<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8328
ANACOMP, INC.
Indiana 35-1144230
11550 North Meridian Street
Post Office Box 40888
Indianapolis, Indiana 46240
Registrant's Telephone Number is (317) 844-9666
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 and 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
The number of shares outstanding of the Common Stock of the registrant on March
31, 1995, the close of the period covered by this report, was 46,057,359.
<PAGE> 2
ANACOMP, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheets
March 31, 1995 and September 30, 1994 .................. 2
Condensed Consolidated Statements of Operations
Three and Six Months Ended March 31, 1995 and 1994...... 3
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 1995 and 1994................ 4
Condensed Consolidated Statements of Stockholders' Equity
Six Months Ended March 31, 1995 and 1994................ 5
Notes to Condensed Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............. 10
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities............................ 17
Item 6. Exhibits and Reports on Form 8-K........................... 17
SIGNATURES ............................................................ 18
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Anacomp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Dollars in thousands, Mar. 31, Sept. 30,
except per share amounts) 1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 6,232 $ 19,871
Accounts and notes receivable, less allowances for
doubtful accounts of $3,402 and $3,550, respectively . . 121,004 117,441
Current portion of long-term receivables . . . . . . . . . 8,409 8,021
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 68,458 63,375
Prepaid expenses and other . . . . . . . . . . . . . . . . 10,236 5,421
Total current assets . . . . . . . . . . . . . . . . . . . . 214,339 214,129
Property and equipment, at cost less
accumulated depreciation and amortization . . . . . . . . . 56,160 66,769
Long-term receivables, net of current portion . . . . . . . . 12,067 16,383
Excess of purchase price over net assets of businesses
acquired and other intangibles, net. . . . . . . . . . . . . 274,644 279,607
Deferred tax asset, net of valuation allowance of $57,000 . . 29,000 29,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 52,810 52,751
$639,020 $658,639
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . $392,128 $ 45,222
Accounts payable . . . . . . . . . . . . . . . . . . . . . 79,784 82,790
Accrued compensation, benefits and withholdings . . . . . . 14,019 16,573
Accrued income taxes . . . . . . . . . . . . . . . . . . . 12,290 9,000
Accrued interest. . . . . . . . . . . . . . . . . . . . . . 19,020 19,701
Other accrued liabilities . . . . . . . . . . . . . . . . . 46,276 35,027
Total current liabilities . . . . . . . . . . . . . . . . . . 563,517 208,313
Long-term debt, net of current portion. . . . . . . . . . . . -- 366,625
Other noncurrent liabilities. . . . . . . . . . . . . . . . . 7,599 9,467
Total noncurrent liabilities. . . . . . . . . . . . . . . . . 7,599 376,092
Redeemable preferred stock, $.01 par value,
issued and outstanding 500,000 shares
(aggregate preference value of $25,000). . . . . . . . . . . 24,526 24,478
Stockholders' equity:
Common stock, $.01 par value, authorized 100,000,000
shares, 46,057,359 and 45,728,505 issued, respectively . . 461 457
Capital in excess of par value of common stock . . . . . . 182,502 181,843
Cumulative translation adjustment . . . . . . . . . . . . . 1,152 (269)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . (140,737) (132,275)
Total stockholders' equity. . . . . . . . . . . . . . . . . . 43,378 49,756
$639,020 $658,639
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Anacomp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Three months ended Six months ended
(Dollars in thousands, March 31, March 31,
except per share amounts) 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Services provided . . . . . . . . . . . . . . . $ 55,956 $ 57,725 $110,836 $112,149
Equipment and supply sales . . . . . . . . . . 95,533 88,844 192,465 171,369
151,489 146,569 303,301 283,518
Operating costs and expenses:
Costs of services provided . . . . . . . . . . 39,860 40,518 77,982 77,792
Costs of equipment and supplies sold . . . . . 71,962 64,002 143,563 122,340
Selling, general and administrative expenses . 26,663 23,649 50,859 45,406
138,485 128,169 272,404 245,538
Income before interest, other income,
income taxes, and cumulative effect
of accounting change. . . . . . . . . . . . . . 13,004 18,400 30,897 37,980
Interest income . . . . . . . . . . . . . . . . . 608 724 1,083 1,501
Interest expense and fee amortization . . . . . . (16,051) (16,758) (34,000) (33,844)
Cost of withdrawn refinancing . . . . . . . . . . (3,000) -- (3,000) --
Other expense . . . . . . . . . . . . . . . . . . (1,125) (324) (963) (594)
(19,568) (16,358) (36,880) (32,937)
Income (loss) before income taxes
and cumulative effect of accounting change. . . (6,564) 2,042 (5,983) 5,043
Provision for income taxes. . . . . . . . . . . . 1,100 1,100 1,400 2,700
Income (loss) before cumulative
effect of accounting change. . . . . . . . . . . (7,664) 942 (7,383) 2,343
Cumulative effect on prior years of a change in
accounting for income taxes . . . . . . . . . . -- -- -- 8,000
Net income (loss) . . . . . . . . . . . . . . . . (7,664) 942 (7,383) 10,343
Preferred stock dividends and discount accretion. 539 539 1,079 1,079
Net income (loss) available to common stockholders $ (8,203) $ 403 $ (8,462) $ 9,264
======== ======== ======== ========
Earnings per common and common equivalent share:
Income (loss) from operations (net of preferred
stock dividends and discount accretion) . . . $ (.18) $ .01 $ (.18) $ .02
Cumulative effect on prior years of a change in
accounting for income taxes . . . . . . . . . -- -- .-- .18
Net income (loss) . . . . . . . . . . . . . . . $ (.18) $ .01 $ (.18) $ .20
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Anacomp, Inc., and Subsidiaries
<TABLE>
<CAPTION>
Six months ended
March 31,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................. $ (7,383) $ 10,343
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of a change in accounting
for income taxes........................................... -- (8,000)
Depreciation and amortization............................... 21,397 18,943
Loss on disposition of assets .............................. 865 469
Change in assets and liabilities:
Decrease in accounts and long-term receivables............ 2,778 4,303
Decrease (increase) in inventories and prepaid expenses... (9,352) 4,222
Increase in other assets.................................. (7,864) (8,897)
Increase (decrease) in accounts payable
and accrued expenses..................................... 3,335 (2,328)
Decrease in other noncurrent liabilities.................. (1,868) (1,823)
Net cash provided by operating activities............... 1,908 17,232
Cash flows from investing activities:
Proceeds from sale of assets.................................. 14,520 9,085
Purchases of property, plant and equipment.................... (7,631) (8,885)
Payments to acquire companies and customer rights............. (1,285) (10,350)
Net cash provided by (used in) investing activities..... 5,604 (10,150)
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants........... 519 956
Proceeds from revolving line of credit and
long-term borrowings......................................... 20,000 23,000
Principal payments on long-term debt ......................... (40,777) (26,243)
Preferred dividends paid...................................... (1,031) (1,031)
Net cash used in financing activities................... (21,289) (3,318)
Effect of exchange rate changes on cash......................... 138 160
Increase (decrease) in cash and cash equivalents................ (13,639) 3,924
Cash and cash equivalents at beginning of period................ 19,871 24,922
Cash and cash equivalents at end of period...................... $ 6,232 $ 28,846
========== ==========
Supplemental disclosures of cash flow information: Cash paid during the period for:
Interest ..................................................... $ 27,961 $ 29,134
Income taxes.................................................. $ 2,361 $ 883
Supplemental disclosure of noncash investing and financial activities:
In January 1994, the Company purchased the COM Services customer base of 14 micrographics
service centers operated by National Business Systems. Common stock was issued for $7.4
million of the purchase price.
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
Anacomp, Inc., and Subsidiaries
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1995 Capital in
excess of
par value Cumulative Retained
Common of Common Translation earnings
(In thousands) Stock Stock Adjustment (deficit) Total
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 ...... $ 457 $ 181,843 $ (269) $(132,275) $ 49,756
Exercise of stock options .......... 1 50 -- -- 51
Shares issued for purchases under the
Employee Stock Purchase Plan...... 2 466 -- -- 468
Preferred stock dividends .......... -- -- -- (1,031) (1,031)
Accretion of redeemable preferred
stock discount ................... -- -- -- (48) (48)
Translation adjustments for period.. -- -- 1,421 -- 1,421
Graham stock issuance............... 1 143 -- -- 144
Net income (loss) for the period.... -- -- -- (7,383) (7,383)
BALANCE AT MARCH 31, 1995 .......... $ 461 $ 182,502 $ 1,152 $(140,737) $ 43,378
======== ========= ========= ========= =========
SIX MONTHS ENDED MARCH 31, 1994 Capital in
excess of
par value Cumulative Retained
Common of Common Translation earnings
(In thousands) Stock Stock Adjustment (deficit) Total
BALANCE AT SEPTEMBER 30, 1993 ...... $ 406 $163,209 $ (4,744) $(145,072) $ 13,799
Exercise of stock options .......... 2 424 -- -- 426
Shares issued for purchases under the
Employee Stock Purchase Plan...... 2 527 -- -- 529
Preferred stock dividends .......... -- -- -- (1,031) (1,031)
Accretion of redeemable preferred
stock discount ................... -- -- -- (48) (48)
Translation adjustments for period.. -- -- (1,280) -- (1,280)
NBS stock issuance.................. 20 7,380 -- -- 7,400
Net income for the period .......... -- -- -- 10,343 10,343
BALANCE AT MARCH 31, 1994 .......... $ 430 $171,540 $ (6,024) $(135,808) $ 30,138
======== ======== ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ANACOMP, INC. AND SUBSIDIARIES
1. The condensed consolidated financial statements included herein have
been prepared by Anacomp, Inc. ("Anacomp" or the "Company") and its
wholly-owned subsidiaries without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are
adequate to make the information presented not misleading. The
condensed consolidated financial statements included herein should be
read in conjunction with the financial statements and the notes thereto
included in the Company's Annual Report to Stockholders and its Report
on Form 10-K as of September 30, 1994.
In the opinion of management, the accompanying interim financial
statements contain all material adjustments, consisting only of normal
recurring adjustments necessary to present fairly the consolidated
financial condition, results of operations, and changes in financial
position and stockholders' equity of Anacomp and its subsidiaries for
interim periods. Certain amounts in the prior interim consolidated
financial statements have been reclassified to conform to the current
period presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
The condensed consolidated financial statements include the accounts of
Anacomp, Inc. and its wholly-owned subsidiaries. Material intercompany
transactions have been eliminated.
Foreign Currency Translation
Substantially all assets and liabilities of Anacomp's international
operations are translated at the period-end exchange rates; income and
expenses are translated at the average exchange rates prevailing during
the period. Translation adjustments are accumulated in a separate
section of stockholders' equity. Foreign currency transaction gains and
losses are included in net income.
Segment Reporting
Anacomp operates in a single business segment - providing equipment,
supplies and services for information management, including storage,
processing and retrieval.
<PAGE> 8
Revenue Recognition
Revenues from sales of products and services or from lease of equipment
under sales-type leases are recorded based on shipment of products or
performance of services. Under sales-type leases, the present value of
all payments due under the lease contracts is recorded as revenue, cost
of sales is charged with the book value of the equipment plus
installation costs, and future interest income is deferred and
recognized over the lease term. Revenue from maintenance contracts is
recognized in earnings on a pro rata basis over the period of the
agreement.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined by methods approximating the first-in, first-out basis.
<TABLE>
<CAPTION>
The cost of the inventories is distributed as follows:
Mar. 31, Sept. 30,
(In thousands) 1995 1994
<S> <C> <C>
Finished goods ..................... $ 39,982 $ 41,661
Work in process .................... 7,398 5,903
Raw materials and supplies ......... 21,078 15,811
$ 68,458 $ 63,375
======== ========
</TABLE>
Property and Equipment
Property and equipment are carried at cost. Depreciation and
amortization of property and equipment are generally provided under the
straight-line method for financial reporting purposes over the shorter
of the estimated useful lives or the lease terms. Tooling costs are
amortized over the total estimated units of production, not to exceed
three years.
Research and Development
The costs associated with research and development programs are expensed
as incurred.
Included in "Other assets" on the accompanying Condensed Consolidated
Balance Sheets are unamortized deferred software costs. Deferred
software costs are the capitalized costs of software products to be sold
with COM systems in future periods. The unamortized costs are evaluated
for impairment each period by determining net realizable value. Such
costs are amortized under the straight-line method or over the estimated
units of sale, not to exceed five years.
<PAGE> 9
Intangibles
Excess of purchase price over net assets of businesses acquired
("goodwill") is amortized on the straight-line method over 15 to 40
years. Subsequent to acquisitions, the Company continually evaluates
whether later events and circumstances have occurred that indicate that
the remaining estimated useful life of goodwill remains appropriate or
the remaining balance of goodwill may not be recoverable. When factors
indicate that goodwill should be evaluated for possible impairment, the
Company uses an estimate of the related products undiscounted operating
income over the remaining life of goodwill in measuring whether the
goodwill is impaired. If it is determined that impairment has occurred,
the excess of the unamortized goodwill over the estimated future
undiscounted operating income will be charged to income. Other
intangibles represent the purchase of the rights to provide microfilm or
maintenance services to certain customers and are being amortized on a
straight-line basis over 10 years.
Sale/Leaseback Transactions
Anacomp entered into sale/leaseback transactions relating to COM systems
installed in the Company's data service centers. Part of the proceeds
were treated as fixed asset sales and the remainder as sales of
equipment. Revenues of $3.5 million and $750,000 were recorded in the
six months ended March 31, 1995 and 1994 respectively. All profits were
deferred and are being recognized over the applicable leaseback periods.
Income Taxes
In general, Anacomp's practice is to reinvest the earnings of its
foreign subsidiaries in those operations and to repatriate these
earnings only when it is advantageous to do so. It is expected that the
amount of U.S. federal tax resulting from a repatriation will not be
significant. Accordingly, deferred tax is not being recorded related to
undistributed foreign earnings.
Consolidated Statements of Cash Flows
Anacomp considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. These
temporary investments, primarily repurchase agreements and other
overnight investments, are recorded at cost, which approximates market.
3. As described in Item 3 herein, the Company is currently in default under
the Amended and Restated Master Agreement (the "Master Agreement")
governing the Company's Term Loans, the Revolving Credit Loan, the
Multicurrency Loan and the Series B Senior Notes (collectively, the
"Senior Secured Debt"). As a result of such default, and the cross
default provisions of the agreements governing the Company's
subordinated debt, all of Anacomp's long-term debt has been reclassified
as current at March 31, 1995.
<PAGE> 10
4. On April 6, 1995, Anacomp announced that it had withdrawn its proposed
offering of $225 million Senior Secured Notes and a related offer to
purchase up to $50 million of the Company's outstanding 15% Senior
Subordinated Notes due 2000 (the "15% Notes"). The offering would have
deferred an aggregate of $153 million in scheduled principal payments in
fiscal years 1995 through 1998, thereby providing Anacomp with increased
liquidity and additional cash for product development. Costs directly
related to the withdrawn offering of $3.0 million were charged to other
expense in the accompanying condensed consolidated statement of
operations.
5. The Company sold $5.5 million of lease receivables in the quarter ending
March 31, 1995. Under the terms of the sale, the purchasers have
recourse to the Company should the receivables prove to be
uncollectible. The amount of recourse at March 31, 1995 is $1.8
million.
6. Income tax expense is reported during interim periods using an estimated
annual effective tax rate for the the taxable jurisdictions in which the
Company operates. At March 31, 1995 the Company had U.S. federal net
operating loss carryforwards ("NOL's") of approximately $200 million
available to offset future taxable income. These NOL's expire
commencing in 1995.
7. The computation of earnings (loss) per common and common equivalent
share is based upon the weighted average number of common shares
outstanding during the periods plus (in the periods in which they have a
dilutive effect) the effect of common shares contingently issuable,
primarily from stock options and exercise of warrants.
The fully diluted per share computation reflects the effect of common
shares contingently issuable upon the exercise of warrants in periods in
which such exercise would cause dilution. Fully diluted earnings (loss)
per share also reflect (in the periods in which they have a dilutive
effect) additional dilution related to stock options due to the use of
the market price at the end of the period, when higher than the average
price for the period.
Fully diluted earnings (loss) per share are the same as primary earnings
per share for the periods presented.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Second Quarter Ended March 31, 1995 Compared With
Second Quarter Ended March 31, 1994
Results of Operations
General
Anacomp incurred a loss of $8.2 million for the three months ended March 31,
1995. Several of the micrographics product lines experienced disappointing
revenues and profits in the current quarter due to both competitive pricing in
certain product lines and lower volumes in equipment and supplies. Operating
income, i.e., income before interest, other income, and income taxes,
decreased $5.4 million compared to the same period of the prior year.
Contributing to the loss was $3.0 million of expenses associated with the
proposed refinancing of Anacomp's senior debt which was withdrawn in early
April. In addition, the second quarter results include a $630,000 loss on the
sale of an idle facility.
Total revenues for the three months ended March 31, 1995 increased $4.9
million over the same period of the prior year. The increase is due to a
$14.3 million increase in sales of magnetics products resulting from the
acquisition of Graham Magnetics in May 1994. Offsetting this contribution
were decreases in micrographics supplies and equipment, COM systems,
maintenance and other revenues.
Costs of services provided as a percent of services revenue were 71% in the
three months ended March 31, 1995, compared to 70% in the same period of the
prior year. Costs of equipment and supplies sold as a percent of equipment
and supplies sales were 75% for the three months ended March 31, 1995 compared
to 72% in the same period of the prior year. The increase in cost of
equipment and supplies is primarily due to the relatively greater proportion
of magnetic sales in the current period as a result of the Graham Magnetics
acquisition and the lower average gross margins on such sales. Margins were
also lower in COM systems and micrographics supplies and equipment.
Selling, general and administrative expenses were 18% of revenue in the three
months ended March 31, 1995 compared to 16% in the same period of the prior
year. The increase is due primarily to the acquisition of Graham Magnetics ,
including the impact of increased amortization of the "goodwill" recorded on
the transaction. In addition, the sale and leaseback of data center equipment
increased equipment rental costs by $950,000 more than the reduction in
depreciation costs compared to the prior period and this increase is reflected
in selling, general, and administrative expenses.
<PAGE> 12
Included in other expense is a $630,000 loss on the sale of an idle facility
in Hartford, Wisconsin which was vacated in 1992 upon the transfer of the
reader and reader/printer manufacturing operations to San Diego, California.
Products and Services
COM systems revenues for the three months ended March 31, 1995 decreased $2.5
million compared to the same period of the prior year. The Company sold or
leased 27 XFP 2000 COM systems to third party users in the current period
compared to 25 systems in the same period of the prior year. The lower
revenues in spite of increased placements of XFP 2000 COM systems is due to
several factors. First, the prior period included $1.4 million of revenue
resulting from the sale of six XFP's which had been under a rental program and
had therefore been included in the XFP unit count in a previous period, and
thus are not included in the 25 systems above. Also, the current quarter unit
count included three operating leases compared to two in the prior period, the
revenue from which is recognized on a month to month basis. Finally, the
configuration of features and options on the XFP's in the current period
resulted in less revenue per unit compared to the prior period. Operating
margins as a percent of revenue were down slightly for the quarter, excluding
the effect of the sale and leaseback revenues for which all profits are
deferred and recognized over the leaseback period.
Micrographics supplies and equipment revenues for the three months ended March
31, 1995 decreased 5% compared to the same period of the prior year. Sales of
original film were down 8% as a result of lower volumes. Readers and
reader/printers revenues were down 11%, as a result of lower volumes and lower
average selling prices. Duplicate film sales were down $275,000 or
approximately 2% compared to the prior period, despite the addition of First
Image and Eastman Kodak's European duplicate film business. Micrographics
supplies and equipment operating margins as a percent of revenue decreased
three percentage points as a result of changes in product mix, increased costs
of production, and lower average selling prices.
Micrographics services revenues decreased 2% for the three months ended March
31, 1995 compared to the same three months of fiscal 1994. COM services
volumes increased 4%, but average selling prices decreased approximately 7%.
The decrease in average selling prices is the continuation of a trend that the
Company has experienced over recent periods. Operating margins as a percent
of revenue decreased as the reduction in selling prices exceeded reductions
in production costs.
<PAGE> 13
Maintenance service revenues decreased $930,000, or 4%, primarily due to the
effect of replacing older generation COM systems with the XFP which has a
capacity significantly greater than the previous generation systems. Operating
margins as a percent of revenue improved slightly.
Magnetics revenues increased $14.3 million, or 66%, for the three months ended
March 31, 1995 compared to the same three months of fiscal 1994. The growth
is attributable to the acquisition of Graham Magnetics, although the precise
contribution from Graham can not be determined as the Graham operations have
been integrated with those of Anacomp. Magnetics operating margins as a
percent of revenue improved in the current period due to operating
efficiencies resulting from the Graham acquisition.
<PAGE> 14
Six Months Ended March 31, 1995 Compared With
Six Months Ended March 31, 1994
Results of Operations
General
Anacomp incurred a loss of $8.5 million for the six months ended March 31,
1995. Several of the micrographics product lines experienced disappointing
revenues and profits in the current period due to both competitive pricing in
certain product lines and lower volumes in equipment and supplies. Operating
income, i.e., income before interest, other income, and income taxes,
decreased $7.1 million compared to the same period of the prior year.
Contributing to the loss was $3.0 million of expenses associated with the
proposed refinancing of Anacomp's senior debt which was withdrawn in early
April. Also contributing to the loss was $1.4 million of accelerated debt fee
amortization and a $630,000 loss on sale of an idle facility.
Total revenues for the six months ended March 31, 1995 increased $19.8 million
over the same period of the prior year. The increase is due to a $30 million
increase in sales of magnetics products resulting from the acquisition of
Graham Magnetics in May 1994. In addition, the acquisition of 14 data service
centers from National Business Systems, Inc. ("NBS") on January 3, 1994
contributed $5.4 million to revenues for the first six months of fiscal 1995,
compared to $3.3 million for the corresponding six months of fiscal 1994.
Offsetting these contributions were decreases in micrographics supplies and
equipment, COM systems, maintenance and other revenues.
Costs of services provided as a percent of services revenue were 70% in the
first six months of fiscal 1995, compared to 69% in the first six months of
fiscal 1994. Costs of equipment and supplies sold as a percent of equipment
and supplies sales were 75% in the current period compared to 71% in the same
period of the prior year. The increase in cost of equipment and supplies is
primarily due to the relatively greater proportion of magnetic sales in the
current period as a result of the Graham Magnetics acquisition and the lower
average gross margins on such sales. Margins were also lower in COM systems
and micrographics supplies and equipment.
Selling, general and administrative expenses were 17% of revenue in the
current period compared to 16% in the prior period. The increase is due
primarily to the acquisitions of Graham Magnetics and NBS, including the
impact of increased amortization of the "goodwill" recorded on those
transactions. In addition, the sale and leaseback of data center equipment
increased equipment rental costs by $1.8 million more than the reduction in
depreciation costs compared to the prior period and this increase is reflected
in selling, general, and administrative expenses.
Interest expense and fee amortization includes $1.4 million of accelerated
amortization of debt fees as a result of accelerated debt paydowns that
occurred in the first quarter of fiscal 1995. In addition to scheduled debt
paydowns of $17.8 million, $15.8 million of Term Loan and Series A Notes were
repaid during the first quarter of fiscal 1995.
<PAGE> 15
Included in other expense is a $630,000 loss on the sale of an idle facility
in Hartford, Wisconsin which was vacated in 1992 upon the transfer of the
reader and reader/printer manufacturing operations to San Diego, California.
The Company has restated its financial statements for the three and six months
ended March 31, 1994 to recognize revenues for COM systems warehoused for
certain customers in the periods the units are shipped which is consistent
with the interim financial statements for fiscal 1995. The impact of this
restatement resulted in a decrease in revenues $1.5 million, and a decrease in
net income of $500,000 for the six months ended March 31, 1994. In addition,
the Company has reclassified accreted interest on unfavorable lease reserves
from discontinued operations to interest expense in 1994 to conform with the
1995 presentation.
Products and Services
COM systems revenues for the first six months decreased $1.1 million compared
to the same period of the prior year. The Company sold or leased 74 XFP 2000
COM systems to third party users in the current period compared to 69 systems
in the prior period. The current period also includes $3.5 million of sales
of equipment for Anacomp data centers under sale and leaseback arrangements
compared to $750,000 in the prior period. The lower revenues in spite of
increased placements of XFP 2000 COM systems is due to several factors.
First, the prior period included $1.4 million of revenue resulting from the
sale of six XFP's which had been under a rental program and had therefore been
included in the XFP unit count in a previous period, and thus are not included
in the 69 systems above. Also, the current period unit count included eight
operating leases compared to four in the prior period, the revenue from which
is recognized on a month to month basis. The current period also included the
sale of 17 older generation COM systems compared to 28 such sales in the prior
period. And, finally, the configuration of features and options on the XFP's
in the current period resulted in less revenue per unit compared to the prior
period. Operating margins as a percent of revenue were down slightly for the
period, excluding the effect of the sale and leaseback revenues for which all
profits are deferred and recognized over the leaseback period.
Micrographics supplies and equipment revenues for the first six months
decreased 4% compared to the same period of the prior year. Sales of original
film were down 5% as a result of lower volumes. Reader and reader/printer
revenues were down 9%, as a result of lower volumes, as well as lower average
selling prices. Duplicate film sales were up 2% largely as a result of the
addition of First Image and Eastman Kodak's European duplicate film business.
Micrographics supplies and equipment operating margins as a percent of revenue
decreased as a result of changes in product mix, increased costs of
production, and lower average selling prices.
Micrographics services revenues increased 1% in the first six months of fiscal
1995 compared to the first six months of fiscal 1994. COM services volumes
increased 9%, but average selling prices decreased approximately 8%.
Approximately one-third of the volume growth is due to the contribution of the
NBS customer base which was included in the prior period for only three
months. The decrease in average selling prices is due, in part, to the impact
of the NBS customer base which had lower average prices, but is also the
continuation of a trend that the Company has experienced over recent periods.
Operating margins as a percent of revenue decreased as the reduction in
selling prices exceeded reductions in production costs.
Maintenance service revenues decreased $2.3 million, or 5%, primarily due to
the effect of replacing older generation COM systems with the XFP which has a
capacity significantly greater than the previous generation systems.
Operating margins as a percent of revenue improved slightly.
<PAGE> 16
Magnetics revenues increased $30.1 million, or 75%, in the first six months of
fiscal 1995 compared to the first six months of fiscal 1994. The growth is
attributable to the acquisition of Graham Magnetics, although the precise
contribution from Graham can not be determined as the Graham operations have
been integrated with those of Anacomp. In addition, improved sales of
diskette media, or "cookies", and voice logging tape contributed $2.9 million
to the period to period improvement. Magnetics operating margins as a percent
of revenue improved in the current period due to operating efficiencies
resulting from the Graham acquisition.
Liquidity and Capital Resources
During the first six months, Anacomp repaid $36.5 million of Term, Series A
and Series B long-term debt with proceeds from sale and leaseback transactions
of data service center equipment ($13.0 million), drawdowns on the revolving
credit lines ($17.7 million), and available cash reserves ($5.8 million).
Anacomp's working capital at March 31, 1995, excluding the current portion of
long-term debt, amounted to $43.0 million compared to $51.0 million at
September 30, 1994. As disclosed in the Condensed Consolidated Statements of
Cash Flows, net cash provided by operating activities decreased to $1.9
million for the first six months compared to $17.2 million in the comparable
prior period, due to relatively higher levels of inventory and prepaid expense
and to the net loss for the period. Net cash provided by investing activities
increased to $5.6 million in the current period, compared to net cash used in
investing activities of $10.2 million in the comparable prior period,
primarily as a result of the sale and leaseback of data service center
equipment and reduced payments to acquire companies. Net cash used in
financing activities increased as a result of the debt paydowns described
above.
On April 6, 1995, Anacomp announced that it had withdrawn its proposed
offering of $225 million Senior Secured Notes and a related offer to purchase
up to $50 million of the Company's outstanding 15% Senior Subordinated Notes
due 2000 (the "15% Notes"). The offering would have deferred an aggregate of
$153 million in scheduled principal payments in fiscal years 1995 through
1998, thereby providing Anacomp with increased liquidity and additional cash
for product development.
As a result of the weaker than anticipated second quarter results and concerns
with the lack of sufficient short-term liquidity, the Company was not able to
make both the $20 million scheduled principal payment due April 26, 1995 on
its Senior Secured Debt and the $16.9 million scheduled interest payment due
May 1, 1995 on its 15% Notes. In anticipation of this problem, upon the
withdrawal of its proposed offering, the Company sought an agreement with its
Senior Secured Lenders to reschedule its April 26, 1995 principal payment on
the Senior Secured Debt. No such agreement has been reached. The Company
made its current interest payment of $2.5 million on its Senior Secured Debt
and is continuing to negotiate with its Senior Secured Lenders as to
rescheduling its principal payments and waiving certain financial covenants.
Although the Senior Secured Lenders have not waived the event of default and
could declare the entire indebtedness due and payable, no such demand has yet
been made.
<PAGE> 17
The Company did not make its May 1, 1995 interest payment of $16.9 million on
its 15% Notes. The documents governing the Company's indebtedness prohibit
the Company from making any payments on the 15% Notes during the continuation
of a payment default on the Senior Secured Debt.
Similarly, the documents governing the Company's indebtedness prohibit the
Company from making any payments on the 13.875% Convertible Subordinated
Debentures due January 15, 2002 ("13.875% Debentures") and the 9% Convertible
Subordinated Debentures due January 15, 1996 ("9% Debentures") during the
continuation of a payment default on the Senior Secured Debt. Accordingly, if
the event of default is continuing, Anacomp will be prohibited from making the
scheduled interest payment for the 13.875% Debentures on July 17, 1995, and
the final principal payment for the 9% Debentures on January 15, 1996.
Unless and until the Company resolves the payment default, and an agreement is
reached with its Senior Secured Lenders, the Company will defer payment of the
quarterly dividends on the Company's 8.25% Cumulative Convertible Exchangeable
Preferred Stock.
As a result of the second quarter operating results, the Company is in
violation of certain financial covenants contained in the Senior Credit
Agreement, including the interest coverage ratio covenant , the net worth
covenant and the fixed charge coverage ratio covenant. As a result of the
payment default, the Company is also in default of other financial covenants
as well.
As a result of such covenant violations and the cross-default provisions of
the Subordinated Debt Agreements, substantially all of Anacomp's long-term
debt has been reclassified as current at March 31, 1995. Under the terms of
the Company's Amended and Restated Master Agreement (the "Master Agreement")
governing the Senior Secured Debt, the failure to make required principal
payments when due permits the lenders under the Master Agreement to accelerate
their debt. The terms of the Company's other debt agreements contain cross-
default or cross-acceleration provisions which would permit the acceleration
of such other debt, as well, including the $25 million trade credit agreement
with SKC America, Inc. and the leases of the data center equipment under
certain sale and leaseback arrangements.
Despite the missed principal and interest payments described above, the
Company believes that it has sufficient liquidity from operations to conduct
the business while negotiating with its Senior Secured Lenders and other debt
holders.
Anacomp intends to negotiate a resolution of these financial issues with its
Senior Secured Lenders and other debt holders. The Company in has retained
Smith Barney Inc. as its advisor to assist the Company in evaluating various
restructuring alternatives and negotiating with its lenders. Although Anacomp
expects to negotiate an agreement, there can be no assurances that an
acceptable solution will be reached. If no such agreement is reached, a
Chapter 11 bankruptcy proceeding is a possibility.
<PAGE> 18
ANACOMP, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On April 6, 1995, Anacomp defaulted on the payment of its
Senior Secured Debt. See "Liquidity and Capital
Resources".
PAGE NUMBER
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<S> <C>
(a) Exhibits
(11) Computation of Earnings per Common Share. 19
(27) Financial Data Schedules.
(Required for electronic filling only)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended March 31, 1995.
</TABLE>
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANACOMP, INC.
/s/ Donald L. Viles
Donald L. Viles
Vice President and
Chief Accounting Officer
Dated this 15th day of May, 1995
<PAGE> 1
EXHIBIT 11
Anacomp, Inc. and Subsidiaries
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE (Unaudited)
PRIMARY
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
(In thousands, except per share amounts) 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Earnings (loss) per Common Share:
Net income (loss) available to
common stockholders.................. $(8,203) $ 403 $(8,462) $ 9,264
======= ======= ======= =======
Shares:
Weighted average common shares
outstanding .......................... 46,045 42,993 45,944 41,896
Adjustments:
(a) Assumed issuances under
acquisition contingencies........... -- 240 -- 240
(b) Assumed issuances under
stock option and stock
purchase plans (antidelutive
in a loss quarter) ................. -- 1,341 -- 1,265
(c) Assumed exercise of warrants......... -- 1,966 -- 1,825
Total shares ............................. 46,045 46,540 45,944 45,226
======= ======= ======= =======
Earnings (loss) per common share ......... $ (.18)$ .01 $ (.18) $ .20
======= ======= ======= =======
</TABLE>
<PAGE> 2
EXHIBIT 11
Anacomp, Inc. and Subsidiaries
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE (Unaudited)
ASSUMING FULL DILUTION
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
(In thousands, except per share amounts) 1995 1994 1995 1994
<S> <S> <S> <S> <S>
Earnings (loss) per Common Share:
Net income (loss) available to
common stockholder ................. $(8,203) $ 403 $(8,462) $ 9,264
======= ======= ======= =======
Shares:
Weighted average common shares
outstanding .......................... 46,045 42,993 45,944 41,896
Adjustments:
(a) Assumed issuances under
acquisition contingencies........... -- 240 -- 240
(b) Assumed issuances under
stock option and stock
purchase plans (antidelutive
in loss quarter) ................... -- 1,392 -- 1,391
(c) Assumed exercise of warrants......... -- 2,046 -- 2,103
Total shares ............................. 46,045 46,671 45,944 45,630
======= ======= ======= =======
Earnings (loss) per common share.......... $ (.18) $ .01 $ (.18) $ .20
======= ======= ======= =======
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANACOMP,
INC.'S MARCH 31, 1995 FORM 10-Q/A QUARTERLY REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 6,232
<SECURITIES> 0
<RECEIVABLES> 121,004
<ALLOWANCES> 3,402
<INVENTORY> 68,458
<CURRENT-ASSETS> 214,339
<PP&E> 157,101
<DEPRECIATION> 100,941
<TOTAL-ASSETS> 639,020
<CURRENT-LIABILITIES> 563,517
<BONDS> 0
0
24,526
<OTHER-SE> 43,378
<TOTAL-LIABILITY-AND-EQUITY> 639,020
<SALES> 192,465
<TOTAL-REVENUES> 303,301
<CGS> 143,563
<TOTAL-COSTS> 272,404
<OTHER-EXPENSES> (2,880)
<LOSS-PROVISION> 172
<INTEREST-EXPENSE> 34,000
<INCOME-PRETAX> (5,983)
<INCOME-TAX> 1,400
<INCOME-CONTINUING> (7,383)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,462)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
