As filed with the Securities and Exchange Commission on July , 1996
Registration No. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
ANACOMP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Indiana 3577 35-1144230
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
11550 North Meridian Street
P.O. Box 40888
Indianapolis, Indiana 46240
(317) 844-9666
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
George C. Gaskin, Esq.
Corporate Counsel
Anacomp, Inc.
2115 Monroe Drive N.2.
Atlanta, Georgia 30324
(404) 876-3361
(Name, Address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Michael C. Ryan, Esq.
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
(212) 504-6000
--------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
--------------------
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Title of Each Class of Amount Proposed Maximum Proposed Maximum Amount of
Securities to be Registered to be Registered Offering Price per Aggregate Offering Registration Fee
Security Price (1)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value, reserved
for issuance upon exercise of rights........ 3,000,000 shares $10.00 $30,000,000.00 $10,344.83
- -----------------------------------------------------------------------------------------------------------------------------------
Rights...................................... 3,000,000 rights -- -- -- (2)
===================================================================================================================================
</TABLE>
(1) The price stated is estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457 under the Securities Act of 1933; based on
the average of the high and low prices reported for the Common Stock on the
Nasdaq Automated Quotation System on July 30, 1996.
(2) Pursuant to Rule 457(g) under the Securities Act of 1933, no separate
registration fee is required with respect to the Rights.
================================================================================
--------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Item 501 of Regulation S-K
<TABLE>
<CAPTION>
S-1 Item Number and Caption Location or Heading in Prospectus
<S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus.................................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus... Inside Front Cover Page; Outside Back Cover Page
3. Summary of Information, Risk Factors and Ratio of
Earnings to Fixed Charges................................. Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data
4. Use of Proceeds........................................... Use of Proceeds
5. Determination of Offering Price........................... Outside Front Cover Page; Determination of Subscription
Price; The Financial Advisor
6. Dilution.................................................. Not Applicable
7. Selling Security Holders.................................. Not Applicable
8. Plan of Distribution...................................... Outside Front Cover Page; Plan of Distribution
9. Description of Securities to be Registered................ Outside Front Cover Page; The Rights Offering;
Description of Capital Stock
10. Interests of Named Experts and Counsel.................... Not Applicable
11. Information with Respect to the Registrant................ Outside Front Cover Page; Prospectus Summary;
Risk Factors; Price Range of Common Stock;
Dividend Policy; Capitalization; Selected
Consolidated Financial Data; Pro Forma Unaudited
Financial Information; Management's Discussion
and Analysis of Results of Operations and
Financial Condition; The Company; Description of
Certain Indebtedness; Description of Capital
Stock; Management; Security Ownership of Certain
Beneficial Owners and Management; Certain
Relationships and Related Transactions; Legal
Matters; Index to Financial Statements
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................ Not Applicable
</TABLE>
<PAGE>
Subject to Completion, dated -------------, 1996
PROSPECTUS
ANACOMP, INC.
Common Stock
Offered Pursuant to Transferable Rights
_________ Shares
Anacomp, Inc., an Indiana corporation (the "Company"), is distributing
transferable subscription rights ("Rights") to holders of record at the close of
business on _______, 1996 (the "Record Date") of its shares of common stock, par
value $.01 per share (the "Common Stock"). The Rights entitle stockholders to
subscribe for and purchase an aggregate of ________ shares of Common Stock (the
"Rights Offering") at a cash price of $_____ per share (the "Subscription
Price") [expected to be 80% of the last sale price of the Company's Common Stock
reported on the Nasdaq Automated Quotation System as of the last business day
prior to the date the Registration Statement relating to the Rights is declared
effective under the Securities Act of 1933]. Holders of Rights ("Rights
Holders") will be able to exercise Rights until 5:00 p.m., Eastern Standard
Time, on ________, 1996, unless extended or terminated by the Board of Directors
of the Company in its sole discretion (such time and date, the "Expiration
Date"). See "The Rights Offering."
Stockholders of the Company on the Record Date will receive ___ Rights to
purchase shares of Common Stock for each share of Common Stock held on the
Record Date. Rights Holders are entitled to purchase, at the Subscription Price,
one share of Common Stock for each whole Right held (the "Basic Subscription
Privilege"). An aggregate of approximately ____ Rights will be distributed
pursuant to the Rights Offering. In lieu of fractional Rights, the aggregate
number of Rights issued by the Company to a Rights Holder will be rounded up to
the next whole number. Each Right also entitles any Rights Holder exercising the
Basic Subscription Privilege in full to subscribe at the Subscription Price for
up to two additional shares of Common Stock for each share of Common Stock
purchased by the Rights Holder pursuant to the Basic Subscription Privilege (the
"Oversubscription Privilege"), to the extent shares are not otherwise subscribed
for pursuant to the exercise of the Basic Subscription Privilege. If an
insufficient number of shares of Common Stock is available to satisfy fully all
subscriptions pursuant to the Oversubscription Privilege, then the available
shares will be prorated among those who subscribe pursuant to the
Oversubscription Privilege. See "The Rights Offering -- Subscription Privileges
- -- Oversubscription Privilege." The Rights will be evidenced by transferable
certificates.
The Common Stock is traded over-the-counter under the symbol "ANCO." On
_____, 1996, the last full trading day prior to the public announcement of the
Rights Offering proposal, the last sale reported for the Common Stock on the
Nasdaq Automated Quotation System was $______. On ______, 1996, the last sale
reported for the Common Stock on the Nasdaq Automated Quotation System was
$_____. The Company will not attempt to register the Rights on an exchange, and
there can be no assurance that any market for the Rights will develop.
After the Expiration Date, the Rights will no longer be exercisable and
will have no value. Accordingly, Rights Holders are strongly urged either to
exercise or to sell their Rights.
See "Risk Factors" beginning on page 10 for a discussion of certain
considerations relevant to an investment decision.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------------
================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company (1)
- --------------------------------------------------------------------------------
Per Share of Common Stock.... $ None $
- --------------------------------------------------------------------------------
Total........................ $ None $
================================================================================
(1) Before deducting expenses payable by the Company estimated at an
aggregate of $_______.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
_____________________, 1996
<PAGE>
[ANY LEGEND OR INFORMATION REQUIRED BY THE LAW OF ANY STATE IN WHICH THE
SECURITIES ARE TO BE OFFERED.]
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the Commission at 7 World Trade Center, Room 1300, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Registration Statement can also
be reviewed through the Commission's Electronic Data Gathering, Analysis and
Retrieval System which is publicly available through the Commission's Web Site
(http://www.sec.gov.).
The Company has filed with the Commission a Registration Statement on Form
S-1 (collectively with any amendments, exhibits, schedules and supplements
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered hereby.
In accordance with the rules and regulations of the Commission, this Prospectus,
which constitutes part of the Registration Statement, omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and related exhibits filed as a part thereof
and otherwise incorporated therein for further information with respect to the
Company and the securities offered hereby. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of each document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference. Copies of
the Registration Statement and the exhibits thereto may be inspected without
charge at the offices of the Commission or obtained at prescribed rates from the
public reference facilities of the Commission at the addresses set forth above.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including notes thereto) appearing elsewhere in this Prospectus. Unless the
context otherwise requires, the "Company" means Anacomp, Inc. and its
subsidiaries. References to a fiscal year refer in each case to the twelve-month
period ended September 30.
The Company
The Company is the world's leading full-service provider of micrographics
systems, services and supplies, with over 15,000 customers in more than 65
countries. The Company is also the world's largest provider of Computer Output
Microfilm (COM) solutions for image and information management. Micrographics is
the conversion of information stored in digital form or on paper to microfilm or
microfiche, and COM converts textual and graphical digital information at high
speed directly from a computer or magnetic tape to microfilm or microfiche.
The Company offers a full range of micrographics services and supplies,
including (i) micrographics processing services to customers on an outsourcing
basis through its 45 data service centers nationwide, (ii) micrographics systems
for users who perform their own data conversion, (iii) consumable supplies and
equipment for micrographics systems, and (iv) maintenance services for
micrographics equipment. It is a major manufacturer and distributor of computer
tape products used by data processing operations, including open reel tape, 3480
tape cartridges and 3490E tape cartridges.
In the fiscal year ended September 30, 1995, the Company's revenues were
$591.2 million and operating income (income before special and restructuring
charges, interest, other income and income taxes) was $41.4 million.
The principal executive offices of the Company are located at 11550 North
Meridian Street, Suite 600, Carmel, Indiana 46032, telephone number (317)
844-9666.
Recent Reorganization
On June 4, 1996, the Company emerged from bankruptcy proceedings under its
Third Amended Joint Plan of Reorganization ("Plan of Reorganization"). On such
date, the Company canceled its existing secured debt and subordinated debt,
including 15% Senior Subordinated Notes, 13.875% Convertible Subordinated
Debentures and 9% Convertible Subordinated Debentures, and its equity
securities, including common stock, common stock purchase rights, preferred
stock and warrants, and distributed to its creditors approximately $22.0 million
in cash, $112.2 million principal amount of its 11 5/8% Senior Secured Notes due
1999 (the "Senior Secured Notes"), $160.0 million principal amount of its 13%
Senior Subordinated Notes due 2002 (the "Senior Subordinated Notes"), 10.0
million shares of new common stock, par value $.01 per share, and warrants to
purchase 362,694 shares of common stock at a price of $12.23 per share for a
period of five years from June 4, 1996. The Plan of Reorganization resulted in a
reduction of approximately $173.0 million in principal and accrued interest on
the Company's debt obligations and a liquidation amount and accrued interest on
its preferred stock.
<PAGE>
The Rights Offering
Rights........................Each record holder (a "Rights Holder") of Common
Stock at the close of business on _______ __, 1996
(the "Record Date") will receive ___ transferable
subscription rights ("Rights") for each share of
Common Stock held on the Record Date. The number
of Rights issued by the Company to a Rights Holder
will be rounded up to the nearest whole number.
Each Right will entitle the Rights Holder to
purchase from the Company one share of Common
Stock for a cash price of $___ (the "Subscription
Price") on the terms and subject to the conditions
of the offering. The distribution of Rights and
sale of shares of Common Stock upon the exercise
of Rights are referred to as the "Rights
Offering." An aggregate of approximately ____
Rights will be distributed pursuant to the Rights
Offering. After _________ __, 1996 (the
"Expiration Date"), the Rights will no longer be
exercisable and will have no value. Rights Holders
are strongly urged either to exercise or to sell
their Rights prior to the Expiration Date.
Record Date...................___________________, 1996.
Expiration Date ..............___________________, 1996, 5:00 p.m., Eastern
Standard Time, unless terminated or extended by
the Board of Directors of the Company, in its sole
discretion.
Basic Subscription Privilege..Rights Holders are entitled to purchase, at the
Subscription Price, one share of Common Stock for
each whole Right held (the "Basic Subscription
Privilege"). See "The Rights Offering --
Subscription Privileges -- Basic Subscription
Privilege."
Oversubscription Privilege....Each Rights Holder who elects to exercise the
Basic Subscription Privilege in full also may
subscribe at the Subscription Price for up to two
additional shares of Common Stock (the "Excess
Shares") for each share of Common Stock purchased
by the Rights Holder pursuant to the Basic
Subscription Privilege (the "Oversubscription
Privilege"), to the extent shares have not been
purchased pursuant to the Basic Subscription
Privilege, subject to proration and reduction by
the Company under certain circumstances.
There can be no assurance that there will be
Excess Shares sufficient to satisfy all exercises
of the Oversubscription Privilege. If an
insufficient number of Excess Shares is available
to satisfy fully all exercises of the
Oversubscription Privilege, then the Excess Shares
will be prorated among Rights Holders who exercise
their Oversubscription Privilege based upon the
respective numbers of shares of Common Stock for
which each such Rights Holder subscribes pursuant
to the Basic Subscription Privilege. See "The
Rights Offering -- Subscription Privileges --
Oversubscription Privilege."
Subscription Price .........$___________________, in cash, for each share of
Common Stock [expected to be 80% of the last sale
of the Company's Common Stock on the Nasdaq
Automated Quotation System as of the last day
prior to the date the Registration Statement
relating to the Rights is declared effective under
the Securities Act of 1933]. See "Determination of
Subscription Price."
Procedure for Exercising
Rights........................The Basic Subscription Privilege may be exercised
and the Oversubscription Privilege may be
subscribed for by properly completing the
Subscription Certificate evidencing the Rights (a
"Subscription Certificate") and forwarding such
Subscription Certificate (or following the
Guaranteed Delivery Procedures (as defined
below)), with payment of the Subscription Price
for each share of Common Stock purchased pursuant
to the Basic Subscription Privilege and subscribed
for pursuant to the Oversubscription Privilege, to
the Subscription Agent (as defined below) for
receipt by the Subscription Agent on or prior to
the Expiration Date. If the mail is used to
forward Subscription Certificates, it is
recommended that insured, registered mail be used.
If the aggregate Subscription Price paid by an
exercising Rights Holder is insufficient to
purchase the number of shares of Common Stock that
such holder indicates on the Subscription
Certificate are being purchased or subscribed for,
or if no number of shares of Common Stock to be
purchased or subscribed for is specified, then the
Rights Holder will be deemed to have exercised the
Basic Subscription Privilege to purchase shares of
Common Stock to the full extent of the payment
tendered. If the aggregate Subscription Price paid
by an exercising Rights Holder exceeds the amount
necessary to purchase the number of shares of
Common Stock for which the Rights Holder has
indicated on the Subscription Certificate an
intention to purchase, then the Rights Holder will
be deemed to have subscribed pursuant to the
Oversubscription Privilege to the full extent of
the excess payment tendered. If any Rights Holder
is allocated a fewer number of shares than such
Rights Holder subscribed for pursuant to the
Oversubscription Privilege, then the excess funds
paid by that holder will be returned without
interest or deduction. See "The Rights Offering --
Exercise of Rights."
No Revocation.................Once a Rights Holder has exercised the Basic
Subscription Privilege or subscribed for the
Oversubscription Privilege, such exercise or
subscription may not be revoked by such Rights
Holder. See "The Rights Offering -- No
Revocation."
Shares of Common Stock
Outstanding After the
Rights Offering...............Assuming the Rights Offering is fully subscribed
for, the Company will have approximately
___________ shares outstanding after the Rights
Offering, based on 10,000,000 shares outstanding
immediately prior to the consummation of the
Rights Offering.
Transferability of Rights.....The Rights are transferable.
Amendments and Termination....The Rights Offering may be extended, and its terms
and conditions amended by the Company, at the
Company's option. If the Company amends the terms
of the Rights Offering, a new definitive
Prospectus will be distributed to all Rights
Holders who had previously exercised Rights and to
all Rights Holders of record on the date of such
amendment, together with a form on which each
exercising Rights Holder can consent to the
amended terms. Any Rights Holder who had
previously exercised Rights, or who exercises
Rights within four (4) business days after the
mailing of the new definitive Prospectus, and who
does not so consent within ten (10) business days
after the mailing of the definitive Prospectus and
form of consent, will be deemed to have canceled
such exercise, and the Company will refund as soon
as practicable by mail the full amount of the
Subscription Price paid by such Rights Holder,
without interest or deduction. Any completed
Subscription Certificate received by the
Subscription Agent five (5) or more business days
after the date of the amendment will be deemed to
constitute the consent of the Rights Holder who
completed such Subscription Certificate to the
amended terms.
The Company may terminate the Rights Offering at
any time prior to delivery of the shares of Common
Stock. See "The Rights Offering -- Amendments and
Termination."
Persons Holding Shares, or
Wishing to Exercise Rights,
Through Others................Persons holding shares of Common Stock, and
receiving the Rights distributable with respect to
such shares, through a broker, dealer, commercial
bank, trust company or other nominee, as well as
persons holding certificates of Common Stock
personally who would prefer to have such
institutions effect transactions relating to the
Rights on their behalf, should contact the
appropriate institution or nominee and request it
to effect the transactions for them. See "The
Rights Offering -- Exercise of Rights."
Issuance of Common Stock......Certificates representing shares of Common Stock
purchased pursuant to the Basic Subscription
Privilege or the Oversubscription Privilege will
be delivered to subscribers as soon as practicable
after the Expiration Date and after all prorations
have been effected. See "The Rights Offering--
Subscription Privileges."
Use of Proceeds...............The net proceeds available to the Company from the
Rights Offering will be approximately $24.6
million. Such net proceeds will be used to finance
prospective acquisitions of businesses and
technologies. See "Use of Proceeds."
Subscription Agent............ChaseMellon Shareholder Services, L.L.C.
[Information Agent............____________________________________________.]
Nasdaq Automated Quotation
Symbol for Common Stock.......ANCO
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes selected consolidated historical operating
and financial data of the Company for the five fiscal years ended September 30,
1995, which were derived, except as otherwise noted, from the consolidated
financial statements of the Company audited by Arthur Andersen LLP. The table
also summarizes selected unaudited consolidated historical operating and
financial data for the six-month periods ended March 31, 1996 and 1995 and as of
March 31, 1996, derived from unaudited interim condensed consolidated financial
statements of the Company, which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the unaudited interim periods. The following
table also includes certain pro forma unaudited financial data that reflect
adjustments necessary to give effect to the transactions in connection with the
consummation of the Plan of Reorganization on June 4, 1996 and the Rights
Offering. The pro forma unaudited financial data do not purport to represent the
Company's results of operations or financial condition had the Company's
reorganization been effective for the periods indicated and do not purport to
project the Company's results of operations and financial condition for any
future period. This table should be read in conjunction with, and is qualified
in its entirety by reference to, "Selected Consolidated Financial Data",
"Management's Discussion and Analysis of Results of Operations and Financial
Condition," the Company's historical Consolidated Financial Statements and notes
thereto and the "Pro Forma Unaudited Financial Information" appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30 March 31
----------------------------------------------------------- ---------------------------
(unaudited)
Pro Forma
1991 1992 1993 1994 1995 1995 1996 (c)
---- ---- ---- ---- ---- ---- ---- ---------
(Dollars in thousands, except ratios and per share amounts)
OPERATING DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $635,361 $628,940 $590,208 $592,599 $591,189 $303,301 $256,176 $254,673
Cost of sales and
services.......... 423,956 428,308 404,752 420,483 440,667 203,562 175,099 173,941
Selling, general and
administrative.... 105,861 100,330 96,822 92,539 109,127 68,842 47,595 79,538
Special and
restructuring
charges (a)....... -- -- -- -- 169,584 -- -- --
Operating income
(loss)............ 105,544 100,302 88,634 79,577 (128,189) 30,897 33,482 1,194
Interest expense..... 79,655 71,947 68,960 67,174 70,938 34,000 23,785 21,394
Reorganization items. -- -- -- -- -- -- 23,251 --
Income (loss) before
extraordinary
credit and
cumulative effect
of accounting
change............ 18,105 18,221 11,691 6,955 (238,326) (7,383) (9,678) (22,524)
Net income (loss).... 29,205 26,921 18,591 14,955(b) (238,326) (7,383) (9,678) (22,524)
Income (loss) per
share (primary)
before
extraordinary
item and
cumulative effect
of accounting
change (net of
preferred stock
dividends and
discount
accretion)........ .38 .38 .22 .10 (5.22) (.18) (.22) ( )
Weighted average
shares
outstanding 41,689,577 42,712,865 42,749,933 47,335,723 46,061,818 45,944,409 47,084,388 13,125,000
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30 Six Months Ended March 31
(unaudited)
-------------------------------------------------------------- -----------------------------------
Pro
1991 1992 1993 1994 1995 1995 1996 Forma (c)
---- ---- ---- ---- ---- ---- ---- --------
(Dollars in thousands, except ratios and per share amounts)
SELECTED FINANCIAL RATIOS
AND OTHER FINANCIAL DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Depreciation and
amortization........... $ 31,551 $ 34,569 $ 33,006 $ 34,615 $ 35,998 $17,187 $13,369 $45,518
EBITDA (d)................ 137,095 134,871 121,640 114,192 77,393 48,084 46,851 46,712
Capital expenditures...... 13,916 18,755 20,726 18,868 14,372 7,631 2,537 2,537
Ratio of EBITDA to
interest expense ...... 1.72x 1.87x 1.76x 1.70x 1.09x 1.41x 1.97x 2.18x
Ratio of total debt to
EBITDA ................ 3.75x 3.54x 3.61x 3.61x 5.04x -- -- --
Ratio of earnings to
fixed charges (e) ..... 1.36x 1.41x 1.27x 1.21x (e) (e) (e) (e)
</TABLE>
As of March 31, 1996
--------------------
(unaudited)
Actual Pro Forma (c)
-------------- ---------------
BALANCE SHEET DATA
Cash........................... $49,259 $51,565
Property, plant, and equipment - net 36,663 36,663
Intangible assets (f).......... 155,473 --
Reorganization value in excess of
identifiable assets (g) ...... -- 258,957
Total assets................... 391,991 497,180
Total current liabilities (h).. 178,910 124,532
Total debt (i)................. 381,230 260,197
Redeemable preferred stock..... 21,340 --
Shareholders' equity (deficit). (195,037) 106,903
- ---------------------------------
(a) This item includes special charges of $136.9 million which represents a
write-off of goodwill of $108.0 million and $28.9 million of charges
associated with software costs which are not recoverable, as well as
restructuring charges of $32.7 million.
(b) The Company adopted Financial Accounting Standards No. 109, Accounting
for Income Taxes, in the first quarter of fiscal year 1994. The
adoption resulted in a one-time increase to net income of $8.0 million
reflecting the cumulative effect on prior years of this accounting
change. Prior to 1993, the Company recognized tax benefits resulting
from NOLs as an extraordinary item in the consolidated Statement of
Operations.
(c) The pro forma balance sheet data (i) gives effect to the transactions
in connection with the consummation of the Plan of Reorganization on
June 4, 1996 and (ii) gives effect to the Rights Offering (assuming
the sale of 3,125,000 shares, the total number of shares purchasable
upon exercise of Rights, and net proceeds of $24.6 million after
deducting estimated fees and expenses associated with the Rights
Offering), as if they occurred on March 31, 1996. The pro forma
operating data and selected financial ratios and other financial data
gives effect to the transactions in connection with the consummation
of the Plan of Reorganization as if they occurred on October 1, 1995.
See "Capitalization."
(d) EBITDA represents earnings before interest income and expense,
financial restructuring costs, reorganization items, other income,
income taxes, depreciation and amortization. EBITDA should not be
considered as an alternative to net income (as determined in accordance
with GAAP) as a measure of the Company's operating results or to cash
flows (as determined in accordance with GAAP) as a measure of the
Company's liquidity. This item also excludes special and restructuring
charges of approximately $169.6 million incurred in fiscal 1995.
(e) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges.
Fixed charges consist of interest expense on indebtedness, amortization
of deferred debt issuance costs, accretion of the original issue
discount and the portion of rental expense under operating leases that
has been deemed by the Company to be representative of an interest
factor, all on a pre-tax basis. For the year ended September 30, 1995,
the six months ended March 31, 1995 and 1996, and the pro forma six
months ended March 31, 1996 income, before income taxes was inadequate
to cover fixed charges. The amount of the coverage deficiency was
$203.3 million, $6.0 million, $6.0 million and $18.8 million,
respectively.
(f) Intangible assets represent primarily the excess of purchase price over
net assets of businesses acquired ("goodwill"). Goodwill is amortized
on the straight-line method over 15 to 40 years. Effective June 30,
1995, the Company elected to modify its method of measuring goodwill
impairment to a fair value approach. This revised accounting policy
resulted in a write-off of $108.0 million of goodwill related to the
micrographics business.
(g) For "fresh start" reporting purposes, any portion of the Company's
reorganization value not attributable to specific identifiable assets
will be reported as "Reorganization value in excess of identifiable
assets."
(h) Total current liabilities exclude current portion of long-term debt.
(i) Total debt does not include accrued but unpaid interest.
<PAGE>
RISK FACTORS
Prospective investors should carefully review the information set forth
below, together with the information and financial data set forth elsewhere in
this Prospectus, before making an investment decision.
Dependence of Values on Estimates of Future Performance. The Company's pro
forma unaudited financial statements have been prepared in accordance with the
requirements of AICPA Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). SOP 90-7
requires a determination of the Company's reorganization value, which is the
estimated fair value of the reorganized entity as a going concern at the time it
emerges from bankruptcy. The Company's estimate of its reorganization value is
based on a number of assumptions, including the assumptions upon which the
Company's estimates of future operating results are based. The valuation
necessarily assumes that the Company will achieve the estimates of future
operating results in all material respects. If these results are not achieved,
the resulting values could be materially different. See "Pro Forma Unaudited
Financial Information."
Adverse Effect of Growth of Digital Technologies. Revenues for the
Company's micrographic services and products have been adversely affected for
each of the past four fiscal years (see "Business Risks--Recent Declines in
Revenues") and could in the future be substantially adversely affected by, among
other things, the increasing use of digital technology. Micrographics
represented 78% of the Company's fiscal 1995 revenues and is expected to remain
the Company's primary source of revenues for the foreseeable future. The effect
of digital and other technologies on the demand for micrographics depends, in
part, on the extent of technological advances and cost decreases in such
technologies. The recent trend of technological advances and attendant price
declines in digital systems and products is expected to continue. As a result,
in certain instances, potential micrographics customers have deferred, and may
continue to defer, investments in micrographics systems (including the Company's
XFP 2000 system) and the utilization of micrographics data service centers while
evaluating the abilities of digital and other technologies.
The continuing development of local area computer networks and similar
systems based on digital technologies has resulted and will continue to result
in at least some Anacomp customers changing their use of micrographics from data
storage and retrieval to primarily data storage. The Company believes this is at
least part of the reason for the declines in the past three fiscal years in
sales of the Company's duplicate film, readers and reader/printers. The
Company's service centers also are producing fewer duplicate microfiche per
original for customers, reflecting this use of micrographics primarily for
storage. The rapidly changing data storage and management industry also has
resulted in intense price competition in certain of the Company's markets,
particularly micrographics services. The Company's operating margins were 13.1%
in the first half of fiscal 1996 compared to 7% in fiscal 1995, 13.4% in fiscal
1994 and 15% in 1993.
Recent Declines in Revenues. As a result of the rapidly changing nature of
the data storage and management industry, the Company has experienced declining
or flat revenues in each of the last five fiscal years. Revenues for fiscal 1995
decreased $32.2 million from 1994 and revenues decreased $47.1 million for the
first half of fiscal 1996 when compared to the same period for the previous
year. The $47.1 million decrease is primarily due to the discontinuance and
downsizing of certain product lines. Fiscal 1994 revenues decreased $29.1
million from 1993, and 1993 revenues decreased $42.6 million compared to the
prior year, excluding, in each case, acquisitions made by the Company during
such fiscal year. For further discussion by product line of recent trends in
revenues and operating margins, see "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
The Company has used acquisitions in the past to try to offset declining
revenues and increase market share. If the Company continues to experience
declining revenues, it may depend, in part, on acquisitions to try to offset
such declines, and there can be no assurance that the Company will be able to
effect any such further acquisitions. For example, revenues for the Company's
micrographics services business increased 5% in fiscal 1994 from 1993 largely
because of the acquisition of 14 data service centers or related customer bases.
Revenues for micrographics services declined 2% in fiscal 1993 from 1992, a
period during which only four data service centers were acquired. Acquisitions
generally have been of companies in markets in which the Company already
competes. The Company's substantial leverage limits the amount of cash flow
available for investment. The indenture for the Senior Secured Notes and the
terms of the Company's other indebtedness will restrict the Company's ability to
make acquisitions. See "Substantial Leverage."
Quarterly Earnings Fluctuations. Sales of the Company's COM (Computer
Output to Microfilm) systems, including its XFP 2000 systems, vary significantly
from quarter to quarter depending on various factors, including the level and
timing of orders and shipments, customer requirements, the mix of product
features selected and pricing changes, some of which are not within the control
of the Company. Additionally, as is the case with many technology companies, a
significant portion of the Company's sales of its COM systems typically occurs
in the last few weeks of a quarter. As a result, the Company's COM systems
revenues may shift from one quarter to the next, having a significant effect on
reported results, and quarterly revenues and reported results cannot be
accurately estimated even a few weeks prior to the end of a quarter. See note 20
to the Company's audited consolidated financial statements appearing elsewhere
in this Prospectus.
Availability of Polyester and Certain Other Supplies. Polyester is the
basic raw material for the Company's film and magnetics products. Large
increases in the price of polyester are likely to affect the Company's operating
margins adversely as the maturity of the Company's markets makes it difficult to
effect price increases. Increased polyester prices also could result in the loss
of certain customers. The Company and its principal polyester and duplicate film
vendor, SKC Limited and SKC America, Inc. (collectively, "SKC"), from time to
time negotiate polyester price increases relating to these products, and there
can be no assurance as to the outcome of any such negotiations. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources."
Certain third parties are the sole suppliers of some of the Company's raw
materials and products. Any disruption in the supply relationship between the
Company and such suppliers could result in delays or reductions in product
shipment or increases in product costs that adversely affect the Company's
operating results in any given period. In the event of any such disruption,
there can be no assurance that the Company could develop alternative sources at
acceptable prices and within reasonable times. For a further description of the
Company's raw material needs and supply relationships, see "The Company--Raw
Materials and Suppliers."
New Products. The Company is attempting to introduce new data storage and
management products and services incorporating digital technologies. These
products and services are currently being introduced and, accordingly, have
limited or no revenues to date. The markets for such new products and services
are very competitive, and there can be no assurances that the Company's products
and services will achieve market acceptance. The Company has no experience in
the manufacture, sale or marketing of these new products and services. The
Company currently is in the process of reeducating and refocusing its sales
force to sell its new products and services, as well as its more traditional COM
products and services, and there can be no assurance that this will be
successfully achieved. The Company's substantial leverage also may hinder the
development and deployment of new technologies. See "Substantial Leverage."
International. The Company's financial results are dependent in part on its
international operations, which represented 32% of revenues for fiscal 1995. The
Company expects that its international operations will continue to be a
significant portion of the Company's business as the Company seeks to expand its
international presence. Certain risks are inherent in international operations,
including exposure to currency fluctuations. From time to time in the past, the
Company's financial results have been affected both favorably and unfavorably by
fluctuations in currency exchange rates. Unfavorable fluctuations in currency
exchange rates also may have an adverse impact on the Company's revenues and
operating results. The Company does not currently enter into hedging
arrangements, although it may do so in the future.
Substantial Leverage. The Company has significant debt service obligations.
The ability of the Company to meet its debt service and other obligations will
depend upon its future performance and is subject to financial, economic and
other factors, some of which are beyond its control.
In the event that internally generated funds are not sufficient to fund the
Company's capital expenditures and its debt service obligations, the Company
would be required to raise additional funds through the sale of equity
securities, the refinancing of all or part of its indebtedness or the sale of
assets. Each of these alternatives is dependent upon financial, business and
other general economic facts affecting the Company, many of which are beyond the
control of the Company, and there can be no assurance that any such alternatives
would be available to the Company, if at all, on satisfactory terms. While the
Company believes that cash flow generated by operations will provide adequate
sources of long-term liquidity, a significant drop in operating cash flow
resulting from economic conditions, competition or other uncertainties beyond
the Company's control could increase the need for refinancing or new capital.
The indenture governing the Senior Secured Notes (the "Senior Secured
Indenture"), and the indenture governing the Senior Subordinated Notes (the
"Senior Subordinated Indenture") imposes restrictions on the operations and
activities of the Company. The most significant restrictions relate to debt
incurrence, investments, sales of assets and cash distributions by the Company.
The failure to comply with any of these restrictions could result in an event of
default under the Senior Secured Indenture or Senior Subordinated Indenture.
Certain Anti-Takeover Provisions. The Company's Amended and Restated
Articles of Incorporation and By-laws contain certain provisions that may
discourage persons from attempting to acquire control of the Company. Such
provisions, as well as the provisions of Chapter 43 of the Indiana Business
Corporation Law (to which the Company is subject), could impede a merger,
consolidation, takeover or other business combination involving the Company or
discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of the Company. In certain circumstances, the fact
that corporate devices are in place that will inhibit or discourage takeover
attempts could reduce the market value of the Common Stock. See "Description of
Capital Stock -- Certain Anti-Takeover Matters."
Dilution. Rights Holders who do not exercise their Basic Subscription
Privilege and Oversubscription Privilege in full will suffer dilution in their
voting rights and their proportional interest in any future net earnings of the
Company.
Market Considerations. There can be no assurance that the market price of
the Common Stock will not decline during the subscription period or that,
following the issuance of the Rights and the sale of the shares of Common Stock
upon exercise of Rights, a subscribing Rights Holder will be able to sell shares
purchased in the Rights Offering at a price equal to or greater than the
Subscription Price. The election of a Rights Holder to exercise Rights in the
Rights Offering is irrevocable. Moreover, until certificates are delivered,
subscribing Rights Holders may not be able to sell the shares of Common Stock
that they have purchased in the Rights Offering. Certificates representing
shares of Common Stock purchased pursuant to the Basic Subscription Privilege or
the Oversubscription Privilege will be delivered as soon as practicable after
all prorations and adjustments contemplated by the terms of the Rights Offering
have been effected.
No interest will be paid to Rights Holders or funds delivered to the
Subscription Agent pursuant to the exercise of Rights pending delivery of shares
of Common Stock.
There is currently no public market for the Rights, and the Company does
not intend to apply for listing of the Rights on any securities exchange. It is
anticipated that the Rights will trade on the over-the-counter market, although
there can be no assurance that any market for the Rights will develop or as to
the ability of Rights Holders to sell their Rights prior to the Expiration Date.
Dividend Restrictions and Trading Market Risks. The Company does not
anticipate paying dividends on the Common Stock in the foreseeable future. See
"Dividend Policy." Further, the Company will be restricted under the Senior
Secured Indenture and the Senior Subordinated Indenture in its ability to pay
dividends. In addition, ownership of a substantial number of shares of Common
Stock may be concentrated in a relatively small number of holders. Sales of, or
offers to sell, a substantial number of shares of Common Stock, or the
perception by investors, investment professionals and securities analysts of the
possibility of such sales, could adversely affect the market for and price of
the Common Stock.
<PAGE>
THE RIGHTS OFFERING
The Rights
The Company is distributing transferable Rights to the record holders of
its outstanding Common Stock as of the close of business on ___________________,
1996 (the "Record Date"). The Company will distribute, at no cost to the record
holders, ___ Rights for each share of Common Stock held on the Record Date. An
aggregate of approximately ____ Rights will be distributed pursuant to the
Rights Offering. Rights will be evidenced by transferable subscription
certificates (the "Subscription Certificates"), which are being distributed to
each Rights Holder contemporaneously with the delivery of this Prospectus.
No fractional Rights or cash in lieu thereof will be issued or paid. The
number of Rights distributed to each holder of Common Stock will be rounded up
to the nearest whole number. No Subscription Certificate may be divided in such
a way as to permit the holders of Common Stock to receive a greater number of
Rights than the number to which such Subscription Certificate entitles its
holder, except that a depository, bank, trust company, and securities broker or
dealer holding shares of Common Stock on the Record Date for more than one
beneficial owner may, upon proper showing to the Subscription Agent, exchange
its Subscription Certificate to obtain a Subscription Certificate for the number
of Rights to which all such beneficial owners in the aggregate would have been
entitled had each been a holder on the Record Date. The Company reserves the
right to refuse to issue any such Subscription Certificate if such issuance
would be inconsistent with the principle that each beneficial owner's holdings
will be rounded up to the nearest whole Right.
Because the number of Rights distributed to each stockholder will be
rounded up to the nearest whole number, beneficial owners of Common Stock who
are also the record holders of such shares might receive more Rights under
certain circumstances than beneficial owners of Common Stock who are not the
record holder of their shares and who do not obtain (or cause the record owner
of their shares of Common Stock to obtain) a separate Subscription Certificate
with respect to the shares beneficially owned by them, including shares held in
an investment advisory or similar account. To the extent that record holders of
Common Stock or beneficial owners of Common Stock who obtain a separate
Subscription Certificate receive more Rights, they will be able to subscribe for
more shares pursuant to the Basic Subscription Privilege and pursuant to the
Oversubscription Privilege.
[State intention of present directors and officers to exercise Rights and,
if applicable, exercise the Oversubscription Privilege.]
Expiration Date
The Rights will expire at 5:00 p.m., New York City time, on ____________
__, 1996. After the Expiration Date, unexercised Rights will be null and void.
The Company will not be obligated to honor any purported exercise of Rights
received by the Subscription Agent after the Expiration Date, regardless of when
the documents relating to such exercise were sent, except pursuant to the
"Guaranteed Delivery Procedures" described below.
Subscription Privileges
Basic Subscription Privilege
Stockholders of the Company will receive __ Rights to purchase shares of
Common Stock at the Subscription Price for each share of Common Stock held on
the Record Date (the "Basic Subscription Privilege"). Each Right entitles the
holder to purchase at the Subscription Price one share of Common Stock. Each
Rights Holder is entitled to subscribe for all, or any portion of, the shares of
Common Stock subject to Rights.
Oversubscription Privilege
Each Right also entitles any Rights Holder exercising the Basic
Subscription Privilege in full to subscribe for up to two additional shares of
Common Stock for each share of Common Stock purchased pursuant to the Basic
Subscription Privilege (the "Oversubscription Privilege"), to the extent share
have not been purchased pursuant to the Basic Subscription Privilege. Only
Rights Holders who exercise all of the Rights pursuant to the Basic Subscription
Privilege will be entitled to exercise the Oversubscription Privilege.
Shares of Common Stock will be available for purchase pursuant to the
Oversubscription Privilege only to the extent that any shares of Common Stock
are not subscribed for through the Basic Subscription Privilege. If the shares
of Common Stock not subscribed for through the Basic Subscription Privilege (the
"Excess Shares") are not sufficient to satisfy all subscriptions pursuant to the
Oversubscription Privilege, the Excess Shares will be allocated pro rata
(subject to the elimination of fractional shares) among the Rights Holders
exercising the Oversubscription Privilege in proportion to the number of shares
of Common Stock a Rights Holder exercising the Oversubscription Privilege has
subscribed for pursuant to the Basic Subscription Privilege.
Banks, brokers and other nominee Rights Holders who exercise the B
subscribe pursuant to the Oversubscription Privilege on behalf of beneficial ow
certify to the Subscription Agent and the Company, in connection with t
Oversubscription Privilege, as to the aggregate number of Rights that have b
shares of Common Stock that are being subscribed for pursuant to the Ov
beneficial owner of Rights on whose behalf such nominee holder is acting.
Subscription Price
The Subscription Price is $_______________ per share of Common Stock [,
which is expected to be 80% of the last sale price of the Common Stock reported
on the Nasdaq Automated Quotation System on ____, 1996, the day prior to the
date the Registration Statement to which this Prospectus relates was declared
effective under the Securities Act]. See "Determination of Subscription Price."
Exercise of Rights
Rights may be exercised by delivering to ChaseMellon Shareholder Services,
L.L.C. (the "Subscription Agent") at the addresses specified below, on or prior
to the Expiration Date, the properly completed and executed Subscription
Certificate evidencing such Rights with any signatures guaranteed as required,
together with payment in full of the Subscription Price for each share of Common
Stock purchased pursuant to the Basic Subscription Privilege and subscribed for
pursuant to the Oversubscription Privilege. Payment may be made only (a) by
check or bank draft drawn upon a U.S. bank or postal, telegraphic or express
money order payable to ChaseMellon Shareholder Services, L.L.C., as Subscription
Agent, or (ii) by wire transfer of funds to the account maintained by the
Subscription Agent for the purpose of accepting subscriptions at _______
(Subscriber's name, for further credit to Anacomp, Inc. Rights Offering Account
#______). The Subscription Price will be deemed to have been received by the
Subscription Agent only upon (i) clearance of any uncertified check, (ii)
receipt by the Subscription Agent of any certified check or bank draft drawn
upon a U.S. bank or of any postal, telegraphic or express money order or (iii)
receipt of collected funds in the Subscription Agent's account designated above.
If paying by uncertified personal check, please note that the funds paid thereby
may take at least five business days to clear. Accordingly, Rights Holders who
wish to pay the Subscription Price by means of uncertified personal check are
urged to make payment sufficiently in advance of the Expiration Date to ensure
that such payment is received and clears by such date and are urged to consider
payment by means of certified or cashier's check or money order. All funds
received in payment of the Subscription Price will be held by the Subscription
Agent and invested at the direction of the Company in short-term certificates of
deposit, short-term obligations of the United States or any state or any agency
of the United States or money market mutual funds investing in such instruments.
[Any interest earned on such funds will be retained by the Company.]
Subscription Certificates and payment of the Subscription Price or, if
applicable, Notices of Guaranteed Delivery or DTC Participant Oversubscription
Subscription Forms (each, as defined below) should be delivered to the
Subscription Agent at the following addresses for the Subscription Agent set
forth below.
If a Rights Holder wishes to exercise Rights, but time will not permit such
holder to cause the Subscription Certificate or Subscription Certificates
evidencing such Rights to reach the Subscription Agent on or prior to the
Expiration Date, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(i) such holder has caused payment in full to the Subscription
Price for each share of Common Stock being purchased pursuant to the
Basic Subscription Privilege and subscribed for pursuant to the
Oversubscription Privilege to be received (in the manner set forth
above) by the Subscription Agent on or prior to the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the
Expiration Date, a guarantee notice (a "Notice of Guaranteed
Delivery"), substantially in the form provided with the "Instructions
as to Use of Anacomp, Inc. Subscription Certificates" (the
"Instructions") distributed with the Subscription Certificates, from a
member firm of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc., from a commercial
bank or trust company having an office or correspondent in the United
States, or from a financial institution acceptable to the Subscription
Agent (each an "Acceptable Institution"), stating the name of the
exercising Rights Holder, the number of Rights represented by the
Subscription Certificate or Subscription Certificates held by such
exercising Rights Holder, the number of shares of Common Stock being
purchased pursuant to the Basic Subscription Privilege and the number
of shares of Common Stock, if any, being subscribed for pursuant to the
Oversubscription Privilege, and guaranteeing the delivery to the
Subscription Agent of any Subscription Certificate evidencing such
Rights within five trading days on the Nasdaq Automated Quotation
System following the date of the Notice of Guaranteed Delivery; and
(iii) the properly completed Subscription Certificate
evidencing the Rights being exercised, with any required signature
guaranties, is received by the Subscription Agent within five trading
days [on the Nasdaq Automated Quotation System] following the date of
the Notice of Guaranteed Delivery relating thereto. The Notice of
Guaranteed Delivery may be delivered to the Subscription Agent in the
same manner as Subscription Certificates at the addresses set forth
above, or may be transmitted to the Subscription Agent by telegram or
facsimile transmission (telecopy no. (___) ___-_____). Additional
copies of the form of Notice of Guaranteed Delivery are available upon
request from the Subscription Agent or the Information Agent, whose
address and telephone number is set forth below.
If an exercising Rights Holder does not indicate the number of Rights being
exercised, or does not forward full payment of the aggregate Subscription Price
for the number of Rights that the Rights Holder indicates are being exercised,
then the Rights Holder will be deemed to have exercised the Basic Subscription
Privilege with respect to the maximum number of Rights that may be exercised for
the aggregate Subscription Price payment delivered by the Rights Holder, and to
the extent that the aggregate Subscription Price payment delivered by the Rights
Holder exceeds the product of (a) the Subscription Price and (b) the number of
Rights evidenced by the Subscription Certificates delivered by the Rights Holder
(such excess being the "Subscription Excess"), the Rights Holder will be deemed
to have subscribed pursuant to the Oversubscription Privilege to purchase, to
the extent available, that number of whole remaining Shares equal to the
quotient of (i) the Subscription Excess and (ii) the Subscription Price, for up
to two additional shares of Common Stock for each share of Common Stock such
Rights Holder would be entitled to purchase pursuant to the Basic Subscription
Privilege. Any amount remaining after such division will be returned to the
Rights Holder by mail without interest or deduction.
Funds received in payment of the Subscription Price for Remaining Shares
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account pending issuance of such remaining Shares. If a Rights Holder
subscribing pursuant to the Oversubscription Privilege is allocated less than
all of the shares of Common Stock which such holder wished to subscribe for
pursuant to the Oversubscription Privilege, the excess funds paid by such holder
in respect of the Subscription Price for shares not issued will be returned by
mail without interest or deduction as soon as practicable after the Expiration
Date.
Unless a Subscription Certificate (i) provides that the shares of Common
Stock to be issued pursuant to the exercise of Rights represented thereby are to
be delivered to the holder of such Rights or (ii) is submitted for the account
of an Acceptable Institution, signatures on such Subscription Certificate must
be guaranteed by a participant in the Securities Transfer Agents Medallion
Program, the Stock Exchange Medallion Program or the New York Stock Exchange
Inc. Medallion Signature Program.
Persons who hold shares of Common Stock for the account of others, such as
brokers, trustees or depositories for securities, should notify the respective
beneficial owners of such shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the record holder of such Right
should complete Subscription Certificates and submit them to the Subscription
Agent with the proper payment. In addition, beneficial owners of Common Stock or
Rights held through such a holder should contact the holder and request the
holder to effect transactions in accordance with the beneficial owners'
instructions.
The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., EASTERN
STANDARD TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY
TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR
ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights or subscriptions pursuant to the Oversubscription
Privilege will be determined by the Company, whose determinations will be final
and binding. The Company in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right or
subscription pursuant to the Oversubscription Privilege. Subscriptions will not
be deemed to have been received or accepted until all irregularities have been
waived or cured within such time as the Company determines in its sole
discretion. Neither the Company nor the Subscription Agent will be under any
duty to give notification of any defect or irregularity in connection with the
submission of Subscription Certificates or incur any liability for failure to
give such notification.
Any questions or requests for assistance concerning the method of exerci
pursuant to the Oversubscription Privilege or requests for additional copies of
this P or the Notice of Guaranteed Delivery should be directed to the
[Information Agent, its addresses set forth under "Information Agent" (telephone
_______________)].
No Revocation
ONCE A RIGHTS HOLDER HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE AND/OR
OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE OR SUBSCRIPTION MAY NOT BE REVOKED BY
SUCH RIGHTS HOLDER.
Method of Transferring Rights
Rights may be purchased or sold through usual investment channels,
including banks and brokers.
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying instructions. A portion of the Rights evidenced
by a single Subscription Certificate (but not fractional Rights) may be
transferred by delivering to the Subscription Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register such portion of
the Rights evidenced thereby in the name of the transferees (and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights).
In such event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the Rights Holder or, if the Rights Holder so
instructs, to an additional transferee.
Holders of Common Stock wishing to transfer all or a portion of their
Rights (but not fractional Rights) should allow a sufficient amount of time
prior to the Expiration Date for (i) the transfer instructions to be received
and processed by the Subscription Agent, (ii) a new Subscription Certificate to
be issued and transmitted to the transferee or transferees with respect to
transferred Rights, and to the transferor with respect to retained Rights, if
any, and (iii) the Rights evidenced by such new Subscription Certificates to be
exercised or sold by the recipients thereof. Neither the Company nor the
Subscription Agent shall have any liability to a transferee or transferor of
Rights if Subscription Certificates are not received in time for exercise or
sale prior to the Expiration Date.
Except for the fees charged by the Subscription Agent, and the fee paid to
the Standby Purchasers (each of which will be paid by the Company as described
above), all commissions, fees and other expenses (including brokerage
commissions and transfer taxes) incurred in connection with the purchase, sale
or exercise of Rights will be for the account of the transferor of the Rights,
and none of such commissions, fees or expenses will be paid by the Company or
the Subscription Agent.
Procedures for DTC Participants
The Company anticipates that the exercise of the Basic Subscription
Privilege (but not the Oversubscription Privilege) may be effected through the
facilities of The Depository Trust Company ("DTC"). Rights exercised through DTC
are referred to as "DTC Exercised Rights." The holder of a DTC Exercised Right
may subscribe pursuant to the Oversubscription Privilege in respect of such DTC
Exercised Right by properly executing and delivering to the Subscription Agent,
at or prior to 5:00 p.m., New York City time on the Expiration Date, a DTC
Participant Oversubscription Subscription Form, together with payment of the
appropriate Subscription Price for the number of shares of Common Stock
subscribed for pursuant to the Oversubscription Privilege. Copies of the DTC
Participant Oversubscription Subscription Form may be obtained from the
Subscription Agent at __________________________________________ [or the
Information Agent at ___________________________________________________].
Amendments and Termination
The Company reserves the right to extend the Expiration Date and to amend
the terms and conditions of the Rights Offering. If the Company amends the terms
of the Rights Offering, the Registration Statement of which this Prospectus
forms a part will be amended, and a new definitive Prospectus will be
distributed to all Rights Holders who have previously exercised Rights and to
holders of record of unexercised Rights on the date the Company amends such
terms. In addition, all Rights Holders who have previously exercised Rights, or
who exercise Rights within four (4) business days after the mailing of the new
definitive Prospectus, will be provided with a form of Consent to Amended Rights
Offering Terms, on which such Rights Holders can confirm their exercise of
Rights and their subscriptions under the terms of the Rights Offering as amended
by the Company; any Rights Holder who has previously exercised any Rights, or
who exercises Rights within four (4) business days after the mailing of the new
definitive Prospectus, and who does not return such Consent within ten (10)
business days after the mailing of such Consent by the Company will be deemed to
have canceled such Rights Holder's exercise of Rights, and the full amount of
the Subscription Price theretofore paid by such Rights Holder will be returned
promptly by mail, without interest or deduction. Any completed Subscription
Certificate received by the Subscription Agent five (5) or more business days
after the date of the amendment will be deemed to constitute the consent of the
Rights Holder who completed such Subscription Certificate to the amended terms.
The Company reserves the right at any time prior to delivery of the shares
of Common Stock purchased in the Rights Offering to terminate the Rights
Offering. Such termination would be effected by the Company by giving oral or
written notice of such termination to the Subscription Agent and making a public
announcement thereof. If the Rights Offering is so terminated, the Subscription
Price will be promptly returned by mail to exercising Rights Holders, without
interest or deduction. Neither the Company nor any selling Rights Holder will
have any obligation to a purchaser of Rights, whether such purchase was made
through the Subscription Agent or otherwise, in the event the Rights Offering is
terminated.
Shares Not Purchased in Rights Offering
Any shares of Common Stock remaining after exercise of the Basic
Subscription Privilege and the Oversubscription Privilege will be retained by
the Company and will not be offered to the public. The Company will attempt to
enter into a standby purchase agreement pursuant to which one or more persons,
including current stockholders of the Company, would agree to acquire from the
Company at the Subscription Price all of the Common Stock, if any, available
after the exercise of the Basic Subscription Privilege and the Oversubscription
Privilege, and would receive a usual and customary fee for such service. There
is no guarantee, however, that the Company will be able to enter into a standby
purchase agreement on terms acceptable to the Company and any such standby
purchaser or purchasers.
Subscription Agent
The Company has appointed ChaseMellon Shareholder Services, L.L.C. as
Subscription Agent for the Rights Offering. The Subscription Agent's addresses,
which are the addresses to which the Subscription Certificates and payment of
the Subscription Price should be delivered, as well as the address to which a
Notice of Guaranteed Delivery or DTC Participant Oversubscription Form must be
delivered, are:
If by mail or overnight courier:
If by hand:
The Subscription Agent's telephone number is
__________________.
The Company will pay the fees and expenses of the Subscription Agent and
has also agreed to indemnify the Subscription Agent from certain liability which
it may incur in connection with the Rights Offering.
[Information Agent
The Company has appointed _____________________________, as Information
Agent for the Rights Offering. Any questions or requests for additional copies
of this Prospectus, the Instructions, the Notice of Guaranteed Delivery or the
DTC Participant Oversubscription Subscription Form may be directed to the
Information Agent at the address and telephone number below:
The Company will pay the fees and expenses of the Information Agent and has
also agreed to indemnify the Information Agent from certain liabilities which it
may incur in connection with the Rights Offering.]
No Board or Financial Advisor Recommendation
An investment in the Common Stock must be made pursuant to each Right
Holder's or prospective investor's evaluation of the investor's best interests.
Accordingly, neither the Board of Directors of the Company nor the Financial
Advisor makes any recommendation to any Rights Holder or prospective investor
regarding the exercise of its, his or her Rights.
Certain Federal Income Tax Considerations
The following summary describes certain U.S. federal income tax
considerations relevant to beneficial owners of Common Stock upon the issuance
of Rights, and to Rights Holders upon the exercise, disposition or lapse of the
Rights. This summary is based upon laws, regulations, rulings and decisions
currently in effect, all of which are subject to change, possibly with
retroactive effect. This summary is addressed only to Rights Holders that hold
the Rights and any Common Stock as capital assets and does not discuss state,
local or foreign tax consequences of the Rights Offering. This summary does not
discuss all aspects of federal income taxation that may be relevant to a
particular investor or to certain types of investors subject to special
treatment under the federal income tax laws, including banks, dealers in
securities, life insurance companies, tax-exempt organizations, foreign
taxpayers, and investors that hold their Common Stock or Rights as part of a
"straddle" for federal income tax purposes or as part of an integrated
investment.
BENEFICIAL OWNERS OF COMMON STOCK AND RIGHTS HOLDERS ARE URGED TO CONSULT
THEIR TAX ADVISORS AS TO THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE RIGHTS OFFERING.
Issuance of Rights
Beneficial owners of Common Stock will not recognize taxable income, for
federal income tax purposes, in connection with the distributions of the Rights.
Basis and Holding Period of the Rights
Except as provided below, the basis of the Rights received by the
beneficial owner of Common Stock will be zero. If, however, either (i) the fair
market value of the Rights on the date of the rights are issued is 15% or more
of the fair market value (on the date of issuance) of the Common Stock with
respect to which the Rights are received, or (ii) the beneficial owner elects,
in its federal income tax return for the taxable year in which the Rights are
received, to allocate part of the basis of such Common Stock to the Rights, then
upon exercise or sale of the Rights, the Rights Holder's basis in such Common
Stock will be allocated between such Common Stock and the Rights in proportion
to the fair market values of each on the date of issuance, except that, in
either case, no allocation of basis will be made to the Rights if the Rights are
not exercised or sold (e.g., the Rights expire unexercised). The holding period
of a Rights Holder with respect to the Rights received as a distribution on such
Rights Holder's Common Stock will include the Rights Holder's holding period for
the Common Stock with respect to which the Rights were distributed. In the case
of a purchaser of Rights, the tax basis of such Rights will be equal to the
purchase price paid therefor, and the holding period for such Rights will begin
on the day following the date of the purchase.
Sale of Rights
Upon a sale or other taxable disposition of the Rights, Rights Holders will
recognize capital gain or loss equal to the difference between the amount
realized on the sale or other disposition and the Rights Holder's basis in such
Rights. Any such gain or loss will be long-term capital gain or loss if the
Rights are held for more than one year at the time of such sale or other
disposition.
Lapse of Rights
Upon the lapse of any Rights received by Rights Holders, such Rights
Holders will not recognize any gain or loss and, as indicated above, no
allocation of basis in such Rights Holders' Common Stock will be made to the
Rights. A purchaser of Rights will be entitled to a capital loss equal to its
tax basis in the Rights upon a lapse of the Rights.
Exercise of Rights; Basis and Holding Period
of the Common Stock Acquired through Exercise
Rights Holders will not recognize any gain or loss upon the exercise of the
Rights. The basis of the Common Stock acquired upon exercise of the Rights will
be equal to the sum of the Subscription Price therefor and the Rights Holder's
basis in the Rights exercised. The holding period for the Common Stock acquired
through exercise of the Rights will begin on the date the Rights are exercised.
Limitations on Use of Company Tax Losses
For federal income tax purposes, as of the Effective Date, the Company
believes that it had approximately $154 million of net operating loss carryovers
("NOLs") from prior years. As a result of the Plan of Reorganization, the
Company experienced an "ownership change" (as defined below) under section 382
of the Internal Revenue Code of 1986, as amended (the "Code"). Consequently,
approximately $154 million of the Company's NOLs are subject to an annual
limitation on their utilization of approximately $4 million.
The ability of the Company to use its NOLs could be further adversely
affected by subsequent "ownership changes" with respect to it. Section 382 of
the Code generally provides that if a corporation undergoes an "ownership
change," the amount of taxable income that the corporation may offset after the
date of the ownership change (the "Change Date") with NOLs and certain built-in
losses existing on the Change Date will be subject to an annual limitation. In
general, this annual limitation is equal to (i) the fair market value of the
corporation's equity on the Change Date (with certain adjustments including an
adjustment excluding capital contributions made in the two years preceding the
Change Date) times (ii) a long-term tax exempt bond rate of return published
monthly by the Internal Revenue Service. The annual limitation may be increased
by certain unrealized gains attributable to periods before the ownership change
to the extent those gains are recognized in the five-year period following the
Change Date.
Generally, an "ownership change" occurs with respect to a corporation if
any shareholders who own or who have owned, directly or indirectly (and taking
into account certain aggregation and segregation rules), five percent or more of
the capital stock of the corporation ("5-percent shareholders") increase their
aggregate percentage ownership of such stock by more than 50 percentage points
over the lowest percentage of such stock owned by such shareholders at any time
in the preceding three years or, if an ownership change has occurred within such
three-year period, during the period starting on the day following the prior
ownership change. As noted above, the Company experienced an ownership change in
connection with the Plan.
The Company believes that the Rights Offering and the subsequent exercise
of the Rights should not by themselves cause another ownership change. However,
depending on the Rights Holders that exercise the Rights issued to the
shareholders, the Rights Offering may result in increases in the percentage
ownership of one or more 5-percent shareholders of the Company by as much as
[23.8] percentage points, although the increase is likely to be less than that
amount. Moreover, transactions in Common Stock independent of the Rights
Offering (whether before or after the Rights Offering) and transactions in the
equity interests in stockholders of the Company could result in additional
increases in the ownership of one or more 5-percent shareholders of the company
and could trigger an ownership change. If another ownership change does occur,
the Company could be subject for periods after the Change Date to an additional
limitation under section 382 of the Code, which limitation may further reduce
the ability of the Company to use its NOL carryforwards and certain built-in
losses, if any, existing on the Change Date.
With respect to limitations under the Code's alternative minimum tax
system, only 90 percent of a corporation's annual alternative minimum taxable
income as computed for alternative minimum tax purposes may be offset by NOLs.
Therefore, the Company will be required to pay alternative minimum tax at a
minimum effective rate of 2 percent (10 percent of the 20 percent alternative
minimum tax rate) in any taxable year during which it has alternative minimum
taxable income and its regular tax is fully offset by NOLs.
USE OF PROCEEDS
The net proceeds available to the Company from the Rights Offering is
expected to be approximately $24.6 million. The net proceeds will be used to
finance prospective acquisitions of businesses and technologies. Such
acquisitions will be intended primarily to augment the Company's core COM
services business, to grow complementary services, such as print and mail and
storage, and to acquire new technologies, including digital software solutions.
PRICE RANGE OF COMMON STOCK
On July 30, 1996, the last sale reported for the Common Stock on the Nasdaq
Automated Quotation System was $10 per share, and there were 33 holders of
record of the Common Stock. Since June 4, 1996, the date the Common Stock was
issued pursuant to the Plan of Reorganization, through July 30, 1996, the range
of prices for the Common Stock, as reported on the Nasdaq Automated Quotation
System, is from a high of $11.125 to a low of $7.75.
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price for the shares of Common Stock is [expected to be
80% of the last sale price of the Common Stock reported on the Nasdaq Automated
Quotation System on ____, 1996, the day prior to the date the Registration
Statement to which this Prospectus relates became effective]. The Subscription
Price was determined by the Company based on a number of factors, including the
written advice provided by the Company's financial advisor Donaldson, Lufkin &
Jenrette Securities Corporation (the "Financial Advisor") regarding the size,
pricing and structure of the Rights Offering, taking into account similar
transactions in similar circumstances, and such additional factors as the
alternatives available to the Company for raising capital, the market price of
the Common Stock, the business prospects for the Company and the general
condition of the securities markets at the time of the meeting of the Board of
Directors at which the Rights Offering was approved. See "The Financial
Advisor." The Company believes that the Subscription Price reflects the
Company's objective of achieving the maximum net proceeds obtainable from the
Rights Offering while providing the holders of Common Stock with an opportunity
to make an additional investment in the Company, and thus avoid the dilution of
their proportionate ownership position in the Company.
There can be no assurance, however, that the market price of the Common
Stock will not decline during the subscription period to a level equal to or
below the Subscription Price, or that, following the issuance of the Rights and
of the Common Stock upon exercise of Rights, a subscribing Rights Holder will be
able to sell shares purchased in the Rights Offering at a price equal to or
greater than the Subscription Price.
DIVIDEND POLICY
The Company currently intends to retain all earnings for working capital to
support growth, to reduce outstanding indebtedness and for general corporate
purposes. The Company, therefore, does not anticipate paying any dividends in
the foreseeable future. Further, the Company is restricted under the Senior
Secured Indenture and the Senior Subordinated Indenture in its ability to pay
cash dividends.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1996 on a historical basis and as adjusted (a) to give
effect to the transactions in connection with the consummation of the Plan of
Reorganization on June 4, 1996, and (b) to give effect to the Rights Offering
(assuming the sale of [3,125,000 shares, the total number of shares purchasable
upon exercise of Rights,] and net proceeds of $24,600,000 after deducting
estimated fees and expenses associated with the Rights Offering), as if they
occurred on March 31, 1996. This table should be read in conjunction with the
Company's historical consolidated financial statements and the related notes
thereto, the Pro Forma Unaudited Financial Information and related notes, and
the other information contained in this Prospectus, including the information
set forth in "Business" and "Management's Discussion and Analysis of Financial
Conditions and Results of Operations."
As of March 31, 1996
--------------------
(unaudited)
Historical As Adjusted
---------- -----------
(Dollars in thousands)
Senior Debt:
Revolving Loan $28,043 $--
Multicurrency Revolving Loan 26,056 --
Term Loans 11,863 --
Series B Senior Notes 53,595 --
11 5/8% Senior Secured Notes -- 112,190
Capitalized Leases and Other 549 549
Subordinated Debt:
15% Subordinated Notes 224,900 --
13 7/8% Convertible Subordinated Debentures 23,232 --
Installment Notes 2,513 1,200
9% Convertible Subordinated Debentures 10,479 --
13% Senior Subordinated Notes -- 146,258
-------- -------
Total Debt 381,230 260,197
Redeemable Preferred Stock 21,340 --
Stockholders' equity (195,037) 106,903
-------- ---------
Total Capitalization $207,533 $367,100
======== ========
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth the selected consolidated historical
operating and financial data of the Company for the five fiscal years ended
September 30, 1995, and as of September 30, 1995, which were derived, except as
otherwise noted, from the consolidated financial statements of the Company
audited by Arthur Andersen LLP. The table also sets forth selected unaudited
consolidated historical operating and financial data for the six-month periods
ended March 31, 1996 and 1995 and as of March 31, 1996, derived from unaudited
interim condensed consolidated financial statements of the Company, which, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
unaudited interim periods. The following table also includes certain pro forma
unaudited financial data that reflect adjustments necessary to give effect to
the transactions in connection with the consummation of the Plan of
Reorganization on June 4, 1996 and the Rights Offering. The pro forma financial
data do not purport to represent the Company's results of operations or
financial condition had the Company's reorganization been effective for the
periods indicated and do not purport to project the Company's results of
operations and financial condition for any future period. This table should be
read in conjunction with, and is qualified in its entirety by reference to,
"Summary Consolidated Financial Data", "Management's Discussion and Analysis of
Results of Operations and Financial Condition," the Company's historical
Consolidated Financial Statements and notes thereto and the "Pro Forma Unaudited
Financial Information" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six Months Ended
March 31
Year Ended September 30 ------------------------------------
(unaudited)
-------------------------------------
Pro Forma
1991 1992 1993 1994 1995 1995 1996 (c)
---- ---- ---- ---- ---- ---- ---- ---------
(Dollars in thousands, except ratios and per share amounts)
OPERATING DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $635,361 $628,940 $590,208 $592,599 $591,189 $303,301 $256,176 $254,673
Cost of sales and
services.......... 423,956 428,308 404,752 420,483 440,667 203,562 175,099 173,941
Selling, general and
administrative.... 105,861 100,330 96,822 92,539 109,127 68,842 47,595 79,538
Special and
restructuring
charges (a)....... -- -- -- -- 169,584 -- -- --
Operating income
(loss)............ 105,544 100,302 88,634 79,577 (128,189) 30,897 33,482 1,194
Interest expense..... 79,655 71,947 68,960 67,174 70,938 34,000 23,785 21,394
Reorganization items. -- -- -- -- -- -- 23,251 --
Income (loss) before
extraordinary
credit and
cumulative effect
of accounting
change............ 18,105 18,221 11,691 6,955 (238,326) (7,383) (9,678) (22,524)
Net income (loss).... 29,205 26,921 18,591 14,955(b) (238,326) (7,383) (9,678) (22,524)
Income (loss) per
share (primary)
before
extraordinary
item and
cumulative effect
of accounting
change (net of
preferred stock
dividends and
discount
accretion)........ .38 .38 .22 .10 (5.22) (.18) (.22) ( )
Weighted average
shares
outstanding ......41,689,577 42,712,865 42,749,933 47,335,723 46,061,818 45,944,409 47,084,388 13,125,000
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
March 31
Year Ended September 30 (unaudited)
---------------------------------------------------------- --------------------------------------------
1991 1992 1993 1994 1995 1995 1996 Pro Forma (c)
---------------------------------------------------------- --------------------------------------------
SELECTED FINANCIAL RATIOS (Dollars in thousands, except ratios and per share amounts)
AND OTHER FINANCIAL
DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Depreciation and
amortization........... $ 31,551 $ 34,569 $ 33,006 $ 34,615 $ 35,998 $17,187 $13,369 $45,518
EBITDA (d)................ 137,095 134,871 121,640 114,192 77,393 48,084 46,851 46,712
Capital expenditures...... 13,916 18,755 20,726 18,868 14,372 7,631 2,537 2,537
Ratio of EBITDA to
interest expense ...... 1.72x 1.87x 1.76x 1.70x 1.09x 1.41x 1.97x 2.18x
Ratio of total debt to
EBITDA................. 3.75x 3.54x 3.61x 3.61x 5.04x -- -- --
Ratio of earnings to
fixed charges (e) ..... 1.36x 1.41x 1.27x 1.21x (e) (e) (e) (e)
</TABLE>
<TABLE>
<CAPTION>
As of March 31
--------------
Year Ended September 30, (unaudited)
--------------------------- --------------
1991 1992 1993 1994 1995 1995 1996 Pro Forma (c)
---- ---- ---- ---- ---- ---- ---- -------------
BALANCE SHEET (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash...................... $ 19,811 $ 29,881 $ 24,922 $ 19,871 $ 19,415 $6,232 $49,259 $51,565
Property, plant, and
equipment - net........ 70,609 67,872 66,399 66,769 44,983 56,160 36,663 36,663
Intangible assets (f)..... 318,575 310,333 296,426 279,607 160,315 274,644 155,473 --
Reorganization value in
excess of identifiable
assets (g)............. -- -- -- -- -- -- -- 258,957
Total assets.............. 686,062 681,561 643,548 658,639 421,029 639,020 391,991 497,180
Total current liabilities
(h).................... 139,824 150,522 152,727 163,091 188,957 171,389 132,072 124,532
Total debt (i)............ 514,749 477,303 439,093 411,847 389,900 392,128 381,230 260,197
Redeemable preferred stock 24,191 24,287 24,383 24,478 24,574 24,526 21,340 --
Shareholders' equity
(deficit).............. (25,017) 8,290 13,799 49,756 (188,243) 43,378 (195,037) 106,903
</TABLE>
- ---------------------------------
(a) This item includes special charges of $136.9 million which represents a
write-off of goodwill of $108.0 million and $28.9 million of charges
associated with software costs which are not recoverable, as well as
restructuring charges of $32.7 million.
(b) The Company adopted Financial Accounting Standards No. 109, Accounting
for Income Taxes, in the first quarter of fiscal year 1994. The
adoption resulted in a one-time increase to net income of $8.0 million
reflecting the cumulative effect on prior years of this accounting
change. Prior to 1993, the Company recognized tax benefits resulting
from NOLs as an extraordinary item in the consolidated Statement of
Operations.
(c) The pro forma balance sheet data gives effect (i) to the transactions
in connection with the consummation of the Plan of Reorganization on
June 4, 1996 and (ii) to the Rights Offering (assuming the sale of
3,125,000 shares[, the total number of shares purchasable upon exercise
of Rights,] and net proceeds of $24.6 million after deducting estimated
fees and expenses associated with the Rights Offering), as if they
occurred on March 31, 1996. The pro forma operating data and selected
financial ratios and other financial data gives effect to the
transactions with the consummation of the Plan of Reorganization as if
they occurred on October 1, 1995.
(d) EBITDA represents earnings before interest income and expense,
financial restructuring costs, reorganization items, other income,
income taxes, depreciation and amortization. EBITDA should not be
considered as an alternative to net income (as determined in accordance
with GAAP) as a measure of the Company's operating results or to cash
flows (as determined in accordance with GAAP) as a measure of the
Company's liquidity. This item also excludes special and restructuring
charges of approximately $169.6 million incurred in fiscal 1995.
(e) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges.
Fixed charges consist of interest expense on indebtedness, amortization
of deferred debt issuance costs, accretion of the original issue
discount and the portion of rental expense under operating leases that
has been deemed by the Company to be representative of an interest
factor, all on a pre-tax basis. For the year ended September 30, 1995,
the six months ended March 31, 1995 and 1996, and the pro forma six
months ended March 31, 1996, income before income taxes was inadequate
to cover fixed charges. The amount of the coverage deficiency was
$203.3 million, $6.0 million, $6.0 million and $18.8 million,
respectively.
(f) Intangible assets represent primarily the excess of purchase price over
net assets of businesses acquired ("Goodwill"). Goodwill is amortized
on the straight-line method over 15 to 40 years. Effective June 30,
1995, Anacomp elected to modify its method of measuring Goodwill
impairment to a fair value approach. This revised accounting policy
resulted in a write-off of $108.0 million of Goodwill related to the
micrographics business.
(g) For "fresh start" reporting purposes, any portion of the reorganization
value of the Company not attributable to specific identifiable assets
will be reported as "Reorganization value in excess of identifiable
assets."
(h) Total current liabilities exclude current portion of long-term debt.
(i) Total debt does not include accrued but unpaid interest.
<PAGE>
PRO FORMA UNAUDITED FINANCIAL INFORMATION
The unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1996 and
the unaudited Pro Forma Consolidated Statement of Operations for the six months
ended March 31, 1996 and the unaudited Pro Forma Consolidated Statement of
Operations for the year ended September 30, 1995 have been prepared giving
effect to the sale of the Image Conversion Services (ICS) Division and the
consummation of the Plan of Reorganization, including the costs related thereto
(collectively, the "Pro Forma Adjustments"), in accordance with AICPA Statement
of Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code ("SOP 90-7")and the Rights Offering. The Company will account
for the restructuring using the principles of "fresh start" reporting as
required by SOP 90-7. Pursuant to such principles, in general, the Company's
assets and liabilities will be revalued. The reorganization value of the Company
("Reorganization Value") plus liabilities excluding debt is the value assigned
to total assets. In accordance with SOP 90-7, specific identifiable assets and
liabilities will be adjusted to fair market value. Any portion of the
Reorganization Value plus liabilities, excluding debt not attributable to
specific identifiable assets, will be reported as Reorganization Value in excess
of identifiable assets and will be amortized over a three and a half year
period. For purposes of the Pro Forma Unaudited Financial Information presented
herein, the fair value of specific identifiable assets and liabilities other
than debt is assumed to be the historical book value of those assets and
liabilities. The Company is in the process of obtaining an appraisal of certain
assets to assist in determining their value. The fair value of long-term debt is
based on the negotiated fair values adjusted to present values using discount
rates ranging from 11 5/8% to 15%. The difference between the revalued assets
and the revalued liabilities has been recorded as stockholders' equity with
retained earnings restated to zero.
The unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1996 was
prepared as if the Pro Forma Adjustments had occurred on March 31, 1996. The
unaudited Pro Forma Consolidated Statement of Operations for the six months
ended March 31, 1996 was prepared as if the Pro Forma Adjustments had occurred
on October 1, 1995. The unaudited Pro Forma Consolidated Statement of Operations
for the year ended September 30, 1995 was prepared as if the Pro Forma
Adjustments had occurred on October 1, 1994.
Other than the Pro Forma Adjustments to exclude the operating results of
the ICS Division, no changes in revenues and expenses have been made to reflect
the results of any modification to operations that might have been made had the
Plan of Reorganization been confirmed on the assumed effective dates of the
confirmation of the Plan of Reorganization for presenting pro forma results. The
Pro Forma Unaudited Consolidated Financial Information does not purport to be
indicative of the results which would have been obtained had such transactions
in fact been completed as of the date hereof and for the periods presented or
that may be obtained in the future.
<PAGE>
<TABLE>
<CAPTION>
ANACOMP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
March 31, 1996 (unaudited)
__________________________________________________________________________
Reorganization Rights Offering
Pro Forma Pro Forma
Historical Adjustments Adjustments Pro Forma
---------- ----------- --------- ---------
(Dollars in thousands, except per share amounts)
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash................................... $49,259 $(1,250) (a) $24,600 (n) 51,565
(n)
(6,994) (b)
(3,000) (h)
(11,050) (i)
Receivables, net of reserves........... 78,574 -- -- 78,574
Inventories............................ 42,535 -- -- 42,535
Prepaid expenses and other............. 6,412 -- -- 6,412
----- ------- -------- --------
Total current assets........................ 176,780 (22,294) 24.600 179,086
Property and equipment (net)................ 36,663 -- -- 36,663
Long-term receivables....................... 9,133 -- -- 9,133
Excess of purchase price over net assets
of businesses acquired and other
intangibles............................ 155,473 (155,473) (l) -- --
Other assets................................ 13,942 (601) (c) -- 13,341
Reorganization value in excess of
identifiable assets.................... -- 258,957 (m) -- 258,957
------- ------- -------
$391,991 $80,589 24,600 $497.180
======== ======= ====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current portion of long-term debt...... $381,230 $(350,905) (d) -- $30,325
Accounts payable....................... 52,894 (5,094) (b) -- 44,800
(3,000) (h) --
Accrued compensation, benefits
and withholdings 14,369 -- -- 14,369
Accrued income taxes................... 11,334 -- -- 11,334
Accrued interest....................... 51,726 (47,134) (d) -- 4,592
Other liabilities...................... 48,587 (1,250) (a) -- 49,437
(1,900) (b)
4,000 (h) -------
--------- --------
Total current liabilities................... 560,140 (405,283) -- 154,857
--------- -------- -------
Long-term debt, net of current.............. -- 229,872 (d) -- 229,872
Other noncurrent liabilities................ 5,548 -- -- 5,548
--------- -------- -------
Total Noncurrent Liabilities................ 5,548 229,872 -- 235,420
--------- -------- -------
Redeemable preferred stock.................. 21,340 (21,340) (f) -- --
--------- -------- -------
Stockholders' equity (deficit):
Common stock................................ 480 (480) (g) 31 (n) 131
100 (e)
Capital in excess of par value.............. 187,512 82,203 (e) 24,569 (n) 106,772
21,340 (f)
480 (g)
(312,764) (j)
(52) (k)
(155,473) (l)
258,957 (m)
Cumulative translation adjustment........... (52) 52 (k) --
Retained earnings (deficit)................. (382,977) (4,000) (h) --
312,764 (j)
74,213 (i)
---------- --------- ---------
Total Stockholders' equity (deficit) ....... (195,037) 277,340 24,600 106,903
---------- --------- ---------- ---------
$391,991 $80,589 $24,600 $497,180
========== ========= ========== =========
See Notes to the Pro Forma Consolidated Balance Sheet
</TABLE>
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
Notes to Pro Forma Consolidated Balance Sheet
As of March 31, 1996
(Unaudited, dollars in thousands, except per share amounts)
The following notes set forth the explanations and assumptions used in preparing
the unaudited Pro Forma Consolidated Balance Sheet.
(a) Represents cash paid on June 4, 1996, the effective date of the Plan of
Reorganization ("Effective Date") to settle certain disputed claims.
(b) Represents cash paid to SKC America ("SKC"), a supplier to the Company,
on the Effective Date related to certain amounts payable to SKC.
(c) For financial reporting purposes, old deferred financing costs of $601
applicable to the old debt securities is being written off to the
extraordinary gain as discussed in (i).
(d) Represents changes in the current portion of long-term debt and related
accrued interest as a result of the consummation of the Plan of
Reorganization. In accordance with SOP 90-7, the Company's liabilities
will be recorded at their estimated fair values as of the Effective
Date. The fair value of long-term debt is based on the negotiated face
values adjusted to present values using discount rates ranging from 11
5/8% to 15%. The change in debt consists of the following:
<TABLE>
<CAPTION>
Current Portion
Accrued of Long-Term Long-Term
Interest Debt Debt Total
-------- ---- ---- -----
<S> <C> <C> <C> <C>
Historical Balance $51,726 $381,230 $ -- $432,956
------- -------- ------ --------
Cancellation of Old Revolving Loan (28,043) (28,043)
Cancellation of Old Multicurrency Revolving
Loan (26,056) (26,056)
Cancellation of Old Term Loan (11,863) (11,863)
Cancellation of Old Series B Senior Notes (53,595) (53,595)
Cancellation of Old Senior Subordinated
Notes (224,900) (224,900)
Cancellation of Old 9% Subordinated Notes (10,479) (10,479)
Cancellation of Old 13.875% Subordinated
Debentures (23,232) (23,232)
Cancellation of Old Installment Note (1,313) (1,313)
Cancellation of Old Accrued Interest (47,134) (47,134)
New 11 5/8% Senior Secured Notes due 1999 28,576 83,614 112,190
New 13% Senior Subordinated Notes due 2002 146,258 146,258
-- -------- -------- ------- -------
Total Pro Forma adjustments (47,134) (350,905) 229,872 (168,167)
-------- --------- ------- ---------
Pro Forma balance $ 4,592 $ 30,325 $229,872 $264,789
======= ======== ======== ========
</TABLE>
Market values of securities have been estimated solely for the purpose of the
foregoing computations. The present values of the Company's Installment Note and
other are assumed to be equal to their respective face values. The estimated
present value of the Company's other long-term debt obligations (which do not
constitute or purport to reflect actual market values) were established by the
Company. Based on the foregoing, an adjustment of $13,742 was made to reduce the
face value of the Senior Subordinated Notes to their estimated present value.
The adjustment will be amortized into interest expense over the terms of the
Senior Subordinated Notes.
(e) Reflects issuance of 10,000,000 shares of New Common Stock (par value
$.01 per share) at an estimated market price of $82,303 under the terms
of the restructuring set forth in the Plan of Reorganization (the
"Restructuring").
Capital in
Excess of
Common Stock Par Value Total
------------ --------- -----
To Holders of Old Senior
Subordinated Notes and Old
Subordinated Debentures .... $ 100 $82,203 $82,303
(f) Reflects the cancellation of Old Preferred Stock at historical
carrying value.
Historical carrying value $19,793
Accrued dividends 1,547
-----
Capital in excess of par value
adjustment $21,340
=======
(g) Reflects the transfer from common stock to capital in excess of par
value of $480, resulting from the cancellation of 48,013,246 shares of
Old Common Stock.
(h) Reflects a $3,000 cash payment and the recognition of a $4,000
liability related to certain non-recurring fees and expenses incurred
in connection with consummating the Plan of Reorganization.
(i) The extraordinary gain, net of taxes, resulting from the Restructuring
has been estimated as follows:
Historical carrying value of
old debt securities........................... $381,230
Historical carrying value of related
accrued interests............................. 47,134
Write-off of old deferred
financing costs................................ (601)
Market value of consideration exchanged for
the Old Debt:
Plan Securities (Face Value $272,190)... (258,448)
New Common Stock (New shares issued
10,000,000)............................. (82,303)
Installment Note and other.............. (1,749)
Cash*................................... (11,050)
-------
74,213
Tax provision.................................. --
-------
Extraordinary gain............................. $74,213
=======
* Represents cash paid on the Effective Date, consisting of $2,750 related to
the Senior Restructuring Premium, $7,500 related to payment on Senior Secured
Notes and $800 related to payment on the Installment Note.
For tax purposes, the gain related to cancellation of debt will result in a
reduction of the Company's net operating loss carryforwards.
Market values of securities exchanged for the old debt have been estimated
solely for the purpose of estimating the extraordinary gain detailed above.
These estimates should not be relied upon for, nor are they intended as
estimates of, the market prices of the Company's securities at any time in the
future. The market prices of the Company's securities will fluctuate with
changes in interest rates, market conditions, the condition and prospects,
financial and otherwise, of the Company and other factors which generally
influence the price of securities. For purposes of the Pro Forma Unaudited
Financial Information, the New Warrants are assumed to have no value.
(j) In accordance with SOP 90-7, this adjustment reflects the elimination
of the accumulated deficit against capital in excess of par value.
(k) In accordance with SOP 90-7, this adjustment reflects the elimination
of deferred translation against capital in excess of par value.
(l) Reflects the write-off of "Excess of Purchase price Over Net Assets of
Businesses Acquired and Other Intangibles" of $155,473. For fresh start
reporting purposes, any portion of the Reorganization Value not
attributable to specific identifiable assets will be reported as
"Reorganization Value in excess of identifiable assets." (See note
(m)).
(m) An estimated Reorganization Value of $350,000, which represents the
value of the total assets of the Company less liabilities, excluding
debt, is being used to implement "fresh start" reporting. The
Reorganization Value in excess of identifiable assets is calculated
below.
Reorganization Value............................. $350,000
Plus: Current liabilities excluding
debt (Pro Forma)........................ 124,532
Noncurrent liabilities excluding
debt (Pro Forma)........................ 5,548
Less: Current assets (Pro Forma).............. (154,486)
Payment on Senior Secured Notes on
Effective Date.......................... (7,500)
Noncurrent tangible assets (Pro Forma).. (59,137)
-------
Reorganization value in excess of
identifiable assets.............................. $258,957
========
Total Stockholders' Equity, in accordance with SOP 90-7, does not
purport to present the fair market value of the common stock of the
Company. The Reorganization Value was estimated by the Company based on
the range provided by the Company's financial advisor for its
reorganization (the "Financial Advisor"). Based on the valuation
analysis described below, the Financial Advisor estimated a range of
Reorganization Value of between approximately $300,000 and $400,000.
The Company used a Reorganization Value of $350,000.
The valuation methodologies considered by the Financial Advisor are
described below:
Discounted Cash Flow - The Financial Advisor calculated the present
value of the after tax unleveled cash flows of the Company using
projections prepared by the Company for fiscal years 1996 through 1999.
The Financial Advisor estimated the weighted average cost of capital
based on the estimated cost of capital of a group of selected publicly
traded companies. The Financial Advisor also estimated a terminal value
based on the normalized fiscal 1999 after tax unleveled cash flow, the
weighted average cost of capital and estimated rates of decline which
was included in the present value calculation of the Company's net
operating loss carryforward which was included in the estimated range
of the Reorganization Value. The weighted average cost of capital used
in the analysis ranged from 12% to 14.5%.
Selected Publicly Traded Company Market Multiples - The Financial
Advisor reviewed the market multiples of a group of selected publicly
traded companies and valuation multiples of revenues, EBITDA, EBIT, net
income and book value.
Selected Acquisition Transaction Multiples - The Financial Advisor
reviewed the acquisition multiples of a group of selected acquisition
transactions and acquisition multiples of revenues, EBITDA, EBIT and
net income.
The Financial Advisor believes that the discounted cash flow analysis
is the most appropriate methodology for valuing the Company. The
Financial Advisor reviewed the selected publicly traded company market
multiples and selected acquisition transaction multiples and believes
they are less appropriate methodologies for valuing the Company due to
the lack of directly comparable publicly traded companies or directly
comparable acquisition transactions.
The Company's estimate of its Reorganization Value is based upon a
number of assumptions, including the assumptions upon which the
projections are based. Many of these assumptions are beyond the
Company's control, and there may be material variations between such
assumptions and the actual facts. Moreover, such estimates should not
be relied upon for, nor is it intended as an estimate of, the market
price of the Company's securities at any time in the future. The market
price of the Company's securities will fluctuate with changes in
interest rates, market conditions, the condition and prospects,
financial and otherwise, of the Company and other factors which
generally influence the price of securities.
(n) Reflects issuance of 3,125,000 shares of New Common Stock (par value
$.01 per share) based on estimated proceeds of $24,600 under the terms
of the Rights Offering.
Capital in
Excess of
Common Stock Par Value Total
$31 $24,569* $24,600
- ----------
* Net of estimated fees and expenses of $400 associated with the Rights
Offering.
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Six Months ended March 31, 1996 (unaudited)
-------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Services provided............................. $99,190 $(1,402) (a) $97,788
Equipment and supplies........................ 156,986 (101) (a) 156,885
Total revenues............................ 256,176 (1,503) 254,673
------- ------ -------
Operating costs and expenses:
Costs of services provided.................... 54,525 (1,078) (a) 53,447
Cost of equipment sold........................ 120,574 (80) (a) 120,494
Selling, general and administrative........... 47,595 (332) (a) 79,538
32,275 (f)
------- ------
222,694 30,785 253,479
------- ------ -------
Income (loss) before interest, other income,
reorganization items and income taxes......... 33,482 (32,288) 1,194
------ ------- -----
Interest income.................................... 932 -- 932
Interest expense and fee amortization.............. (23,785) 2,391 (b) (21,394)
Other income....................................... 6,644 (6,200) (a) 444
----- ------ ---
(16,209) (3,809) (20,018)
------- ------ -------
Income (loss) before reorganization items and
income taxes.................................. 17,273 (36,097) (18,824)
Reorganization items............................... (23,251) 23,251 (c) --
Provision for income taxes......................... 3,700 --- 3,700
----- ------ -----
Net loss .......................................... (9,678) (12,846) (22,524)
Preferred stock dividends and discount accretion... 540 (540) (e) --
------ ------ -------
Net loss available to common stockholders ......... $(10,218) $(12,306) ($22,524)
======== ======== ========
Net loss available to common
stockholders per share........................ ( )
========
Weighted average common shares outstanding......... 13,125,000 (d)
==========
</TABLE>
See Notes to the Pro Forma Consolidated Statement of Operations
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
Notes to Pro Forma Consolidated Statement of Operations
For the six months ended March 31, 1996
(Unaudited, dollars in thousands)
The following notes set forth the explanations and assumptions used in preparing
the unaudited Pro Forma Consolidated Statement of Operations.
(a) The Company sold its ICS division during the six-month period ended
March 31, 1996 at a net gain to the Company of $6,200. The Pro Forma
Adjustments represent the exclusion of the division's operating
activities, revenues and expenses, and the one-time gain during the
period.
(b) Net reduction of interest expense as a result of the Restructuring has
been estimated as follows:
Interest expense on new debt:
11 5/8% Senior Secured Notes
(Face Value $112,190)................... $6,521
13% Senior Subordinated Notes
(Face Value $160,000)................... 10,400
Interest on other debt and trade
credit arrangements..................... 3,328
Interest accretion on new
debt discount........................... 1,145
-----
Subtotal.......................... 21,394
Reversal of actual expense during
the six-month period ended
March 31, 1996...................... (23,785)
-------
Pro forma adjustment..................... $2,391
========
In accordance with SOP 90-7, all debt obligations have been adjusted to
estimated present value. The debt premium/discount is being amortized
over the term of the applicable debt obligation.
(c) Represents $23,251 of costs incurred during the six-month period ended
March 31, 1996 related to the Reorganization which is being excluded
from the pro forma results for the period.
(d) Pro forma loss per common share is computed based upon 13,125,000
average shares of New Common Stock assumed to be outstanding during the
six-months ended March 31, 1996 as if the Effective Date under the Plan
of Reorganization and the Rights Offering had occurred on October 1,
1995.
(e) Reflects elimination of preferred dividend requirement based on the
cancellation of the Old Preferred Stock under the terms of the
Restructuring.
(f) In accordance with SOP 90-7, the excess Reorganization Value plus
liabilities, excluding debt, over amounts allocated to the fair value
of identifiable assets (which is assumed to be the historical book
value of those assets) has been reflected on the unaudited Pro Forma
Consolidated Balance Sheet as an intangible asset. The adjustment shown
on the unaudited Pro Forma Consolidated Statement of Operations
reflects the amortization of the intangible asset over a three and a
half year period.
Amortization Six-Month
Amount Period Amortization
------ ------ ------------
New Intangible Assets................ $258,957 3.5 Years $36,994
Historical Intangible Assets
Amortization......................... (4,719)
------
$32,275
=======
Fees in connection with the Plan of Reorganization directly attributable to the
Restructuring of $4,000 have been excluded from pro forma operating results for
the six-month period ended March 31, 1996.
The Restructuring adjustments shown on the unaudited Pro Forma Consolidated
Statement of Operations exclude the extraordinary gain to be recognized in
connection with the Plan of Reorganization and "fresh start" reporting required
by SOP 90-7. The extraordinary gain, net of taxes, resulting from the
Restructuring has been estimated as follows:
Historical carrying value of Old Securities................ $381,230
Historical carrying value of related accrued interests..... 47,134
Write-off of old deferred financing costs.................. (601)
Market value of consideration exchanged for the old debt:
Plan Securities (Face Value $272,190)............... (258,448)
New Common Stock (New shares issued 10,000,000)..... (82,303)
Installment Note and other.......................... (1,749)
Cash*............................................... (11,050)
-------
74,213
Tax provision.............................................. --
-------
Extraordinary gain......................................... $74,213
=======
* Represents cash paid on the Effective Date, consisting of $2,750 related to
the Senior Restructuring Premium, $7,500 related to payment on the new Senior
Secured Notes, and $800 related to payment on the Installment Note.
For tax purposes, the gain related to cancellation of debt will result in a
reduction of the Company's net operating loss carryforwards.
Market values of securities exchanged for the old debt have been estimated
solely for the purpose of estimating the extraordinary gain detailed above.
These estimates should not be relied upon for, nor are they intended as
estimates of, the market prices of the Company's securities at any time in the
future. The market prices of the Company's securities will fluctuate with
changes in interest rates, market conditions, the condition and prospects,
financial and otherwise, of the Company and other factors which generally
influence the price of securities. For purposes of the Pro Forma Unaudited
Financial Information, the Warrants are assumed to have no value.
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Year Ended September 30, 1995 (unaudited)
-----------------------------------------
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Services provided............................. $219,881 $(20,357) (a) $199,524
Equipment and supplies........................ 371,308 (1,164) (a) 370,144
------- ------ -------
Total revenues............................ 591,189 (21,521) 569,668
------- ------- -------
Operating costs and expenses:
Costs of services provided.................... 161,211 (17,585) (a) 143,626
Costs of equipment sold....................... 279,456 (737) (a) 278,719
Selling, general and administrative........... 109,127 (1,691) (a) 173,747
66,311 (f)
Special and restructuring charges............. 169,584 -- 169,584
------- -------
719,378 46,298 765,676
------- ------ -------
(196,008)
Loss before interest, other income, and income taxes (128,189) (67,819)
-------- -------
Interest income.................................... 2,000 -- 2,000
Interest expense and fee amortization.............. (70,938) 27,047 (b) (43,891)
Other expenses..................................... (6,199) 5,987 (c) (212)
------ ----- ----
(75,137) 33,034 (42,103)
------- ------ -------
Loss before income taxes........................... (203,326) (34,785) (238,111)
Provision for income taxes......................... 35,000 -- 35,000
------ ------
Net loss .......................................... (238,326) (34,785) (273,111)
Preferred stock dividends and discount accretion... 2,158 (2,158) (e) --
----- ------ --------
Net loss available to common stockholders.......... $(240,484) $(32,627) $(273,111)
========= ======== =========
Net loss available to common stockholders per share $(20.81)
=======
Weighted average common shares outstanding......... 13,125,000 (d)
==========
</TABLE>
See Notes to the Pro Forma Consolidated Statement of Operations
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
Notes to Pro Forma Consolidated Statement of Operations
For the year ended September 30, 1995
(Unaudited, dollars in thousands)
The following notes set forth the explanations and assumptions used in preparing
the unaudited Pro Forma Consolidated Statement of Operations.
(a) The Company sold its ICS division subsequent to September 30, 1995 at a
net gain to the Company of $6,200. The Pro Forma Adjustments represent
the exclusion of the division's operating activities, revenues and
expenses during the year ended September 30, 1995.
(b) Net reduction of interest expense as a result of the Restructuring has
been estimated as follows:
Interest expense on new debt:
11 5/8% Senior Secured Notes (Face Value $112,190)......$13,042
13% Senior Subordinated Notes (Face Value $160,000)...... 20,800
Interest on other debt and trade credit arrangements..... 7,759
Interest accretion on new debt discount.................. 2,290
-----
Subtotal........................................... 43,891
Reversal of actual expenses during the twelve month
period ended September 30, 1995.....................(70,938)
-------
Pro forma adjustment.....................................$27,047
=======
In accordance with SOP 90-7, all debt obligations have been adjusted to
estimated present value. The debt premium/discount is being amortized
over the term of the applicable debt obligation.
(c) Represents $5,987 of costs incurred during fiscal 1995 related to the
Restructuring costs which are being excluded from the pro forma results
for the year ended September 30, 1995.
(d) Pro forma loss per common share is computed based upon 13,125,000
average shares of New Common Stock assumed to be outstanding during the
year ended September 30, 1995 as if the Effective Date and the Rights
Offering had occurred on October 1, 1994.
(e) Reflects elimination of preferred dividend requirement based on the
cancellation of the Old Preferred Stock under the terms of the
Restructuring.
(f) In accordance with SOP 9-7, the excess Reorganization Value plus
liabilities, excluding debt, over amounts allocated to the fair value
of identifiable assets (which is assumed to be the historical book
value of those assets) has been reflected on the unaudited Pro Forma
Consolidated Balance Sheet as an intangible asset. The adjustment shown
on the unaudited Pro Forma Consolidated Statement of Operations
reflects the amortization of the intangible asset over a three and a
half year period.
Amortization Annual
Amount Period Amortization
------ ------ ------------
New Intangible Assets............. $275,018 3.5 Years $78,577
Historical Intangible Assets
Amortization...................... (12,266)
-------
$66,311
=======
Reorganization fees directly attributable to the Restructuring totaling $7,000
have been excluded from pro forma operating results for the year ended September
30, 1995.
The Restructuring adjustments shown on the unaudited Pro Forma Consolidated
Statement of Operations exclude the extraordinary gain to be recognized in
connection with the Plan of Reorganization and "fresh start" reporting required
by SOP 90-7. The extraordinary gain, net of taxes, resulting in the
Restructuring has been estimated as follows:
Historical carrying value of Old Securities................. $389,900
Historical carrying value of related accrued interests...... 37,806
Write-off of old deferred financing costs................... (12,721)
Market value of securities exchanged for the old debt:
Plan Securities (Face Value $272,190)................ (258,448)
New Common Stock (10,000,000 shares)................. (79,468)
Installment note and other.................................. (4,584)
Cash used to reduce debt
Proceeds from the sale of ICS division............... (12,700)
Payment on New Senior Secured Notes on Effective
Date............... (7,500)
Payment on Installment Note on Effective Date........ (800)
Senior Restructuring Premium................................ (2,750)
------
48,735
Tax provision............................................... --
-------
Extraordinary gain.......................................... $48,735
=======
The Company believes that it will not recognize any gain for tax purposes due to
any cancellation of indebtedness resulting from the Restructuring. The gain
related to cancellation of debt will result in a reduction of the Company's net
operating loss carryforwards.
Market values of securities exchanged for the old debt have been estimated
solely for the purpose of estimating the extraordinary gain detailed above.
These estimates should not be relied upon for, nor are they intended as
estimates of, the market prices of the Company's securities at any time in the
future. The market prices of the Company's securities will fluctuate with
changes in interest rates, market conditions, the condition and prospects,
financial and otherwise, of the Company and other factors which generally
influence the price of securities. For purposes of the Pro Forma Unaudited
Financial Information, the New Warrants are assumed to have no value.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Recent Reorganization
On June 4, 1996, the Company emerged from bankruptcy proceedings under its
Third Amended Joint Plan of Reorganization ("Plan of Reorganization"). On such
date, the Company canceled its existing secured debt and subordinated debt,
including 15% Senior Subordinated Notes, 13.875% Convertible Subordinated
Debentures and 9% Convertible Subordinated Debentures, and its equity
securities, including common stock, common stock purchase rights, preferred
stock and warrants, and distributed to its creditors approximately $22.0 million
in cash, $112.2 million principal amount of its 11 5/8% Senior Secured Notes due
1999 (the "Senior Secured Notes"), $160.0 principal amount of its 13% Senior
Subordinated Notes due 2002 (the "Senior Subordinated Notes"), 10.0 million
shares of new common stock, par value $.01 per share, and warrants to purchase
362,694 shares of common stock at a price of $12.23 per share for a period of
five years from June 4, 1996. The Plan of Reorganization resulted in a reduction
of approximately $173.0 million in principal and accrued interest on the
Company's debt obligations and a liquidation amount and accrued interest on its
preferred stock.
Results of Operations -- Six Months Ended March 31, 1996 Compared with Six
Months Ended March 31, 1995
General
The Company incurred a loss of $10.2 million for the six months ended March
31, 1996, compared to a loss of $8.5 million for the comparable period of the
prior year. Included in the loss for the six months ended March 31, 1996 was
$23.3 million of reorganization items, including a write-off of deferred debt
issue costs and discounts of $17.6 million and restructuring costs of $5.7
million. Operating income (income before interest, other income, reorganization
items and income taxes) increased $2.6 million compared to the same period of
the prior year. As a percentage of total revenues, operating income was 13.1%
for fiscal 1996 and 10.2% for fiscal 1995. EBITDA was $46.9 million compared to
$48.1 million for the same period in the prior year.
Total revenues for the six months ended March 31, 1996 decreased $47.1
million over the same period of the prior year. The decrease was primarily due
to the discontinuance or downsizing of certain product lines including ICS ($8.5
million), flexible diskette media ($9.8 million), reader and reader printer
products ($5.4 million) and source document film ($3.5 million).
Costs of services provided as a percent of services revenue were 55% for
both the six months ended March 31, 1996 and the six months ended March 31,
1995. Costs of equipment and supplies sold as a percent of equipment and
supplies sales were 77% in the current period compared to 74% in the same period
of the prior year. The increase in cost of equipment and supplies sold was
primarily due to product mix and increased costs of raw materials.
Selling, general and administrative expenses were 19% of revenue in the
current period compared to 23% in the same period of the prior year. The
decrease of $21.2 million was reflective of the cost reductions the Company has
been implementing over the past year and is consistent with the cost reductions
contemplated in the Company's business plan.
Interest expense and fee amortization was $23.8 million for the six months
ended March 31, 1996 compared to $34.0 million in the prior period. The decrease
in interest expenses related to the discontinuance of interest accrued on the
Company's subordinated debt subsequent to the bankruptcy proceedings.
Other income for the first six months of fiscal 1996 included a $6.2
million gain on the sale of the ICS Division in November 1995. This compares
favorably to a $630,000 loss on the sale of an idle facility in the first six
months of fiscal 1995.
Products and Services
Micrographics service revenues decreased $3.7 million in the first six
months of fiscal 1996 compared to the same six months of fiscal 1995 excluding
the effect of the ICS sale. COM services volumes decreased 8%, and average
selling prices decrease approximately 1%. The decrease in volume and pricing is
a continuation of a trend that the Company has experienced over recent periods.
Operating margins as a percent of revenue decreased slightly as the reduction in
selling prices exceeded reductions in production costs.
Maintenance service revenues decreased $1.4 million, 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. Gross
margins as a percent of revenue were unchanged.
COM systems revenues for the first six months of fiscal 1996 decreased $8.4
million compared to the same period of the prior year. The Company sold or
leased 51 XFP 2000 COM systems to third party users in the current period
compared to 76 systems in the same period of the prior year. The first six
months of fiscal 1995 included $3.5 million of sales of equipment for Anacomp
data centers under sale and leaseback arrangements compared to zero in the
current period. Gross margins as a percent of revenue were unchanged.
Micrographics supplies and equipment revenues for the first six months
decreased $16.3 million compared to the same period of the prior year, primarily
as a result of the discontinuance and downsizing of product lines mentioned
above. Micrographics supplies and equipment gross margins as a percent of
revenues increased 2%.
Magnetics revenues decreased $10.0 million in the first six months of
fiscal 1996 compared to the same six months of fiscal 1995. The decrease was
attributable to the closure of the Omaha, Nebraska factory which produced
flexible diskette media, as well as reduced sales of open reel tape. Magnetics
gross margins as a percent of revenue decreased 2% period to period.
Results of Operations - Fiscal 1995, 1994 and 1993
General
The Company incurred a loss of $238.3 million for the year ended September
30, 1995 as compared to income of $15.0 million and $18.6 million for the years
ended September 30, 1994 and 1993, respectively. Included in the fiscal 1995
loss were special charges of $136.9 million, representing a write-off of
goodwill of $108.0 million and $28.9 million of costs associated with software
investments (See notes 2 and 5 to the accompanying Consolidated Financial
Statements and discussion above). Also included in the loss was a $29.0 million
deferred tax provision and $32.7 million of restructuring charges which included
severance costs, inventory write-downs, excess facilities and other reserves.
Further contributing to the overall loss was a decrease in operating income of
$38.2 million compared to the prior year and $6.0 million of expenses associated
with the reorganization.
Operating income, i.e., income before special and restructuring charges,
interest, other income and income taxes, decreased $38.2 million in fiscal 1995
compared to fiscal 1994 and $9.1 million in fiscal 1994 compared to the previous
fiscal year. Both declines were largely attributable to a change in product mix
as the relatively less profitable magnetics products represented a greater
portion of total sales, as well as reduced supplies and COM services margins due
to lower selling prices.
Total revenues for fiscal 1995 decreased $1.4 million from the prior fiscal
year. Revenues from sales of magnetics products increased $29.5 million
resulting from the acquisition of Graham Magnetics in May 1994. In addition, the
acquisition of the COM services customer base of 14 data service centers from
National Business Systems, Inc. ("NBS") on January 3, 1994 contributed
incremental revenues of approximately $2.7 million to the fiscal 1995 results.
Offsetting these contributions were decreases in micrographics supplies, COM
systems, maintenance services and other revenues.
The Company's fiscal 1994 revenues totaled $592.6 million compared to
$590.2 million in fiscal 1993. The Graham acquisition contributed $22.4 million
and NBS contributed $9.1 million to fiscal 1994 revenues. Excluding the
contributions from these two acquisitions, fiscal 1994 revenues decreased $29.1
million from fiscal 1993 principally due to decreased sales of COM systems,
duplicate film and retrieval devices.
Selling, general and administrative expenses were 18.5% of revenues in
fiscal 1995 compared to 15.6% in fiscal 1994. The increase is due in part to the
acquisitions of Graham Magnetics and the NBS customer base and the impact of
amortization of the intangible assets recorded on those transactions. Also
contributing to the increase was a fiscal 1994 $4.7 million environmental
reserve adjustment resulting from the receipt of insurance proceeds related to
Environmental Protection Agency ("EPA") liabilities. In addition, the
sale-leaseback of data center equipment increased equipment rental costs by $2.5
million more than the reduction in depreciation costs compared to the prior
period.
Selling, general and administrative expenses were 16.4% of revenues in
1993. Selling, general and administrative costs in fiscal 1994 decreased $4.3
million compared to fiscal 1993 due in part to the receipt of insurance proceeds
related to the EPA liabilities described above.
Operating income before special and restructuring charges, interest, other
income, income taxes, extraordinary credit and cumulative effect of accounting
change as a percent of revenues were 7% in fiscal 1995, 13.4% in fiscal 1994,
and 15% in fiscal 1993. The decrease was largely attributable to a change in
product mix as the relatively less profitable magnetics products represented a
greater portion of total sales and a reduction in supplies and COM services
margins due to the drop in selling prices.
1995 Special Charges
As mentioned above, included in the operating results for fiscal 1995 were
special charges totaling $136.9 million including the write-off of a portion of
goodwill related to micrographics products.
In connection with the change in accounting discussed in Note l to the
accompanying Consolidated Financial Statements, the Company determined that
goodwill had been impaired and measured the impairment based on the fair value
approach discussed in Note 1. As required by generally accepted accounting
principles ("GAAP"), this accounting change, which amounted to a charge of
$108.0 million, was recorded as a change in estimate and was included in the
results of operations for the quarter ended June 30, 1995.
Over the three-year period ended September 30, 1995, the Company invested
and capitalized over $20.0 million related to the development of software to
provide advanced capabilities for the XFP 2000 related to the processing of
Xerox and IBM print streams. These software enhancements are referred to as the
Xerox Compatibility Feature ("XCF") and Advance Function Presentation ("AFP")
feature. XCF was introduced at the beginning of the second quarter and AFP at
the beginning of the fourth quarter of fiscal 1995. Initial sales of the XCF
product were significantly below expectations. Based upon that experience, the
Company updated its sales forecast for both products and adjusted the carrying
amount of the software investment to net realizable value. That adjustment
resulted in a software write-off of $20.3 million (included on the balance sheet
under the category other assets) and the establishment of a $8.6 million reserve
(of which $7.7 million was outstanding at September 30, 1995) for future
payments to Pennant Systems for software license (included on the balance sheet
under the category accrued liabilities) and maintenance obligations which are
not recoverable based upon the revised sales forecasts.
New Operating Plan
Also included in the operating results for fiscal year 1995 were
restructuring charges of $32.7 million resulting from the Company's New
Operating Plan. The restructuring charges included severance costs of $5.9
million, inventory write-downs of $9.1 million, excess facility reserves of $7.7
million and other reserves of $10.0 million.
The Company's strategy for ongoing financial improvement is to eliminate
unprofitable product lines and outsource manufacturing for low-margin products
while continuing to offer similar products on an OEM or reseller basis. The New
Operating Plan resulted in a determination to exit certain business or product
lines. Specifically, the Company: (i) sold its Image Conversion Services
Division ("ICS"); (ii) closed its Omaha, Nebraska factory which produces the
magnetic media for flexible diskettes; and (iii) discontinued the manufacture of
readers and reader/printers. In view of the Company's New Operating Plan, the
Company also announced a Company-wide reduction in work force. Costs relating to
the reduction in work force, the closing of the Omaha factory and the
discontinuance of manufacturing of readers and reader/printers appear in the
financial results for the year under "Restructuring Charges."
The market price of the magnetic media manufactured in the Company's Omaha
factory had been decreasing significantly. In addition, the Company's primary
customer continued to experience liquidity shortfalls which placed this product
line at increased business risk. As a result, the Company announced the closure
of this facility on July 28, 1995 and recorded a loss of approximately $8.4
million in the fourth quarter including equipment and inventory write-downs,
severance and close down expenses.
During the fourth quarter, the Company reached agreement with Eye
Communication Systems, Inc. ("Eye Com") to manufacture the Company's general
requirements for readers and certain reader/printers. In addition, the Company
announced the discontinuation of those reader/printer models that will not be
manufactured by Eye Com. During the first few months of fiscal year 1996, the
Company continued to build the discontinued models to utilize remaining
inventories, transferred inventory and tooling to Eye Com and generally exited
the manufacturing process for these products. The Company recorded a loss of
$10.0 million in the fourth quarter resulting from the decision to discontinue
manufacturing reader and reader/printers reflecting equipment and inventory
write-downs, severance and close down expenses.
Results of Operations - Products and Services
Micrographics Supplies and Equipment
Micrographics supplies and equipment revenues, which accounted for 32% of
the Company's revenues in fiscal 1995, decreased 7% compared to fiscal 1994.
Original film sales decreased 6% on lower unit volumes while duplicate film
sales increased 3%. The duplicate film increase was due primarily to the
reacquisition of First Image Management Company ("First Image") as a duplicate
film customer and the addition of Eastman Kodak Company's ("Kodak") European
duplicate film business. Retrieval products sales decreased 13% compared to
fiscal 1994 and are expected to decrease further as a result of the decision to
exit the manufacturing of these products discussed above.
Micrographics supplies revenues decreased 8% in fiscal 1994, principally
due to reduced demand for duplicate film, readers and reader/printers. As the
Company's supplies and equipment business partly depends on sales of the
Company's COM systems to generate repeat business, revenues from this business
unit will be readily affected by the declines in COM systems sales.
Micrographics supplies and equipment operating margins as a percent of
revenue decreased 4% in fiscal 1995 as a result of lower average selling prices
and increased costs of production. Micrographics supplies and equipment
operating margins in fiscal 1994 were comparable to fiscal 1993. In fiscal 1993,
micrographics supplies operating margins were down 2% to 3%, due in part to
currency fluctuations affecting both revenues and costs as well as pricing
competition in certain product lines.
Micrographics Services
Micrographics services revenues, which accounted for 22% of the Company's
revenues in fiscal 1995, were level compared to fiscal 1994 despite a 10%
increase in volume, 3% of which was attributable to the acquisition of the COM
services customer base of 14 data service centers from NBS. COM service revenues
were adversely affected by a decline in average selling prices reflecting a
continuation of market price erosion which the Company expects to continue for
at least the near future.
Micrographics services revenues increased 5% in fiscal 1994 and decreased
2% in fiscal 1993, on volume increases of 10% in fiscal 1994 and 13% in fiscal
1993. The increase in fiscal 1994 volume was the result of the NBS acquisition.
Decreasing prices adversely affected the Company's micrographics services
business in fiscal 1994 and fiscal 1993.
Micrographics services operating margins as a percent of revenue decreased
5% in fiscal 1995 and 2% in fiscal 1994 as reductions in average selling prices
exceeded reductions in production costs. In fiscal 1993, reductions in operating
costs kept margins steady despite intense price competition.
Maintenance Services
Maintenance services revenues, which accounted for 15% of the Company's
revenues in fiscal 1995, are derived principally from COM recorders and
duplicators. Such revenues decreased 5% in fiscal 1995 when compared to fiscal
1994 primarily due to the effect of replacing older generation COM systems with
the XFP 2000 which has a capacity significantly greater than the previous
generation COM systems. In addition, reduced pricing and credits issued to a
major customer contributed to the decrease.
Maintenance revenues increased $3.1 million in fiscal 1994 and decreased
$4.8 million in fiscal 1993. The improvement in fiscal 1994 was largely the
result of the addition of a national data service center company to the
Company's customer base. Approximately one-half of the decline in fiscal 1993
was caused by currency fluctuations. The remaining decline was caused in part by
the improved capacity and efficiency of the XFP 2000. The Company's maintenance
revenues were adversely affected by the replacement of older COM systems with
XFP 2000 systems because fewer XFP 2000 systems are required to process the same
volume as older COM systems. Operating margins decreased modestly in fiscal 1995
and fiscal 1994 after remaining level in fiscal 1993.
COM Systems
COM systems revenues, which accounted for 9% of the Company's revenues in
fiscal 1995, decreased $7.0 million with the sale or leasing of 153 XFP 2000
systems in fiscal 1995 compared to 165 systems in fiscal 1994. Also included in
COM systems revenues in fiscal 1995 was $3.5 million of sales of equipment for
use in Anacomp data centers under sale and leaseback arrangements compared to
$5.6 million in fiscal 1994.
COM systems revenues decreased 22% in fiscal 1994 because of the decline in
sales and operating leases of XFP 2000 COM systems from 274 systems in fiscal
1993 to 165 systems in fiscal 1994. This decline was partly the result of
reduced original equipment manufacturer ("OEM") shipments (25 systems in fiscal
1994 compared to 67 in fiscal 1993).
COM systems revenues increased slightly in fiscal 1993 after consideration
of currency effects.
COM systems operating margins improved in fiscal 1995 and fiscal 1994
despite reduced revenues as a result of higher average selling prices. Operating
margins in fiscal 1993 improved significantly both as a result of higher XFP
2000 volumes and the benefits from the facility consolidation that took place in
fiscal 1992.
Magnetics
Magnetics revenues, which accounted for 22% of the Company's revenues in
fiscal 1995, increased $29.5 million, or 23% compared to fiscal 1994. The
increase was due to the contribution from the acquisition of Graham Magnetics in
May 1994. The acquisition of Graham in May 1994 was the primary reason for a 36%
increase in fiscal 1994 magnetics revenues over fiscal 1993. Graham manufactured
certain magnetics products at its facility in Graham, Texas. The Company shifted
all its U.S. production of those products from its Omaha, Nebraska plant to the
Graham facility. The costs associated with this relocation were not significant.
The consolidation resulted in improved manufacturing efficiencies and overall
headcount reduction.
Magnetics revenues decreased $16.5 million in fiscal 1993. Almost half of
the decrease was due to the completion of one-time OEM arrangement, which
contributed $9.7 million in revenues in fiscal 1992 and only $1.1 million in
fiscal 1993. In addition, the Company experienced decreased demand of 3480 and
TK 50/52 cartridge tapes as well as open reel tape, as these products continued
to mature. The Company introduced the high-compression 3490E cartridge tape in
mid-1993, which contributed over $8.0 million of revenues in fiscal 1994.
The revenues added in fiscal 1995 and fiscal 1994 from the Graham
acquisition resulted in increased operating profits in those years. The reduced
revenues in fiscal 1993 resulted in a significant reduction in operating
profits.
Other revenues decreased $6.0 million in fiscal 1995 compared to fiscal
1994 due to reduced revenues from the Company's A-New product.
Results of Operations - Other
Interest
Interest expense and fee amortization totaling $70.9 million in fiscal 1995
increased compared to 1994 due to $3.3 million of default interest and interest
on unpaid scheduled interest on the senior secured debt as well as the Old
Senior Subordinated Notes which was required by the terms of the various debt
agreements.
The reduction in interest expense in fiscal 1994 resulted from lower debt
levels, partly offset by the increase in short-term interest rates. Interest
expense in fiscal 1993 declined as a result of debt repayments as well as
reduced interest rates.
Income Taxes
The Company adopted Financial Accounting Standards No. 109, Accounting for
Income Taxes, in the first quarter of fiscal year 1994. The adoption resulted in
a one-time increase to income of $8.0 million reflecting the cumulative effect
on prior years of this accounting change. In addition, the Company recorded a
deferred tax asset of $95.0 million representing the U.S. federal and state tax
savings from net operating loss carry forwards ("NOLs") and tax credits. The
Company also recorded a valuation allowance of $60.0 million, reducing the
deferred tax asset to $35.0 million. In determining the valuation allowance, the
Company assumed pre-tax income at present levels and considered the impact of
the reversal of temporary differences and the periods in which NOL carryforward
benefits expire.
Included in the provision for income taxes in fiscal 1995 was a deferred
tax provision of $29.0 million. The deferred tax provision includes U.S. tax on
undistributed foreign earnings of $9.0 million and a write-off of net deferred
tax assets of $20.0 million. This write-off resulted from the uncertainty
regarding the reorganization and, accordingly, the uncertainty regarding the
ultimate benefit to be derived from the Company's tax loss carry forwards. The
remaining components of the provision for income taxes were taxes of $4.8
million on earnings of the Company's foreign subsidiaries and a tax reserve
adjustment of $1.2 million.
Income taxes as a percentage of income from operations were 55% in fiscal
1994 and 43% in fiscal 1993. In fiscal 1994 and fiscal 1993, income tax expense
was reduced $1.2 million and $3.7 million, respectively, as a result of the
favorable settlement and disposition of previously established tax reserves. The
effective tax rate was higher than the U.S. statutory rate because of
amortization of goodwill which is not deductible for tax purposes and generally
higher foreign tax rates. See Note 14 to the Company's audited consolidated
financial statements included elsewhere herein.
Liquidity and Capital Resources
The Company's cash balance as of March 31, 1996 was $49.3 million compared
to $19.4 million at September 30, 1995. The increase in the Company's cash
balance was due primarily to the non-payment of subordinated debt principal and
interest during the bankruptcy proceedings. On the Effective Date, approximately
$22 million of cash was used to make a $7.5 million paydown against Senior
Secured Notes, certain professional fees, senior secured debt fees and other
trade claims.
The Company's working capital at March 31, 1996, excluding the current
portion of long-term debt and accrued interest, amounted to $49.9 million
compared to $27.0 million at September 30, 1995. As discussed above,
substantially all of the accrued interest was exchanged for new securities
pursuant to the Plan of Reorganization. As disclosed in the Condensed
Consolidated Statements of Cash Flows, net cash provided by operating activities
increased to $32.9 million for the six months ended March 31, 1996 compared to
$1.9 million in the comparable period due, in part, to significant reductions in
receivables and inventories as well as the non-payment of interest on
subordinated debt. Net cash provided by investing activities increased to $11.0
million in the current period, compared to $5.6 million in the comparable prior
period, primarily as a result of reduced capital expenditures. Net cash used in
financing activities in the current period includes $12.7 million repayment of
debt with proceeds from the sale of the ICS Division.
Prior to the Company's Chapter 11 filing, the Company was experiencing a
liquidity shortfall caused by continued declining revenues and a highly
leveraged balance sheet. The Company's pre-petition liquidity problems improved
as a result of the deferral of principal and interest payments that were due
under the Company's senior secured debt and eliminating a significant portion of
the payment obligations under the 15% Subordinated Notes, all payment
obligations under the 9% Convertible Subordinated Debentures and all payment
obligations under the Company's preferred stock. While the Plan of
Reorganization significantly reduced the Company's debt obligations, the Company
remains highly leveraged. The Company's management believes that the Company has
sufficient cash flow from operations to pay interest on all of its presently
outstanding debt as those payments become due. However, the Company's ability to
meet its debt service obligations will depend on a number of factors, including
its ability to achieve the results of the New Operating Plan.
THE COMPANY
General
The Company is the world's leading full-service provider of micrographics
systems, services and supplies, with over 15,000 customers in more than 65
countries. The Company is also the world's largest provider of COM solutions of
image and information management. "Micrographics" is the conversion of
information stored in digital form or on paper to microfilm or microfiche.
Computer Output Microfilm (COM) converts textual and graphical digital
information at high speed directly from a computer or magnetic tape to microfilm
or microfiche. The Company offers a full range of micrographics services and
supplies, including (i) micrographics processing services to customers on an
outsourcing basis through its 45 data service centers nationwide; (ii)
micrographics systems for users who perform their own data conversion; (iii)
consumable supplies and equipment for micrographics systems; and (iv)
maintenance services for micrographics equipment.
The Company was incorporated in Indiana in 1968. By 1986, the Company had
become, through acquisitions and internal growth, the leading company in the
data service center segment of the micrographics industry.
In 1987, the Company acquired the stock of DatagraphiX, Inc., the world's
leading manufacturer of COM systems, from General Dynamics Corporation. The
acquisition of DatagraphiX, which developed the first COM system in 1954, made
the Company the world's leading provider of COM products and services by adding
COM systems and maintenance to the Company's product line.
In 1988, the Company acquired Xidex Corporation, the leading manufacturer
and distributor of duplicate microfilm (a consumable supply used in the COM
process) and microfilm readers and reader/printers. Xidex was also a
manufacturer and marketer of computer tape products.
In the early 1990's, the Company, recognizing the evolution of technologies
competing with COM, modified its strategic objective to becoming a provider of
information and image management products and services. Today, in addition to
being the world's largest provider of COM solutions for image and information
management, the Company offers electronic image management products and
services. The Company is also a major manufacturer and distributor of computer
tape products used by data processing operations, including open-reel tape, 3480
tape cartridges and 3490E tape cartridges.
The Information and Image Management Industry
The Information and Image Management ("I & IM") industry consists of
companies whose products and services store information in a compacted format.
The trend toward increased emphasis on efficient management of information is
driven by several factors. First, companies understand that effective
information management is an important competitive advantage and allows them to
better serve their customers. Second, the increasing amounts of data processing
output and stored information have made cost-effective and flexible information
management more important. Finally, information itself is coming to be viewed as
a strategic corporate asset and managing this asset is therefore crucial.
The two major technologies applied in the I & IM industry are: (a)
micrographics, which includes COM and source document micrographics and (b)
electronic image management, which includes magnetic and optical technologies
for both data and image storage and retrieval.
Micrographics
Micrographics is the conversion of information stored in digital form or on
paper to microfilm or microfiche. The Company's primary micrographics business
is the sale of COM services, systems and related maintenance and supplies.
COM is sophisticated application of micrographics in which information is
directly converted at high speed from magnetic or electronic forms to microfilm.
COM systems, also known as COM recorders, create an image which is transferred
to microfilm. During this process, the COM recorder organizes the information
and inserts indexing, output formatting, titling and other retrieval aids
tailored to specific customer applications.
COM recorders are data processing peripherals which record
computer-generated data and graphics onto microfilm or microfiche at high
speeds. COM was initially developed as an information management system that
would reduce the cost and increase the speed of computer output by "printing"
computer-generated data on microfilm. Since then, COM recorders have become a
standard computer-output peripheral.
Compared to paper, COM has a number of benefits. COM recorders can print
reports substantially faster than typical impact printers and multiple copies
can be made easily and economically on high-speed duplicators. COM has other
important cost advantages as well. A COM recorder can print a 1,000 page report
on just 4" by 6" microfiche. Mailing COM reports represents a substantial cost
savings over the shipment and handling of paper output. With correct indexing,
retrieval of information is easier and faster with COM than with paper storage.
The Company offers a complete line of micrographics services and products,
including: (i) COM processing services provided to customers on an outsourcing
contract basis; (ii) COM systems for users who perform their own data conversion
to microfilm; (iii) maintenance services for COM and other micrographics
equipment; and (iv) consumable supplies used by micrographics systems. The
Company also sells certain computer tape and other magnetic media products.
By providing a full range of services, the Company can customize its
offerings of products and services to meet the specific needs of any customer.
Once a customer purchases a COM system from the Company, the Company has the
opportunity to provide follow-up service, including maintenance and supplies, as
well as to sell additional compatible hardware.
Despite the continual decline in the cost of magnetic and optical storage
media and systems, micrographics technology is expected to retain significant
cost and functional advantages which will keep it competitive in a wide range of
applications beyond the year 2000. In addition, micrographics technology can
complement other storage media systems to meet the information management needs
of many companies.
Electronic Data and Image Management
Electronic data and image management is the application of various
technologies, including magnetic media and optical disks, to the storage and
retrieval of information and image data. Storage media include magnetic tape,
magnetic disks, writable/erasable magneto-optical disks, CD-R optical disks, and
CD-ROM optical disks. Data that is created during data processing activities is
directly written to the chosen media for later retrieval. Data and images that
are in human readable documents are scanned and digitized in binary form and
then recorded on the media of choice.
Electronic storage and management of image data provides users with
improved data retrieval access time and storage density as a trade off for
increased cost versus other storage technologies such as COM.
The Company's offerings in the electronic data and image management field
include systems incorporating magneto optical disks for use in large, high
output volume data centers, and CD-R storage systems intended for operations
with only a few users. The Company is also a major manufacturer and distributor
of magnetic storage media used by data processing operations, including open
reel, 3480 cartridge and 3490E cartridge computer tape.
The Company, through its Image Conversion Services Division, provided data
and image conversion services where original source documents or other human
readable forms and images are scanned, digitized and stored in binary form on
any of a variety of magnetic or optical storage media. This division was sold in
November of 1995.
Recent Reorganization
By early 1995, revenues for the Company's core micrographics business had
been declining for the last several fiscal years. The Company, however, believed
that these declines would stabilize. In addition, the Company sought to increase
revenue through opportunities related to the consolidation of the micrographics
industry: the development of new micrographics and digital products and services
such as the DS 300, VELLOS, XSTAR, and SCF and AFP capabilities; and investment
in emerging digital technologies.
Based on this growth strategy, in March 1995, the Company attempted to
refinance certain of its existing indebtedness through a public offering of
$225.0 million of senior secured notes. The new notes would have deferred an
aggregate of $153.0 million in scheduled principal payments in fiscal years 1995
through 1998, resulting in increased liquidity and cash for product development.
The Company was unable to complete the refinancing and announced the withdrawal
of the proposed offering on April 6, 1995.
As a result of the withdrawn offering and weaker than anticipated second
quarter results, including disappointing sales performance for the Company's new
products, the Company did not have sufficient cash available to make both its
$20.0 million scheduled principal payment due in April, 1995 on its secured debt
and the $16.9 million scheduled interest payment due May, 1995 on its 15% Senior
Subordinated Notes. The Company sought an agreement with its senior secured
lenders to reschedule its April, 1995 principal payment but was unable to obtain
such an agreement.
The Company engaged in continued efforts since May 1995 to formulate a
restructuring plan to satisfy its various investor constituencies. Such efforts
included the retention of various financial advisers to assist in the
restructuring process and the development by the Company of a new business plan
and strategy to address the Company's current financial situation and
disappointing recent financial performance.
After months of discussions and negotiations with representatives of the
Company's senior secured lenders and with unofficial committees representing the
15% Senior Subordinated Notes and the 13.875% Convertible Subordinated
Debentures and 9% Convertible Subordinated Debentures, the Company reached an
agreement in principle with an unofficial committee representing holders of the
15% Senior Subordinated Notes. On January 5, 1996, the company filed a
prenegotiated plan of reorganization with the U.S. Bankruptcy Court in Delaware
under Chapter 11 of the Bankruptcy Code.
On March 28, 1996, the Company submitted a Plan of Reorganization and a
Disclosure Statement to the Bankruptcy Court. The Disclosure Statement was
approved by the Bankruptcy Court on such date and was transmitted to the
creditors and preferred stockholders of the Company for solicitation of ballots
for acceptance or rejection of the Plan of Reorganization. Ballots were cast by
May 8, 1996. The Plan of Reorganization, as amended, was confirmed by the
Bankruptcy Court on May 20, 1996, and on June 4, 1996 the Company emerged from
bankruptcy under its Plan of Reorganization.
On June 4, 1996, the Company canceled its existing secured debt and
subordinated debt, including 15% Senior Subordinated Notes, 13.875% Convertible
Subordinated Debentures and 9% Convertible Subordinated Debentures, and its
equity securities, including common stock, common stock purchase rights,
preferred stock and warrants, for cash, new debt securities and new equity
securities. On such date, (i) the Company's secured debt was exchanged for
$112.2 million principal amount of its 11 5/8% Senior Secured Notes due 1999
(the "Senior Secured Notes") and a cash payment, (ii) the Company's 15% Senior
Subordinated Notes and related accrued interest was exchanged for $160.0 million
principal amount of its 13% Senior Subordinated Notes due 2002 (the "Senior
Subordinated Notes"), 9,250,000 shares of new common stock and a cash payment,
(iii) the Company's 13.875% and 9% Convertible Subordinated Debentures and
related accrued interest was exchanged for 750,000 shares of new common stock
and warrants to purchase 259,068 shares of common stock, (iv) the Company's
preferred stock and related accrued dividends were exchanged for warrants to
purchase 62, 176 shares of common stock and (v) the Company's common stock was
exchanged for warrants to purchase 41,450 shares of common stock. Each of the
warrants is convertible into one share of common stock during the five year
period ending June 3, 2001 at an exercise price of $12.23 per share. The Company
simultaneously distributed to creditors (including holders of Senior Secured
Notes and Senior Subordinated Notes) approximately $22.0 million in cash. The
Plan of Reorganization resulted in a reduction of approximately $173.0 million
in principal and accrued interest on the Company's debt obligations and a
liquidation amount and accrued interest on its preferred stock.
Description of Business Units
Overview
In fiscal 1995, micrographics accounted for 78% of the Company's revenues
and magnetics generated 22%. The table below sets forth the Company's revenues
by product and service line for the periods indicated:
<TABLE>
<CAPTION>
Year Ended September 30,
1993 1994 1995
---- ------------------------ ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Micrographics:
Services $125,226 21% $132,042 22% $132,314 22%
COM Systems 75,900 13 58,831 10 51,829 9
Equipment and Supplies 223,120 38 204,511 35 190,571 32
Maintenance 86,777 15 89,911 15 85,732 15
Magnetics 72,703 12 98,816 17 128,353 22
Other 6,482 1 8,488 1 2,390 0
----- - ----- - ----- -
Total $590,208 100% $592,599 100% $591,189 100%
======== === ======== === ======== ===
</TABLE>
With the appointment of P. Lang Lowrey III as President and Chief Operating
Officer on May 15, 1995, the Company undertook a three-month planning process to
reevaluate the Company's strategies in light of its current financial situation
and the micrographics industry's future. The stated objective of this planning
process was to transform the Company into a cash driven business focused on its
balance sheet and debt-to-equity ratio. As a result of this thorough analysis of
the Company and its markets, the Company adopted a new business strategy which
focused on (i) reducing costs by centralizing administrative functions, merging
numerous data service centers and offices, and reducing headcount; (ii)
outsourcing or exiting low-margin, non-strategic businesses; and (iii) investing
in high-margin products and services that are complementary to the Company's
core micrographics business.
The continuing development of local area computer networks and similar
systems based on digital technologies has resulted and will continue to result
in at least some Anacomp customers changing their use of micrographics from data
storage and retrieval to primarily data storage. The Company believes this is at
least part of the reason for the declines in the past two fiscal years in sales
of the Company's duplicate film, readers and reader/printers. The Company's
service centers also are producing fewer duplicate microfiche per original for
customers, reflecting this use of micrographics primarily for storage. The
rapidly changing data storage and management industry also has resulted in price
competition in certain of the Company's markets, particularly micrographics
services. The Company's operating income as a percent of revenue (excluding
restructuring and special charges) decreased to 7% in fiscal 1995 from 13.4% in
fiscal 1994 and 15% in 1993.
Products and Services
Micrographics Services
General. At present, COM services generate most of the Company's
micrographics services revenues. The Company plans to generate additional
revenue from a multitude of additional customer services including (i) Compact
Disc-Recordable (CD-R) services, (ii) print and mail services, and (iii)
archival services offered through the Company's 45 data service centers in the
United States. The Company's data service centers, which generally operate 24
hours per day every day of the year, receive on a daily basis thousands of
magnetic tapes or direct computer transmissions from more than 8,000 customers.
The data service centers then convert the information on these tapes to 16mm
microfilm or to microfiche, which is a 4" x 6" microfiche card capable of
storing up to 1,000 pages of computer output. Together these services comprise
the Company's most profitable business line. The Company's objective is to
protect this highly profitable business, while introducing complementary,
high-growth services such as CD-R output, print and mail, and archiving. The
Company is marketing these new services as additional, not replacement, services
to its core micrographics services. Pursuant to this strategy, the Company
envisions selling each image it processes up to four times:
o Once to output the image to microfilm or microfiche for safe, long-term
storage;
o Once to output the image to CD-R for short-term storage and frequent
retrieval;
o Once to output the image to paper to be mailed directly to the clients'
customers; and
o Once to store the image for a customer at an Anacomp site for archival
purposes.
The Company currently has an estimated 30% market share of the
approximately $350 million COM services business. COM services have been facing
increased pricing pressure due to competitive market conditions. To combat
declining prices, the Company completed installation of the XFP 2000 COM systems
in all of its data centers in 1995, increasing the efficiency of COM production.
Additionally, the Company will upgrade some of these systems with
Anacomp-developed emulation software for IBM and Xerox laser print streams,
which expand the potential market for COM services and command higher average
prices than other COM output. The Company believes that these technological
improvements will partially offset the declining pricing trends in COM services.
The Company also plans to use its existing data centers to expand into new
markets, specifically CD-R, print and mail, and archival services.
With CD-R services, the Company outputs the customer's data from magnetic
tape or computer file to a recordable compact disc. For some CD-R customers, the
Company also records their data onto microfilm or microfiche. The Company
introduced this service at a selected number of its U.S. data centers in fiscal
1995 and is expanding this service during 1996.
The Company plans to introduce print and mail services to its customers in
late fiscal 1996 or early fiscal 1997. Print and mail services involves
outputting customer data to paper (usually on pre-printed forms) then mailing
the printed information directly to the customer's clients. The Company will
also introduce archival services, which involves storing the customer's images
at an Anacomp facility, to its customers in 1996. Both of these services are
highly compatible with the Company's existing COM services business. Archival
services present a highly profitable new market for micrographics services since
start-up costs will be held to a minimum by using available space within current
Anacomp facilities.
In addition, the Company offers External Facilities Management ("XFM")
services. In a typical XFM arrangement, the Company sells an XFP 2000 system to
a customer who then pays the Company to operate and manage the customer's COM
output. The Company charges the customer monthly fees based on the volume of COM
products produced and also receives additional income from supplies and
maintenance charges.
Customers and Distribution. The Company has a large customer base which has
proved to be loyal to the Company in the past. The Company's micrographics
services customers include a majority of the Fortune 500 companies, banks,
insurance companies, financial service companies, retailers, healthcare
providers and government agencies, such as Automatic Data Processing, Inc.
("ADP"), Citicorp, Electronic Data Systems Co. ("EDS"), General Electric Capital
Corporation, The Home Depot, Inc. and IBM (none of which accounted for more than
5% of the Company's micrographic services revenues in fiscal year 1995). The
typical service contract is exclusive, lasts one year with a one-year automatic
renewal period and provides for usage-based monthly fees, subject to increase on
30 days' notice. Approximately 75% of the Company's micrographics services
customers are subject to contracts and more than 95% of such contracts are
renewed annually.
Competitors. Data service center industry competition is primarily limited
to service centers within a 50-mile radius of a customer because of the emphasis
on rapid turnaround. The Company and First Image (which has 66 data service
centers) are the two largest national data service center organizations with
approximately 30% and 40% of the market, respectively. The remainder of the
market is served by numerous small data service centers.
COM Systems
General. The Company is the world's leading manufacturer and distributor of
COM systems (a $50 million market worldwide), offering a complete line of COM
recorders, processors, duplicators and related software. The Company's installed
base of COM systems, approximately 55% of those in use worldwide, is more than
twice as large as its nearest competitor, and related sales of COM services and
supplies to the installed base provide the Company with a recurring revenue
stream that constitutes a significant portion of its annual revenues.
The XFP 2000, which is manufactured by the Company, is the most advanced
COM recorder on the market and has enabled the Company to capture an estimated
55% of all new COM systems sold or leased. The XFP 2000 is faster and more
reliable than previous COM recorders and, through its laser technology, has the
capability to generate precise reproductions of any image. The Company sold or
leased 153 new XFP 2000 systems in fiscal 1995 compared to 165 in 1994. Pursuant
to an OEM agreement entered into in 1990, Kodak is obligated to purchase an
additional 151 XFP 2000 systems by October 1997 or pay a cash penalty to the
Company. In fiscal 1996, the Company has introduced an XFP 2000 ("DragonCOM")
for the Asian market which is capable of processing Chinese, Korean, Taiwanese,
Japanese and other ideographic languages utilizing the popular IBM Advanced
Function Presentation ("AFP") architecture. The Company is marketing the
DragonCOM to customers in Asia given the great demand for micrographics in Asian
countries, particularly China.
The Company also developed two new software products that emulate IBM and
Xerox laser print streams. AFP software developed in conjunction with IBM
enables the XFP 2000 to process and image AFP formatted data streams used by IBM
high-speed mainframe laser printers. Xerox Compatibility Feature ("XCF")
software developed in partnership with Xerox enables the XFP 2000 to process the
same data stream used by Xerox high-speed, high-volume laser printers. The
Company believes these enhancement features will expand the potential market for
COM output both by the sale of upgrade kits and additional XFP 2000 systems.
The Company had offered two host output digital products -- XSTAR hardware
and XSTAR software. The Company sold only one XSTAR hardware system in 1995 and
going forward will put more focus on XSTAR software. In addition, the Company
seeks to establish strategic alliances with leading technology companies in
order to gain access to digital technologies and reduce development time and
expense. The Company's technological leadership in micrographics, large customer
base and worldwide distribution network will continue to make it an attractive
strategic alliance partner.
Customers and Distribution. Principal customers for the Company's COM
systems include information intensive organizations such as banks, insurance
companies, financial service companies, retailers, healthcare providers, and
government agencies, and non-Anacomp COM data service centers. Recent purchasers
of the XFP 2000 include Aetna, American Airlines, Inc., AT&T Corp., Chemical
Banking Corporation, CIGNA Corporation, Cincinnati Bell Inc., EDS, GTE
Corporation, NYNEX Corporation, PepsiCo, Inc., the State of Washington, The
Travelers Inc. and Westinghouse Electric Corporation. While the majority of COM
systems are sold outright, the Company does offer customers three or five-year
lease options.
International sales accounted for 41% of the Company's fiscal 1995 sales of
COM system units. In foreign markets, the Company sells COM systems through
wholly owned operating subsidiaries and, in countries in which the Company does
not have a subsidiary, through dealers and agents. In 1994, Kodak became the
Company's exclusive distributor in Asia (other than Japan) and Australia.
Competitors. The Company's primary competitors in the sale of COM systems
are Agfa-Gevaert AG ("Agfa") and Micrographic Technology Corporation ("MTC").
The Company manufactures, on a private label basis, the COM systems sold by
Kodak through an OEM agreement. In some instances, the Company and Kodak compete
directly for the same COM system sales. Competition is based principally on
product features, as well as on such factors as product quality, service and
price. The Company sells approximately 55% of all new COM systems sold
worldwide. The Company's large installed base is an important competitive
advantage in the sale of new COM systems because changing from one
manufacturer's COM system to another is difficult due to software conversion and
operator training costs.
Micrographics Equipment and Supplies
General. The Company sells the most comprehensive line of micrographics
supplies in the world, offering original halide film, duplicate film, chemicals
for microfilm processing, paper and toners for reader/printers, micrographics
lamps and bulbs, and other consumables. In addition to offering supplies, the
Company markets a complete line of microfilm/microfiche readers and
reader/printers. With the exception of proprietary wet and dry original halide
film used in its COM systems, many of these products have become only marginally
profitable in recent years.
To increase profitability, the Company signed an agreement to outsource the
manufacture of readers and reader/printers beginning in fiscal 1996 as demand
and margins for these products continue to decline. Additionally, the Company
ceased production of the DS 300 (a PC-connected workstation introduced in fiscal
1993 that scans, digitizes and electronically converts micrographic images on
demand) in fiscal 1996 after completing a build-out of inventory. These
decisions resulted in a significant one-time write-off in fiscal 1995. However,
the Company continues to offer these types of products to its customers on a
reseller basis.
The Company supplies proprietary wet and dry original halide film used in
its XFP series of COM systems and proprietary dry original halide film for its X
Series, an earlier generation of Anacomp COM systems. All original microfilm for
the Company's COM systems is manufactured for the Company by Kodak in what the
Company considers to be a proprietary package.
The proprietary film used in the XFP 2000 represents the only original COM
film segment that is currently growing. The Company also believes it can
maintain its market share of XFP 2000 dry film sales going forward because of
the complexity of the manufacturing process, the Company's patents on its
proprietary canister and the industry's interest in other segments of the film
business.
The Company is the world's largest supplier of duplicate microfilm, which
is used to create one or more additional copies of original microfiche and
microfilm masters. The Company's share of this estimated $75 million worldwide
market is approximately 67%, which includes sales to its own data centers. The
total market for duplicate film has declined as the ratio of duplicates to
masters declines and as customers convert to digital technologies.
The cost of producing all microfilm products has risen because of a
worldwide shortage of polyester, which is the principal raw material for
microfilm products. See "The Company -- Raw Materials and Suppliers."
Customers and Distribution. The Company sells its consumable supplies
directly to more than 90% of its worldwide installed base. In addition, the
Company's indirect sales operation sells supplies to dealers and distributors
throughout the United States.
Original microfilm sales include film sold for the Company's COM systems
and for other manufacturers' COM systems, with film sold for the Company's
systems representing the vast majority of original microfilm sales.
International sales in fiscal 1995 accounted for 29% of the Company's total
micrographics supplies and equipment revenues. In foreign markets, the Company
offers supplies through wholly owned operating subsidiaries and, in countries in
which the Company does not have a subsidiary, through a network of dealers and
distributors.
Competitors. For non-OEM sales of the XFP 2000, the Company is the
exclusive supplier for original microfilm because of the proprietary nature of
the canister in which the film is placed. The Company competes in sales of
non-proprietary original COM microfilms with other manufacturers, including
Agfa, Fuji Photo Film Co., Ltd. ("Fuji"), Kodak and Minnesota Mining &
Manufacturing Company ("3M"). The Company's worldwide market share for COM
microfilms is approximately 55%.
The Company is the world's largest supplier of duplicate microfilm with an
estimated 70% share of the U.S. market and an estimated 65% share of the
non-U.S. market. The Company's primary competitor in the duplicate microfilm
market is Rexham Graphics Ltd. ("Rexham") with an estimated 25% share of the
worldwide duplicate film market.
The Company has an estimated 33% of the micrographics supplies and
equipment market in Europe and estimated 39% of the supplies and equipment
market in the Americas (excluding the United States) and Asia. In Europe, the
Company's primary competitors for micrographics supplies and equipment are Kalle
Microfilm Division of Hoechst AG ("Kalle"), A. Messerli AG and Rexham. Its
primary competitors in Japan are Kodak and Fuji.
Maintenance Services
General. The Company provides 24-hour a day maintenance services through
approximately 700 service employees operating in various countries worldwide. In
such countries, the Company maintains approximately 2300 of the COM recorders in
use. Increased maintenance margins usually result from incremental COM systems
sold to the same customer site because the Company is able to provide
maintenance without adding maintenance centers or a significant number of
personnel. COM maintenance services are facing increased pressure with the
improved capacity and efficiency of the XFP 2000 resulting in reduced
maintenance revenues as customers are able to process more volume on fewer COM
systems. However, the Company believes that operating margins will benefit from
sales of additional XFP 2000 systems because XFP 2000 systems require less
maintenance than older COM systems. The Company also believes additional
maintenance services for AFP and XCF enhancement upgrades to the XFP 2000 should
partially offset this decline. Additionally, the Company plans to continue
adding selected non-micrographics products to its service base while
restructuring its maintenance organization in 1996 to reduce costs.
Customers and Distribution. The Company's maintenance services division
encompasses the Company's maintenance services operations in the United States
as well as a field support group for the Company's data service centers. This
department consists of approximately 500 field service engineers and managers
who provide geographic coverage through ten districts in the United States. The
Company provides maintenance services primarily to its installed base of COM
systems, although the Company has begun to service non-Anacomp COM systems and
selected data processing products. The Company's standard maintenance contract
is an exclusive, two-year contract with an automatic two-year renewal period.
The prices under a standard maintenance contract are fixed for nine months and
thereafter are subject to up to 10% annual increases upon 90 days' notice.
Maintenance contracts on the XFP 2000 also provide for incremental charges for
every image over a certain number of images processed.
To lower costs, the Company reduced maintenance headcount and operating
expenses. In addition, the Company has reduced field support costs by
consolidating its hardware and software analysts. The Company also has
consolidated its two U.S. customer service centers for micrographics customers
in its Poway, California facility. The Company expects the synergies created by
this consolidation to improve customer support while also reducing costs.
International operations accounted for 38% of the Company's maintenance
revenues in fiscal 1995. COM systems sold directly in foreign markets are
maintained by Anacomp employees operating through the Company's foreign
subsidiaries. COM systems sold in foreign markets through distributors are
generally maintained by the employees of such distributors.
Competitors. Historically, competition in maintenance has been limited as
most customers tend to use the maintenance services of the vendor that installed
their system, though some customers choose to employ in-house maintenance
staffs. Thus, revenues are primarily a function of new COM system sales and the
size of the installed base.
The Company has the infrastructure to compete for service contracts on
other COM products or selected data processing products, and the Company is
actively seeking such business. In March 1992, the Company acquired the COM
maintenance service operations of TRW Inc. ("TRW"), the last major third party
provider of such services. The TRW operations were integrated into the Company's
existing maintenance organization. These operations expanded the Company's
maintenance service base and created new opportunities for COM system and
supplies sales.
The Company's COM maintenance market share is approximately 65% in the
United States, 50% in Europe and 15% in the Americas (excluding the United
States) and Asia.
Magnetics
General. The Company manufactures, sells and distributes a broad range of
magnetics products such as open reel tape, 3480 data tape cartridges, TK 50/52
"CompacTape" data tape cartridges and 3490E data tape cartridges. The Company is
the world's largest manufacturer of half-inch tape products, which includes 3480
and 3490E tape cartridges, open reel tape and CompacTape. However, with the
exception of 3490E cartridges, the Company has faced declining demand for these
products along with steady increases in raw material costs, particularly
polyester.
To address these overall trends, the Company is cutting costs aggressively
in fiscal 1996. The Company also is partially offsetting cost increases with
higher market prices in selected product lines, particularly open reel tape and
3480 cartridges. Additionally, continued synergies from the Company's
acquisition in 1994 of Graham Magnetics along with the Company becoming a
distributor of Memorex branded magnetic media products is partially offsetting
market trends.
The Company also is seeking new applications and markets based on its
magnetics coating capacity. In 1995, the Company introduced voice logging tape
and instrumentation tape. Voice logging tape is used by brokerage companies,
"911" emergency service providers and other entities to record telephone
conversations. Instrumentation tape is used by various government agencies to
measure and record sensitive data. Both of these products cost little to develop
since they use a slightly modified version of tape already manufactured for
other magnetics products. In fiscal 1996, the Company began to use magnetic
coated media to manufacture transfer tape, which is found on the back of
transaction media (similar to credit and phone cards). Each of these new
products was inexpensively introduced and absorbs a substantial amount of fixed
factory costs. The Company is actively seeking partnerships that will enable the
Company to participate in the next generation of magnetic media products
including half-inch metal particle tape.
Due to decreasing demand and falling prices, the Company ceased production
of "cookies," which are the magnetic media used in manufacturing flexible (or
"floppy") diskettes. As a result, the Company closed its Omaha, Nebraska
facility in October 1995, absorbing a one-time shut-down charge in fiscal 1995.
To reduce costs, the Magnetics Group's senior management has been reduced
30% through the creation of a European organization and a U.S. & Asia/Pacific
organization. In October 1995, the Company closed its Bedford, Texas office,
reducing headcount significantly and consolidating the remaining functions into
existing Anacomp facilities in Atlanta, Georgia and Grand Prairie, Texas.
Customers and Distribution. The Company primarily sells its magnetics
products through its worldwide distributor and dealer network and, to a lesser
extent, through parts of its 196-person direct sales force. In addition, the
Company also manufactures its open reel, 3480 and 3490E tape products on an OEM
basis for internationally recognized brands. The Company markets its products
under the "Dysan," "StorageMaster," "Memorex" and "Graham" trademarks.
Competitors. The Company has no significant competitors with respect to the
manufacture of open reel tape, and its worldwide market share is estimated at
92%. The Company competes with 3M and BASF AG in the sale of open reel tape,
3480 and 3490E data cartridges. The Company's worldwide market share for 3480
and 3490E data cartridges is estimated to be 38% and 35%, respectively.
Sales Force
The Company employs approximately 200 salespeople worldwide. The Company
maintains two separate domestic sales forces: (i) the U.S. Group, which employs
130 salespeople, is comprised of 10 regions responsible for sales of
micrographics and CD-R services, COM systems and related maintenance services,
supplies and equipment, sales of digital products and direct sales of magnetics
products and (ii) the Magnetics Division responsible for sales of magnetics
products primarily to dealers and distributors.
The Company employs approximately 60 salespeople who sell to customers
located abroad. In countries in which the Company does not have a subsidiary,
the Company sells through approximately 100 distributors and agents.
Raw Materials and Suppliers
Polyester is the principal raw material used in the manufacture of
microfilm and magnetic media products. The Company believes that the recent
worldwide shortage of polyester is likely to continue, and that the cost of
polyester-based products will continue its recent increases over the next
several years. To date, the Company has had little success in its efforts to
limit the amount of the cost increases that its microfilm and magnetics
polyester vendors have imposed upon the Company. The Company is uncertain
whether it can pass along to its film customers all of the cost increases that
it has experienced and may in the future experience, and the Company's inability
to do so could adversely affect the Company's profitability.
In October 1993, SKC purchased Anacomp's Sunnyvale, California duplicate
microfilm facility and entered into a ten-year supply agreement (the "Supply
Agreement") with the Company pursuant to which SKC became the Company's sole
duplicate microfilm supplier. In connection therewith, SKC invested several
million dollars to consolidate and to enhance the Sunnyvale facilities in order
to improve both productivity and film quality. SKC's duplicate film production
is dedicated exclusively to the Company and, during fiscal 1995, the Company
purchased approximately 490 million square feet of duplicate microfilm from SKC,
costing approximately $40 million. In connection with the Supply Agreement, SKC
also provided the Company with a $25 million trade credit facility (secured by
up to $10 million of products sold to the Company by SKC). In connection with an
amendment to the Supply Agreement as of the effective date under the Plan of
Reorganization, the Company agreed to certain price increases retroactive to
1994 and agreed to make the following deferred payments to SKC: (a) $400,000 in
1997; (b) $600,000 in 1998; (c) $800,000 in 1999; (d) $800,000 in 2000; and (e)
$1,000,000 in 2001.
Pursuant to the Supply Agreement, SKC also provides the Company with a
substantial portion of its polyester requirements for its magnetic media
products. In fiscal 1995, the Company used more than 7.6 million pounds of
polyester, costing approximately $13.7 million, in its magnetic business. While
the Company could purchase certain of these magnetics polyester products from
vendors other than SKC, SKC is currently the sole available source for polyester
used by the Company to manufacture many magnetics products, including open reel
tape. SKC's inability or refusal to supply this polyester in the future might
force the Company to cease manufacturing open reel tape or other magnetics
products, which would negatively impact the Company's profitability and prevent
the Company from fulfilling its contractual obligations to its customers.
The Company's XFP 2000 COM recorder utilizes a proprietary, patented
original film canister, and the original film used in that canister is supplied
exclusively by Kodak. The Company also purchases from Kodak substantially all of
the Company's requirements for original microfilm for earlier-generation COM
recorders manufactured by the Company and others, although the Company has from
time to time purchased the original microfilm utilized in those older COM
systems from other vendors.
Research and Development
The Company has reduced engineering costs substantially by shifting away
from the research and development of various micrographics products in fiscal
1996. Going forward, research and development expenditures can be expected to
grow as the Company focuses its effort on new digital products.
The Company owns various patents and licenses covering aspects of its
products and production processes, as well as proprietary trade secret
information with respect to such products and processes. While the Company
believes that the protection provided by these patents, licenses and proprietary
information is important to the Company, it also believes that of equal
significance is the knowledge and experience of its management and personnel and
their abilities to develop and market the Company's products and to provide
value-added services in connection with such products.
Employees and Labor Relations
As of June, 1996, the Company employed approximately 2,800 people who were
engaged in management, sales and services, manufacturing, computer and
micrographics operations. In October, 1995, the Company employed approximately
3,600 people.
Industry Segment and Foreign Operations
As discussed in Note 1 to the Consolidated Financial Statements, the
Company operates in a single business segment - providing equipment, supplies
and services for information management, including storage, processing and
retrieval. Financial information concerning the Company's operations in
different geographical areas is included in Note 19 to the Consolidated
Financial Statements.
Facilities
The Company maintains corporate offices at 11550 North Meridian Street in
Carmel, Indiana (a suburb of Indianapolis). Micrographics manufacturing,
engineering, micrographics, customer service and marketing, and product
maintenance facilities are all located in Poway, California near San Diego. The
Company's magnetics manufacturing facilities are located in Graham, Texas and
Brynmawr, Wales.
During 1994, Anacomp's Graham and Brynmawr facilities received
international recognition for quality standards, earning International Standards
Organization (ISO) 9002 certification. Anacomp's Poway facility earned ISO 9002
certification in September 1995.
The following table indicates the square footage of Anacomp's facilities:
Operating Other Corporate
Facilities Facilities Facilities Total
---------- ---------- ---------- -----
United States:
Leased ....... 702,448 343,349 76,115 1,121,912
Owned ........ 147,420 15,630 -- 163,050
------- ------ -------
849,868 358,979 76,115 1,284,962
======= ======= ====== =========
International:
Leased ....... 143,834 -- -- 143,834
Owned ........ 145,000 -- -- 145,000
------- -------- ------ -------
288,834 -- -- 288,834
------- -------- ------ -------
Total ..... 1,138,702 353,979 76,115 1,573,796
========= ======= ====== =========
Other Facilities consists primarily of leased space of abandoned
facilities. Approximately 109,246 square feet of the other Facilities have been
sublet to others and an additional 249,733 square feet has been vacant since
September 1995. The Company also leases standard office space for its sales and
service centers in a variety of locations. The Company considers its facilities
adequate for its present needs and does not believe that it would experience any
difficulty in replacing any of its present facilities if any of its current
agreements were terminated.
Legal Proceedings
The Company and its subsidiaries are potential or named defendants in
several lawsuits and claims arising in the ordinary course of business. While
the outcome of such claims, lawsuits or other proceedings against the Company
cannot be predicted with certainty, management expects that such liability, to
the extent not provided for through insurance or otherwise, will not have a
material adverse effect on the financial statements of the Company.
DTSC Matters. The California Department of Toxic Substances Control (the
"DTSC") filed a civil complaint on January 5, 1996, in Alameda County Superior
Court against Anacomp, Inc. and Xidex Corporation that seeks civil penalties and
injunctive relief pursuant to the Hazardous Waste Control Law, Health and Safety
Code Section 25100, et seq., and California Code of Regulations, Title 22, Div.
4.5, Section 66001, et seq., with respect to Anacomp's Sunnyvale, California
facility (the "Sunnyvale Facility"). Among other things, the DTSC contends that:
(a) the Company has not yet completed regulatory closure of the Sunnyvale
Facility, which (the DTSC contends) is required by law; (b) the closure actions
that are required include collection and analysis of soil samples, evaluation of
the risks associated with the contaminants found, and, depending on those risks,
removal, treatment and/or disposal of contaminated soil and/or groundwater; and
(c) the Company has not fully complied with the requirement to demonstrate
financial assurance for completing the required closure activities for the
Sunnyvale Facility.
An order of the California Regional Water Quality Control Board, San
Francisco Bay Region (the "RWQCB") is also in effect with respect to the
Sunnyvale Facility (the "RWQCB Order"). The RWQCB contends that the Company is
obligated to characterize and cleanup environmental contamination at the
Sunnyvale Facility pursuant to the RWQCB Order. The Company's consultants
submitted to the RWQCB a Remedial Action Plan for addressing environmental
contamination at the Sunnyvale Facility that estimates potential environmental
costs of as much as $998,000 for soil cleanup and $1,842,000 for groundwater
cleanup, for total cleanup costs of $2,840,000. The DTSC and the RWQCB estimate
the Company's environmental cleanup liabilities for the Sunnyvale Facility will
total $3,453,900, and possibly as much as $5,008,155.
The DTSC and the RWQCB also contend that: (a) all expenditures necessary to
comply with environmental laws are administrative expenses that the Company is
required to incur during the pendency of the Chapter 11 Cases; and (b) to the
extent the Company is required to hire professionals to comply with these
obligations, the Company must seek bankruptcy court authorization for such
expenditures, in addition to the authorization already received to pay holders
of trade claims.
The Company does not necessarily agree (and in most cases strongly
disagrees) with the contentions of the DTSC in its civil complaint and the RWQCB
Order. The Company has filed an answer to the DTSC complaint, and contends that
DTSC's civil penalties action is enjoined. On June 21, 1996, the Company filed
in the United States Bankruptcy Court for the District of Delaware ("Bankruptcy
Court") a limited objection to DTSC's $300,000 civil environmental penalty
claim. The Company reserved its rights to object to the other claims of RWQCB
against the Company.
Customs Claim. On or about May 26, 1996, the United States Customs Service
("Customs") filed a Notice of Appeal from the order confirming the Plan of
Reorganization (the "Confirmation Order") and also filed an emergency motion for
a stay pending the appeal of the entry of the Confirmation Order with the
Bankruptcy Court. On May 31, 1996, the Bankruptcy Court held a hearing on the
Bankruptcy Court stay motion. After having reviewed legal briefs submitted by
the parties and oral argument, the Bankruptcy Court denied the stay motion.
On May 31, 1996 Customs filed in the United States District Court for the
District of Delaware an emergency motion for a stay pending the appeal of the
Confirmation Order and related memorandum of law. The Company filed an
opposition to the stay motion and related memorandum of law. The District Court
stay motion is still pending. In the interim, on or about July 10th, Customs
filed its brief in support of its appeal of the order confirming the Plan of
Reorganization. (The Company's brief was filed on July 24, 1996.)
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain of the terms of the Company's Senior
Secured Notes and Senior Subordinated Notes that were issued on June 4, 1996,
the effective date of the Plan of Reorganization. For more complete information
regarding such indebtedness, reference is made to the definitive agreements and
instruments governing such indebtedness, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is part, and
which are incorporated by reference to this Prospectus.
11 5/8% Senior Secured Notes due 1999
General. The Senior Secured Notes mature on September 30, 1999 and are in
an aggregate principal amount of $112,900,000. The Senior Secured Notes bear and
September 30 of each year, beginning on September 30, 1996, to the person in
whose name the Senior Secured Note is registered at the close of business on the
preceding March 15 or September 15, as the case may be.
Ranking
The Senior Secured Notes are senior secured obligations of the Company
ranking pari passu (on an equal basis) in right of payment with all existing and
future senior obligations of the Company and senior in right of payment to all
existing and future indebtedness of the Company that is designated as
subordinate or junior in right of payment to the Senior Secured Notes. The
Senior Secured Notes are secured by a lien on substantially all the assets of
the Company and certain of its subsidiaries. The collateral also includes
after-acquired assets of the Company and the subsidiaries to the extent that
such assets are acquired by the Company or any such subsidiary without financing
secured by a lien on such assets.
Optional Redemption
The Senior Secured Notes may be redeemed at the option of the Company, in
whole or from time to time in part, at any time, on not less than 30 days nor
more than 60 days' notice, at a redemption price of 100% of the principal amount
thereof, plus accrued and unpaid interest (if any) to the date of redemption
(subject to the rights of the holders of Senior Secured Notes to receive
interest due on the related interest payment date).
Mandatory Redemption
The Company will redeem the Senior Secured Notes for cash pursuant to the
following sinking fund schedule at a redemption price equal to 100% of the
principal amount, plus accrued interest to the redemption date: (i) September
30, 1996 - $14,288,000; (ii) March 31, 1996 - $14,286,000; (iii) September 30,
1997 - $16,163,000; (iv) March 31, 1997 - $16,161,000; (v) September 30, 1998 -
$17,100,000; (vi) March 31, 1998 - $17,100,000; and (vii) September 30, 1999 -
$17,092,000.
Restrictive Covenants
Certain of the covenants in the Senior Secured Indenture are restrictive on
the operations and activities of the Company. The covenants include limitations
on certain restricted payments, indebtedness, distributions from subsidiaries,
liens and impairment of collateral, sales of assets and the stock of certain
subsidiaries, affiliate transactions, issuance of additional shares of capital
stock of subsidiaries, additional indebtedness of subsidiaries, capital
expenditures, and provide for certain payments in the event of a change of
control.
Senior Subordinated Notes due 2002
The Senior Subordinated Notes mature on June 30, 2002, and are in an
aggregate principal amount of $160,000,000, plus the principal amount of any
Accrued Interest Securities (as defined below) issued pursuant to the Senior
Subordinated Notes Indenture. The Senior Subordinated Notes bear interest at the
rate of 13% per annum payable semi-annually on June 30 and December 31 of each
year, beginning on December 31, 1996, to the person in whose name the Senior
Subordinated Note (or any predecessor Senior Subordinated Note) is registered at
the close of business on the preceding June 15 or December 15, as the case may
be. In the case of any interest payment date for the Senior Subordinated Notes
occurring on or prior to June 30, 1997, the Company will satisfy its obligation
to pay interest on the Senior Subordinated Notes through the issuance of
securities, in the form of the Senior Subordinated Notes (the "Accrued Interest
Securities"), and having a principal amount corresponding to the amount of
interest due on the Senior Subordinated Notes on such interest payment date.
Subordination. Payment of principal and interest and all other amounts on
the Senior Subordinated Notes is unsecured and subordinated; subject to the
prior payment in full of all "Senior Indebtedness," as defined in the Senior
Subordinated Indenture.
Optional Redemption. The Senior Subordinated Notes may be redeemed at the
option of the Company, in whole or from time to time in part, at any time, on
not more than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amounts thereof), together with accrued and unpaid
interest (if any) to the date of redemption (subject to the rights of the
holders of Senior Subordinated Notes to receive interest due on the related
interest payment date): (i) 1996-103.000%; (ii) 1997-103.000%; (iii)
1998-102.625%; (iv) 1999-102.250%; (v) 2000-101.875%; (vi) 2001-101.500%; and
(vii) 2002 and thereafter-100.000%.
Mandatory Redemption. The Company will, prior to the fifth anniversary of
the date the Senior Subordinated Notes were issued, redeem for cash a principal
amount of the Senior Subordinated Notes plus the aggregate principal amount of
any Accrued Interest Securities issued under the Senior Subordinated Indenture.
The redemption price will be the price that would then be applicable pursuant to
the optional redemption schedule set forth above of the principal amount of the
Accrued Interest Securities plus accrued and unpaid interest thereon to the date
of redemption.
Restrictive Covenants. As with the Senior Secured Indenture, certain of the
covenants in the Senior Subordinated Indenture are restrictive on the operations
and activities of the Company. The covenants include limitations on certain
restricted payments, indebtedness, distributions from subsidiaries, sales of
assets and the stock of certain subsidiaries, affiliate transactions, issuance
of additional shares of capital stock of subsidiaries, additional indebtedness
of subsidiaries, capital expenditures, and provides for certain payments in the
event of a change of control.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock and 1,000,000 shares of preferred stock (the "Preferred Stock").
As of July 24, 1996, the Company had outstanding 10,000,000 shares of Common
Stock and no shares of Preferred Stock. The following summary description of the
capital stock of the Company is qualified in its entirety to the Amended and
Restated Articles of Incorporation of the Company (the "Articles of
Incorporation"), the Amended and Restated By-laws of the Company (the "By-laws")
and the applicable provisions of the Indiana Business Corporation Law, as
amended (the "IBCL").
Common Stock
Each share of Common Stock entitles the holder of record to one vote on all
matters submitted to a vote of stockholders, including the election of
directors. There is no cumulative voting in the election of directors.
Consequently, the holders of a majority of the outstanding shares of Common
Stock can elect all of the directors then standing for election.
Subject to preferences that may be applicable to any outstanding shares of
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. Holders of Common Stock have
no conversion, redemption or preemptive rights to subscribe to any securities of
the Company. All outstanding shares of Common Stock are fully paid and
nonassessable. In the event of any liquidation, dissolution or winding-up of the
affairs of the Company, holders of Common Stock will be entitled to share
ratably in the assets of the Company remaining after provision for payment of
liabilities to creditors and the preferences, if any, of holders of Preferred
Stock. The rights, preferences and privileges of holders of Common Stock are
subject to the rights of the holders of any shares of Preferred Stock which the
Company may issue in the future.
Trading Market
The Common Stock is traded over-the-counter on the Nasdaq Automated
Quotation System under the symbol ANCO.
Transfer Agent and Registrar
Chase Mellon Shareholder Services L.L.C. is the transfer agent and
registrar of the Common Stock.
Preferred Stock
The Company may issue up to 1,000,000 shares of Preferred Stock. The
Articles of Incorporation authorize the Board of Directors, without further
stockholder action, to issue Preferred Stock in one or more series and to fix
and determine the relative rights and preferences thereof, including voting
rights, dividend rights, liquidation rights, redemption rights, redemption
provisions, sinking fund provisions, or conversion rights. As a result, the
Board of Directors could, without stockholder approval, issue shares of
Preferred Stock with voting, conversion, dividend, liquidation, or other rights
that could decrease the amount of earnings and assets available for distribution
to holders of Common Stock or adversely affect the rights and powers, including
voting rights, of the holders of Common Stock. The issuance of the Preferred
Stock could, depending on its terms, have the effect of impeding or facilitating
the completion of a merger, tender offer or other takeover attempt.
Warrants
The Company has outstanding warrants to purchase 362,694 shares of Common
Stock at an exercise price of $12.23 per share (the "Warrants"). The Warrants
are exercisable at any time and, to the extent not previously exercised, will
terminate on June 4, 2001. The number of shares of Common Stock issuable upon
exercise of the Warrants is subject to adjustment upon the occurrence of certain
customary dilutive events.
Restrictions on Resale
The resale or disposition by the recipients of the Common Stock issued
pursuant to the Plan of Reorganization is exempt from registration under the
Securities Act to the extent that the recipients are not deemed to have been
"underwriters" under Section 1145(b) of the United States Bankruptcy Code (the
"Bankruptcy Code") in connection with the issuance of the Common Stock pursuant
to the Plan of Reorganization. To the extent a person deemed to be an
"underwriter" received Common Stock pursuant to the Plan of Reorganization,
resales by that person are not exempted by Section 1145 of the Bankruptcy Code
from registration under the Securities Act except in "ordinary trading
transactions" (within the meaning of Section 1145(b)(1) of the Bankruptcy Code).
The Company has filed a registration statement with the Commission to register
the Common Stock issued pursuant to the Plan of Reorganization that is held by
persons who requested that their shares be registered. That registration
statement has not been declared effective as of this date, but the Company
currently intends to pursue effectiveness as to the registration of such shares
of Common Stock.
Certain Anti-Takeover Matters
The Company is subject to Chapter 43 of the IBCL. In general, subject to
certain exceptions, the provisions of Chapter 43 prohibit a publicly held
Indiana corporation from engaging in a "business combination" with an
"interested shareholder" for a period of five years after the date of the
transaction in which the person becomes an interested shareholder, unless (i)
prior to such date either the business combination or the transaction which
resulted in the shareholder becoming an interested shareholder is approved by
the Board of Directors, (ii) the business combination was approved by the
affirmative vote of the majority of the of the outstanding voting stock which is
not beneficially owned by the interested shareholder, or (iii) the business
combination meets certain conditions set forth in Chapter 43 of the IBCL.
Although it is entitled to do so, the Company has not elected to opt out of
Chapter 43. A "business combination" includes, among other things, mergers,
asset sales and other transactions resulting in a financial benefit to the
shareholder. An "interested shareholder" is generally a person who, together
with affiliates and associates, owns (or, in the case of affiliates and
associates of the issuer, did own within the last five years) 10% or more of the
corporation's voting stock.
The Company's Articles of Incorporation and By-Laws include provisions
which are intended by the Board of Directors to help assure fair and equitable
treatment of the Company's stockholders in the event that a person or group
should seek to gain control of the Company in the future. Such provisions, which
are discussed below, may make a takeover attempt or change in control more
difficult, whether by tender offer, proxy contest or otherwise. Accordingly,
such provisions may be viewed as disadvantageous to stockholders inasmuch as
they might diminish the likelihood that a potential acquiror would make an offer
for the Company's stock (perhaps at an attractive premium over the market
price), impede a transaction favorable to the interests of the stockholders, or
increase the difficulty of removing the incumbent Board of Directors and
management, even if in a particular case removal would be beneficial to the
stockholders.
Classified Board of Directors and Related Provisions. The Articles of
Incorporation provide that the Board of Directors may be divided into two or
more classes of directors with a term of office of one class expiring each year
whenever the Company has nine or more directors. As a result, approximately
one-half or one-third, as the case may be, of the Company's Board of Directors
could be elected each year. The Company believes that a classified board of
directors could help to assure the continuity and stability of the Board of
Directors and the Company's business strategies and policies as determined by
the Board of Directors.
The classified board provision could have the effect of making the removal
of incumbent directors more time-consuming and difficult, therefore discouraging
a third party from making a tender offer or otherwise attempting to obtain
control of the Company, even though such an attempt might be beneficial to the
Company and its stockholders. Thus, the classified board provision could
increase the likelihood that incumbent directors will retain their positions.
The Articles of Incorporation provides that directors may be removed only
for cause and only by the affirmative vote of the holders of a majority of all
outstanding stock entitled to vote.
No Stockholder Action by Written Consent; Special Meetings. The By-Laws
provide that stockholder action can be taken only at an annual or special
meeting of stockholders. The By-Laws provide that, except as otherwise required
by law, special meetings of the stockholders can only be called by the Board of
Directors or the Chairman. Any call for a special meeting must specify the
matters to be acted upon at the meeting.
Preferred Stock. As described above, the Board of Directors is authorized
to provide for the issuance of shares of Preferred Stock, in one or more series,
and to fix by resolution and to the extent permitted by the IBCL, the terms and
conditions of such series. The Company believes that the availability of the
Preferred Stock issuable in series will provide it with increased flexibility in
structuring possible future financings and acquisitions and in meeting other
corporate needs which might arise. Although the Board of Directors has no
present intention to do so, it could issue a series of Preferred Stock that
could, depending on its terms, either impede or facilitate the completion of a
merger, tender offer or other takeover attempt.
Limitation of Liability
The Articles of Incorporation provide that directors of the Company will
not be personally liable to the Company or its stockholders to the fullest
extent permitted by the applicable provisions of the IBCL from time to time in
effect and by general principles of corporate law. The Articles of Incorporation
provide that a director's responsibility to the Company are to be limited to
discharging his duties as a director in good faith, with the care an ordinarily
prudent person in a like position would exercise under similar circumstances,
and in a manner the director reasonably believes to be in the best interests of
the Company, all based on the facts then known to the director. In discharging
his duties, a director generally is entitled to rely on information, opinions,
reports, or statements, including financial statements and other financial data.
A director may, in considering the best interests of the Company, consider the
effects of any action on shareholders, employees, suppliers, and customers of
the Company, and communities in which offices or other facilities of the Company
are located, and any other factors the director considers pertinent.
MANAGEMENT
The current directors and executive officers of the Company and their ages
(as of June 4, 1996) and positions are listed below.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
P. Lang Lowrey III 42 President, Chief Executive Officer and Chairman of the Board
Donald L. Viles 50 Executive Vice President and Chief Financial Officer
Ray L. Dicasali 47 Senior Vice President and Chief Technology Officer
Barry L. Kasarda 52 Senior Vice President--Manufacturing and Materials
Kevin M. O'Neill 41 Senior Vice President-- Global Marketing
William C. Ater 56 Vice President--Chief Administrative Officer and Secretary
Jeffrey S. Withem 36 Vice President--Planning and Communications and Chief of Staff
Thomas L. Brown 40 Vice President and Treasurer
K. Gordon Fife 50 Vice President--Tax
George C. Gaskin 37 Vice President--Legal and Assistant Secretary
Hasso Jenss 52 President--European Group
Thomas W. Murrel 56 President--Maintenance Group
Gary M. Roth 54 President--International Group
T. Randy Simmons 49 President--U.S. Group
Peter Williams 43 President--Magnetics Group
Talton R. Embry 49 Director
Darius W. Gaskins, Jr. 58 Director
Jay P. Gilbertson 36 Director
Richard D. Jackson 59 Director
George A. Poole, Jr. 64 Director
Lewis Solomon 62 Director
</TABLE>
The Company has five divisions with the president of each division
reporting to Mr. Lowrey.
The business experience of each director and executive officer for the past
five years is described below. The current directors of the Company were
appointed effective June 4, 1996, as part of the Plan of Reorganization.
Directors hold office until the next annual meeting of stockholders of the
Company. Each executive officer is elected for a term of one year and holds
office until his successor is chosen and qualified or until his death,
resignation or removal.
P. Lang Lowrey III was elected Chairman of the Board on June 4, 1996. Mr.
Lowrey was elected President and Chief Operating Officer in May 1995 and
subsequently assumed the duties of Chief Executive Officer, effective October 1,
1995. Prior to that, he served as Vice President -- Magnetics Group from
November 1992 to May 1995. He served from October 1990 to October 1992 as Vice
President -- Worldwide Marketing Division.
Donald L. Viles was elected Executive Vice President and Chief Financial
Officer effective March 1, 1996. From October 1985 to March 1996, he served as
Vice President and Controller.
Ray L. Dicasali was elected Senior Vice President and Chief Technology
Officer on June 3, 1996. From 1993 to 1996, Mr. Dicasali served as Senior Vice
President of Technology and CIO of Plexel. From 1989 to 1993 Mr. Dicasali was
Senior Vice President and CIO of Dun and Bradstreet Software.
Barry L. Kasarda was elected Senior Vice President of Manufacturing and
Materials on June 3, 1996. From 1993 to 1996, he served as Vice President of
Materials. Prior to joining the Company, Mr. Kasarda served as Vice President
and General Manager of ABEX Division of Parker Hannifin Corporation from 1989 to
1993.
Kevin M. O'Neill was elected Senior Vice President of Global Marketing on
June 3, 1996. Mr. O'Neill had previously served as Vice President of Global
Marketing from 1995 until June 1996. From 1994 to 1995, Mr. O'Neill served as
Vice President of Marketing, Strategic Resellers Group. Prior to joining the
Company, Mr. O'Neill served as Senior Director, Marketing & Product Development
for Fujitsu-ICL Systems, Inc. from 1982 to 1994.
William C. Ater was elected Vice President and Chief Administrative Officer
in February 1988. He has served as Secretary since March 1985.
Jeffrey S. Withem was elected Vice President, Planning and Communications
and Chief of Staff on June 3, 1996. Mr. Withem was Vice President, Strategic
Planning and Corporation Communications from October 1995 to June 1996. From
1993 to 1995, Mr. Withem served as Vice President, Marketing, for the Company's
Magnetics Group. Prior to that, he was Marketing Communications Manager for
Worldwide Marketing for the Company from 1990 to 1992.
Thomas L. Brown was elected Vice President and Treasurer on May 19, 1996.
From January 1995 to April 1996, Mr. Brown served as Corporate Controller of
Hurco Companies, Inc. Mr. Brown had previously served as Assistant Vice
President of Financial Reporting and Analysis for the Company from March 1991.
K. Gordon Fife was elected Vice President of Tax in October 1985.
George C. Gaskin was elected Vice President of Legal and Assistant
Secretary on June 3, 1996. From June 1990 to June 1996, Mr. Gaskin served as
Corporate Counsel and Assistant Secretary.
Hasso Jenss was elected President of the European Group effective October
1, 1995. Mr. Jenss served as Vice President -- European Micrographics from
November 1993 to September 1995. Prior to that, he served from October 1989 to
October 1993 as Managing Director of Anacomp's German subsidiary.
Thomas W. Murrel was elected President of the Maintenance Group on June 3,
1996. From October 1995 to June 1996, Mr. Murrel served a President of the
Worldwide Operations Group. Previously, Mr. Murrel served as Vice President and
General Manager of Poway Operations from January 1993 to September 1995. Prior
to that, he served from February 1988 to December 1992 as Vice President --
Maintenance Division.
Gary M. Roth was elected President of the International Group, effective
October 1, 1995. Previously, Mr. Roth served as Vice President, Americas/Asia
Division from November 1992 to September 1995. From October 1991 to October
1992, he served as Manager, LAAP/Canada Operations. From October 1988 to October
1991, he served as Vice President -- Data Systems Division.
T. Randy Simmons was elected President of the U.S. Group, effective October
1, 1995. Previously, Mr. Simmons served as Vice President, Direct Sales Division
- -- East from November 1994 to September 1995. Prior to that, he served as Vice
President -- Information Systems Division from November 1991 to November 1994.
He served from 1987 to 1991 as Vice President -- Micrographics Services
Division.
Peter Williams was elected President of the Magnetics Group, effective
October 1, 1995. Previously, he served as General Manager of the Magnetics
European Group from 1993 to September 1995. Prior to that, he served from 1990
to 1993 as Vice President, Wales Operations -- Magnetics.
Talton R. Embry has served as a director since June 4, 1996. Mr. Embry has
been Chairman and Chief Investment Officer of Magten Asset Management
Corporation, which is an investment advisory firm, since 1978. Mr. Embry is also
a director of Capsure Holdings Corp., Varco International Inc., TSX Corporation,
Combined Broadcasting, Inc., BDK Holdings, Inc., Thermadyne Holdings Corp. and
Revco Drug Stores. In July 1992, Mr. Embry was elected Co-Chairman of the Board
of Directors of Revco Drug Stores.
On September 9, 1993, Magten Asset Management Corp. and Talton R. Embry,
without admitting or denying the allegations in a complaint by the Securities
and Exchange Commission consented to the entry of judgments enjoining them from
violating (and, in the case of Mr. Embry, aiding and abetting violations of)
anti-fraud and other provisions of the Exchange Act, the Investment Advisor's
Act of 1940 and the Investment Company Act of 1940. The final judgment to the
action, Securities and Exchange Commission v. Talton R. Embry and Magten Asset
Management Corp., 93 Civ. 6294 (LMM) (filed September 9, 1993 S.D.N.Y.), was
entered on September 14, 1993.
The Commission's complaint alleged principally that Mr. Embry failed to
advise his clients of certain personal and proprietary trades relevant to the
clients' holdings and to comply with certain reporting requirements. As part of
the settlement, Mr. Embry made a $1 million payment for the benefit of certain
of Magten's clients.
At the same time, Mr. Embry, without admitting or denying the allegations
in an order filed by the Commission, settled a parallel Commission
administrative action against Mr. Embry. The administrative proceeding, the
Matter of Talton R. Embry, Administrative Proceeding File No. 3-8153, was
commenced by the Commission on September 16, 1993. In the settlement, Mr. Embry
agreed to the appointment, for a period of five years, of an independent
consultant approved by the Commission to oversee Mr. Embry's personal securities
transactions and to conduct biannual compliance audits of Magten. Gerald Rath,
Esq. of the law firm of Bingham Dana & Gould, Boston, Massachusetts, has been
appointed and approved as the independent consultant.
On February 26, 1996, Magten and the Maryland Securities Commissioner
entered into a consent order whereby Magten paid a fine of $1,500. The Maryland
Securities Commissioner alleged that Magten effected investment advisory
transactions in Maryland prior to its registration as a Maryland investment
adviser. Magten is currently registered as an investment adviser in Maryland,
and its activities are not restricted.
Darius W. Gaskins, Jr. has served as a director since June 4, 1996. Mr.
Gaskins has been a partner of High Street Associates, Inc. since 1991. Mr.
Gaskins also serves as a director of UNR Industries, Inc. and Northwestern Steel
and Wire Company.
Jay P. Gilbertson has served as a director since June 4, 1996. Mr.
Gilbertson has been the Chief Financial Officer of HBO & Company since April
1993. From December 1991 until April 1993, he served as Corporate Controller of
HBO & Company.
Richard D. Jackson has served as a director since June 4, 1996, and was
elected Vice Chairman of the Board of Directors on that date. Mr. Jackson joined
First Financial Management Corporation in 1993 as Chief Operating Officer and
Senior Executive Vice President. He was elected Vice Chairman of First Financial
Management Corporation in February 1995 and served in that position until August
1995. From 1990 to 1993, Mr. Jackson served as Vice Chairman and Chief Executive
Officer of the Georgia Federal Bank.
George A. Poole, Jr. has served as a director since June 4, 1996. Mr. Poole
has been a private investor for more than the past five years and serves as a
director of Spreckels Industries, Inc., Bucyrus-Erie Company, Rock Island Foods,
Inc. and FCC Receivables Corporation, a wholly-owned subsidiary of Franklin
Resources, Inc.
Lewis Solomon has served as a director since June 4, 1996 and was elected
Lead Director on that date. Mr. Solomon has been Chairman of G&L Investments for
more than the past five years. He also serves as a director of Anadigics, Inc.,
Computer Products, Inc., Cybernetics Services, Inc., ICTV, Inc., Terayon
Corporation and TSX Corporation.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of the Company's
common stock, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission and any exchange on which
the Company's common stock is listed. Officers, directors and
greater-than-ten-percent beneficial owners are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
former directors, the Company believes that, during the fiscal year ended
September 30, 1995, all Section 16(a) filings were made on a timely basis.
Executive Compensation
The following Summary Compensation Table sets forth as to the Company's
Chief Executive Officer and the other five most highly compensated executive
officers all compensation awarded to, earned by, or paid to said individuals
(the "Named Executive Officers") for all services rendered in all capacities to
the Company and its subsidiaries for the fiscal years ended September 30, 1995,
1994 and 1993, except as is otherwise specifically noted.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------- ------
Other Annual Stock All Other
Fiscal Salary Bonus Compensation Options Compensation
Name and Principal Position Year ($) ($) ($)(1) (#)(2) ($)
<S> <C> <C> <C> <C> <C> <C>
P. Lang Lowrey III 1995 289,692 87,750 0 375,000 0
Vice President, 1994 147,500 180,836 0 0 0
Magnetics Group
President and Chief Operating 1993 147,500 130,243 0 80,000 0
Officer (as of 5/15/95); Chief
Executive Officer (as of
10/01/95)
Louis P. Ferrero 1995 500,000 0 0 0 1,844,253 (3)(4)
Chairman and Chief Executive 1994 500,000 260,261 0 0 53,122 (5)
Officer (Separated as of 1993 500,000 347,735 0 300,000 68,012 (5)
9/30/95)
J. Mark Woods 1995 246,808 30,000 0 0 949,000 (6)
President and Chief Operating 1994 250,000 229,500 0 0 1,000 (5)
Officer (Separated as of 1993 250,000 219,250 0 200,000 1,000 (5)
5/15/95)
Thomas R. Simmons 1995 206,500 66,374 0 0 1,680 (6)
President, U.S. Group 1994 147,500 137,011 0 0 2,082 (5)(7)
1993 147,500 153,892 0 100,000 1,000 (7)
Jack R. O'Donnell 1995 224,000 31,954 0 0 0
Executive Vice President, 1994 160,000 170,331 0 0 0
Treasurer and Chief Financial 1993 160,000 161,080 0 50,000 0
Officer (Separated as of
12/31/95)
Hasso Jenss 1995 172,771 72,006 0 0 0
President, European Group 1994 109,224 87,553 0 0 0
1993 0 0 0 0 0
</TABLE>
(1) The aggregate amount of perquisites and other personal benefits,
securities or property, given to each Named Executive Officer valued on
the basis of aggregate incremental cost of the Company did not exceed
the lesser of $50,000 or 10% of the total of annual salary and bonus
for each such officer during fiscal 1995, 1994 and 1993.
(2) The Company has not issued any stock options subsequent to the
Effective Date. Stock option grants made to the Named Executive
Officers prior to the Effective Date of the Plan of Reorganization were
canceled as of the Effective Date.
(3) $1,829,717 of this amount represents a severance payout to Mr. Ferrero
pursuant to the terms of his employment agreement, as well as a $30,000
consulting fee for consulting services rendered from the period October
through December 1995. Mr. Ferrero's outstanding loan of $1,087,000 was
repaid to the Company out of this payout and substantially all of the
balance of the severance payment was withheld for federal tax purposes.
(4) $54,536 of this amount represents the imputed interest in 1995 ($52,122
in 1994 and $67,012 in 1993) on Mr. Ferrero's loan from the Company.
The interest is calculated on the basis of the applicable federal rate
computed by the Internal Revenue Service.
(5) These figures include a $1,000 contribution per year made by the
Company to the Anacomp Savings Plus Plan for fiscal 1994 and fiscal
1993 for each of Messrs. Ferrero, Woods and Simmons.
(6) This amount represents a severance payout to Mr. Woods pursuant to the
terms of his employment agreement.
(7) $1,680 represents the imputed interest in 1995 ($1,082 in 1994) on Mr.
Simmons' loan from the Company. The interest is calculated on the basis
of the applicable federal rate computed by the Internal Revenue
Service.
Compensation of Directors
Directors who are not employees of the Company receive $1,000 for each
directors' meeting attended, $750 for each directors' meeting attended by
telephone, $500 for each committee meeting attended and an annual retainer of
$20,000. Employee directors receive no fees.
Compensation Committee Interlocks and Insider Participation
As of the Effective Date, the Company's existing Board of Directors was
replaced by a new seven-person Board of Directors. The members of the new
Compensation Committee of the Board of Directors are Messrs. Talton W. Embry
(Chairman), Darius W. Gaskins and Richard D. Jackson, none of whom are employees
of the Company.
Employment Contracts
With the exception of Mr. Jenss, the Named Executive Officers who continue
to be employed by the Company are party to employment agreements with the
Company. Set forth below is a brief description of each such agreement.
P. Lang Lowrey III. In connection with the promotion of Mr. Lowrey to
President, Chief Operating Officer and Director effective October 1, 1995, Mr.
Lowrey entered into an Amended and Restated Employment Agreement with the
Company which expires on September 30, 1996. Such agreement was further amended
on November 30, 1995. Mr. Lowrey's compensation plan for fiscal year 1996 is
comprised of a base salary of $450,000 and (i) an annual incentive bonus equal
to one-half of one percent of the Company's pre-tax income for the year, and
(ii) an annual stock-based bonus in the amount of $50,000 for each $1.00
increase in the closing sales price of the Company's Common Stock for the year,
calculated by averaging the closing sales price of the Common Stock for the ten
trading days ending on the last trading day of the fiscal year. Both bonuses may
be paid to Mr. Lowrey in shares of the Company's Common Stock in lieu of cash.
Mr. Lowrey also will be paid a monthly bonus in cash equal to .0005 of the
Company's monthly EBITDA, as defined in the employment agreement. In July 1996,
Mr. Lowrey received a bonus of $500,000 in recognition of his efforts during the
Company's recently completed reorganization under Chapter 11.
Mr. Lowrey's employment agreement further provides that, in the event of a
merger or consolidation where the Company is not the surviving company, or a
transfer of all or substantially all of the Company's assets if the surviving or
controlling company does not agree to be bound by the terms of the employment
agreement, or a change in control of the Company or a discontinuation of the
business by the Company, Mr. Lowrey will receive a severance allowance equal to
his prior twenty-four months' compensation, including bonuses and benefits
(collectively, the "Severance Allowance"). In the event of such a change of
control, Mr. Lowrey may elect to treat his employment agreement as terminated
and receive the Severance Allowance, even if the surviving or controlling
company agrees to be bound by the terms of the agreement. In addition, Mr.
Lowrey is entitled to the Severance Allowance if he is terminated by mutual
agreement or without cause by the Company, if he deems a termination to have
occurred due to a demotion, transfer, reduction in compensation or intentional
interference by the Company with the performance of his duties, or if his
employment agreement is not renewed at the end of its current term or any
extension thereof.
Pursuant to Mr. Lowrey's employment agreement, Mr. Lowrey received a
retention bonus equal to $200,000 in November, 1995, in order to induce him to
serve as Chief Executive Officer of the Company, to continue his employment for
one year from October 1, 1995, and to accept a temporary transfer to Poway,
California. If Mr. Lowrey receives at any time an incentive bonus in cash (as
opposed to shares of the Company's Common Stock pursuant to (i) or (ii) above),
then the amount of the retention bonus due will first be offset against the
incentive bonus. If Mr. Lowrey's employment is terminated so that the Severance
Allowance vests, then the amount of the retention bonus will first be offset
against the Severance Allowance. In July 1996, in lieu of the annual incentive
and stock-based bonuses for fiscal 1996 discussed above, Mr. Lowrey's retention
bonus was deemed fully earned and all conditions regarding future offset were
removed.
Mr. Lowrey also entered into a covenant not to compete with the Company for
a period of one year following any termination of service.
T. Randy Simmons. Mr. Simmons entered into a three-year employment
agreement with the Company which expired on September 30, 1995, and which was
subsequently renewed for a one-year term expiring on September 30, 1996. He has
also entered into a covenant not to compete with the Company for a period of two
years following any termination of employment. Mr. Simmons' compensation plan
for fiscal year 1996 includes a base salary of $206,500 and up to $88,500 in
bonus payments. One-half of the bonus is based on the U.S. Group's attaining
certain revenue and profit goals. If achieved, this bonus would be paid monthly
and adjusted at fiscal year end. The other half of the bonus is paid at year-end
only if the Company meets 100% of its profit objectives for the year.
Mr. Simmons' employment agreement provides that, in the event of a merger
or consolidation or a transfer of substantially all of the Company's assets or a
change in control of the Company, Mr. Simmons will receive a severance allowance
equal to his prior twelve months' compensation if he is subsequently terminated
without cause or if he deems a termination to have occurred due to a demotion,
transfer or reduction in compensation.
Termination of Employment and Change of Control Arrangements
As discussed above, the employment agreements of Messrs. Lowrey and Simmons
provide for certain payments in the event of a termination of employment or a
change of control of the Company. Mr. Jenss is entitled to termination pay and
other benefits as provided by applicable German labor laws.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of June 4, 1996,
concerning beneficial ownership of the Common Stock by (a) each stockholder
known by the Company to own beneficially more than 5% of the outstanding shares
of Common Stock, (b) each of the Company's directors, (c) each Named Executive
Officer, and (d) all directors and executive officers of the Company as a group.
Unless otherwise noted in the footnotes to the table, the stockholders named in
the table have sole voting and investment power with respect to all shares of
Common Stock indicated as being beneficially owned by the stockholder.
SHARES BENEFICIALLY OWNED (1)
-----------------------------
Name Number Percent of Class
- ---- ------ ----------------
Magten Asset Management Corp. (2) 2,888,111 28.9
Merrill Lynch & Co., Inc.(3) 1,407,670 14.0
P. Lang Lowrey III 0 *
Louis P. Ferrero 0 *
J. Mark Woods 0 *
Thomas R. Simmons 0 *
Jack R. O'Donnell 0 *
Hasso Jenss 17 *
Talton R. Embry (4) 0 *
Darius W. Gaskins, Jr. 0 *
Jay P. Gibertson 0 *
Richard D. Jackson 0 *
George A. Poole, Jr. 0 *
Lewis Solomon 0 *
All directors and executive
officers as a group (21
persons) (5) 45 *
* Less than 1%.
(1) The information contained in this table with respect to Common Stock
ownership reflects "beneficial ownership" as defined in Rule 13d-3 under the
Exchange Act, including securities such person has the right to acquire within
sixty days. For purposes of computing beneficial ownership and the percentages
of outstanding shares held by each person or group or persons on a given date,
shares which such person or group has the right to acquire within 60 days after
such date are shares for which such person has beneficial ownership and are
deemed to be outstanding for purposes of computing the percentage for such
person but are not deemed to be outstanding for the purpose of computing the
percentage of any other person.
(2) The address of Magten Asset Management Corp. is 35 East 21st Street,
New York, New York 10010. See also note 4 below. Magten may be deemed the
beneficial owner of shares owned by its investment advisory clients. Magten has
shared voting (with its investment advisory clients and Mr. Embry) and shared
dispositive (with its investment advisory clients and Mr. Embry) power with
respect to 2,208,630 and 2,888,111, respectively, shares of the Common Stock.
All of such shares, which in the aggregate represent 28.9% of the Company's
voting securities, are beneficially owned by the investment advisory clients of
Magten and for which Magten disclaims beneficial ownership. The following
investment advisory clients of Magten have an interest in more than 5% of the
shares of Common Stock: General Motors Employees Domestic Group Pension Trust,
Bankers Trust as Trustee for the Hughes Master Retirement Trust and Los Angeles
Fire and Police Pension Systems - Fund 2525.
(3) The address of Merrill Lynch & Co., Inc. is World Financial Center,
North Tower, 250 Vesey Street, New York, New York 10281.
(4) Mr. Embry is a director, executive officer and sole stockholder of
Magten, a registered investment advisor. Mr. Embry may be deemed to be the
beneficial owner of shares owned by Magten and its investment advisory clients
as discussed in note 2 above. Mr. Embry, as trustee of four pension trusts for
the benefit of current and former employees of Magten (including himself), also
has sole voting power and dispositive power with respect to 38,653 shares of
Common Stock held by such trusts and sole voting and investment power with
respect to 1,028 shares of Common Stock held by his minor children. Mr. Embry
disclaims beneficial ownership of all of the above shares.
(5) Excludes shares beneficially owned by Mr. Embry, as to which Mr. Embry
disclaims beneficial ownership. See note 4 above.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships and related transactions that require
disclosure.
PLAN OF DISTRIBUTION
The Common Stock offered pursuant to the Rights Offering is being offered
by the Company directly to its holders of Common Stock.
The Company will pay the fees and expenses of ChaseMellon Shareholder
Services, L.L.C., as Subscription Agent, and has also agreed to indemnify the
Subscription Agent from any liability which it may incur in connection with the
Rights Offering, including liabilities under the Securities Act. [The Company
will pay the fees and expenses of _________, as Information Agent, and has
agreed to indemnify the Information Agent from certain liabilities which it may
incur in connection with the Rights offering, including liabilities under the
Securities Act.]
Rights Holders who desire to purchase shares of Common Stock in the Rights
Offering are urged to complete, date and sign the Subscription Certificate
accompanying this Prospectus and return it to the Subscription Agent on or
before the Expiration Date, with payment in full of the aggregate Subscription
Price. See "The Rights Offering -- Exercise of Rights." Rights may be
transferred. See "The Rights Offering -- Method of Transferring Rights." Any
questions concerning the procedure for subscribing for the purchase of shares
should be directed to the Subscription Agent [or the Information Agent].
THE FINANCIAL ADVISOR
The Company engaged the Financial Advisor to provide advice to management
and to the Board of Directors of the Company in connection with the Rights
Offering. In this capacity, the Financial Advisor: (i) advised the Company with
respect to size, pricing and structure of the Rights Offering; (ii) performed
analyses to assist the Company in determining the appropriate and desirable
pricing terms for the Rights Offering, taking into account similar transactions
in similar circumstances; and (iii) advised the Company with respect to the
negotiation of the Standby Purchase Agreement. The Financial Advisor was not
asked to, and does not, make any recommendation with respect to the advisability
of any Rights Holder's exercise of its Rights. The Financial Advisor has not
been retained to, and will not, solicit Rights Holders or purchase Common Stock
in connection with the Rights Offering, and will not otherwise act as an
underwriter with respect to the Rights Offering.
The Company has agreed to pay the Financial Advisor a fee of $250,000, no
portion of which will depend upon the level of subscriptions in the Rights
Offering. In addition, the Financial Advisor will be reimbursed for its
out-of-pocket expenses incurred in connection with its services, including fees
and disbursements of its legal counsel. The Company has agreed to indemnify the
Financial Advisor against all liabilities related to the Financial Advisor's
services in connection with the Rights Offering, including liabilities under the
Securities Act.
The Financial Advisor has provided other services to the Company for which
the Financial Advisor has received usual and customary fees.
LEGAL MATTERS
The validity of the Common Stock has been passed upon for the Company by
Cadwalader, Wickersham & Taft, New York, New York.
EXPERTS
The consolidated balance sheets of the Company and its subsidiaries as of
September 30, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended September 30, 1995, included in this Prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto appearing herein, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Financial Statements
Page
Report of Independent Public Accountants.................................................................F-2
Consolidated Balance Sheets--September 30, 1995 and 1994.................................................F-3
Consolidated Statements of Operations--Years Ended September 30, 1995, 1994 and 1993.....................F-4
Consolidated Statements of Cash Flows--Years Ended September 30, 1995, 1994 and 1993.....................F-5
Consolidated Statements of Stockholders' Equity (Deficit)--Years Ended September 30,
1995, 1994 and 1993...............................................................................F-7
Notes to Consolidated Financial Statements...............................................................F-8
Unaudited Financial Statements
Condensed Consolidated Balance Sheets--March 31, 1996 and September 30, 1995............................F-39
Condensed Consolidated Statements of Operations--Three and Six Months Ended March 31,
1996 and 1995....................................................................................F-40
Condensed Consolidated Statements of Cash Flows--Six Months Ended March 31, 1996 and 1995...............F-41
Condensed Consolidated Statements of Stockholders' Equity (Deficit)--Six Months Ended
March 31, 1996 and 1995..........................................................................F-42
Notes to Condensed Consolidated Financial Statements....................................................F-43
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Anacomp, Inc.:
We have audited the accompanying consolidated balance sheets of Anacomp,
Inc. (an Indiana Corporation) and subsidiaries as of September 30, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1995. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Anacomp,
Inc. and subsidiaries as of September 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles.
As explained in Note 1 to the financial statements, effective June 30,
1995, the Company changed its method of accounting for the measurement of
goodwill impairment.
Arthur Andersen LLP
Indianapolis, Indiana
November 10, 1995,
except with respect to Note 2
and the second paragraph
of Note 22 as to which
the date is June 4, 1996.
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30
------------
1995 1994
---- ----
(Dollars in thousands, except
per share amounts)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,415 $ 19,871
Accounts and notes receivable, less allowances for doubtful accounts of $7,367
and $3,550, respectively 90,091 117,441
Current portion of long-term receivables 6,386 8,021
Inventories 53,995 63,375
Prepaid expenses and other 5,306 5,421
-------- --------
Total current assets 175,193 214,129
------- -------
Property and equipment, at cost less accumulated depreciation and amortization of
$96,898 and $100,574, respectively 44,983 66,769
Long-term receivables, net of current portion 12,322 16,383
Excess of purchase price over net assets of businesses acquired and other
intangibles, net 160,315 279,607
Deferred tax asset, net of valuation allowance of $108,400 and $57,000, respectively ---- 29,000
Other assets 28,216 52,751
--------- --------
$421,029 $658,639
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $389,900 $ 45,222
Accounts payable 57,368 82,790
Accrued compensation, benefits and withholdings 20,891 16,573
Accrued income taxes 9,365 9,000
Accrued interest 40,746 19,701
Other accrued liabilities 60,587 35,027
------- --------
Total current liabilities 578,857 208,313
------- --------
Long-term debt, net of current portion ---- 366,625
Other noncurrent liabilities 5,841 9,467
----- --------
Total noncurrent liabilities 5,841 376,092
----- -------
Commitments and Contingencies (Note 11)
Redeemable preferred stock, $.01 par value, issued and outstanding 500,000 shares
(aggregate preference value of $25,000) 24,574 24,478
------ --------
Stockholders' equity:
Common stock, $.01 par value; authorized 100,000,000 shares; 46,187,625 and
45,728,505 issued, respectively 462 457
Capital in excess of par value of common stock 182,725 181,843
Cumulative translation adjustment 1,329 (269)
Accumulated deficit (372,759) (132,275)
--------- --------
Total stockholders' equity (deficit) (188,243) 49,756
--------- --------
$421,029 $658,639
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended September 30
-----------------------
1995 1994 1993
-------------- -------------- ---------
(Dollars in thousands,
except per share amounts)
<S> <C> <C> <C>
Revenues:
Services provided $219,881 $223,511 $213,302
Equipment and supply sales 371,308 369,088 376,906
-------- -------- --------
591,189 592,599 590,208
-------- -------- --------
Operating costs and expenses:
Costs of services provided 161,211 156,214 141,998
Costs of equipment and supplies sold 279,456 264,269 262,754
Selling, general and administrative expenses 109,127 92,539 96,822
Special charges (See Note 1) 136,889 ---- ----
Restructuring charges (See Note 3) 32,695 ---- ----
-------- ------------ ------------
719,378 513,022 501,574
-------- -------- --------
Income (loss) from operations before interest, other income, income
taxes, extraordinary credit, and cumulative effect of
accounting change (128,189) 79,577 88,634
-------- ------ ------
Interest income 2,000 3,144 3,042
Interest expense and fee amortization (70,938) (67,174) (68,960)
Financial restructuring costs (See Note 5) (5,987) ---- ----
Other income (expense) (212) (192) (2,225)
---------- -------- --------
(75,137) (64,222) (68,143)
-------- -------- --------
Income (loss) before income taxes, extraordinary credit and
cumulative effect of accounting change (203,326) 15,355 20,491
Provision for income taxes 35,000 8,400 8,800
-------- -------- --------
Income before extraordinary credit and cumulative effect of
accounting change (238,326) 6,955 11,691
Extraordinary credit--Reduction of income taxes arising from
utilization of tax loss carryforwards ---- ---- 6,900
Cumulative effect on prior years of a change in accounting for ---- 8,000 ----
income taxes --------- -------- ---------
Net income (loss) (238,326) 14,955 18,591
Preferred stock dividends and discount accretion 2,158 2,158 2,158
---------- --------- ---------
Net income available to common stockholders $(240,484) $ 12,797 $ 16,433
========== ======== ========
Earnings (loss) per common and common equivalent share:
Income (loss), net of preferred stock dividends and discount
accretion $ (5.22) $ .10 $ .22
Extraordinary credit ---- ---- .17
Cumulative effect on prior years of a change in accounting for
income taxes ---- .17 ----
---- ---- ----
Net income (loss) available to common stockholders $ (5.22) $ .27 $ .39
=========== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30
1995 1994 1993
-------------- -------------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(238,326) $ 14,955 $ 18,591
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 43,375 40,649 38,208
Cumulative effect of a change in accounting for income taxes ---- (8,000) ----
Provision (benefit) for losses on accounts receivable 2,742 (695) (892)
Provision for inventory valuation 10,956 ---- ----
Deferred taxes 29,000 6,000 ----
Special charges (See Note 1) 136,889 ---- ----
Loss (gain) on disposition of assets 6,308 776 (721)
Change in assets and liabilities net of effects from acquisitions:
Decrease in accounts and long-term receivables 30,948 3,040 1,215
Decrease (increase) in inventories and prepaid expenses (1,612) 15,254 1,308
Increase in other assets (8,207) (11,349) (5,329)
Increase (decrease) in accounts payable and accrued expenses 11,465 (3,623) 1,125
Decrease in other noncurrent liabilities (3,626) (4,323) (7,613)
--------- -------- --------
Net cash provided by operating activities 19,912 52,684 45,892
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of assets 18,777 7,805 15,956
Purchases of property, plant and equipment (14,372) (18,868) (20,726)
Proceeds from notes receivable ---- ---- 1,343
Payments to acquire companies and customer rights (1,262) (14,565) (1,114)
-------- -------- --------
Net cash provided by (used in) investing activities 3,143 (25,628) (4,541)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants 743 1,484 2,262
Proceeds from revolving line of credit and long-term borrowings 22,529 39,000 39,799
Principal payments on long-term debt (45,859) (71,095) (77,958)
Preferred dividends paid (1,031) (2,062) (2,062)
Payments related to the issuance of debt and equity ---- ---- (7,707)
-------- -------- --------
Net cash used in financing activities (23,618) (32,673) (45,666)
--------- -------- --------
Effect of exchange rate changes on cash 107 566 (644)
--------- -------- --------
Decrease in cash and cash equivalents (456) (5,051) (4,959)
Cash and cash equivalents at beginning of year 19,871 24,922 29,881
--------- -------- --------
Cash and cash equivalents at end of year $ 19,415 $ 19,871 $ 24,922
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Year Ended September
30
1995 1994 1993
-------------- -------------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Cash paid (refunded) during the year for:
Interest $39,426 $57,781 $59,552
Income taxes 4,128 2,007 3,468
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During 1995, 1994 and 1993, the Company acquired companies and rights to
provide future services. In conjunction with these acquisitions, the purchase
price consisted of the following:
Year Ended September 30
1995 1994 1993
-------------- -------------- --------------
(Dollars in thousands)
Cash paid $1,262 $14,565 $1,114
Credit memos issued ---- 3,085 150
Notes payable issued ---- 4,290 3,170
Stock issued ---- 17,201 ----
------ ------- ------
Total fair value of acquisitions $1,262 $39,141 $4,434
====== ======= ======
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended September 30, 1995, 1994 and 1993
---------------------------------------------
Capital in
Excess of
Par Value Cumulative
Common of Common Transaction
Stock Stock Adjustment Deficit Total
----- ----- ---------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1992 $397 $161,198 $8,200 $(161,505) $8,290
Common stock issued for purchases under the
Employee Stock Purchase Plan 4 1,253 -- -- 1,257
Exercise of stock options 5 997 -- -- 1,002
Preferred stock dividends -- -- -- (2,062) (2,062)
Accretion of redeemable preferred stock discount -- -- -- (96) (96)
Translation adjustments for year -- -- (12,944) -- (12,944)
Other -- (239) -- -- (239)
Net income for the year -- -- -- 18,591 18,591
-------- -------- -------- --------- --------
BALANCE AT SEPTEMBER 30, 1993 406 163,209 (4,744) (145,072) 13,799
Common stock issued for purchases under the
Employee Stock Purchase Plan 3 872 -- -- 875
Exercise of stock options 3 606 -- -- 609
Preferred stock dividends -- -- -- (2,062) (2,062)
Accretion of redeemable preferred stock discount -- -- -- (96) (96)
Translation adjustments for year -- -- 4,475 -- 4,475
NBS stock issuance 20 7,380 -- -- 7,400
Graham stock issuance 25 9,776 -- -- 9,801
Net income for the year -- -- -- 14,955 14,955
------- -------- -------- --------- --------
BALANCE AT SEPTEMBER 30, 1994 457 181,843 (269) (132,275) 49,756
Common stock issued for purchases under the
Employee Stock Purchase Plan 3 689 -- -- 692
Exercise of stock options 1 50 -- -- 51
Preferred stock dividends -- -- -- (2,062) (2,062)
Accretion of redeemable preferred stock discount -- -- -- (96) (96)
Translation adjustments for year -- -- 1,598 -- 1,598
Graham stock issuance 1 143 -- -- 144
Net loss for the year -- -- -- (238,326) (238,326)
--------- -------- ------- ---------- ---------
BALANCE AT SEPTEMBER 30, 1995 $462 $182,725 $1,329 $(372,759) $(188,243)
==== ======== ====== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Anacomp, Inc.
("Anacomp" or the "Company") and its wholly-owned subsidiaries. Material
intercompany transactions have been eliminated. Certain amounts in the prior
year consolidated financial statements have been reclassified to conform to the
current presentation.
Foreign Currency Translation
Substantially all assets and liabilities of Anacomp's international
operations are translated at the year-end exchange rates; income and expenses
are translated at the average exchange rates prevailing during the year.
Translation adjustments are accumulated in a separate section of stockholders'
equity. Foreign currency transaction gains and losses are included in net
income.
Segment Reporting
Anacomp operates in a single business segment: providing equipment,
supplies and services for information management, including storage, processing
and retrieval.
Significant Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Revenue Recognition
Revenues from sales of products and services or from lease of equipment
under sales-type leases are recorded based on shipment of products or
performance of services. Under sales-type leases, the present values of all
payments due under the lease contracts is recorded as revenue, cost of sales is
charged with the book value of the equipment plus installation costs, and future
interest income is deferred and recognized over the lease term. Revenues from
maintenance contracts are deferred and recognized in earnings on a pro rata
basis over the period of the agreements.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined by methods approximating the first-in, first-out basis.
The cost of the inventories is distributed as follows:
September 30
------------
1995 1994
---- ----
(Dollars in thousands)
Finished goods $38,702 $41,661
Work in process 4,955 5,903
Raw materials and supplies 10,338 15,811
------ -------
$53,995 $63,375
======= =======
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.
Debt Issuance Costs
The Company capitalizes all costs related to its issuance of debt and
amortizes those costs using the effective interest method over the life of the
related debt instruments. Remaining debt issuance costs of $12.7 million, and
$18.4 million at September 30, 1995 and 1994, respectively, are included in
"Other Assets" in the accompanying Consolidated Balance Sheets. During the
fiscal years 1995, 1994 and 1993, the Company amortized $5.7 million, $5.3
million and $5.0 million of debt issuance costs which are included in "Interest
Expense and Fee Amortization" in the accompanying Consolidated Statement of
Operations.
Goodwill
Excess of purchase price of net assets of businesses acquired ("goodwill")
is amortized on the straight-line method over the estimated periods of future
demand for the product acquired. Goodwill related to magnetics' products of $5.4
million and $5.2 million, net of accumulated amortization of $575,334 and
$132,375, at September 30, 1995 and 1994, respectively, is being amortized over
15 years. Goodwill related to the micrographics business which includes
supplies, COM systems, micrographics services and maintenance services is
primarily being amortized over 40 years. When factors indicate that goodwill
should be evaluated for impairment, Anacomp historically has evaluated goodwill
based on comparing the unamortized balance of goodwill to undiscounted operating
income over the remaining goodwill amortization period. Effective June 30, 1995,
Anacomp elected to modify its method of measuring goodwill impairment to a fair
value approach. If it is determined that impairment has occurred, the excess of
the unamortized goodwill over the fair value of the goodwill applicable to the
business unit will be charged to operations. For purposes of determining fair
value, the Company values the goodwill using a multiple of cash flow from
operations based on consultation with its investment advisors. Anacomp has
concluded that fair value is a better measurement of the value of goodwill
considering the Company's highly leveraged financial position and the
circumstances discussed in Note 4.
As discussed in Note 4, Anacomp has recently revised its projected
operating results through 1999. This revision along with applying Anacomp's
revised goodwill accounting policy resulted in a write-off of $108.0 million of
goodwill related to the micrographics business for the year ended September 30,
1995. This write-off is reflected in "Special Charges" in the accompanying
Consolidated Statement of Operations.
Other Intangibles
Other intangibles of $21.3 million and $25.2 million, net of accumulated
amortization of $16.1 and $12.0 million, at September 30, 1995 and 1994,
respectively, 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. These unamortized costs are evaluated for
impairment each period by determining their net realizable value.
Research and Development
The costs associated with research and development programs are expensed as
incurred, and amounted to $2.2 million in 1995, $3.0 million in 1994 and $2.5
million in 1993.
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 their net realizable value. Such costs
are amortized over the greater of the estimated units of sale or under the
straight-line method not to exceed five years. Due to lower than expected sales
of new software products introduced in 1995 and certain other matters as
discussed in Note 2, Anacomp recently revised its projected future sales and
operating results of software products through 1999. As a result, during 1995
Anacomp wrote off $20.3 million of deferred software costs and established a
reserve of $8.6 million (of which $7.7 million was outstanding at September 30,
1995) for future payments to Pennant Systems for software royalty and system
support obligations which are not recoverable based on these revised
projections. These charges are reflected in "Special Charges" in the
accompanying Consolidated Statement of Operations. Unamortized deferred software
costs remaining as of September 30, 1995 total $7.7 million and are included in
"Other Assets" on the accompanying Consolidated Balance Sheets.
Sale-Leaseback Transactions
Anacomp entered into sale-leaseback transactions of $19.3 million in 1995,
$11.9 million in 1994 and $9.9 million in 1993 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, $5.6 million and $4.7 million were recorded for the years ended
September 30, 1995, 1994 and 1993, respectively. All profits were deferred and
are being recognized over the applicable leaseback periods.
Accrued Lease Reserves
Other noncurrent liabilities include reserves established for unfavorable
facility lease commitments, vacant facilities and related future lease costs.
Total obligations recorded for these unfavorable lease commitments and future
lease and related costs at their estimated amounts were $7.5 million and $12.5
million at September 30, 1995 and 1994, respectively. The current portion of
these obligations was $2.0 million and $3.4 million as of September 30, 1995 and
1994, respectively, and is included in "Other accrued liabilities" in the
accompanying Consolidated Balance Sheets.
Income Taxes
In general, Anacomp's practice has been to reinvest the earnings of its
foreign subsidiaries in those operations and to repatriate those earnings only
when it was advantageous to do so. During 1995, Anacomp changed its practice
whereby the Company now intends to repatriate these earnings in the foreseeable
future. As a result, Anacomp recorded deferred taxes of $8.8 million on all
undistributable foreign earnings.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS
109). FAS 109 mandates the liability method for computing deferred income taxes
and requires that the benefit of certain loss carryforwards be estimated and
recorded as an asset unless it is "more likely than not" that the benefit will
not be realized. Another principal difference is that changes in tax rates and
laws will be reflected in income from continuing operations in the period such
changes are enacted.
Anacomp adopted FAS 109 in the first quarter of fiscal 1994. Under FAS 109,
the Company has recorded a significant deferred tax asset to reflect the benefit
of loss carryforwards that could not be recognized under prior accounting rules.
The recording of this asset reduced goodwill and increased income as discussed
in more detail in Note 14. During 1995, the deferred tax asset was reduced to
zero as a result of the events described in Note 2.
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.
NOTE 2 -- FINANCIAL RESTRUCTURING DEVELOPMENTS
For the year ended September 30, 1995, the Company reported a $238.3
million net loss. The Company is highly leveraged, and certain developments had
a material adverse effect on the Company's short term liquidity. Although
revenues for the Company's core micrographic businesses had been declining over
the last several fiscal years due to many factors, including the adverse effect
of digital technologies, the Company believed that these declines would
stabilize. However, based on weaker than anticipated results, including
disappointing sales performance for the Company's new products, the Company did
not have sufficient cash to make certain principal and interest payments on its
existing debt obligations. As a result, on January 5, 1996, the Company filed a
prenegotiated Debtors' Joint Plan of Reorganization ("Plan") with the U.S.
Bankruptcy Court under Chapter 11 of the Bankruptcy Code.
On May 20, 1996, the U.S. Bankruptcy Court confirmed the Company's Third
Amended Joint Plan of Reorganization (the "Plan of Reorganization"), and on June
4, 1996, the Company emerged from bankruptcy. Pursuant to the Plan of
Reorganization, on such date certain indebtedness of the Company was canceled in
exchange for cash, new indebtedness, and/or new equity interests, certain
indebtedness was reinstated, certain other prepetition claims were discharged,
certain claims were settled, executory contracts and unexpired leases were
assumed or rejected, and the members of a new Board of Directors of the Company
were designated. The Company simultaneously distributed to creditors
approximately $22,000,000 in cash, $112,190,000 principal amount of its 11 5/8%
Senior Secured Notes due 1999 (the "Senior Secured Notes") and $160,000,000
principal amount of its 13% Senior Subordinated Notes due 2002 (the "Senior
Subordinated Notes"), all of which are currently outstanding, equity securities
consisting of 10,000,000 shares of common stock and 362,694 warrants, each of
which is convertible into one share of common stock during the five year period
ending June 3, 2001 at an exercise price of $12.23 per share.
As noted above, upon emerging from bankruptcy, the Company's Revolving
Loan, Multi-Currency Revolving Loan, Terms Loans, Series B Senior Notes, 15%
Senior Subordinated Notes, 13.875% Convertible Subordinated Debentures and 9%
Convertible Subordinated Debentures, all described in Note 11, were canceled. In
addition, the Company's 8.25% Cumulative Convertible Redeemable Exchangeable
Preferred Stock described in Note 12 and the Warrants and Stock Options
described in Note 13 were canceled. In connection therewith, the Company issued
new debt and equity securities as mentioned above and described in more detail
below:
Senior Secured Notes
On June 4, 1996, the Company issued $112,190,000 aggregate principal amount
of 11 5/8% Senior Secured Notes due September 30, 1999. Interest is payable on
March 31 and September 30 each year, beginning on September 30, 1996. The
Company is required to redeem a portion of the notes at par on each interest
payment date according to the following schedule:
September 30, 1996 $14,288,000
March 31, 1997 $14,286,000
September 30, 1997 $16,163,000
March 31, 1998 $16,161,000
September 30, 1998 $17,100,000
March 31, 1999 $17,100,000
September 30, 1999 $17,092,000
The notes are redeemable at the option of the Company, in whole or in part,
at any time, at 100% of the principal amount thereof, plus accrued and unpaid
interest. The Company is required in certain circumstances to make offers to
purchase the Senior Secured Notes then outstanding at a purchase price equal to
100% of the principal amount thereof, plus accrued and unpaid interest, with the
net cash proceeds of certain sales or other distributions of assets by the
Company or certain of its subsidiaries. Also, upon a change of control, the
Company is required to make an offer to purchase the Senior Secured Notes then
outstanding at a purchase price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest.
The Senior Secured Notes are senior secured obligations of the Company and
will rank pari passu with all other existing and future senior obligations of
the Company, and senior to all existing and future subordinated or junior
indebtedness of the Company. The collateral securing the Senior Secured Notes
consists of substantially all of the assets of the Company and all future
acquired assets of the Company to the extent such assets are acquired by the
Company without secured financing.
The indenture related to the Senior Secured Notes contains covenants
limiting among other things, (i) the incurrence of additional indebtedness by
the Company and certain of its subsidiaries, (ii) the payment of dividends on,
and the redemption of, capital stock of the Company and certain of its
subsidiaries, (iii) the redemption of certain subordinated obligations of the
Company and certain of its subsidiaries and the making of certain investments by
the Company and certain of its subsidiaries, (iv) the sale by the Company and
certain of its subsidiaries of assets and certain subsidiary stock, (v)
transactions between the Company and its affiliates, (vi) liens on the
collateral securing the Senior Secured Notes, (vii) consolidations and mergers
and transfers of all or substantially all of the Company's and certain of its
subsidiaries' assets and (viii) capital expenditures. All of the limitations and
prohibitions are subject to a number of qualifications and exceptions. The
indenture also contains a covenant requiring the Company to maintain a minimum
interest coverage ratio.
Senior Subordinated Notes
On June 4, 1996, the Company issued $160,000,000 aggregate principal amount
of 13% Senior Subordinated Notes due 2002. Interest is payable on June 30 and
December 31 each year, beginning on December 31, 1996. For the interest payable
on December 31, 1996 and June 30, 1997, the Company will provide Payment-In-Kind
("PIK") notes in satisfaction of its interest obligation rather than a cash
settlement. The PIK notes will have a principal amount corresponding to the
amount of interest due on the notes on the related interest payment date.
The Company is required to redeem prior to June 30, 2001 the principal
amount of the Senior Subordinated Notes equal to the aggregate principal amount
of PIK notes issued prior to such date, plus any accrued and unpaid interest on
the PIK notes, at a redemption price equal to the price that would be then
applicable in the case of an optional redemption. The remaining Senior
Subordinated Notes are redeemable at the option of the Company, in whole or in
part, at any time, at various redemption prices ranging from 103% to 101.5% of
the principal amount thereof through December 31, 2001. Thereafter, the Senior
Subordinated Notes may be redeemed at the aggregate principal amount thereof.
Also, upon a change in control, the Company is required to make an offer to
purchase the Senior Subordinated Notes then outstanding at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest.
The Senior Subordinated Notes are unsecured senior subordinated obligations
of the Company and rank pari passu with all other existing and future
subordinated obligations of the Company. The payment of principal and interest
is subordinated and subject to the prior payment in full of the Company's senior
indebtedness.
The indenture related to the Senior Subordinated Notes contains covenants
limiting, among other things, (i) the incurrence of additional indebtedness by
the Company and certain of its subsidiaries, (ii) the payment of dividends on,
and the redemption of, capital stock of the Company and certain of its
subsidiaries, (iii) the redemption of certain subordinated obligations of the
Company and certain of its subsidiaries and the making of certain investments of
the Company and certain of its subsidiaries, (iv) the sale by the Company and
certain of its subsidiaries of assets and certain subsidiary stock, (v)
transactions between the Company and its affiliates, (vi) sale/leaseback
transactions by the Company and certain of its subsidiaries, (vii)
consolidations and mergers and transfers of all or substantially all of the
Company's and certain of its subsidiaries' assets and (viii) capital
expenditures. All of the limitations and prohibitions are subject to a number of
qualifications and exceptions. The indenture also contains a covenant requiring
the company to maintain a minimum interest coverage ratio.
New Common Stock and Warrants
On June 4, 1996, the Company issued 10,000,000 shares of new Common Stock
to certain creditors. In addition, the Company also issued 362,964 warrants to
certain creditors and previous common and preferred stockholders. Each warrant
is convertible into one share of new common stock at an exercise price of $12.23
per share. The warrants expire on June 3, 2001. In addition, the Plan of
Reorganization approved for future issuance up to 810,811 shares of additional
new Common Stock to the management of the Company.
Pro Forma Unaudited Financial Information
See Note 23 for the Pro Forma Unaudited Financial Information related to
the consummation of the Plan of Reorganization.
NOTE 3 -- RESTRUCTURING CHARGES
Included in the operating results for 1995 are restructuring charges of
$32.7 million. These charges are the result of the Company's reassessment of its
strategy for ongoing financial improvement and a decision to downsize or exit
certain areas of its business. Specifically, the Company closed its Omaha,
Nebraska magnetic media manufacturing facility, exited the manufacture of
readers and reader/printers at its San Diego, California manufacturing facility,
and reduced headcount worldwide. These activities were completed by March 31,
1996. The restructuring charges included severance costs of $5.9 million, which
includes personnel related to Omaha, Nebraska, reader and reader/printer
manufacturing and other various personnel associated with the worldwide
headcount reduction. Approximately 400 people were terminated pursuant to these
plans. Also included in restructuring charges are inventory write downs of $9.1
million, excess facility reserves of $7.7 million and other reserves of $10.0
million.
NOTE 4 -- GOODWILL
Goodwill related to the micrographics business is summarized as follows
September 30
------------
1995 1994
---- ----
(Dollars in thousands)
Goodwill $315,561 $314,865
Less goodwill write-off (108,000) ----
Less accumulated amortization (73,988) (65,698)
------- -------
$133,573 $249,167
======== ========
The developments discussed in Notes 1, 2 and 3 have significantly
constrained Anacomp's ability to finance certain previously projected
activities. In addition, Anacomp failed to achieve its original projections of
fiscal 1995 operating results and has experienced lower than expected sale of
new software products first introduced in January 1995. In light of Anacomp's
withdrawn note offering, disappointing recent financial performance and default
on its indebtedness, the Company prepared a revised business plan and operating
forecast through 1999.
Based on these developments and in connection with the change in accounting
discussed in Note 1, Anacomp determined that goodwill had been impaired and
measured the impairment based on a fair value approach. As required by generally
accepted accounting principles, this accounting change, which amounted to a
charge of $108.0 million, was recorded as a change in estimate and was included
in the results of operations for the quarter ended June 30, 1995.
NOTE 5 -- FINANCIAL RESTRUCTURING COSTS
On April 6, 1995, Anacomp announced that it had withdrawn its proposed
offering of $225.0 million Senior Secured Notes and a related offer to purchase
up to $50.0 million of the Company's outstanding 15% Senior Subordinated Notes.
The offering would have deferred an aggregate of $153.0 million in scheduled
principal payments in fiscal years 1995 through 1998, thereby providing Anacomp
with increased liquidity and additional cash for product development. Also, as
mentioned in Note 2, the Company has been engaged in continuous efforts since
May 1995 to formulate a restructuring plan to satisfy its various investor
constituencies. Costs directly related to these activities of $6.0 million are
included as "Financial restructuring costs" in the accompanying Consolidated
Statements of Operations.
NOTE 6 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of fair value
information for certain financial instruments. The carrying amounts for trade
receivables and payables are considered to be their fair values. The carrying
amounts and fair values of the Company's other financial instruments at
September 30, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
September 30, 1995 September 30, 1994
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Long-Term Debt:
Revolving Loan $31,328 $31,328 $ 23,000 $ 23,000
Multicurrency Revolving Loan 28,813 28,813 20,665 20,665
Term Loans 13,039 13,039 40,261 40,261
Series A Senior Notes ---- ---- 3,548 3,548
Series B Senior Notes 58,908 58,908 67,500 74,410
15% Senior Subordinated Notes 220,281 181,224 219,384 249,357
13.875% Convertible Subordinated Debentures 21,155 4,376 20,922 23,232
9% Convertible Subordinated Debentures 10,479 1,880 10,479 10,479
Redeemable Preferred Stock 24,574 ---- 24,478 19,371
</TABLE>
The September 30, 1995 estimated fair values of Long-Term Debt and
Redeemable Preferred Stock are based on a restructuring proposal prepared as a
result of discussion and negotiations with representatives of the lenders in
connection with a "prepackaged" plan of reorganization.
The September 30, 1994 estimated fair values of Long-Term Debt and
Redeemable Preferred Stock are based on quoted market values or discounted
future cash flows assuming current interest rates.
NOTE 7--ACQUISITIONS
During the three years ended September 30, 1995, Anacomp made the
acquisitions set forth below, each of which has been accounted for as a
purchase. The consolidated financial statements include the operating results of
each business from the date of acquisition. Pro forma results of operations have
not been presented because the effects of these acquisitions were not
significant.
Fiscal 1995
During fiscal 1995, Anacomp made no significant acquisitions.
Fiscal 1994
During fiscal 1994, Anacomp acquired 16 data service centers or the related
customer base (all were incorporated with existing Anacomp service centers), a
computer tape products company and the customer base of a micrographics supplies
business. Total consideration for these acquisitions was $39.1 million of which
approximately $24.2 million has been assigned to excess of purchase price over
net assets of businesses acquired and other intangible assets. In connection
with these acquisitions, Anacomp issued $17.2 million of its common stock and
increased debt and accrued liabilities by $4.3 million.
National Business Systems
One of the acquisitions included above was the purchase of the COM services
customer base of 14 data service centers operated by National Business Systems
(NBS). The acquisition was effective on January 3, 1994, and the acquisition
cost consisted of the following:
(Dollars in
thousands)
Cash paid to NBS shareholders..................... $ 7,400
Common stock issued to NBS shareholders........... 7,400
Acquisition costs incurred........................ 416
-------
$15,216
=======
Anacomp issued 1,973,000 common shares to the NBS shareholders at a price
of $3.75 per share. As part of the acquisition agreement, Anacomp agreed to
provide stock price protection at the end of two years on those shares so
designated by the NBS shareholders (1,128,000 of the shares issued are subject
to this protection).
On January 3, 1996, Anacomp will recalculate the share price based on the
average closing price of Anacomp stock for the 30 consecutive trading days
ending on December 29, 1995. The revised price will be used to adjust the number
of issued shares which are subject to the price protection. However, the revised
price to be used for the revaluation will not be higher than 150% or lower than
50% of the original $3.75 per share price.
If the per share price reached the 150% maximum, NBS shareholders would
return 376,000 shares to Anacomp. If the per share price reached the 50%
minimum, Anacomp would issue 1,128,000 additional shares to the NBS
shareholders. The adjustment in the number of shares issued in connection with
the NBS acquisition will not affect the recorded purchase price. Contingently
issuable shares under the arrangement are measured at each reporting period
based on the market price of the Company's stock at the close of the period
being reported on and are considered in the computation of earnings per share
when dilutive.
Graham Magnetics
Another of the acquisitions included above was the purchase of Graham
Acquisition Corporation (Graham), a computer tape products company. The
acquisition was effective on May 4, 1994, and the acquisition cost consisted of
the following:
(Dollars in
thousands)
Common stock issued to Graham shareholders...... $ 8,515
Common stock issued for a note payable.......... 1,286
Issuance of note payable to a creditor.......... 4,240
Cash paid to retire bank debt................... 5,540
Acquisition costs incurred...................... 689
-------
$20,270
=======
Anacomp issued 2,129,000 common shares to the Graham shareholders based on
an agreed upon per share price. However, to determine the acquisition cost, the
shares were valued at the market price on the date of closing.
Contingent consideration of $7.6 million is payable in Anacomp common stock
and will be based upon defined future earnings through September 1997. The
contingent consideration will be computed based upon an agreed upon formula
using a minimum stock price of $2.00 per share and will be issuable beginning in
January 1995. The contingent consideration is not included in the acquisition
cost total above but is recorded when the future earnings requirements have been
met. The contingent consideration amount for fiscal 1994 is estimated to be
approximately $144,000 and the estimate for fiscal 1995 is zero.
Anacomp also issued 360,000 common shares to a Graham creditor at $3.57 per
share to reduce the note payable to $4.2 million. The note is unsecured and
bears interest at 10%. Principal payments of $345,000 plus accrued interest are
payable quarterly beginning July 15, 1994. The note holder may at any time
require Anacomp to prepay any amount of the note by issuing common stock. The
shares of common stock to be issued will equal the prepayment amount divided by
$3.57. The current outstanding note balance subject to prepayment was $2.5
million at September 30, 1995.
Anacomp has reserved 3,800,000 shares of authorized common stock for the
contingent acquisition consideration and 1,091,000 shares of authorized common
stock for the contingent prepayment of the note.
Fiscal 1993
During fiscal 1993, Anacomp acquired four micrographics service centers
(all four were merged with existing Anacomp service centers) and certain assets
of a microfilm reader maintenance services business for a total consideration of
$4.4 million, of which approximately $1.9 million has been assigned to excess of
purchase price over net assets of businesses acquired and other intangible
assets.
NOTE 8 -- SKC AGREEMENT
In March 1992, Anacomp entered into a ten-year supply agreement (the Supply
Agreement) with SKC America, Inc., a New Jersey corporation (SKCA), and SKC
Limited (SKCL), an affiliated corporation of SKCA organized pursuant to the laws
of the Republic of Korea. SKCA and SKCL are collectively referred to as SKC.
Pursuant to the Supply Agreement, Anacomp purchases substantially all of its
requirements for magnetic-base polyester and coated duplicate microfilm from
SKC.
In October 1993, the Supply Agreement was extended to December 2003 and
amended to include finished microfilm products manufactured by SKC exclusively
for Anacomp. Concurrent with the modification of the Supply Agreement, SKC
purchased Anacomp's Sunnyvale, California, duplicate microfilm manufacturing
operation for $900,000, payable over five years. At September 30, 1995, $720,000
is due from SKC. Costs of $3.4 million associated with the Supply Agreement have
been deferred and are being amortized over the life of the Supply Agreement. The
unamortized balance at September 30, 1995 was $2.8 million.
SKC is providing Anacomp with a $25.0 million trade credit arrangement
which expires December 31, 2001. However, since Anacomp is in default under its
various debt agreements as discussed in Note 11, SKC has the option to terminate
the Supply Agreement at any time. If SKC were to terminate the Supply Agreement,
all amounts owed pursuant to the trade credit arrangement or the Supply
Agreement become immediately due and payable. The trade credit arrangement bears
interest at 2.5% over the prime rate of The First National Bank of Boston (8.75%
as of September 30, 1995). Anacomp has provided SKC a purchase money security
interest of up to $10.0 million in products purchased by Anacomp under the
Supply Agreement.
NOTE 9 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated Useful September 30
Life in Years 1995 1994
------------- ------------ --------
(Dollars in thousands)
<S> <C> <C> <C>
Land and buildings 10-40 $ 5,283 $ 7,590
Office furniture 3-12 12,141 12,553
Manufacturing equipment and tooling 2-10 31,351 28,901
Field support spare parts 4-7 21,764 25,555
Leasehold improvements Term of Lease 10,782 12,826
Equipment leased to others 2-4 1,838 1,824
Processing equipment 3-12 58,722 78,094
-------- ---------
141,881 167,343
Less accumulated depreciation and amortization (96,898) (100,574)
--------- ---------
$ 44,983 $ 66,769
========= =========
</TABLE>
NOTE 10 -- LONG-TERM RECEIVABLES
Long-term receivables consist of the following:
September 30
------------
1995 1994
------------ --------
(Dollars in thousands)
Lease contracts receivable $15,678 $21,160
Other lease receivables ---- ----
Notes receivable from asset sales 2,619 1,015
Other 411 2,229
------- -------
18,708 24,404
Less current portion (6,386) (8,021)
-------- -------
$12,322 $16,383
======= =======
Other long-term receivables include $1.1 million at September 30, 1994 due
from officers. This receivable was settled during 1995.
Lease contracts receivable result from customer leases of products under
agreements which qualify as sales-type leases. Annual future lease payments
under sales-type leases are as follows:
Year Ended
September 30
(Dollars in thousands)
1996 $7,024
1997 5,337
1998 3,328
1999 1,971
2000 736
------
18,396
Less deferred interest (2,718)
------
$15,678
=======
NOTE 11 -- LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
September 30
------------
1995 1994
------------ --------
(Dollars in thousands)
<S> <C> <C>
Revolving Loan at 8.63% and 7.81%, respectively $ 31,328 $ 23,000
Multicurrency Revolving Loan at 8.44% and 7.67%, respectively 28,813 20,665
Term Loans at 8.56% and 7.56%, respectively 13,039 40,261
Series A Senior Notes at 7.56% ---- 3,548
Series B Senior Notes at 12.25% 58,908 67,500
15% Senior Subordinated Notes (net of unamortized discount of $4,619 and
$5,516, respectively) 220,281 219,384
13.875% Convertible Subordinated Debentures due January 15, 2002 (net of
unamortized discount of $2,077 and $2,309, respectively) 21,155 20,922
9% Convertible Subordinated Debentures due January 15, 1996 10,479 10,479
Installment note payable at 10% due July 15, 1997 2,513 3,895
Other 3,384 2,193
-------- --------
389,900 411,847
Less current portion (389,900) (45,222)
--------- --------
$ ---- $366,625
========= ========
</TABLE>
On April 26, 1995, the Company failed to make scheduled principal payments
of $12.5 million on its Term Loan and $7.5 million on its Series B Senior Notes.
The Company failed on May 1, 1995 to make a scheduled interest payment of $17.0
million on its 15% Senior Subordinated Notes (the "15% Notes") and on July 17,
1995 to make a scheduled interest payment of $1.6 million on its 13.875%
Convertible Subordinated Debentures. As a result of these failures and the
violation of various debt covenants, the Company is in default of all of its
debt and all such amounts are classified as current.
The Term Loan, Revolving Loans and Series B Senior Notes call for the
payment of default interest in the amount of 2% annually of the outstanding
principal. The 15% Notes call for the payment of default interest in the amount
of 1% annually of the principal amount of the Notes and for the payment of
interest on unpaid scheduled interest in the amount of 16% annually.
The Company has accrued default interest and interest on unpaid scheduled
interest as of September 30, 1995 in the amount of $3.3 million.
The Company has agreed with its Senior Creditors (collectively the holders
of the Term Loan, Revolving Loans and Series B Senior Notes) to continue to pay
interest monthly on its Senior Debt at the regular non-default rate. At
September 30, 1995, the Company was current in its payment of such interest
obligations.
The Company also failed on October 15, 1995 to make a $345,000 payment on
the installment note payable, and on October 26, 1995 to make a scheduled Term
Loan principal payment of $539,000 and a scheduled Series B Senior Note
principal payment of $7.5 million. On October 26, 1995, the Company's Revolving
Loans became due, but were not repaid. On November 1, 1995, the Company failed
to make a scheduled interest payment on its 15% Notes in the amount of $17.2
million.
The Company is currently in negotiations with its Senior and Subordinated
Creditors to arrive at a resolution to the above described defaults and intends
to continue to defer the above payments until an agreement is reached.
The Multicurrency Revolving Loan has been borrowed by certain of the
Company's foreign subsidiaries and by the Company in U.S. Dollars and German
Marks in an equivalent amount of $28.8 million, and carries an interest rate of
275 basis points (excluding default interest) over the one, two, three or
six-month reserve adjusted London Interbank Offered Rate ("LIBOR") of the
borrowed currency, selected at the Company's option.
The Revolving Loan carries an interest rate of 275 basis points (excluding
default interest) over the one, two, three or six-month reserve adjusted LIBOR,
selected at the Company's option.
The Term Loans and Series A Senior Notes carry an interest rate of 275
basis points (excluding default interest) over the three-month LIBOR rate.
The Series B Senior Notes carry an interest rate of 12.25% (excluding
default interest).
Subject to certain exceptions, 100% of proceeds from the sale of assets
must be applied to repayment of the Senior Debt.
The 15% Notes were issued in 224,900 units of $1,000 and 30.351 and
detachable warrants to purchase Anacomp Common Stock at $1.873 per share.
Accordingly, capital surplus was increased by $8,996,000 in fiscal 1991 with the
issuance of these warrants and the notes were recorded at their discounted value
of $215.9 million and are being accreted to their face value through the
original due date in 2000.
The Master Agreement, which covers the Term Loans, the Revolving Credit
Commitment, and the Series A and Series B Senior Notes, gives the Senior
Creditors a security interest in all of the assets of Anacomp; contains various
limitations on advances and investments made by the Company; prohibits or
restricts without prior approval of the Senior Creditors mergers, acquisitions,
change of control, certain types of lease transactions, payment of dividends on
Anacomp Common Stock, and voluntary payment in cash of any principal amount of
Anacomp's subordinated debt; and contains certain other restrictive covenants
related to net worth, cash flow, fixed charges, debt incurrence, capital
expenditures and the current ratio.
The Master Agreement also provided for the availability of letters of
credit under the Revolving Loan. As of September 30, 1995, letters of credit for
approximately $4.5 million have been issued. The revolving loan expired on
October 26, 1995 without the Company repaying or funding the outstanding amount
of $4.5 million in letter of credit commitments resulting in such commitments
remaining outstanding.
The 15% Notes are subordinated to the payment in full of the principal and
interest on all Senior indebtedness. The 15% Notes rank pari passu to the
remaining 12.25% Notes and 8.25% Senior Subordinated Notes (if and when issued)
discussed in Note 12. Additionally, they are senior to the outstanding 9%
Convertible Subordinated Debentures due 1996 and the 13.875% Convertible
Subordinated Debentures due 2002.
The 15% Note Indenture contains covenants relating to net worth, and
limitations on restricted payments, liens, transactions with affiliates,
incurrence of additional debt, asset sales, acquisitions, and change of control.
The 15% Note holders will be granted a security interest in all of Anacomp's
assets upon the repayment of all Senior Secured Indebtedness.
The 13.875% Convertible Subordinated Debentures are convertible into
1,327,542 shares of Anacomp Common Stock at a conversion price of $17.50 per
common share, and allow optional redemption at a price of 100% at any time.
Anacomp International, N.V., a wholly-owned Netherlands Antilles subsidiary, has
issued the 9% Convertible Subordinated Debentures with an original due date of
January 15, 1996 guaranteed by Anacomp. The 9% debentures are convertible into
663,227 shares of Anacomp Common Stock at a conversion price of $15.80 per
common share. In the event of certain changes affecting United States or
Netherlands Antilles taxation, the interest rate will be increased for any taxes
required to be withheld or, at Anacomp's option, all debentures outstanding may
be redeemed at 100% of the principal amount plus accrued interest.
NOTE 12 -- REDEEMABLE PREFERRED STOCK
Anacomp issued in a private placement in 1987, 500,000 shares of 8.25%
Cumulative Convertible Redeemable Exchangeable Preferred Stock (the Preferred
Shares). Each Preferred Share has a preference value of $50 and is convertible
into Anacomp common stock at a conversion price of $7.50. The redeemable
preferred stock was recorded at fair value on the date of issuance less issue
costs. The excess of the preference value over the carrying value is being
accreted by periodic charges to retained earnings over the original life of the
issue.
The Preferred Shares may be redeemed by Anacomp at prices declining from
105.78% to 100% of preference value, or earlier if the price of Anacomp common
stock remains at 160% of the conversion price for 20 of 30 consecutive trading
days. On March 15, 2000 and 2001, Anacomp must redeem at the preference value
125,000 shares each year unless a sufficient number of shares has already been
redeemed or converted. All remaining outstanding shares must be redeemed by
March 1, 2002.
Dividends on the preferred shares have accrued but not paid since the March
15, 1995 quarterly dividend payment. Interest on the unpaid dividends compounds
quarterly at an annual rate of 8.25%. If the Company is in arrears for the
equivalent of four quarterly dividend payments, then two directors are to be
added to the Board of Directors. The holders of the preferred shares have the
exclusive right to elect the two additional directors.
At any dividend payment date after March 15, 1990, Anacomp may exchange the
Preferred Shares for an equal face amount of 8.25% Senior Subordinated Notes due
March 1, 2002 (the "Exchange Debentures"). Except for certain shareholder
rights, the Exchange Debentures will carry terms similar to the Preferred
Shares. There were no such exchanges as of September 30, 1995.
NOTE 13 -- CAPITAL STOCK
Shareholder Rights Plan
The Company has a Shareholder Rights Plan which was adopted by the Board of
Directors on February 4, 1990. The Rights Plan provides that each share of the
Company's common stock has associated with it a Common Stock Purchase Right.
Each right entitles the registered holder to purchase from the Company one-tenth
of a share of Anacomp common stock, par value $.01 per share, at a cash exercise
price of $3.20 subject to adjustment.
The rights will be exercisable only if a person or group acquires
beneficial ownership of 15% or more of the outstanding shares of common stock of
Anacomp, or announces a tender or exchange offer upon consummation of which,
such person or group would beneficially own 30% or more of the Company's common
stock. If any person acquires 15% of Anacomp's common stock, the rights would
entitle stockholders (other than the 15% acquiror) to purchase at $32 (as such
price may be adjusted) a number of shares of Anacomp's common stock which would
have a market value of $64 (as such amount may be adjusted). In the event that
Anacomp is acquired in a merger or other business combination, the rights would
entitle the stockholders (other than the acquiror) to purchase securities of the
surviving company at a similar discount.
Anacomp can redeem the rights at $.001 per right at any time until the
tenth day following the announcement that a 15% ownership position has been
acquired. Under certain circumstances as set forth in the Rights Plan, the
decision to redeem shall require the concurrence of a majority of the Continuing
Directors (as such term is defined in the Rights Plan). The rights expire
February 26, 2000.
Preferred Stock
Anacomp has authorized 1,000,000 shares of preferred stock, of which
500,000 shares of redeemable preferred stock were issued and outstanding at
September 30, 1995 and 1994 (see Note 12).
Stock Option Plans
Anacomp's stock option plans provide that the exercise price of the options
be determined by the Board of Directors (the "Board"), and in no case be less
than 100% of fair market value at the time of grant for qualified options, or
less than the par value of the stock for non-qualified options. An option may be
exercised subject to such restrictions as the Board may impose at the time the
option is granted. In any event, each option shall terminate not later than 10
years after the date on which it is granted, except for certain non-qualified
options which shall terminate not later than 20 years after the date on which
granted.
Shares available for grant under the plans were 1,401,328, 725,827 and
895,145 at September 30, 1995, 1994 and 1993, respectively. Options outstanding,
of which 2,512,992 are exercisable as of September 30, 1995, are as follows:
Option Price
Shares Per Share
--------------- ---------
Outstanding at September 30, 1992 3,680,709 $1.000-$7.875
Granted 1,308,834 2.750- 9.000
Canceled (72,839) 2.000- 7.875
Expired (38,701) 2.000- 7.875
Exercised (463,475) 2.000- 3.500
-------- ----- -----
Outstanding at September 30, 1993 4,414,528 1.000- 9.000
Granted 205,381 2.750- 4.000
Canceled (81,908) 1.000- 7.875
Expired (23,096) 2.000- 7.875
Exercised (306,646) 1.000- 3.375
-------- ----- -----
Outstanding at September 30, 1994 4,208,259 1.000- 9.000
Granted 1,355,736 .563- 2.500
Canceled (2,010,753) .563- 4.750
Expired (20,484) 2.000- 4.500
Exercised (24,863) .563- 2.000
------- ---- -----
Outstanding at September 30, 1995 3,507,895 $.563-$9.000
========= ============
Warrants
In October 1990, Anacomp issued 6,825,940 warrants to holders of the 15%
Senior Subordinated Notes. Each warrant entitles the holder to purchase one
common share at a price of $1.873 and is exercisable through the date of
expiration, November 11, 2000. Anacomp filed a shelf registration statement with
respect to the warrants which became effective on February 25, 1991.
Other Items
Under an Employee Stock Purchase Plan, Anacomp may offer to sell common
stock to its employees. Purchases of these shares are made by employee
participants periodically at 85% of the market price on the date of offer or
exercise, whichever is lower.
At September 30, 1995 approximately 23.4 million shares of Anacomp common
stock are reserved for exercise of stock options, conversion of convertible
subordinated debentures, purchases by stock purchase plan participants,
conversion of preferred stock, exercise of warrants, Graham acquisition
agreement requirements and other corporate purposes.
NOTE 14 -- INCOME TAXES
The components of income (loss) before income taxes and extraordinary
credits were:
Year Ended September 30
-------------------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
United States $ (209,151) $ 7,143 $10,761
Foreign 5,825 8,212 9,730
----- ----- -----
$(203,326) $15,355 $20,491
========= ======= =======
The components of income tax expense after utilization of net operating
loss carryforwards and the adjustment of the tax reserves are summarized below:
Year Ended September 30
---------------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Federal $ ---- $ ---- $ 5,800
Foreign 4,800 3,300 4,800
State ---- 300 1,900
------ ----- -----
4,800 3,600 12,500
Tax reserve adjustment 1,200 (1,200) (3,700)
Deferred 29,000 6,000 ----
------ ----- -----
Continuing operations 35,000 8,400 8,800
Extraordinary credit, reduction
of income taxes arising from
carryforward of prior year's
operating losses ---- ---- (6,900)
------ ----- ------
$ 35,000 $ 8,400 $ 1,900
======== ======= =======
The following is a reconciliation of the United States federal
statutory rate to the rate used for the provision for income taxes:
<TABLE>
<CAPTION>
Year Ended September 30
-------------------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Provision for income taxes at U.S. statutory rate....................... $(71,200) $5,374 $7,131
Increase in deferred tax asset valuation allowance...................... 51,400 ---- -----
Nondeductible amortization and write-off of intangible assets........... 40,500 3,175 2,973
U.S. tax on distributed and undistributed foreign earnings.............. 12,300 ---- ----
Tax reserve adjustment.................................................. 1,200 (1,200) (3,700)
State and foreign income taxes.......................................... 2,800 821 2,140
Other................................................................... (2,000) 230 256
------ ----- -----
$35,000 $8,400 $8,800
======= ====== ======
</TABLE>
The Company adopted FAS 109 in the first quarter of fiscal 1994 and
recorded a deferred tax asset of $95.0 million representing the federal and
state tax savings from net operating loss carryforward ("NOLs") and tax credits.
The Company also recorded a valuation allowance of $60.0 million reducing the
deferred tax asset to a net $35.0 million. Recognition of the deferred tax asset
reduced goodwill by $27.0 million and provided a cumulative effect increase to
income of $8.0 million. During 1994, the net deferred tax asset was reduced to
$29.0 million, reflecting usage of the asset to reduce income taxes payable by
$6.0 million. During 1995, tax effects of future differences and carryforwards
increased from $86.0 million to $108.4 million, an increase of $22.4 million
resulting from the tax effect of the 1995 taxable loss ($5.6 million) and the
tax effect of an increase in cumulative temporary differences ($16.8 million)
between income reported for financial reporting purposes and for tax purposes.
The valuation allowance was increased from $57.0 million to $108.4 million to
reduce the net deferred tax asset to zero as a result of the uncertainty
associated with the utilization of these assets in future periods due to the
events described in Note 2.
The components of deferred tax assets and liabilities at September 30, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Tax effects of future tax deductible differences related to:
Inventory reserves $ 5,700 $ 2,600
Depreciation 1,700 1,600
Building reserves 1,800 5,000
EPA reserve 2,500 2,300
Sale/leaseback of assets 2,800 900
Restructuring reserves 8,000 ----
Asset sale 3,200 ----
Capitalized software 1,600 ----
Bad debt reserve 2,100 ----
Other net deductible differences 5,500 4,100
Tax effects of future taxable differences related to:
Undistributed foreign earnings (8,800) ----
Leases (3,300) (4,500)
Capitalized software ---- (6,000)
--------- -------
Net tax effects of future differences 22,800 6,000
--------- -------
Net tax effects of carryforward benefits:
Federal net operating loss carryforwards 78,600 73,000
Federal general business tax credits 3,000 3,000
Foreign tax credits 4,000 4,000
----- -----
Tax effects of carryforwards 85,600 80,000
------ ------
Tax effects of future differences and carryforwards 108,400 86,000
Less valuation allowance (108,400) (57,000)
-------- -------
Net deferred tax asset $ ---- $ 29,000
========== ========
</TABLE>
At September 30, 1995, the Company has NOLs of approximately $218.0 million
available to offset future taxable income. This amount will increase to $281.0
million as certain timing differences reverse in future periods. The Company
also has tax credit carryforwards of $3.0 million available to reduce future tax
liabilities, including $1.0 million of preacquisition tax credits. The NOLs
expire commencing in 1996 ($2.0 million) with remaining amounts in various
periods through 2010. The tax credit carryforwards expire substantially in 1997.
During 1995, 1994 and 1993, the Company settled various income tax matters,
including issues associated with the 1988 Xidex acquisition. Settlement of these
issues and other considerations resulted in an unfavorable adjustment to federal
and foreign income tax reserves in 1995 of $1.2 million and favorable
adjustments in 1994 and 1993 to federal and foreign income tax reserves of $1.2
million and $3.7 million, respectively. The adjustments are reflected as a
charge or credit to income tax expense.
The 1993 provision for income taxes includes an amount which is offset by
the utilization of federal and foreign NOLs. The tax benefit from utilization of
these NOLs prior to the adoption of FAS 109 is reported as an extraordinary
credit in the Consolidated Statements of Operations. The net tax provision
results from foreign and state income taxes which cannot be reduced by NOLs from
prior years.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
Anacomp has commitments under long-term operating leases, principally for
building space and data service center equipment. Lease terms generally cover
periods from five to twelve years. The following summarizes the future minimum
lease payments under all noncancelable operating lease obligations, including
the unfavorable lease commitments and vacant facilities discussed in Note 1,
which extend beyond one year:
Year Ended
September 30
------------
(Dollars in
thousands)
1996 23,508
1997 18,822
1998 15,540
1999 7,789
2000 4,558
2000 and thereafter 28,985
------
$99,202
Less liabilities recorded as of
September 30, 1994 related to unfavorable
lease commitments and future lease costs
for vacant facilities (6,664)
------
$92,538
=======
The total of future minimum rentals to be received under noncancelable
subleases related to the above leases is $1.9 million. No material losses in
excess of the liabilities recorded are expected in the future.
Anacomp leases certain equipment installed in its data service centers. As
a result of the Company's default under its debt obligations, as more fully
discussed in Notes 2 and 11, Anacomp is in default under these lease agreements
whereby the lessors have the right to require that Anacomp prepay the remaining
future lease payments. Because the equipment lease payments have been made and
are expected to be made in a timely manner, the Company does not expect that the
lessors will assert this right under these lease agreements.
In November 1993, Anacomp and Pennant Systems, a division of IBM, announced
a joint effort to develop software which will allow Anacomp's XFP 2000 to
process and image IBM Advanced Function Presentation ("AFP") formatted data.
This program resulted in the XFP 2000 being able to interpret AFP data streams,
including those containing fonts, logos, signatures and other images on
microfiche.
As consideration for the development of the AFP, Anacomp paid Pennant
Systems a development fee of $6.5 million. Anacomp must also pay Pennant Systems
minimum annual royalty payments for the licensed system installations for six
years. The minimum royalty payments for years one through three are $1.5 million
per year and $1.0 million per year for years four through six. In addition,
Anacomp must pay Pennant Systems for ongoing system support which begins in
December 1995 and continues for 10 years. The minimum system support payments
over the 10 year period are $5.7 million. As of September 30, 1995, Anacomp
established a reserve of $7.7 million for future payments to Pennant Systems for
software royalty and systems support obligations which are not recoverable as
more fully discussed in Note 1.
The Company sold $10.5 million and $5.9 million of lease receivables in the
years ended September 30, 1995 and 1994, respectively. Under the terms of the
sale, the purchasers have recourse to the Company should the receivables prove
to be uncollectible. The amount of recourse at September 30, 1995 is $5.5
million.
Anacomp also is involved in various claims and lawsuits incidental to its
business and believes that the outcome of any of those matters will not have a
material adverse effect on its consolidated financial position or results of
operations.
NOTE 16 -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended September 30
---------------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Maintenance and repairs $16,609 $12,759 $11,765
Depreciation and amortization:
Property and equipment 19,406 17,524 17,149
Deferred software costs 3,449 3,673 2,873
Intangible assets 13,143 13,418 12,984
Rent and lease expense 23,755 19,371 19,312
NOTE 17 -- OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
Year Ended
September 30
-------------------------
1995 1994
---- ----
(Dollars in thousands)
Deferred profit on
sale/leaseback transactions $14,559 $ 9,165
EPA reserve 7,350 6,420
Accrued lease reserve 7,672 ----
Other 31,006 19,442
------ ------
$60,587 $35,027
======= =======
Xidex was designated by the United States Environmental Protection Agency
("EPA") as a potentially responsible party for investigatory and cleanup costs
incurred by state and federal authorities involving locations included on a list
of EPA's priority sites for investigation and remedial action under the federal
Comprehensive Environmental Response, Compensation, and Liability Act. The EPA
reserve noted above relates to its estimated liability for cleanup costs for the
aforementioned location and other sites. No material losses are expected in
excess of the liabilities recorded above.
NOTE 18 -- EARNINGS PER SHARE
The computation of earnings (loss) per share is based upon the weighted
average number of common shares outstanding during the period plus (in periods
in which they have a dilutive effect) the effect of common shares contingently
issuable, primarily from stock options, exercise of warrants and acquisitions.
Fully diluted earnings (loss) per share also reflect additional dilution related
to stock options, due to the use of the market price at the end of the period,
when higher than the average price for the period.
The weighted average number of common and common equivalent shares used to
compute earnings (loss) per share is:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
For earnings (loss) per common and common equivalent share 46,061,818 47,335,723 42,749,933
For earnings (loss) per share assuming full dilution 46,061,818 47,534,485 42,964,380
</TABLE>
NOTE 19 -- INTERNATIONAL OPERATIONS
Anacomp's international operations are conducted principally through
subsidiaries, a substantial portion of whose operations are located in Western
Europe. Information as to U.S. and international operations for the years ended
September 30, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
U.S. International Elimination Consolidated
---- ------------- ----------- ------------
(Dollars in thousands)
1995
<S> <C> <C> <C> <C>
Customer sales $ 404,239 $ 186,950 $ ---- $ 591,189
Inter-geographic 24,973 ---- (24,973) ----
----------- ----------- ----------- -----------
Total sales $ 429,212 $ 186,950 $ (24,973) $ 591,189
=========== =========== =========== ===========
Operating Income $ (135,811) $ 7,622 $ ---- $ (128,189)
=========== =========== =========== ===========
Identifiable assets $ 350,310 $ 70,719 $ ---- $ 421,029
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
U.S. International Elimination Consolidated
---- ------------- ----------- ------------
(Dollars in thousands)
1994
<S> <C> <C> <C> <C>
Customer sales $421,339 $171,260 $ ---- $592,599
Inter-geographic 23,726 ---- (23,726) ----
-------- -------- ----------- --------
Total sales $445,065 $171,260 $ (23,726) $592,599
======== ======== =========== ========
Operating Income $ 60,794 $ 18,783 $ ---- $ 79,577
======== ======== =========== ========
Identifiable assets $590,743 $107,492 $ ---- $698,235
======== ======== =========== ========
</TABLE>
<TABLE>
<CAPTION>
U.S. International Elimination Consolidated
---- ------------- ----------- ------------
(Dollars in thousands)
1993
<S> <C> <C> <C> <C>
Customer sales $414,726 $175,482 $ ---- $590,208
Inter-geographic 26,101 ---- (26,101) $ ----
------ -------- ------- --------
Total sales $440,827 $175,482 $ (26,101) $590,208
======== ======== =========== ========
Operating Income $ 66,883 $ 21,751 $ --- $ 88,634
======== ======== ============= ========
Identifiable assets $570,863 $ 72,685 $ --- $643,548
======== ======== ============= ========
</TABLE>
NOTE 20 -- QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands, except per share amounts)
Fiscal 1995
<S> <C> <C> <C> <C>
Revenues $151,812 $151,489 $148,933 $138,955
Gross profit 42,089 39,667 39,147 29,619
Net income (loss) 281 (7,664) (138,829) (92,114)
Preferred stock dividends and discount
accretion 540 539 540 539
---------- -------- --------- --------
Net loss to common stockholders $ (259) $ (8,203) $(139,369) $(92,653)
========== ======== ========= ========
Earnings (loss) per common share (primary
and fully diluted):
Net Loss to common stockholders $ (.01) $ (.18) $ (3.02) $ (2.01)
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands, except per share amounts)
Fiscal 1994
<S> <C> <C> <C> <C>
Revenues $136,949 $146,569 $145,581 $163,500
Gross profit 41,337 42,049 40,944 47,786
Income before cumulative effect of
accounting change 1,401 942 2,185 2,427
Cumulative effect on prior years of a
change in accounting for income taxes 8,000 ---- ---- ---
----- --------- ------- -------
Net income $ 9,401 94 2,185 2,427
Preferred stock dividends and discount
accretion 540 539 540 539
----- -------- -------- -------
Net income available to common stockholders $ 8,861 $ 403 $ 1,645 $ 1,888
===== ======== ======== ========
Earnings per common share (primary and fully diluted):
Income before cumulative effect of
accounting change (net of preferred
stock dividends) $ .02 $ .01 $ .03 $ .04
Net income available to common stockholders $ .20 $ .01 $ .03 $ .04
</TABLE>
<PAGE>
NOTE 21 -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
The following is a summary of activity in the Company's valuation and
qualifying accounts and reserves for the fiscal years ended September 30, 1995,
1994 and 1993:
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
- ----------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1995:
Allowance for doubtful accounts $3,550 $4,670 $ 853[1] $ 7,367
====== ====== ========== ========
YEAR ENDED SEPTEMBER 30, 1994:
Allowance for doubtful accounts $4,245 $ (268) $ 427[1] $ 3,550
====== ======== ========== ========
YEAR ENDED SEPTEMBER 30, 1993:
Allowance for doubtful accounts $7,365 $ 669 $ 3,789[1] $ 4,245
====== ======= ========== ========
</TABLE>
[1] Uncollectible accounts written off, net of recoveries.
NOTE 22 -- SUBSEQUENT EVENTS
Subsequent to September 30, 1995, Anacomp sold its Image Conversion
Services Division ("ICS") for approximately $13.5 million which resulted in a
net gain to the Company of approximately $6.2 million. The proceeds from this
sale were used to reduce the principal balance on certain senior debt. The ICS
Division performed source document microfilm services at several facilities
around the country generating approximately $20.0 million of revenues per year.
On June 4, 1996, the Company emerged from Chapter 11 Bankruptcy
proceedings. See Note 2 for further discussion.
NOTE 23 -- PRO FORMA UNAUDITED FINANCIAL INFORMATION RELATED TO THE
CONSUMMATION OF THE PLAN OF REORGANIZATION
The unaudited Pro Forma Consolidated Balance Sheet as of September 30, 1995
and the unaudited Pro Forma Consolidated Statement of Operations for the year
ended September 30, 1995 have been prepared giving effect to the sale of the
Image Conversion Services (ICS) Division and the consummation of the Plan of
Reorganization, including the costs related thereto (collectively, the "Pro
Forma Adjustments"), in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"). The Company will account for the restructuring using the
principles of "fresh start" reporting as required by SOP 90-7. Pursuant to such
principles, in general, the Company's assets and liabilities will be revalued.
The reorganization value of the Company ("Reorganization Value") plus
liabilities excluding debt is the value assigned to total assets. In accordance
with SOP 90-7, specific identifiable assets and liabilities will be adjusted to
fair market value. Any portion of the Reorganization Value plus liabilities,
excluding debt not attributable to specific identifiable assets, will be
reported as Reorganization Value in excess of identifiable assets and will be
amortized over a three and a half year period. For purposes of the Pro Forma
Unaudited Financial Information presented herein, the fair value of specific
identifiable assets and liabilities other than debt is assumed to be the
historical book value of those assets and liabilities. The Company is in the
process of obtaining an appraisal of certain assets to assist in determining
their value. The fair value of long-term debt is based on the negotiated fair
values adjusted to present values using discount rates ranging from 11 5/8% to
15%. The difference between the revalued assets and the revalued liabilities
will be recorded as stockholders' equity with retained earnings restated to
zero.
The unaudited Pro Forma Consolidated Balance Sheet as of September 30, 1995
was prepared as if the Pro Forma Adjustments had occurred on September 30, 1995.
The unaudited Pro Forma Consolidated Statement of Operations for the year ended
September 30, 1995 was prepared as if the Pro Forma Adjustments had occurred on
October 1, 1994.
Other than the Pro Forma Adjustments to exclude the operating results of
the ICS Division, no changes in revenues and expenses have been made to reflect
the results of any modification to operations that might have been made had the
Plan of Reorganization been confirmed on the assumed effective dates of the
confirmation of the Plan of Reorganization for presenting pro forma results. The
Pro Forma Unaudited Consolidated Financial Information does not purport to be
indicative of the results which would have been obtained had such transactions
in fact been completed as of the date hereof and for the periods presented or
that may be obtained in the future.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1995
ANACOMP, INC. AND SUBSIDIARIES
Pro Forma
(Unaudited) (Dollars in thousands) Historical Adjustments Pro Forma
- ---------------------------------- ---------- ----------- ---------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash...................................... $19,415 $13,500 (a) $----
(12,700) (a)
(6,994) (b)
(3,000) (h)
(2,750) (i)
(7,500) (i)
(800) (i)
(1,250) (n)
2,079 (o)
Receivables, net of reserves.............. 96,477 (3,800) (a) 92,677
Inventories............................... 53,995 (500) (a) 53,495
Prepaid expenses and other................ 5,306 ---- 5,306
------- ------- -------
Total current assets 175,193 (23,715) 151,478
Property and equipment (net)................ 44,983 (2,000) (a) 42,983
Long term receivables....................... 12,322 ---- 12,322
Excess of purchase price over net assets of
businesses acquired and other intangibles 160,315 (160,315) (l) ----
Other assets................................ 28,216 (12,721) (c) 15,495
Reorganization value in excess of identifiable
assets................................... ---- 275,018 (m) 275,018
-------- ------- -------
$421,029 $76,267 $497,296
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt........ $389,900 ($361,324) (d) $ 28,576
Accounts payable......................... 57,368 (5,094) (b) 54,353
2,079 (o)
Accrued compensation, benefits and
withholdings............................. 20,891 ---- 20,891
Accrued income taxes..................... 9,365 ---- 9,365
Accrued interest......................... 40,746 (37,806) (d) 2,940
Other accrued liabilities................ 60,587 1,000 (a) 61,406
(1,900) (b)
(1,031) (f)
4,000 (h)
(1,250) (n)
------- -------- --------
Total current liabilities 578,857 (401,326) 177,531
------- -------- -------
Long-term debt, net of current.............. --- 234,456 (d) 234,456
Other noncurrent liabilities................ 5,841 ---- 5,841
----- ------- -------
Total noncurrent liabilities 5,841 234,456 240,297
----- ------- -------
Redeemable preferred stock.................. 24,574 (24,574) (f) ----
------ ------- -------
Stockholders' equity (deficit):
Common stock................................ 462 (462) (g) 100
100 (e)
Capital in excess of par value.............. 182,725 79,368 (e) 79,368
25,605 (f)
462 (g)
(324,824) (j)
1,329 (k)
(160,315) (l)
275,018 (m)
Cumulative translation adjustment........... 1,329 (1,329) (k) ----
Retained earnings (deficit)................. (372,759) 6,200 (a) ----
(7,000) (h)
324,824 (j)
48,735 (i)
------------------ ------------------ ------------------
Total Stockholders' equity (deficit) (188,243) 267,711 79,468
----------------- ------------------ ------------------
$421,029 $76,267 $497,296
================== ================== ==================
</TABLE>
See notes to the Pro Forma Consolidated Balance Sheet
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
Notes to Pro Forma Consolidated Balance Sheet
as of September 30, 1995
(unaudited, dollars in thousands, except per share amounts)
The following notes set forth the explanations and assumptions used in preparing
the unaudited Pro Forma Consolidated Balance Sheet.
(a) Reflects the sale of certain assets of the ICS division subsequent to the
balance sheet date. Assets sold principally consisted of approximately $500
of inventory, $3,800 of accounts receivable and $2,000 of fixed assets for
$13,500 cash. In addition, the Company incurred legal fees and wind-down
costs of approximately $1,000, which is reflected in other accrued
liabilities on the Pro Forma Consolidated Balance Sheet, resulting in a net
gain of $6,200. The Pro Forma adjustment reflects a substantial portion of
the proceeds ($12,700) used to pay down the Old Credit Facilities.
(b) Represents cash paid to SKC America ("SKC"), a supplier to the Company, on
June 4, 1996, the effective date of the Plan of Reorganization ("Effective
Date") related to certain amounts payable to SKC.
(c) For financial reporting purposes, old deferred financing costs of $12,721
applicable to the old debt securities is being written off to the
extraordinary gain as discussed in (i).
(d) Represents changes in the current portion of long-term debt and related
accrued interest as a result of the confirmation of the Plan. In accordance
with SOP 90-7, the Company's liabilities will be recorded at their
estimated fair values as of the Effective Date. The fair value of long-term
debt is based on the negotiated face values adjusted to present values
using discount rates ranging from 11-5/8% to 15%. The change in debt
consists of the following:
<TABLE>
<CAPTION>
Current
Portion of
Accrued Long-Term Long-Term
Interest Debt Debt Total
-------------- ------------ --------- -----
<S> <C> <C> <C> <C>
Historical $40,746 $389,900 $ -- $430,646
------- -------- -------- --------
Cancellation of Old Revolving Loan (31,328) (31,328)
Cancellation of Old Multicurrency Cancellation
of Revolving Loan (28,813) (28,813)
Cancellation of Old Term Loan (13,039) (13,039)
Cancellation of Old Series B Senior Notes (58,908) (58,908)
Cancellation of Old Senior Subordinated Notes (220,281) (220,281)
Cancellation of Old 9% Subordinated Debentures (10,479) (10,479)
Cancellation of Old 13.875% Subordinated
Debentures (21,155) (21,155)
Installment Note and Other (5,897) 4,584 (1,313)
Accrued Interest (37,806) (37,806)
New Senior Secured Notes due 1999 28,576 83,614 112,190
New 13% Senior Subordinated Notes due 2002 (Face
Value $160,000) 146,258 146,258
------- -------- ------- --------
Pro Forma adjustments (37,806) (361,324) 234,456 (164,674)
-------- --------- ------- ---------
Pro Forma balance $2,940 $28,576 $234,456 $265,972
======= ========= ======== =========
</TABLE>
Market values of securities have been estimated solely for the purpose of
the foregoing computations. The present values of the Company's Installment Note
and Other are assumed to be equal to their respective face values. The estimated
present value of the Company's other long-term debt obligations (which do not
constitute or purport to reflect actual market values) were established by the
Company. Based on the foregoing, an adjustment of $13,742 was made to reduce the
face value of the New Senior Subordinated Notes to their estimated present
value. The adjustment will be amortized into interest expense over the terms of
the New Senior Subordinated Notes.
(e) Reflects issuance of 10,000,000 shares of New Common Stock (par value $.01)
at an estimated market price of $79,468 under the terms of the
Restructuring.
<TABLE>
<CAPTION>
Capital in
Common Stock Excess of Par Value Total
------------ ------------------- -----
<S> <C> <C> <C>
To Holders of old debt........ $100 $79,368 $79,468
</TABLE>
(f) Reflects the cancellation of Old Preferred Stock at historical carrying
value.
Historical carrying value...................... $24,574
Accrued dividends.............................. 1,031
-----
Capital in excess of par value adjustment...... $25,605
------------------------------------------------- =======
(g) Reflects the transfer from common stock to capital in excess of par value
of $462, resulting from the cancellation of 46,187,625 shares of Old Common
Stock.
(h) Reflects a $3 million cash payment and the recognition of a $4 million
liability related to certain non-recurring fees and expenses incurred in
connection with the Plan of Reorganization.
(i) The extraordinary gain, net of taxes, resulting from the Restructuring has
been estimated as follows:
Historical carrying value of old debt securities.............. $389,900
Historical carrying value of related accrued interests........ 37,806
Write off of old deferred financing costs..................... (12,721)
Market value of consideration exchanged for the Old Debt:
Plan Securities (Face Value $272,190)..................... (258,448)
New Common Stock (New shares issued 10,000,000)........... (79,468)
Installment note and other................................ (4,584)
Cash used to reduce debt:
Proceeds from sale of ICS division........................ (12,700)
Payment on new Senior Secured Notes on Effective Date..... (7,500)
Payment on installment note on Effective Date............. (800)
Senior Restructuring Premium.................................. (2,750)
------
48,735
Tax provision................................................. --
-------
Extraordinary gain.............................................. $48,735
=======
For tax purposes, the gain related to cancellation of debt will result in a
reduction of the Company's net operating loss carryforwards.
(j) In accordance with SOP 90-7, this adjustment reflects the elimination of
the accumulated deficit against capital in excess of par value.
(k) In accordance with SOP 90-7 this adjustment reflects the elimination of
deferred translation against capital in excess of par value.
(l) Reflects the write-off of "Excess of Purchase Price Over Net Assets of
Businesses Acquired and other intangibles" of $160,315. For fresh start
reporting purposes, any portion of the Reorganization Value not
attributable to specific identifiable assets will be reported as
"Reorganization Value in excess of identifiable assets". See note (m).
(m) An estimated Reorganization Value of $350,000, which represents the value
of the total assets of the Company less liabilities excluding debt, is
being used to implement fresh start reporting. The Reorganization Value in
excess of identifiable assets is calculated below.
Reorganization Value................................................ $350,000
Plus: Current liabilities excluding debt (Pro Forma)............... 148,955
Noncurrent liabilities excluding debt (Pro Forma)............ 5,841
Less: Current assets (Pro Forma)................................... (151,478)
Cash used to pay new Senior Secured Notes on Effective Date.. (7,500)
Noncurrent tangible assets (Pro Forma)....................... (70,800)
-------
Reorganization value in excess of identifiable assets............... $275,018
========
Total Stockholders' Equity, in accordance with SOP 90-7, does not purport
to present the fair market value of the common stock of the Company. The
Reorganization Value was estimated by the Company based on the range
provided by the Company's financial advisor for its reorganization (the
"Financial Advisor"). Based on the valuation analysis described below, the
Financial Advisor estimated a range of Reorganization Value of between
approximately $300,000 and $400,000. The Company used a Reorganization
Value of $350,000.
The valuation methodologies considered by the Financial Advisor are
described below:
Discounted Cash Flow - The Financial Advisor calculated the present value
of the after tax unleveled cash flows of the Company using projections
prepared by the Company for fiscal years 1996 through 1999. The Financial
Advisor estimated the weighted average cost of capital based on the
estimated cost of capital of a group of selected publicly traded companies.
The Financial Advisor also estimated a terminal value based on the
normalized fiscal 1999 after tax unleveled cash flow, the weighted average
cost of capital and estimated rates of decline which was included in the
present value calculation of the Company's net operating loss carryforward
which was included in the estimated range of the reorganization value. The
weighted average cost of capital used in the analysis ranged from 12% to
14.5%.
Selected Publicly Traded Company Market Multiples - The Financial Advisor
reviewed the market multiples of a group of selected publicly traded
companies. The Financial Advisor reviewed valuation multiples of revenues,
EBITDA, EBIT, net income and book value.
Selected Acquisition Transaction Multiples - The Financial Advisor reviewed
the acquisition multiples of a group of selected acquisition transactions.
The Financial Advisor reviewed acquisition multiples of revenues, EBITDA,
EBIT and net income.
The Financial Advisor believes that the discounted cash flow analysis is
the most appropriate methodology for valuing the Company. The Financial
Advisor reviewed the selected publicly traded company market multiples and
selected acquisition transaction multiples and believes they are less
appropriate methodologies for valuing the Company due to the lack of
directly comparable publicly traded companies or directly comparable
acquisition transactions.
The Company's estimate of its Reorganization Value is based upon a number
of assumptions, including the assumptions upon which the projections are
based. Many of these assumptions are beyond the Company's control, and
there may be material variations between such assumptions and the actual
facts. Moreover, such estimates should not be relied upon for, nor is it
intended as an estimate of, the market price of the Company's securities at
any time in the future. The market price of the Company's securities will
fluctuate with changes in interest rates, market conditions, the condition
and prospects, financial and otherwise, of the Company and other factors
which generally influence the price of securities.
(n) Represents cash paid on June 4, 1996, the effective date of the Plan of
Reorganization to settle certain disputed claims.
(o) Represents reclassification of negative cash balance to accounts payable.
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30, 1995 (unaudited)
-----------------------------------------
(Dollars in thousands, except per share amounts)
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Services provided............................. $219,881 ($20,357) (a) $199,524
Equipment and supplies........................ 371,308 (1,164) (a) 370,144
------- ------ -------
Total revenues............................ 591,189 (21,521) 569,668
------- ------- -------
Operating costs and expenses:
Costs of services provided.................... 161,211 (17,585) (a) 143,626
Costs of equipment sold....................... 279,456 (737) (a) 278,719
Selling, general and administrative........... 109,127 (1,691) (a) 173,747
66,311 (f)
Special and restructuring charges............... 169,584 -- 169,584
------- ------ -------
719,378 46,298 765,676
------- ------ -------
Loss before interest, other income, and income taxes (128,189) (67,819) (196,008)
------- ------- -------
Interest income.................................... 2,000 -- 2,000
Interest expense and fee amortization.............. (70,938) 27,047 (b) (43,891)
Other expenses..................................... (6,199) 5,987 (c) (212)
------- ------ -------
(75,137) 33,034 (42,103)
------- ------ -------
Loss before income taxes........................... (203,326) (34,785) (238,111)
Provision for income taxes......................... 35,000 -- 35,000
------- ------ -------
Net loss (238,326) (34,785) (273,111)
Preferred stock dividends and discount accretion... 2,158 (2,158) (e) --
----- ------ -------
Net loss available to common Stockholders per share ($240,484) ($32,627) ($273,111)
========= ======== =========
Net loss available to common Stockholders per share ($27.31)
=======
Weighted average common shares outstanding.........
10,000,000 (d)
==========
</TABLE>
See Notes to the Pro Forma Consolidated Statement of Operations
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
Notes to Pro Forma Consolidated Statement of Operations
For the year ended September 30, 1995
(Unaudited, dollars in thousands)
The following notes set forth the explanations and assumptions used in preparing
the unaudited Pro Forma Consolidated Statement of Operations.
(a) The Company sold its ICS division subsequent to September 30, 1995 at
a net gain to the Company of $6,200. The Pro Forma Adjustments
represent the exclusion of the division's operating activities,
revenues and expenses during the year ended September 30, 1995.
(b) Net reduction of interest expense as a result of the Restructuring has
been estimated as follows:
Interest expense on new debt:
11 5/8% Senior Secured Notes (Face Value $112,190)............. $13,042
13% Senior Subordinated Notes (Face Value $160,000)............. 20,800
Interest on other debt and trade credit arrangements............ 7,759
Interest accretion on new debt discount......................... 2,290
-----
Subtotal.................................................. 43,891
Reversal of actual expense during the twelve month period
ended September 30, 1995.................................. (70,938)
--- ----- -------
Pro forma adjustment............................................ $27,047
=======
In accordance with SOP 90-7, all debt obligations have been adjusted
to estimated present value. The debt premium/discount is being
amortized over the term of the applicable debt obligation.
(c) Represents $5,987 of costs incurred during fiscal 1995 related to the
Financial Restructuring costs which is being excluded from the pro
forma results for the year ended September 30, 1995.
(d) Pro forma loss per common share is computed based upon 10,000,000
average shares of New Common Stock assumed to be outstanding during
the year ended September 30, 1995 as if the effective date under the
Plan of Reorganization had occurred on October 1, 1994.
(e) Reflects elimination of preferred dividend requirement based on the
cancellation of the Old Preferred Stock under the terms of the
Restructuring.
(f) In accordance with SOP 90-7, the excess Reorganization Value plus
liabilities, excluding debt, over amounts allocated to the fair value
of identifiable assets (which is assumed to be the historical book
value of those assets) has been reflected on the unaudited Pro Forma
Consolidated Balance Sheet as an intangible asset. The adjustment
shown on the unaudited Pro Forma Consolidated Statement of Operations
reflects the amortization of the intangible asset over a three and a
half year period.
<TABLE>
<CAPTION>
Amortization Annual
Amount Period Amortization
------ ------ ------------
<S> <C> <C> <C>
New Intangible Assets............................ $275,018 3.5 Years $78,577
Historical Intangible Assets
Amortization..................................... 12,266
------
$66,311
=======
</TABLE>
Reorganization fees directly attributable to the Restructuring totaling $7,000
have been excluded from pro forma operating results for the year ended September
30, 1995.
The Restructuring adjustments shown on the unaudited Pro Forma Consolidated
Statement of Operations exclude the extraordinary gain to be recognized in
connection with the Plan of Reorganization and "fresh start" reporting required
by SOP 90-07. The extraordinary gain, net of taxes, resulting in the
Restructuring has been estimated as follows:
Historical carrying value of Old Securities..................... $389,900
Historical carrying value of related accrued interests.......... 37,806
Write off of old deferred financing costs....................... (12,721)
Market value of securities exchanged for the old debt:
Plan Securities (Face Value $272,190).................... (258,448)
New Common Stock (10,000,000 shares)..................... (79,468)
Installment note and other...................................... (4,584)
Cash used to reduce debt
Proceeds for the sale of ICS division.................... (12,700)
Payment on New Senior Secured Notes on Effective Date (7,500)
Payment on Installment Note on Effective Date (800)
Senior Restructuring Premium.................................... (2,750)
48,735
------
Tax provision................................................... --
Extraordinary gain.............................................. $48,735
=======
The Company believes that it will not recognize any gain for tax purposes
due to any cancellation of indebtedness resulting from the Restructuring.
The gain related to cancellation of debt will result in a reduction of the
Company's net operating loss carryforwards.
Market values of securities exchanged for the old debt have been estimated
solely for the purpose of estimating the extraordinary gain detailed above.
These estimates should not be relied upon for, nor are they intended as
estimates of, the market prices of the Company's securities at any time in
the future. The market prices of the Company's securities will fluctuate
with changes in interest rates, market conditions, the condition and
prospects, financial and otherwise, of the Company and other factors which
generally influence the price of securities. For purposes of the Pro Forma
Unaudited Financial Information, the New Warrants are assumed to have no
value.
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
---- ----
(Dollars in thousands, except
per share amounts)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $49,259 $19,415
Accounts and notes receivable, less allowances for doubtful accounts
of $6,968 and $7,367, respectively 72,894 90,091
Current portion of long-term receivables 5,680 6,386
Inventories 42,535 53,995
Prepaid expenses and other 6,412 5,306
----- -----
Total current assets 176,780 175,193
------- -------
Property and equipment, at cost less accumulated depreciation
and amortization 36,663 44,983
Long-term receivables, net of current portion 9,133 12,322
Excess of purchase price over net assets of businesses acquired
and other tangibles, net 155,473 160,315
Other assets 13,942 28,216
------ ------
$391,991 $421,029
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES NOT SUBJECT TO COMPROMISE:
Current liabilities:
Current portion of long-term debt $122,619 $389,900
Accounts payable 52,894 57,368
Accrued compensation, benefits and withholdings 14,369 20,891
Accrued income taxes 11,334 9,365
Accrued interest 4,888 40,746
Other accrued liabilities 48,587 60,587
------ ------
Total current liabilities 254,691 578,857
------- -------
Long-term debt, net of current portion -- --
Other noncurrent liabilities 5,548 5,841
----- -----
Total noncurrent liabilities 5,548 5,841
----- -----
LIABILITIES SUBJECT TO COMPROMISE (See Note 4):
Current Portion of long-term debt 258,611 --
Accrued Interest 46,838 --
------ -----
305,449 --
------- -----
Redeemable preferred stock including accrued dividends as of March 31, 1996,
$.01 par value, 500,000 issued, 402,325 and 500,000 outstanding, respectively
(aggregate preference value of $20,116 and 25,000 respectively) 21,340 24,574
------ ------
Stockholders' equity (deficit):
Common stock, $.01 par value; authorized 100,000,000 shares;
48,013,246 and 46,187,625 issued, respectively 480 462
Capital in excess of par value of common stock 187,512 182,725
Cumulative translation adjustment (52) 1,329
Accumulated deficit (382,977) (372,759)
-------- --------
Total stockholders' equity (195,037) (188,243)
-------- --------
$391,991 $421,029
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31,
-------- ---------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in thousands, except per share amounts)
(See Notes 4 & 5) (See Notes 4 & 5)
Revenues:
<S> <C> <C> <C> <C>
Services provided $48,262 $55,956 $99,190 $110,836
Equipment and supply sales 77,649 95,533 156,986 192,465
------ ------ ------- -------
125,911 151,489 256,176 303,301
------- ------- ------- -------
Operating costs and expenses:
Costs of services provided 26,687 30,971 54,525 60,752
Costs of equipment and supplies sold 58,813 69,952 120,574 142,810
Selling, general and administrative expenses 23,148 37,562 47,595 68,842
------ ------ ------ ------
108,648 138,485 222,694 272,404
------- ------- ------- -------
Income before interest, other income, reorganization items and
income taxes 17,263 13,004 33,482 30,897
------ ------ ------ ------
Interest expense and fee amortization (contractual interest for
three and six months ending March 31, 1996 is $14,732 and
$29,804, respectively) (5,499) (16,051) (23,785) (34,000)
Interest income 431 608 932 1,083
Cost of withdrawn refinancing -- (3,000) -- (3,000)
Other income (expense) (See Note 7) 24 (1,125) 6,644 (963)
------ ------- ------- -------
(5,044) (19,568) (16,209) (36,880)
------ ------- ------- -------
Income (loss) before reorganization items and income taxes 12,219 (6,564) 17,273 (5,983)
Reorganization Items:
Write-off of deferred debt issue costs and discounts (17,551) -- (17,551) --
Financial restructuring costs (3,135) -- (5,936) --
Interest earned on accumulated cash resulting from Chapter
11 proceedings 236 -- 236 --
------ ----- ----- ------
(20,450) -- (23,251) --
Loss before income taxes (8,231) (6,564) (5,978) (5,983)
Provision for income taxes (See Note 8) 2,500 1,100 3,700 1,400
----- ----- ----- -----
Net Loss (10,731) (7,664) (9,678) (7,383)
Preferred stock dividends and discount accretion -- 539 540 1,079
- ------------------------------------------------ ------- ------- -------- -------
Net loss available to common stockholders (10,731) $(8,203) $(10,218) $(8,462)
======= ======= ======== =======
Net loss per common and common equivalent share $ (.23) $(.18) $(.22) ($.18)
======= ======= ======== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
---------
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(9,678) $(7,383)
Adjustments to reconcile net income to net cash used in operating activities:
Cumulative effect of a change in accounting for income taxes
Depreciation and amortization 14,564 21,397
Loss on disposition of assets 53 865
Change in assets and liabilities, net of acquisitions:
Decrease (increase) in accounts and long-term receivables 16,652 2,778
Increase in inventories and prepaid expenses 9,501 (9,352)
Increase in other assets 1,914 (7,864)
Decrease in accounts payable and accrued expenses (17,301) 3,335
Decrease in other noncurrent liabilities 113 (1,868)
------- -------
Net cash used in operating activities 9,616 1,908
Operating cash flow from reorganization items (see notes 4 & 5):
Loss with write-off of debt issue costs and debt discounts 17,551 --
Financial restructuring costs 5,936 --
Interest earned on accumulated cash resulting from Chapter 11 procedures (236) --
-------- -------
Net cash provided by operating activities 32,867 1,908
-------- -------
Cash flows from investing activities:
Proceeds from sale of assets 13,554 14,520
Purchases of property, plant and equipment (2,357) (7,631)
Payments to acquire companies and customer rights -- (1,285)
-------- --------
Net cash provided by investing activities 11,017 5,604
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 519
Proceeds from revolving line of credit and long-term borrowings 1,329 20,000
Principal payments on long-term debt (14,991) (40,777)
Preferred dividends paid -- (1,031)
-------- --------
Net cash provided by (used in) financing activities (13,662) (21,289)
-------- --------
Effect of exchange rate changes on cash (378) 138
-------- --------
Increase (decrease) in cash and cash equivalents 29,844 (13,639)
Cash and cash equivalents at beginning of period 19,415 19,871
--------- --------
Cash and cash equivalents at end of period $49,259 $6,232
========= ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $8,175 $27,961
Income taxes $1,297 $2,361
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ANACOMP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended March 31, 1996
-------------------------------
Capital in
Excess of
Par Value Cumulative Retained
Common of Common Translation Earnings
Stock Stock Adjustment (Deficit) Total
----- ----- ---------- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995 $462 $182,725 $1,329 $(372,759) $(188,243)
Exercise of stock options 7 4,798 -- -- 4,805
Preferred stock dividends -- -- -- (516) (516)
Accretion of redeemable preferred stock discount -- -- -- (24) (24)
Translation adjustment for period -- -- (1,381) -- (1,381)
Graham Stock Issuances 11 (11) -- -- --
Net income for the period (Note 3) -- -- -- (9,678) (9,678)
- ---- -------- ---- ------ ------
BALANCE AT MARCH 31, 1996 $480 $187,512 $(52) $(382,977) $(195,037)
=== ==== ==== ======== ==== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended March 31, 1995
-------------------------------
Capital in
Excess of
Par Value Cumulative Retained
Common of Common Translation Earnings
Stock Stock Adjustment (Deficit) Total
----- ----- ---------- --------- -----
(Dollars in thousands)
<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 2 466 -- -- 468
Employee Stock Purchase Plan
Preferred stock dividends -- -- -- (1,031) (1,031)
Accretion of redeemable preferred stock discount -- -- -- (48) (48)
Translation adjustment for period -- -- 1,421 -- 1,421
Graham stock issuances 1 143 -- -- 144
---- -------- ----- --------- -------
Net income for the period (Note 3) -- -- -- (7,383) (7,383)
---- -------- ----- --------- -------
BALANCE AT MARCH 31, 1995 $461 $182,502 $1,152 $(140,737) $43,378
==== ======== ====== ========= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 -- GENERAL
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 for fiscal 1995 and the notes thereto.
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.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The 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.
Significant Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Other intangibles, net of accumulated amortization, of $19.5 million
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. These unamortized costs are evaluated for impairment each period
by determining their net realizable value.
<PAGE>
Research and Development
The costs associated with research and development programs are expensed as
incurred.
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 their net realizable value. Such costs
are amortized over the greater of the estimated units of sale or under the
straight-line method not to exceed five years. Unamortized deferred software
costs remaining as of March 31, 1996 total $5.4 million and are included in
"Other Assets" on the accompanying Condensed Consolidated Balance Sheets.
Income Taxes
Beginning in 1995, Anacomp's practice is to repatriate the income of its
foreign subsidiaries as it is earned. Accordingly, deferred tax is recorded on
foreign income as it is earned.
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.
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 agreements.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined by methods approximating the first-in, first-out basis.
The cost of the inventories is distributed as follows:
March 31, 1996 September 30,
1996 1995
---- ----
(Dollars in thousands)
Finished goods $30,207 $38,702
Work in progress 3,487 4,955
Raw materials and supplies 8,841 10,338
----- ------
$42,535 $53,995
============= ==========
Debt Issuance Costs
The Company has historically capitalized all costs related to its issuance
of debt and amortized those costs using the effective interest method over the
life of the related debt instruments. During the three months ended March 31,
1996, the Company wrote-off $11.1 million of debt issue costs. (See notes 4 &
5). Remaining debt issue costs related to senior debt of $671,000 at March 31,
1996 are included in "Other Assets" in the accompanying Condensed Consolidated
Balance Sheets.
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.
Goodwill
Excess of purchase price over net assets of businesses acquired
("goodwill") is amortized on the straight-line method over the estimated periods
of future demand for the product acquired. Goodwill related to magnetics'
products, net of accumulated amortization, of $5.2 million is being amortized
over 15 years. Goodwill, net of accumulated amortization of $130.8 million is
related to the micrographics business which includes supplies, COM systems,
micrographics services and maintenance services and is primarily being amortized
over 40 years. When factors indicate that goodwill should be evaluated for
impairment, Anacomp historically has evaluated goodwill based on comparing the
unamortized balance of goodwill to undiscounted operating income over the
remaining goodwill amortization period. Effective June 30, 1995, Anacomp elected
to modify its method of measuring goodwill impairment to a fair value approach.
If it is determined that impairment has occurred, the excess of the unamortized
goodwill over the fair value of the goodwill applicable to the business unit
will be charged to operations. For purposes of determining fair value, the
Company values the goodwill using a multiple of cash flow from operations based
on consultation with its investment advisors. Anacomp has concluded that fair
value is a better measurement of the value of goodwill considering the Company's
highly leveraged financial position.
NOTE 3 -- RECENT DEVELOPMENTS
For the year ended September 30, 1995, the Company reported a $238.3
million net loss. The Company is highly leveraged and certain developments had a
material adverse effect on the Company's short term liquidity. Although revenues
for the Company's core micrographic businesses had been declining over the last
several fiscal years due to many factors, including the adverse effect of
digital technologies, the Company believed that these declines would stabilize.
However, based on weaker than anticipated results, including disappointing sales
performance for the Company's new products the Company did not have sufficient
cash to make certain principal and interest payments on its existing debt
obligations. As a result, on January 5, 1996, the Company filed a prenegotiated
Debtors' Joint Plan of Reorganization ("Plan") with the U.S. Bankruptcy Court
under Chapter 11 of the Bankruptcy Code.
On May 20, 1996, the U.S. Bankruptcy Court confirmed the Company's Third
Amended and Joint Plan of Reorganization (the "Plan of Reorganization"), and on
June 4, 1996, the Company emerged from bankruptcy. Pursuant to the Plan of
Reorganization, on such date certain indebtedness of the Company was canceled in
exchange for cash, new indebtedness, and/or new equity interests, certain
indebtedness was reinstated, certain other prepetition claims were discharged,
certain claims were settled, executory contracts and unexpired leases were
assumed or rejected, and the members of a new Board of Directors of the Company
were designated. The Company simultaneously distributed to creditors
approximately $22,000,000 in cash, $112,190,000 principal amount of its 11 5/8%
Senior Secured Notes due 1999 (the "Senior Secured Notes") and $160,000,000
principal amount of its 13% Senior Subordinated Notes due 2002 (the "Senior
Subordinated Notes"), all of which are currently outstanding, equity securities
consisting of 10,000,000 shares of common stock and 362,694 warrants, each of
which is convertible into one share of common stock during the five year period
ending June 3, 2001 at an exercise price of $12.23 per share.
As noted above, upon emerging from bankruptcy, the Company's Revolving
Loan, Multi-Currency Revolving Loan, Terms Loans, Series B Senior Notes, 15%
Senior Subordinated Notes, 13.875% Convertible Subordinated Debentures and 9%
Convertible Subordinated Debentures were canceled. In addition, the Company's
8.25% Cumulative Convertible Redeemable Exchangeable Preferred Stock and the
Warrants and Stock Options were canceled. In connection therewith, the Company
issued new debt and equity securities as mentioned above and described in more
detail below:
Senior Secured Notes
On June 4, 1996, the Company issued $112,190,000 aggregate principal amount
of 11 5/8% Senior Secured Notes due September 30, 1999. Interest is payable on
March 31 and September 30 each year, beginning on September 30, 1996. The
Company is required to redeem a portion of the notes at par on each interest
payment date according to the following schedule:
September 30, 1996 $14,288,000
March 31, 1997 $14,286,000
September 30, 1997 $16,163,000
March 31, 1998 $16,161,000
September 30, 1998 $17,100,000
March 31, 1999 $17,100,000
September 30, 1999 $17,092,000
The notes are redeemable at the option of the Company, in whole or in part,
at any time, at 100% of the principal amount thereof, plus accrued and unpaid
interest. The Company is required in certain circumstances to make offers to
purchase the Senior Secured Notes then outstanding at a purchase price equal to
100% of the principal amount thereof, plus accrued and unpaid interest, with the
net cash proceeds of certain sales or other distributions of assets by the
Company or certain of its subsidiaries. Also, upon a change of control, the
Company is required to make an offer to purchase the Senior Secured Notes then
outstanding at a purchase price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest.
The Senior Secured Notes are senior secured obligations of the Company and
will rank pari passu with all other existing and future senior obligations of
the Company, and senior to all existing and future subordinated or junior
indebtedness of the Company. The collateral securing the Senior Secured Notes
consists of substantially all of the assets of the Company and all future
acquired assets of the Company to the extent such assets are acquired by the
Company without secured financing.
The indenture related to the Senior Secured Notes contains covenants
limiting among other things, (i) the incurrence of additional indebtedness by
the Company and certain of its subsidiaries, (ii) the payment of dividends on,
and the redemption of, capital stock of the Company and certain of its
subsidiaries, (iii) the redemption of certain subordinated obligations of the
Company and certain of its subsidiaries and the making of certain investments by
the Company and certain of its subsidiaries, (iv) the sale by the Company and
certain of its subsidiaries of assets and certain subsidiary stock, (v)
transactions between the Company and its affiliates, (vi) liens on the
collateral securing the Senior Secured Notes, (vii) consolidations and mergers
and transfers of all or substantially all of the Company's and certain of its
subsidiaries' assets and (viii) capital expenditures. All of the limitations and
prohibitions are subject to a number of qualifications and exceptions. The
indenture also contains a covenant requiring the Company to maintain a minimum
interest coverage ratio.
Senior Subordinated Notes
On June 4, 1996, the Company issued $160,000,000 aggregate principal amount
of 13% Senior Subordinated Notes due 2002. Interest is payable on June 30 and
December 31 each year, beginning on December 31, 1996. For the interest payable
on December 31, 1996 and June 30, 1997, the Company will provide Payment-In-Kind
("PIK") notes in satisfaction of its interest obligation rather than a cash
settlement. The PIK notes will have a principal amount corresponding to the
amount of interest due on the notes on the related interest payment date.
The Company is required to redeem prior to June 30, 2001 the principal
amount of the Senior Subordinated Notes equal to the aggregate principal amount
of PIK notes issued prior to such date, plus any accrued and unpaid interest on
the PIK notes, at a redemption price equal to the price that would be then
applicable in the case of an optional redemption. The remaining Senior
Subordinated Notes are redeemable at the option of the Company, in whole or in
part, at any time, at various redemption prices ranging from 103% to 101.5% of
the principal amount thereof through December 31, 2001. Thereafter, the Senior
Subordinated Notes may be redeemed at the aggregate principal amount thereof.
Also, upon a change in control, the Company is required to make an offer to
purchase the Senior Subordinated Notes then outstanding at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest.
The Senior Subordinated Notes are unsecured senior subordinated obligations
of the Company and rank pari passu with all other existing and future
subordinated obligations of the Company. The payment of principal and interest
is subordinated and subject to the prior payment in full of the Company's senior
indebtedness.
The indenture related to the Senior Subordinated Notes contains covenants
limiting, among other things, (i) the incurrence of additional indebtedness by
the Company and certain of its subsidiaries, (ii) the payment of dividends on,
and the redemption of, capital stock of the Company and certain of its
subsidiaries, (iii) the redemption of certain subordinated obligations of the
Company and certain of its subsidiaries and the making of certain investments of
the Company and certain of its subsidiaries, (iv) the sale by the Company and
certain of its subsidiaries of assets and certain subsidiary stock, (v)
transactions between the Company and its affiliates, (vi) sale/leaseback
transactions by the Company and certain of its subsidiaries, (vii)
consolidations and mergers and transfers of all or substantially all of the
Company's and certain of its subsidiaries' assets and (viii) capital
expenditures. All of the limitations and prohibitions are subject to a number of
qualifications and exceptions. The indenture also contains a covenant requiring
the Company to maintain a minimum interest coverage ratio.
New Common Stock and Warrants
On June 4, 1996, the Company issued 10,000,000 shares of new Common Stock
to certain creditors. In addition, the Company also issued 362,964 warrants to
certain creditors and previous common and preferred stockholders. Each warrant
is convertible into one share of new common stock at an exercise price of $12.23
per share. The warrants expire on June 3, 2001. In addition, the Plan of
Reorganization approved for future issuance of up to 810,811 shares of
additional new Common Stock to the management of the Company.
Pro Forma Unaudited Financial Information
See Note 10 for the Pro Forma Unaudited Financial Information related to
the consummation of the Plan of Reorganization.
NOTE 4 -- ACCOUNTING AND REPORTING REQUIREMENTS DURING BANKRUPTCY
Under Chapter 11 of the Bankruptcy Code, certain claims against the Debtor
in existence prior to the filing of the petitions for relief under the U.S.
bankruptcy laws are stayed while the Debtor continues business operations as
Debtor-in-possession. Under AICPA Statement of Position 90-7 "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code," ("SOP 90-7")
the Company is required to adjust liabilities subject to compromise to the
amount of the claim allowed by the court. In the case of Anacomp, only its
subordinated debt was adjusted and along with the related accrued interest
reflected as liabilities subject to compromise. This resulted in a write-off of
certain deferred debt issuance costs and debt discounts of approximately $17.6
million on the date of the bankruptcy filing. These adjustments are reflected in
the Company's results for the three months ended March 31, 1996. Senior debt was
not included in liabilities subject to compromise as it is fully secured and not
expected to be adjusted in bankruptcy. Accounts payable was not adjusted as the
Company's reorganization plan calls for trade creditors to be paid in full and
because the Bankruptcy Court has allowed the Company to pay its trade creditors
during the proceedings.
In addition, SOP 90-7 requires the Company to report interest expense
during the bankruptcy proceedings only to the extent that it will be paid during
the proceeding or that it is probable to be an allowed priority, secured, or
unsecured claim. Accordingly, the Company recorded interest expense only for its
senior debt subsequent to the bankruptcy filing. Interest expense and fee
amortization for the three and six months ended March 31, 1996 was $5.5 million
and $23.8 million compared to $16.1 million and $34.0 million in the same
periods for the prior year. The difference between the reported interest expense
and the contractual interest expense for the three and six months ended March
31, 1996 is disclosed in the accompanying Condensed Consolidated Statements of
Operations. The contractual interest disclosure is not comparable to interest
expense in the prior period as the disclosure does not include amounts for fee
and discount amortization.
NOTE 5 -- REORGANIZATION ITEMS
In accordance with SOP 90-7, the Condensed Consolidated Statements of
Operations should portray the results of operations of the Company while it is
in Chapter 11. Expenses resulting from the restructuring are reported separately
as reorganization items. In the accompanying Condensed Consolidated Statements
of Operations for the three and six months ending March 31, 1996, the Company
wrote-off $17.6 million of deferred debt issues costs and debt discounts.
Anacomp incurred financial restructuring costs of $3.1 million and $5.9 million
for the three and six months ending March 31, 1996. The Company also earned
interest income of $236,000 on accumulated cash resulting from Chapter 11
proceedings.
NOTE 6 -- CONDENSED COMBINED FINANCIAL STATEMENTS
In accordance with SOP 90-7, Consolidated Financial Statements that include
one or more entities in reorganization proceedings and one or more entities not
in reorganization proceedings should include condensed combined financial
statements of the entities in reorganization proceedings. Accordingly, the
condensed combined financial statements as of March 31, 1996 of Anacomp, Inc.
and certain of its subsidiaries including Kalvar Microfilm, Inc., Anacomp
International N.V., Florida AAC Corporation, and Xidex Development Company are
presented below.
<PAGE>
CONDENSED COMBINED BALANCE SHEET (Unaudited)
March 31, 1996
-----------------------------
(Dollars in thousands, except
per share amounts)
ASSETS
Current assets:
Cash and cash equivalents $ 44,641
Accounts and notes receivable 47,819
Current portion of long-term receivables 1,971
Inventories 31,858
Prepaid expenses and other 4,955
-----
Total current assets 131,244
-------
Property and equipment 26,940
Long-term receivables, net of current portion 5,137
Excess of purchase price over net assets of businesses
acquired and other intangibles, net 152,041
Other assets 53,578
------
$368,940
========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES NOT SUBJECT TO COMPROMISE:
Current liabilities:
Current portion of long-term debt $116,266
Accounts payable 49,581
Other accrued liabilities 65,175
------
Total current liabilities 231,022
-------
Long-term debt, net of current portion --
Other noncurrent liabilities 3,144
-----
Total noncurrent liabilities 3,144
-----
LIABILITIES SUBJECT TO COMPROMISE:
Current portion of long-term debt 258,611
Accrued Interest 46,838
------
305,449
Redeemable preferred stock including accrued dividends 21,340
------
Stockholders' equity (deficit):
Common stock 480
Capital in excess of par value 187,512
Cumulative translation adjustment --
Accumulated deficit (380,007)
--------
Total stockholders' equity (deficit) (192,015)
--------
$368,940
========
<PAGE>
CONDENSED COMBINED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, 1996 March 31, 1996
-------------------- -----------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
Revenues $89,288 $185,598
Operating costs and expenses 76,137 159,613
------ -------
Income before interest, other income, reorganization
items and income taxes 13,151 25,985
Interest and other income (expense), net (5,066) (16,320)
------ -------
Income before reorganization items and income taxes 8,085 9,665
Reorganization Items (20,450) (23,251)
------- -------
Loss before income taxes (12,365) (13,586)
Provision for income taxes -- --
Net loss (12,365) (13,586)
Preferred stock dividends and discount accretion -- 540
------- -------
Net loss available to common stockholders $(12,365) $(14,126)
======== ========
Net loss per common and common equivalent share $(.26) $(.30)
======== ========
</TABLE>
<PAGE>
CONDENSED COMBINED STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months ended
March 31, 1996
(Dollars in thousands)
-------------------------
<S> <C>
Cash flows from operating activities:
Net loss $(13,586)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,569
Gain on disposition of other assets (398)
Gain on sale of ICS Division (6,202)
Change in assets and liabilities, net 22,439
------
Net cash provided by operating activities before reorganization items 14,822
Operating cash flow from reorganization items 23,251
------
Net cash provided by operating activities 38,073
------
Cash flows from investing activities:
Proceeds from sale of ICS Division 13,554
Purchases of property, plant and equipment (2,350)
------
Net cash provided by investing activities 11,204
-------
Cash flows from financing activities:
Principal payments on long-term debt (12,495)
-------
Net cash used in financing activities (12,495)
-------
Increase in cash and cash equivalents 36,782
Cash and cash equivalents at beginning of period 7,859
-----
Cash and cash equivalents at end of period $44,641
=======
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Interest $7,732
Income taxes $ (183)
</TABLE>
<PAGE>
CONDENSED COMBINED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended March 31, 1996
-------------------------------
Capital in Retained
Common excess of Earnings
Stock Par Value (Deficit) Total
----- --------- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995 $ 462 $182,725 $(365,881) $(182,694)
Preferred stock conversion 7 4,798 -- 4,805
Preferred stock dividends --- --- (516) (516)
Accretion of redeemable preferred stock
discount --- --- (24) (24)
NBS stock issuance 11 (11) --- ----
Net loss for the period (13,586)
--- --- (13,586)
------- -------- --------- ---------
BALANCE AT MARCH 31, 1996 $ 480 $187,512 $(380,007) $192,015
=== ==== ========= ======== ========= ========
</TABLE>
NOTE 7 -- SALE OF ICS DIVISION
Effective November 1, 1995 Anacomp sold its Image Conversion Services
Division ("ICS") for approximately $13.5 million which resulted in a net gain to
the Company of $6.2 million. The proceeds from this sale were used to reduce the
principal balance on certain senior debt. The ICS Division performed source
document microfilm services at several facilities around the country generating
approximately $20.0 million of revenues per year.
NOTE 8 -- INCOME TAXES
Income tax expense is reported for the six months ended March 31, 1996,
based on the actual effective tax for the interim period as the Company believes
this rate is the best estimate of the effective tax rate for the year ended
September 30, 1996. Also for the six months ended March 31, 1996, the U.S.
Federal tax benefit of the domestic loss was offset by a corresponding increase
to the valuation allowance. Accordingly, the income tax provision for 1996
relates entirely to foreign taxes.
At March 31, 1996, the Company had U.S. Federal net operating loss
carryforwards ("NOLS") of approximately $222.0 million available to offset
future taxable income. These NOLS will be used to offset approximately $67.0
million of income from cancellation of indebtedness in connection with the
Company's Chapter 11 bankruptcy reorganization. In the future, usage of these
NOLS will be limited to approximately $4.0 million annually. However, the
Company may authorize the use of other tax planning techniques to utilize a
portion of the remaining NOLS before they expire. In any event, the Company
expects that substantial amounts of the NOLS will expire unused.
NOTE 9 -- EARNINGS (LOSS) PER SHARE
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. Under the
reorganization plan as proposed, current shareholder ownership interest will be
significantly diluted as more fully discussed in Note 3.
Fully diluted earnings (loss) per share are the same as primary earnings
per share for the periods presented.
NOTE 10 -- PRO FORMA UNAUDITED FINANCIAL INFORMATION
The unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1996 and
the unaudited Pro Forma Consolidated Statement of Operations for the six months
ended March 31, 1996 have been prepared giving effect to the sale of the Image
Conversion Services (ICS) Division and the consummation of the Plan of
Reorganization, including the costs related thereto (collectively, the "Pro
Forma Adjustments"), in accordance with AICPA Statement of Position 90-7,
Financial Reporting by Entities in Reorganization Under the Bankruptcy Code
("SOP 90-7"). The Company will account for the restructuring using the
principles of "fresh start" reporting as required by SOP 90-7. Pursuant to such
principles, in general, the Company's assets and liabilities will be revalued.
The reorganization value of the Company ("Reorganization Value") plus
liabilities excluding debt is the value assigned to total assets. In accordance
with SOP 90-7, specific identifiable assets and liabilities will be adjusted to
fair market value. Any portion of the Reorganization Value plus liabilities,
excluding debt not attributable to specific identifiable assets, will be
reported as Reorganization Value in excess of identifiable assets and will be
amortized over a three and a half year period. For purposes of the Pro Forma
Unaudited Financial Information presented herein, the fair value of specific
identifiable assets and liabilities other than debt is assumed to be the
historical book value of those assets and liabilities. The Company is in the
process of obtaining an appraisal of certain assets to assist in determining
their value. The fair value of long-term debt is based on the negotiated fair
values adjusted to present values using discount rates ranging from 11 5/8% to
15%. The difference between the revalued assets and the revalued liabilities has
been recorded as stockholders' equity with retained earnings restated to zero.
The unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1996 was
prepared as if the Pro Forma Adjustments had occurred on March 31, 1996. The
unaudited Pro Forma Consolidated Statement of Operations for the six months
ended March 31, 1996 was prepared as if the Pro Forma Adjustments had occurred
on October 1, 1995.
Other than the Pro Forma Adjustments to exclude the operating results of
the ICS Division, no changes in revenues and expenses have been made to reflect
the results of any modification to operations that might have been made had the
Plan of Reorganization been confirmed on the assumed effective dates of the
confirmation of the Plan of Reorganization for presenting pro forma results. The
Pro Forma Unaudited Financial Information does not purport to be indicative of
the results which would have been obtained had such transactions in fact been
completed as of the date hereof and for the periods presented or that may be
obtained in the future.
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
<TABLE>
<CAPTION>
March 31, 1996 (unaudited)
--------------------------
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(Dollars in thousands except per share amounts)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash.......................................... $ 49,259 $(1,250) (a) $ 26,965
(6,994) (b)
(3,000) (h)
(11,050) (i)
Receivables, net of reserves.................. 78,574 -- 78,574
Inventories................................... 42,535 -- 42,535
Prepaid expenses and other.................... 6,412 -- 6,412
----- ------ -----
Total current assets............................... 176,780 (22,294) 154,486
Property and equipment (net)....................... 36,663 -- 36,663
Long-term receivables.............................. 9,133 -- 9,133
Excess of purchase price over net assets of
businesses acquired and other intangibles.... 155,473 (155,473) (l) --
Other assets....................................... 13,942 (601) (c) 13,341
Reorganization value in excess of identifiable assets -- 258,957 (m) 258,957
------ ------- -------
$391,991 $80,589 $472,580
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt............. $381,230 $(350,905) (d) $30,325
Accounts payable.............................. 52,894 (5,094) (b) 44,800
(3,000) (h)
Accrued compensation, benefits and withholdings 14,369 -- 14,369
Accrued income taxes.......................... 11,334 -- 11,334
Accrued interest.............................. 51,726 (47,134) (d) 4,592
Other liabilities............................. 48,587 (1,250) (a) 49,437
(1,900) (b)
4,000 (h)
------- -------- -------
Total current liabilities....................... 560,140 (405,283) 154,857
------- -------- -------
Long-term debt, net of current..................... -- 229,872 (d) 229,872
Other noncurrent liabilities....................... 5,548 -- 5,548
----- -----
Total noncurrent liabilities....................... 5,548 229,872 235,420
----- ------- -------
Redeemable preferred stock......................... 21,340 (21,340) (f) --
------ ------- -------
Stockholders' equity (deficit):
Common stock....................................... 480 (480) (g) 100
100 (e)
Capital in excess of par value..................... 187,512 82,203 (e) 82,203
21,340 (f)
480 (g)
(312,764) (j)
(52) (k)
(155,473) (l)
258,957 (m)
Cumulative translation adjustment.................. (52) 52 (k) --
Retained earnings (deficit)........................ (382,977) (4,000) (h) --
312,764 (j)
74,213 (i)
Total Stockholders' equity (deficit)............... ---------------- --------------- ---------------
(195,037) 277,340 82,303
-------- ------- ------
$391,991 $80,589 $472,580
======== ======= ========
</TABLE>
See Notes to the Pro Forma Consolidated Balance Sheet
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
Notes to Pro Forma Consolidated Balance Sheet
As of March 31, 1996
(Unaudited, dollars in thousands, except per share amounts)
The following notes set forth the explanations and assumptions used in preparing
the unaudited Pro Forma Consolidated Balance Sheet.
(a) Represents cash paid the Effective Date to settle certain disputed
claims.
(b) Represents cash paid to SKC America ("SKC"), a supplier to the Company
on the Effective Date related to certain amounts payable to SKC.
(c) For financial reporting purposes, old deferred financing costs of $601
applicable to the old debt securities is being written off to the
extraordinary gain as discussed in (i).
(d) Represents changes in the current portion of long-term debt and
related accrued interest as a result of the consummation of the Plan
of Reorganization. In accordance with SOP 90-7, the Company's
liabilities will be recorded at their estimated fair values as of June
4, 1996, the Effective Date. The fair value of long-term debt is based
on the negotiated face values adjusted to present values using
discount rates ranging from 11 5/8% to 15%. The change in debt
consists of the following:
<TABLE>
<CAPTION>
Accrued Current Portion Long-Term
Interest of Long-Term Debt Debt Total
-------- ----------------- ---- -----
<S> <C> <C> <C> <C>
Historical Balance $51,726 $381,230 $-- $432,956
------- -------- -------- --------
Cancellation of Old Revolving Loan (28,043) (28,043)
Cancellation of Old Multicurrency Revolving
Loan (26,056) (26,056)
Cancellation of Old Term Loan (11,863) (11,863)
Cancellation of Old Series B Senior Notes (53,595) (53,595)
Cancellation of Old Senior Subordinated
Notes (224,900) (224,900)
Cancellation of Old 9% Subordinated Notes (10,479) (10,479)
Cancellation of Old 13.875% Subordinated
Debentures (23,232) (23,232)
Cancellation of Old Installment Note (1,313) (1,313)
Cancellation of Old Accrued Interest (47,134) (47,134)
New 11 5/8% Senior Secured Notes due 1999 28,576 83,614 112,190
New 13% Senior Subordinated Notes due 2002 146,258 146,258
------- -------- ------- --------
Total Pro Forma adjustments (47,134) (350,905) 229,872 (168,167)
------- -------- ------- --------
Pro Forma balance $ 4,592 $30,325 $229,872 $264,789
======= ======= ======== ========
</TABLE>
<PAGE>
Market values of securities have been estimated solely for the purpose of the
foregoing computations. The present values of the Company's Installment Note and
other are assumed to be equal to their respective face values. The estimated
present value of the Company's other long-term debt obligations (which do not
constitute or purport to reflect actual market values) were established by the
Company. Based on the foregoing, an adjustment of $13,742 was made to reduce the
face value of the Senior Subordinated Notes to their estimated present value.
The adjustment will be amortized into interest expense over the terms of the
Senior Subordinated Notes.
(e) Reflects issuance of 10,000,000 shares of New Common Stock (par value
$.01 per share) at an estimated market price of $82,303 under the
terms of the restructuring set forth in the Plan of Reorganization
(the "Restructuring").
Capital in
Excess of
Common Stock Par Value Total
------------ --------- -----
To Holders of Old Senior
Subordinated Notes and Old
Subordinated Debentures $100 $82,203 $82,303
(f) Reflects the cancellation of Old Preferred Stock at historical
carrying value.
Historical carrying value $19,793
Accrued dividends 1,547
-----
Capital in excess of par value
adjustment $21,340
=======
(g) Reflects the transfer from common stock to capital in excess of par
value of $480, resulting from the cancellation of 48,013,246 shares of
Old Common Stock.
(h) Reflects a $3,000 cash payment and the recognition of a $4,000
liability related to certain non-recurring fees and expenses incurred
in connection with consummating the Plan of Reorganization.
(i) The extraordinary gain, net of taxes, resulting from the Restructuring
has been estimated as follows:
Historical carrying value of old debt securities.......... $381,230
Historical carrying value of related accrued interests..... 47,134
Write off of old deferred financing costs.................. (601)
Market value of consideration exchanged for the Old Debt:
Plan Securities (Face Value $272,190)............... (258,448)
New Common Stock (New shares issued 10,000,000)..... (82,303)
Installment Note and other.......................... (1,749)
Cash*.............................................. (11,050)
-------
74,213
Tax provision.............................................. --
Extraordinary gain......................................... $74,213
=======
* Represents cash paid on the June 4, 1996, effective date of the Plan of
Reorganization, consisting of $2,750 related to the Senior Restructuring
Premium, $7,500 related to payment on Senior Secured Notes and $800 related to
payment on the Installment Note.
For tax purposes, the gain related to cancellation of debt will result in a
reduction of the Company's net operating loss carryforwards.
Market values of securities exchanged for the old debt have been estimated
solely for the purpose of estimating the extraordinary gain detailed above.
These estimates should not be relied upon for, nor are they intended as
estimates of the market prices of the Company's securities at any time in the
future. The market prices of the Company's securities will fluctuate with
changes in interest rates, market conditions, the condition and prospects,
financial and otherwise, of the Company and other factors which generally
influence the price of securities. For purposes of the Pro Forma Unaudited
Financial Information, the New Warrants are assumed to have no value.
(j) In accordance with SOP 90-7, this adjustment reflects the elimination
of the accumulated deficit against capital in excess of par value.
(k) In accordance with SOP 90-7, this adjustment reflects the elimination
of deferred translation against capital in excess of par value.
(l) Reflects the write-off of "Excess of Purchase price Over Net Assets of
Businesses Acquired and other intangibles" of $155,473. For fresh
start reporting purposes, any portion of the Reorganization Value not
attributable to specific identifiable assets will be reported as
"Reorganization Value in excess of identifiable assets." (See note
(m)).
(m) An estimated Reorganization Value of $350,000, which represents the
value of the total assets of the Company less liabilities, excluding
debt, is being used to implement "fresh start" reporting. The
Reorganization Value in excess of identifiable assets is calculated
below.
Reorganization Value....................................... $350,000
Plus: Current liabilities excluding debt (Pro Forma).. 124,532
Noncurrent liabilities excluding debt (Pro Forma) 5,548
Less: Current assets (Pro Forma)........................ (154,486)
Payment on Senior Secured Notes on Effective Date.. (7,500)
Noncurrent tangible assets (Pro Forma)............ (59,137)
-------
Reorganization value in excess of identifiable assets.......$258,957
========
Total Stockholders' Equity, in accordance with SOP 90-7, does not
purport to present the fair market value of the common stock of the
Company. The Reorganization Value was estimated by the Company based
on the range provided by the Company's financial advisor for its
reorganization (the "Financial Advisor"). Based on the valuation
analysis described below, the Financial Advisor estimated a range of
Reorganization Value of between approximately $300,000 and $400,000.
The Company used a Reorganization Value of $350,000.
The valuation methodologies considered by the Financial Advisor are
described below:
Discounted Cash Flow - The Financial Advisor calculated the present
value of the after tax unleveled cash flows of the Company using
projections prepared by the Company for fiscal years 1996 through 1999.
The Financial Advisor estimated the weighted average cost of capital
based on the estimated cost of capital of a group of selected publicly
traded companies. The Financial Advisor also estimated a terminal value
based on the normalized fiscal 1999 after tax unleveled cash flow, the
weighted average cost of capital and estimated rates of decline which
was included in the present value calculation of the Company's net
operating loss carryforward which was included in the estimated range
of the reorganization value. The weighted average cost of capital used
in the analysis ranged from 12% to 14.5%.
Selected Publicly Traded Company Market Multiples - The Financial
Advisor reviewed the market multiples of a group of selected publicly
traded companies. The Financial Advisor reviewed valuation multiples of
revenues, EBITDA, EBIT, net income and book value.
Selected Acquisition Transaction Multiples - The Financial Advisor
reviewed the acquisition multiples of a group of selected acquisition
transactions. The Financial Advisor reviewed acquisition multiples of
revenues, EBITDA, EBIT and net income.
The Financial Advisor believes that the discounted cash flow analysis
is the most appropriate methodology for valuing the Company. The
Financial Advisor reviewed the selected publicly traded company market
multiples and selected acquisition transaction multiples and believes
they are less appropriate methodologies for valuing the Company due to
the lack of directly comparable publicly traded companies or directly
comparable acquisition transactions.
The Company's estimate of its Reorganization Value is based upon a
number of assumptions, including the assumptions upon which the
projections are based. Many of these assumptions are beyond the
Company's control, and there may be material variations between such
assumptions and the actual facts. Moreover, such estimates should not
be relied upon for, nor is it intended as an estimate of, the market
price of the Company's securities at any time in the future. The market
price of the Company's securities will fluctuate with changes in
interest rates, market conditions, the condition and prospects,
financial and otherwise, of the Company and other factors which
generally influence the price of securities.
ANACOMP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Six Months ended March 31, 1996 (unaudited)
-------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Services provided............................. $99,190 $(1,402) (a) $97,788
Equipment and supplies........................ 156,986 (101) (a) 156,885
------- ------ -------
Total revenues............................ 256,176 (1,503) 254,673
------- ------ -------
Operating costs and expenses:
Costs of services provided.................... 54,525 (1,078) (a) 53,447
Cost of equipment sold........................ 120,574 (80) (a) 120,494
Selling, general and administrative............. 47,595 (332) (a) 79,538
32,275 (f)
-------- ------ -------
222,694 (30,785) 253,479
------- ------- -------
Income (loss) before interest, other income, 33,482 (32,288) 1,194
reorganization items and income taxes ------ ------- -------
Interest income.................................... 932 -- 932
Interest expense and fee amortization.............. (23,785) 2,391 (b) (21,394)
Other income....................................... 6,644 (6,200) (a) 444
------- ------ -------
(16,209) (3,809) (20,018)
------- ------ -------
Income (loss) before reorganization items and
income taxes.................................. 17,273 (36,097) (18,824)
Reorganization items............................... (23,251) 23,251 (c) --
Provision for income taxes......................... 3,700 -- 3,700
----- ------ ------
Net loss (9,678) (12,846) (22,524)
Preferred stock dividends and discount accretion... 540 (540) (e) --
----- ------ ------
Net loss available to common $(10,218) $(12,306) $(22,524)
Stockholders per share........................ ======== ======== ========
Net loss available to common ($2.25)
Stockholders per share........................ ======
Weighted average common shares outstanding......... 10,000,000 (d)
==========
</TABLE>
See Notes to the Pro Forma Consolidated Statement of Operations
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
Notes to Pro Forma Consolidated Statement of Operations
For the six months ended March 31, 1996
(Unaudited, dollars in thousands)
The following notes set forth the explanations and assumptions used in preparing
the unaudited Pro Forma Consolidated Statement of Operations.
(a) The Company sold its ICS division during the six-month period ended
March 31, 1996 at a net gain to the Company of $6,200. The Pro Forma
Adjustments represent the exclusion of the division's operating
activities, revenues and expenses, and the one-time gain during the
period.
(b) Net reduction of interest expense as a result of the Restructuring has
been estimated as follows:
Interest expense on new debt:
11 5/8% Senior Secured Notes (Face Value $112,190).... $6,521
13% Senior Subordinated Notes (Face Value $160,000)... 10,400
Interest on other debt and trade credit arrangements.. 3,328
Interest accretion on new debt discount............... 1,145
-------
Subtotal........................................ 21,394
Reversal of actual expense during the six-month period
ended March 31, 1996............................ (23,785)
-------
Pro forma adjustment.................................. $2,391
=======
In accordance with SOP 90-7, all debt obligations have been
adjusted to estimated present value. The debt premium/discount is
being amortized over the term of the applicable debt obligation.
(c) Represents $23,251 of costs incurred during the six-month period ended
March 31, 1996 related to the Reorganization which is being excluded
from the pro forma results for the period.
(d) Pro forma loss per common share is computed based upon 10,000,000
average shares of New Common Stock assumed to be outstanding during
the six-months ended March 31, 1996 as if the effective date under the
Plan of Reorganization had occurred on October 1, 1995.
(e) Reflects elimination of preferred dividend requirement based on the
cancellation of the Old Preferred Stock under the terms of the
Restructuring.
(f) In accordance with SOP 90-7, the excess Reorganization Value plus
liabilities, excluding debt, over amounts allocated to the fair value
of identifiable assets (which is assumed to be the historical book
value of those assets) has been reflected on the unaudited Pro Forma
Consolidated Balance Sheet as an intangible asset. The adjustment
shown on the unaudited Pro Forma Consolidated Statement of Operations
reflects the amortization of the intangible asset over a three and
half year period.
<TABLE>
<CAPTION>
Amortization Six-Month
Amount Period Amortization
------ ------ ------------
<S> <C> <C> <C>
New Intangible Assets............................ $258,957 3.5 Years $36,994
Historical Intangible Assets
Amortization..................................... (4,719)
------
$32,275
=======
</TABLE>
Fees in connection with the Plan of Reorganization directly attributable to the
Restructuring of $4,000 have been excluded from pro forma operating results for
the six-month period ended March 31, 1996.
The Restructuring adjustments shown on the unaudited Pro Forma Consolidated
Statement of Operations exclude the extraordinary gain to be recognized in
connection with the Plan of Reorganization and "fresh start" reporting required
by SOP 90-7. The extraordinary gain, net of taxes, resulting from the
Restructuring has been estimated as follows:
Historical carrying value of Old Securities................ $381,230
Historical carrying value of related accrued interests..... 47,134
Write off of old deferred financing costs.................. (601)
Market value of consideration exchanged for the old debt:
Plan Securities.................................... (258,448)
New Common Stock (New shares issued 10,000,000).... (82,303)
Installment Note and other.......................... (1,749)
Cash*............................................... (11,050)
-------
74,213
Tax provision.............................................. --
-------
Extraordinary gain......................................... $74,213
=======
* Represents cash paid on June 4, 1996, the effective date of the Plan
of Reorganization, consisting of $2,750 related to the Senior Restructuring
Premium, $7,500 related to payment on the new Senior Secured Notes, and $800
related to payment on Installment Note.
For tax purposes, the gain related to cancellation of debt will result in a
reduction of the Company's net operating loss carryforwards.
Market values of securities exchanged for the old debt have been estimated
solely for the purpose of estimating the extraordinary gain detailed above.
These estimates should not be relied upon for, nor are they intended as
estimates of the market prices of the Company's securities at any time in the
future. The market prices of the Company's securities will fluctuate with
changes in interest rates, market conditions, the condition and prospects,
financial and otherwise, of the Company and other factors which generally
influence the price of securities. For purposes of the Pro Forma Unaudited
Financial Information, the Warrants are assumed to have no value.
<PAGE>
============================================= ================================
No dealer, salesman or any other person has
been authorized to give any information or to
make any representations other than those
contained in this Prospectus in connection
with the offer made by this Prospectus and,
if given or made, such information or
representations must not be relied upon as
having been authorized by the Company.
Neither the delivery of this Prospectus nor ANACOMP, INC.
any sale made hereunder shall under any
circumstances create any implication that
there has been no change in the affairs of
the Company since the date hereof. This
Prospectus does not constitute an offer or
solicitation by anyone in any jurisdiction in Common Stock
which such an offer or solicitation is not Offered Pursuant to
authorized or in which the person making such Transferable Rights
offer or solicitation is not qualified to do ----------- Shares
so or to anyone to whom it is unlawful to
make such offer or solicitation.
Table of Contents
Page
----
Available Information.......................2 Prospectus
Prospectus Summary..........................3
Summary Consolidated
Financial Data...........................5
Risk Factors................................8
The Rights Offering........................10
Use of Proceed.............................11
Price Range of Common Stock................20
Determination of Subscription Price........20
Dividend Policy............................20
Capitalization.............................20
Selected Consolidated Financial Data.......22
Pro Forma Unaudited Financial
Information............................25
Management's Discussion and
Analysis of Results of Operations
and Financial Condition.................37
The Company................................43
Description of Certain Indebtedness........55
Description of Capital Stock...............57
Management.................................59
Security Ownership of Certain
Beneficial Owners and Management........65
Certain Relationships and Related
Transactions............................67
Plan of Distribution.......................67
Legal Matters..............................67
Experts....................................68
Index to Consolidated Financial
Statements..............................F-1
Dated , 1996
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by the Registrant in connection with this offering
are estimated as follows:
Registration Fee under the Securities Act of 1933 $
Printing Expenses
Financial Advisor Fees and Expenses
Subscription Agent Fees and Expenses
Accounting Fees and Expenses
Legal Fees and Expenses
Blue Sky Fee and Expenses
Miscellaneous Expenses -------
Total $
=======
Item 14. Indemnification of Directors and Officers
The Registrant is empowered by Chapter 37 of the Indiana Business
Corporation Law (the "IBCL"), subject to the procedures and limitations therein,
to indemnify any person against expenses (including counsel fees) and the
obligation to pay a judgment, settlement, penalty, fine or reasonable expenses
incurred with respect to a threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal, in which such person is made a party by reason of such
person's being or having been a director, officer, employee or agent of the
Registrant. The statute provides that indemnification pursuant to its provisions
is not exclusive of other rights of indemnification to which a person may be
entitled under a corporation's articles of incorporation or by-laws, vote of
directors or stockholders, or otherwise.
Article IX of the Company's Amended and Restated Articles of Incorporation
allows the Company to indemnify any person in connection with any claim, action,
suit or proceeding arising by reason of such person's status as a director,
officer, employee or agent of the Company or service at the request of the
Company as a director, officer, employee, agent or fiduciary of another entity,
if such person is wholly successful with respect to the claim, action, suit or
proceeding or, if not wholly successful, if such person acted in good faith in
what the person reasonably believed to be in the best interests of the Company
or at least not opposed to its best interests and, with respect to any criminal
proceeding, is determined to have had reasonable cause to believe that such
person's conduct was lawful or had no reasonable cause to believe that the
conduct was unlawful.
The foregoing statements are subject to the detailed provisions of the IBCL
and the Company's Amended and Restated Articles of Incorporation.
Item 15. Recent Sales of Unregistered Securities
None.
Item 16. Exhibits
2.1 - Third Amended Joint Plan of Reorganization of the Company and certain of
its subsidiaries.[FN1]
3.1 - Amended and Restated Articles of Incorporation of the Company.[FN2]
3.2 - Amended and Restated By-laws of the Company.[FN2]
4.1 - Form of Common Stock Certificate.[FN2]
4.2 - Indenture, dated as of June 4, 1996, between the Company and The Bank of
New York, as rustee (the "Senior Secured Trustee"), relating to the
Company's 11 5/8% Senior Secured Notes ue 1999.[FN2]
4.3 - Form of 11 5/8% Senior Secured Note (included as part of Exhibit 4.2
hereto).[FN2]
4.4 - Application by the Company for Exemption from Section 314(d) of the Trust
Indenture ct of 1939, as amended, pursuant to Section 304(d) and Rule 4d-7
thereunder.[FN2]
4.5 - Indenture, dated as of June 4, 1996, between the Company and IBJ Schroder
Bank & Trust ompany, as trustee, relating to the Company's 13% Senior
Subordinated Notes due 2002.[FN2]
4.6 - Form of 13% Senior Subordinated Note (included as part of Exhibit 4.5
hereto).[FN2]
4.7 - Warrant Agreement, dated as of June 4, 1996, between the Company and
Chase Mellon hareholder Services, L.L.C.[FN2]
4.8 - Form of Warrant Certificate.[FN2]
4.9 - Security and Pledge Agreement, dated as of June 4, 1996, by the Company,
in favor of he Senior Secured Trustee.[FN2]
4.10 - First Leasehold Deed of Trust, Assignment of Rents, Security Agreement
and Fixture iling, dated June 4, 1996, made by Anacomp, Inc., as grantor,
in favor of Chicago Title nsurance Company, as trustee, for the benefit of
The Bank of New York, as beneficiary.[FN2]
4.11 - First Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing, dated June 4, 1996, made by Anacomp, Inc., as grantor, in favor
of Chicago Title Insurance Company, s trustee, for the benefit of The
Bank of New York, as beneficiary.[FN2]
4.12 - Form of Rights Certificate. [FN3]
5.1 - Opinion of Cadwalader, Wickersham & Taft.[FN3]
10.1 - Amended and Restated Employment Agreement, effective September 24, 1995,
between nacomp, Inc. and P. Lang Lowrey III.[FN4]
10.2 - First Amendment to Amended and Restated Employment Agreement, effective
October 1, 995, between Anacomp, Inc. and P. Lang Lowrey III.[FN4]
10.3 - Letter Agreement, dated November 16, 1995, between Anacomp, Inc. and P.
Lang Lowrey III.[FN4]
10.4 - Employment Agreement, effective March 1, 1992, between Anacomp, Inc. and
Thomas R. immons.[FN5]
10.5 - Common Stock Registration Rights Agreement, dated as of June 4, 1996, by
and among the ompany and Holders of Registrable Shares.[FN2]
10.6 - Senior Secured Note Registration Rights Agreement, dated as of June 4,
1996 by and mong the Company and the Holders of Registrable Notes.[FN2]
10.7 - Senior Subordinated Note Registration Rights Agreement dated as of June
4, 1996, by nd among the Company and Holders of Registrable Notes.[FN2]
10.8 - Amended and Restated Master Supply Agreement, dated October 8, 1993,
among Anacomp, nc., SKC America, Inc. and SKC Limited.[FN5]
10.9 - Amendment to Amended and Restated Master Supply Agreement dated as of May
17, 1996, among Anacomp, Inc., SKC America, Inc. and SKC Limited.[FN3]
11.1 - Earnings per share.[FN3]
21.1 - Subsidiaries.[FN2]
23.1 - Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).
23.2 - Consent of Arthur Andersen LLP.
24.1 - Powers of Attorney pursuant to which amendments to this Registration
Statement may be filed (included in the signature page).
25.1 - Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939
of the Senior Secured Trustee.[FN6]
- ----------
[FN1] Previously filed and incorporated by reference to the Company's Form 8-A
filed with the Securities and Exchange Commission on May 15, 1996 (File
No. 0-7641)
[FN2] Previously filed and incorporated by reference to the Company's Form 8-K
filed with the Securities Exchange Commission on June 19, 1996 (File No.
1-8328).
[FN3] To be filed by amendment.
[FN4] Previously filed and incorporated by reference to the Company's Form
10-K for the year ended September 30, 1995.
[FN5] Previously filed and incorporated by reference to the Company's Form
10-K for the year ended September 30, 1993.
[FN6] Previously filed and incorporated by reference to the Company's Form T-3
filed with the Securities and Exchange Commission on May 7, 1996 (File
No. 22-22227).
Item 17. Undertakings
Undertakings with Respect to Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Undertakings with respect to Section 430A
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed ot be
the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Indianapolis,
State of Indiana, on July 30, 1996.
ANACOMP, INC.
By: /S/ P. Lang Lowrey III
P. Lang Lowrey III
President, Chief Executive Officer,
and Chairman of the Board
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints P. Lang Lowrey III, Donald L. Viles and George C.
Gaskin, and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform such and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirmation all that said attorneys-in-fact and
agents, or any of them, or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 30th day of July, 1996.
Signature Title
--------- -----
/S/ P. Lang Lowrey III President, Chief Executive Officer, and
Chairman of the Board
P. Lang Lowrey III (Principal Executive Officer)
/S/ Donald L. Viles Executive Vice President and Chief Financial Officer
Donald L. Viles (Principal Financial and Accounting Officer)
/S/ Talton R. Embry Director
Talton R. Embry
/S/ Darius W. Gaskins, Jr. Director
Darius W. Gaskins, Jr.
/S/ Jay P. Gilbertson Director
Jay P. Gilbertson
/S/ Richard D. Jackson Director
Richard D. Jackson
/S/ George A. Poole, Jr. Director
George A. Poole, Jr.
/S/ Lewis Solomon Director
Lewis Solomon
EXHIBIT 23.2
<PAGE>
ARTHUR ANDERSEN, LLP
As independent public accountants, we hereby consent to the use of our report
dated November 10, 1995, except with respect to Note 2 and the second paragraph
of Note 22, as to which the date is June 4, 1996, and to all references to our
Firm included in this registration statement.
Arthur Andersen, LLP
Indianapolis, Indiana
July 30, 1996
