Mr. Lail, 3; Mr. Viglione, 23; and Mr. Kyker, 32;
and Ms. Best, 17.
(3) The monthly retirement benefit is the higher of (i) the product of (a) the
employee's highest five years of earnings; (b) years of credited service
under the plan; and (c) 1.1% and (ii) the sum of (a) the product of (1) the
employee's highest five years of earnings; (2) years of credited service
under the plan; and (3) 1.0%; and (b) the product of (1) the amount by which
the employee's highest five years of earnings exceeds the Average Social
Security Taxable Wage Base; (2) years of credited service under the plan;
and (3) 0.6%. For purposes of this plan, the "Average Social Security
Taxable Wage Base" is the average of the maximum limitation of wages subject
to social security tax for the preceding 35 calendar years.
Committees of the Board of Directors
The Board of Directors has established a Compensation Committee currently
consisting of Messrs. Olmstead, Shepherd and Schoen. The Compensation Committee
makes recommendations concerning
41
<PAGE>
the salaries and incentive compensation of employees of and consultants to
Anchor, and oversees and administers the Company's stock option plans.
The Board of Directors has established an Audit Committee currently
consisting of Messrs. Schoen and Mullen. The Audit Committee is responsible for
reviewing the results and scope of audits and other services provided by the
Company's independent auditors.
Compensation Committee Interlocks and Insider Participation
Messrs. Olmstead, Shepherd and Schoen served as members of the Compensation
Committee during fiscal year 1997. Mr. Olmstead was an executive officer of
Holdings and Products during fiscal year 1997. Messrs. Shepherd and Schoen were
employees of Thomas H. Lee Company and were not officers or employees of the
Company or any of its subsidiaries during fiscal year 1997.
Limitation of Liability; Indemnification of Directors and Officers
The Certificates of Incorporation of Holdings and Products limit the
personal liability of directors to the corporations. The By-laws of Holdings and
Products provide that the corporations shall indemnify directors and officers of
the corporations to the full extent permitted by the Delaware General
Corporation Law.
42
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Holdings owns all of the outstanding capital stock of Products. The
following sets forth certain information regarding the beneficial ownership of
Holdings' common stock, $.01 par value per share (the "Common Stock"), by (i)
all stockholders of Holdings who own more than 5% of any class of such voting
securities; (ii) each director who is a stockholder; (iii) certain executive
officers; and (iv) all directors and executive officers as a group, as
determined in accordance with Rule 13(d) under the Securities Exchange Act of
1934.
<TABLE>
<CAPTION>
Number of Shares Percentage of
of Common Stock Outstanding Shares of
Beneficially Owned (1) Common Stock (1)
Name and Address of Beneficial Owner ------------------------ ----------------------
<S> <C> <C>
Thomas H. Lee Equity Partners, L.P. (2) ......... 568,185 36.6%
ML-Lee Acquisition Fund II, L.P. (3) ............ 410,677 26.5
ML-Lee Acquisition Fund (Retirement Accounts)
II, L.P. (3) ................................... 219,323 14.1
Thomas H. Lee (4) ............................... 91,130 5.9
Francis H. Olmstead, Jr. (5) .................... 57,263 3.7
Robert T. Parkey (5) ............................ 37,242 2.4
Joseph M. Viglione (5) .......................... 21,244 1.4
Phyllis C. Best (5) ............................. 7,316 **
Claude J. Kyker (5) ............................. 18,984 1.2
Thomas R. Shepherd (6) .......................... 5,893 **
Scott A. Schoen (7) ............................. 5,864 **
All directors and executive officers of Holdings
as a group (11 persons) ........................ 232,231 15.0%
</TABLE>
- ------------
** Represents less than 1%.
(1) For purposes of the computation of percentages of Holdings presented in
this table, a holder is deemed to beneficially own all shares which may be
acquired by such holder upon exercise of options held by such holder,
which options are exercisable within 60 days. Such shares which may be
acquired by such holder (but no shares which may be acquired by any other
holder upon exercise of options held by such other holder) are deemed to
be outstanding.
(2) Each of (i) THL Equity Advisors Limited Partnership, (ii) THL Equity Trust,
(iii) Thomas H. Lee as trustee of THL Equity Trust, (iv) Thomas R.
Shepherd as trustee of THL Equity Trust, and (v) Scott A. Schoen, as an
officer of THL Equity Trust, may be deemed to be the beneficial owner of
568,185 shares held by the Thomas H. Lee Equity Partners (the "Lee Fund").
Such entities and Messrs. Lee, Shepherd and Schoen disclaim beneficial
ownership of such shares. The foregoing entities and Messrs. Shepherd and
Schoen maintain their principal business address c/o Thomas H. Lee
Company, 75 State Street, Boston, MA 02109.
(3) Each of (i) Thomas H. Lee Advisors II, L.P. ("Advisors II"), the investment
advisor of each of ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition
Fund (Retirement Accounts) II, L.P. (collectively the "ML-Lee Funds"),
(ii) T.H. Lee Mezzanine II ("Mezzanine II"), a general partner of Advisors
II, (iii) Thomas H. Lee, as trustee of Mezzanine II and an individual
general partner of each of the ML-Lee Funds, (iv) Thomas R. Shepherd, as
trustee of Mezzanine II, and (v) Scott A. Schoen, as an officer of
Mezzanine II, may be deemed to be the beneficial owners of 630,000 shares
held, in the aggregate, by the ML-Lee Funds. Each of Advisors II, Mezzanine
II, Mr. Lee, Mr. Shepherd and Mr. Schoen disclaim ownership of such shares.
Each of Advisors II and Mezzanine II maintains their principal business
address c/o Thomas H. Lee Company, 75 State Street, Boston, MA 02109. The
ML-Lee Funds maintain principal business addresses c/o Merrill Lynch, 225
Liberty Street, World Financial Center, South Tower--23rd Floor, New York,
New York 10080-6123.
43
<PAGE>
(4) Represents 65,711 shares which may be deemed to be beneficially owned by
State Street Bank and Trust Company of Connecticut, N.A., as trustee of
the 1989 Thomas H. Lee Nominee Trust (the "Lee Trust") and 25,419 shares
held of record by Thomas H. Lee Company ("THL Co."). State Street Bank and
Trust Company of Connecticut, N.A. disclaims beneficial ownership of the
Lee Trust shares. Does not include 1,198,185 shares which may be deemed to
be beneficially owned by Mr. Lee as a result of his relationships with the
Lee Fund and the ML-Lee Funds. Mr. Lee disclaims beneficial ownership of
such shares. Mr. Lee maintains his principal business address c/o Thomas
H. Lee Company, 75 State Street, Boston, MA 02109.
(5) The address of this shareholder is c/o Anchor Advanced Products, Inc., 1111
Northshore Drive, Suite N-600, Knoxville, Tennessee 37919.
(6) Includes options to purchase 3,003 shares from THL Co. Does not include
1,198,185 shares which may be deemed to be beneficially owned by Mr.
Shepherd as a result of his relationship with the Lee Fund and the ML-Lee
Funds. Mr. Shepherd disclaims beneficial ownership of such shares.
(7) Includes options to purchase 3,003 shares from THL Co. Does not include
1,198,185 shares which may be deemed to be beneficially owned by Mr.
Schoen as a result of his relationship with the Lee Fund and the ML-Lee
Funds. Mr. Schoen disclaims beneficial ownership of such shares.
Item 13. Certain Relationships and Related Transactions
Management Agreement
The Company and Thomas H. Lee Company entered into an agreement dated April
30, 1990 (the "Management Agreement"), pursuant to which Thomas H. Lee Company
received a financial advisory fee of $420,000 in connection with structuring,
negotiating and arranging the financing necessary to fund the 1990 acquisition
of the Company by THL and management. In addition, pursuant to the Management
Agreement, Thomas H. Lee Company received $180,000 per year for five years
beginning August 30, 1990 for management and other consulting services provided
to the Company. After the initial five-year term, the Management Agreement is
automatically renewable on an annual basis unless either party serves notice of
termination at least 90 days prior to the renewal date. The Company believes
that the terms of this agreement are comparable to those that would have been
obtained from unaffiliated sources.
Stock Purchase Warrants
In connection with THL's acquisition of the Company in 1990, the ML-Lee
Funds were issued warrants (the "Warrants") to purchase 380,000 shares of Common
Stock. The Warrants were exercisable in whole or in part at any time prior to
April 30, 2000 at an exercise price of $9.50 per share. The Warrants were
exercised in full in April 1997.
Shareholders' Agreement
Holdings entered into a Shareholders' Agreement (the "Shareholders'
Agreement") with THL, certain of the named executive officers and certain other
management shareholders of Holdings (collectively, the "Management Investors")
in connection with the 1990 acquisition of the Company. Pursuant to the
Shareholders' Agreement, as amended and restated on July 29, 1994, the
shareholders party thereto are required to vote their shares of Common Stock to
elect a Board of Directors of Holdings consisting of certain directors
designated by THL and certain management directors. THL also must approve any
merger, consolidation, liquidation, sale of all or substantially all of
Holdings' assets, redemption of capital stock or amendment to Holdings'
Certificate of Incorporation or by-laws. The Shareholders' Agreement provides
for rights of first refusal, take along rights and preemptive rights for THL.
Certain of the Management Investors have come along rights and are subject to
redemption of their shares of Holdings capital stock in the event of a
termination of employment with Holdings and its subsidiaries. The Shareholders'
Agreement also grants THL the right to require Holdings to effect the
registration of shares of Common Stock it holds for sale to the public, subject
to certain conditions and limitations. In addition, under the terms of the
Shareholders' Agreement, if Holdings proposes to register any of its equity
securities under the Securities Act of 1933, as amended, the shareholders party
thereto are entitled to notice of such registration and are entitled to include
their shares for registration, subject to certain
44
<PAGE>
conditions and limitations. All fees, costs and expenses of any registration
effected on behalf of such shareholders under the Shareholders' Agreement
(other than underwriting discounts and commissions) will be paid by Holdings.
Lease from Related Party
From time to time, the Company leases warehouse space from Jack C. Lail,
who was a Director and Executive Vice President of Products and Holdings during
a portion of fiscal 1997, near its facilities in Seagrove, North Carolina.
Anchor paid a total of $64,000 for such warehouse space in 1997.
45
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements and schedules
The Financial Statements and Schedules filed as part of this Annual Report
on From 10-K are listed in index under Item 8.
(b) Reports on From 8-K
No reports on From 8-K were filed by the Company during the quarter ended
December 31, 1997
(c) List of Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ---------- -----------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Anchor Advanced Products, Inc.*
3.2 By-Laws of Anchor Advanced Products, Inc.*
3.3 Restated Certificate of Incorporation of Anchor Holdings, Inc.*
3.4 By-Laws of Anchor Holdings, Inc.*
4.1 Form of Note (included in Exhibit 4.2 hereto).*
4.2 Indenture dated as of April 2, 1997 between Anchor Advanced Products, Inc., Anchor
Holdings, Inc. and Fleet National Bank, as Trustee.*
10.1 Anchor Holdings, Inc. Amended and Restated Shareholders Agreement dated
July 29, 1994.*
10.2 Form of Employment Agreement.*
10.3 Form of Supplemental Executive Retirement Benefit Agreement and Side Letter.*
10.4 Exit Bonus Agreement between Anchor Holdings, Inc. and Francis H. Olmstead, Jr.*
10.5 Management Agreement between Thomas H. Lee Company, Anchor Acquisition Corp. ,
Anchor Brush Company and Anchor Cosmetics Company dated as of April 30, 1990.*
+10.6 Agreement by and between Abbott Laboratories and Mid-State Plastics, Inc., dated as
of December 5, 1989, as supplemented by letters dated August 5, 1994,
September 11, 1995, September 19, 1995 and March 5, 1997.*
+10.7 Memorandum of Agreement by and between The Procter & Gamble Manufacturing
Company and Anchor Advanced Products, Inc. dated as of December 16, 1995.*
+10.8 Letter Agreement by and between Anchor Advanced Products, Inc. and Colgate-
Palmolive Company, dated as of July 12, 1996.*
10.9 Form of Connecticut Development Authority Note.*
10.10 Purchase Agreement by and between Anchor Advanced Products, Inc., Anchor
Holdings, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation, CIBC Wood
Gundy Securities Corp. and NationsBanc Capital Markets, Inc. dated as of
March 26, 1997.*
10.11 Registration Rights Agreement by and between Anchor Advanced Products, Inc.,
Anchor Holdings, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation, CIBC
Wood Gundy Securities Corp. and NationsBanc Capital Markets, Inc. dated as of
April 2, 1997.*
10.12 Credit Agreement by and between Anchor Advanced Products, Inc., Anchor Holdings,
Inc. and NationsBank, N.A. dated as of April 2, 1997.*
+10.13 Amendment to Agreement with Procter and Gamble dated August 2, 1997
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 List of subsidiaries of Anchor Holdings, Inc.*
</TABLE>
46
<PAGE>
<TABLE>
<S> <C>
25.1 Statement on Form T-1 of the eligibility of the Trustee.*
27.1 Financial Data Schedule.
99.1 Letter of Transmittal.*
99.2 Notice of Guaranteed Delivery.*
99.3 Form of Exchange Agent Agreement between Anchor Advanced Products, Inc., Anchor
Holdings, Inc. and State Street Bank and Trust Company.*
</TABLE>
- ----------------
+ Portions of this Exhibit have been omitted and separately filed with the
Securities and Exchange Commission pursuant to an application for an order
declaring confidential treatment thereof.
* Previously filed.
47
<PAGE>
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.
ANCHOR ADVANCED PRODUCTS, INC.
By: /s/ Francis H. Olmstead, Jr.
-------------------------------
Francis H. Olmstead, Jr.
Chairman, President and Chief
Executive Officer
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------------------- ------------------------------------ ---------------
<S> <C> <C>
/s/ Francis H. Olmstead, Jr. Chairman, President and Chief
------------------------------- Executive Officer (Principal
Francis H. Olmstead, Jr. Executive Officer) and Director March 18, 1998
/s/ Robert T. Parkey
------------------------------- Executive Vice President and
Robert T. Parkey Director March 18, 1998
/s/ Geoffrey A. de Rohan
------------------------------- Executive Vice President and
Geoffrey A. de Rohan Director March 18, 1998
/s/ Phyllis C. Best Senior Vice President, Finance
------------------------------- and Controller (Principal Financial
Phyllis C. Best and Accounting Officer) March 18, 1998
/s/ Scott A. Schoen
-------------------------------
Scott A. Schoen Director March 18, 1998
/s/ Thomas R. Shepherd
-------------------------------
Thomas R. Shepherd Director March 18, 1998
/s/ Terrence M. Mullen
-------------------------------
Terrence M. Mullen Director March 18, 1998
</TABLE>
48
<PAGE>
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.
ANCHOR HOLDINGS, INC.
By: /s/ Francis H. Olmstead, Jr.
-------------------------------
Francis H. Olmstead, Jr.
Chairman, President and Chief
Executive Officer
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------------------- ------------------------------------ ---------------
<S> <C> <C>
/s/ Francis H. Olmstead, Jr. Chairman, President and Chief
------------------------------- Executive Officer (Principal
Francis H. Olmstead, Jr. Executive Officer) and Director March 18, 1998
/s/ Robert T. Parkey
------------------------------- Executive Vice President and
Robert T. Parkey Director March 18, 1998
/s/ Geoffrey A. de Rohan
------------------------------- Executive Vice President and
Geoffrey A. de Rohan Director March 18, 1998
/s/ Phyllis C. Best Senior Vice President, Finance
------------------------------- and Controller (Principal Financial
Phyllis C. Best and Accounting Officer) March 18, 1998
/s/ Scott A. Schoen
-------------------------------
Scott A. Schoen Director March 18, 1998
/s/ Thomas R. Shepherd
-------------------------------
Thomas R. Shepherd Director March 18, 1998
/s/ Terrence M. Mullen
-------------------------------
Terrence M. Mullen Director March 18, 1998
</TABLE>
49
Procter & Gamble
- --------------------------------------------------------------------------------
Procter & Gamble Manufacturing Company
Health Care Research Center
8700 Mason-Montgomery Road, Mason, Ohio 45040-9462
August 2, 1997
Mr. Robert T. Parkey
Executive Vice President/Business Manager
Anchor Advanced Products
1111 Northshore Drive, Suite N-600
Knoxville, TN 37919-4048
Extension to Memorandum of Agreement #JWR-90-03
-----------------------------------------------
Dear Bob:
I sincerely apologize for the delay in getting this Agreement Amendment to you.
I had assumed that it went out weeks ago. Please refer to the subject Memorandum
of Agreement between the Procter & Gamble Manufacturing Company ("Buyer") and
Anchor Advanced Products, Inc. ("Seller") dated December 16, 1993. References to
Sections and defined terms herein shall be to the respective Sections and
defined terms in the Memorandum of Agreement.
Whereas both Buyer and Seller desire to amend said Memorandum of Agreement, the
parties agree as follows:
Section 4--Quantity of the amended Agreement is *
in North America (defined as the United States, its possessions
and territories and Canada) and *
Section 6--The Period of this extension to the Memorandum of Agreement shall be
from January 1, 1998 to December 31, 1999, inclusive.
Section 11-- * will be made in Seller's facility for Buyer's
account unless mutually agreed upon by Buyer and Seller, however, Seller will
* in the fulfillment of this Agreement.
- ---------------
[*] indicates material that has been omitted pursuant to a request for
confidential treatment and has been filed separately with the Commission.
<PAGE>
Mr. Robert T. Parkey
Anchor Advanced Products, Inc.
August 2, 1997
Page Two
Section 17--In addition to the provisions contained in this Section of the
Memorandum of Agreement, Seller will use its best efforts to retain and manage
its current personnel resources for Buyer's account, Seller hereby
acknowledging that Buyer's has several new toothbrush products under development
with Seller and Buyer has plans to market these new products during the
period of this amendment.
Secion 25--In addition to the provisions contained in this Section of the
Memorandum of Agreement, Buyer may, at its sole discretion and for any reason,
terminate this amendment and the entire Agreement at any time during the Period
by giving one hundred eighty (180) days advanced notice, in writing, to Seller
notifying Seller of Buyer's intention to terminate said Agreement.
Except as amended above, the Agreement shall remain in full force and effect.
Bob, please confirm your agreement to the above by signing and returning the
enclosed duplicate of this letter. Again, I apologize for the delay, and will
keep you advised our our study progress.
Sincerely
By: /s/ Richard A. Hughes
------------------------
Name: Richard A. Hughes
As: Director, Health Care PS-Purchases
For: The Procter & Gamble Manufacturing Company
Agreed to this 27th day of August, 1997
For: Anchor Advanced Products, Inc.
By: /s/ Robert T. Parkey
-----------------------------
Name: Robert T. Parkey
-----------------------------
As: Exec. Vice President
-----------------------------
(Title)
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income before taxes, extraordinary item and
cumulative effect $ 5,830 $3,617 $ 3,677 $ 6,217 $ 1,632
Fixed Charges 5,385 5,984 8,616 8,124 11,165
------- ------ ------ ------ -------
Earnings $11,215 9,601 12,293 14,341 12,797
------- ------ ------ ------ -------
Earnings to fixed charges 2.08x 1.60x 1.43x 1.77x 1.15x
======= ====== ====== ====== =======
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Form 10-K of our reports dated February 20,
1998, on our audits of the consolidated financial statements and financial
statement schedules of Anchor Holdings, Inc.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
March 18, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001030451
<NAME> Anchor Holdings, Inc.
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 6,914
<SECURITIES> 0
<RECEIVABLES> 16,474
<ALLOWANCES> (900)
<INVENTORY> 23,292
<CURRENT-ASSETS> 49,287
<PP&E> 97,814
<DEPRECIATION> (48,343)
<TOTAL-ASSETS> 120,839
<CURRENT-LIABILITIES> 15,392
<BONDS> 100,000
0
0
<COMMON> 10
<OTHER-SE> (2,849)
<TOTAL-LIABILITY-AND-EQUITY> 120,839
<SALES> 161,161
<TOTAL-REVENUES> 0
<CGS> 135,974
<TOTAL-COSTS> 12,677
<OTHER-EXPENSES> (287)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,165
<INCOME-PRETAX> 1,632
<INCOME-TAX> 794
<INCOME-CONTINUING> 838
<DISCONTINUED> 0
<EXTRAORDINARY> (1,210)
<CHANGES> 0
<NET-INCOME> (372)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
