<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended December 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8328
ANACOMP, INC.
Indiana 35-1144230
11550 North Meridian Street
Post Office Box 40888
Indianapolis, Indiana 46240
Registrant's Telephone Number is (317) 844-9666
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
The number of shares outstanding of the Common Stock of the registrant on
December 31, 1995, the close of the period covered by this report, was
46,287,660.
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ANACOMP, INC. AND SUBSIDIARIES
Index
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PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
December 31, 1995 and September 30, 1995 ................ 2
Condensed Consolidated Statements of Operations
Three Months Ended December 31, 1995 and 1994............ 3
Condensed Consolidated Statements of Cash Flows
Three Months Ended December 31, 1995 and 1994............ 4
Condensed Consolidated Statements of
Stockholders' Equity (Deficit)
Three Months Ended December 31, 1995 and 1994............ 5
Notes to Condensed Consolidated Financial Statements..... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............. 11
PART II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities ........................... 15
Item 6. Exhibits and Reports on Form 8-K........................... 15
SIGNATURES ............................................................ 16
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Anacomp, Inc. and Subsidiaries (Debtor-In-Possession,
Effective January 5, 1996. See Note 3.)
(Dollars in thousands, Dec. 31, Sept. 30,
except per share amounts) 1995 1995
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ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 27,209 $ 19,415
Accounts and notes receivable, less allowances for
doubtful accounts of $7,331 and $7,367, respectively . . . 78,102 90,091
Current portion of long-term receivables . . . . . . . . . 5,529 6,386
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 46,765 53,995
Prepaid expenses and other . . . . . . . . . . . . . . . . 6,825 5,306
Total current assets . . . . . . . . . . . . . . . . . . . . 164,430 175,193
Property and equipment, at cost less
accumulated depreciation and amortization . . . . . . . . . 38,719 44,983
Long-term receivables, net of current portion . . . . . . . . 10,039 12,322
Excess of purchase price over net assets of businesses
acquired and other intangibles, net. . . . . . . . . . . . . 157,884 160,315
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 27,047 28,216
$398,119 $421,029
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . $376,371 $389,900
Accounts payable . . . . . . . . . . . . . . . . . . . . . 49,242 57,368
Accrued compensation, benefits and withholdings . . . . . . 14,507 20,891
Accrued income taxes . . . . . . . . . . . . . . . . . . . 10,618 9,365
Accrued interest. . . . . . . . . . . . . . . . . . . . . . 52,569 40,746
Other accrued liabilities . . . . . . . . . . . . . . . . . 53,292 60,587
Total current liabilities . . . . . . . . . . . . . . . . . . 556,599 578,857
Noncurrent liabilities. . . . . . . . . . . . . . . . . . . . 5,448 5,841
Redeemable preferred stock, $.01 par value, 500,000 issued,
485,750 and 500,000 outstanding, respectively
(aggregate preference value of $24,288
and $25,000, respectively) . . . . . . . . . . . . . . . . . 23,897 24,574
Stockholders' equity (deficit):
Common stock, $.01 par value, authorized 100,000,000
shares, 46,287,660 and 46,187,625 issued, respectively . . 463 462
Capital in excess of par value . . . . . . . . . . . . . . 183,425 182,725
Cumulative translation adjustment . . . . . . . . . . . . . 533 1,329
Accumulated deficit . . . . . . . . . . . . . . . . . . . . (372,246) (372,759)
Total stockholders' equity (deficit). . . . . . . . . . . . . (187,825) (188,243)
$398,119 $421,029
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Anacomp, Inc. and Subsidiaries (Debtor-In-Possession,
Effective January 5, 1996. See Note 3.)
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<CAPTION>
Three months ended
(Dollars in thousands, December 31,
except per share amounts) 1995 1994
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Revenues:
Services provided . . . . . . . . . . . . . . . . . . . . $ 50,928 $ 54,880
Equipment and supply sales . . . . . . . . . . . . . . . 79,337 96,932
130,265 151,812
Operating costs and expenses:
Costs of services provided . . . . . . . . . . . . . . . 27,838 29,437
Costs of equipment and supplies sold. . . . . . . . . . . 61,761 73,022
Selling, general and administrative expenses . . . . . . 24,447 31,460
114,046 133,919
Income from operations before interest, other income,
financial restructuring costs, and income taxes . . . . . 16,219 17,893
Interest income . . . . . . . . . . . . . . . . . . . . . . 501 475
Interest expense and fee amortization . . . . . . . . . . . (18,286) (17,949)
Financial restructuring costs (See Note 4). . . . . . . . . (2,801) --
Other income (See Note 5) . . . . . . . . . . . . . . . . . 6,620 162
(13,966) (17,312)
Income before income taxes . . . . . . . . . . . . . . . . 2,253 581
Provision for income taxes . . . . . . . . . . . . . . . . 1,200 300
Net income. . . . . . . . . . . . . . . . . . . . . . . . . 1,053 281
Preferred stock dividends and discount accretion . . . . . 540 540
Net income (loss) available to common stockholders . . . . $ 513 $ (259)
======== ========
Earnings (loss) per common and common equivalent share:
Net income (loss) available to common . . . . . . . . . . $ .01 $ (.01)
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Anacomp, Inc. and Subsidiaries (Debtor-In-Possession,
Effective January 5, 1996. See Note 3.)
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Three months ended
December 31,
(Dollars in thousands) 1995 1994
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Cash flows from operating activities:
Net income.................................................... $ 1,053 $ 281
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization............................... 8,017 11,515
Loss on disposition of other assets ........................ 56 72
Gain on sale of ICS Division ............................... (6,202) --
Change in assets and liabilities, net of acquisitions:
Decrease (increase) in accounts and
long-term receivables................................... 10,868 (912)
Decrease (increase) in inventories and prepaid expenses... 5,057 (5,294)
Increase in other assets.................................. (810) (3,588)
Decrease in accounts payable and accrued expenses......... (8,727) (9,828)
Decrease in other noncurrent liabilities.................. (70) (906)
Net cash provided by (used in) operating activities..... 9,242 (8,660)
Cash flows from investing activities:
Proceeds from sale of ICS Division ........................... 13,554 --
Proceeds from sale of other assets............................ -- 14,519
Purchases of property, plant and equipment.................... (1,161) (3,236)
Payments to acquire companies and customer rights............. -- (542)
Net cash provided by investing activities............... 12,393 10,741
Cash flows from financing activities:
Proceeds from issuance of common stock ....................... -- 238
Proceeds from revolving line of credit and
long-term borrowings........................................ -- 20,000
Principal payments on long-term debt.......................... (13,705) (36,209)
Preferred dividends paid...................................... -- (516)
Net cash used in financing activities .................. (13,705) (16,487)
Effect of exchange rate changes on cash......................... (136) (128)
Increase (decrease) in cash and cash equivalents................ 7,794 (14,534)
Cash and cash equivalents at beginning of period................ 19,415 19,871
Cash and cash equivalents at end of period...................... $ 27,209 $ 5,337
======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest...................................................... $ 3,486 $ 22,294
Income taxes.................................................. $ 606 $ 2,508
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 6
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
Anacomp, Inc. and Subsidiaries (Debtor-In-Possession,
Effective January 5, 1996. See Note 3.)
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THREE MONTHS ENDED DECEMBER 31, 1995
Capital in Cumulative Retained
Common excess of Translation earnings
(Dollars in thousands) Stock par value Adjustment (deficit) Total
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BALANCE AT SEPTEMBER 30, 1995 ...... $ 462 $ 182,725 $ 1,329 $(372,759) $(188,243)
Preferred stock conversion ......... 1 700 -- -- 701
Preferred stock dividends .......... -- -- -- (516) (516)
Accretion of redeemable preferred
stock discount ................... -- -- -- (24) (24)
Translation adjustments for period.. -- -- (796) -- (796)
Net income for the period .......... -- -- -- 1,053 1,053
BALANCE AT DECEMBER 31, 1995........ $ 463 $ 183,425 $ 533 $(372,246) $(187,825)
======== ========= ========= ========= =========
THREE MONTHS ENDED DECEMBER 31, 1994
Capital in Cumulative Retained
Common excess of Translation earnings
(Dollars in thousands) Stock par value Adjustment (deficit) Total
BALANCE AT SEPTEMBER 30, 1994 ...... $ 457 $181,843 $ (269) $(132,275) $ 49,756
Exercise of stock options .......... -- 14 -- -- 14
Shares issued for purchases under
the Employee Stock Purchase Plan.. 1 223 -- -- 224
Preferred stock dividends .......... -- -- -- (516) (516)
Accretion of redeemable preferred
stock discount ................... -- -- -- (24) (24)
Translation adjustments for period.. -- -- (972) -- (972)
Graham Stock Issuances 1 143 -- -- 144
Net income for the period .......... -- -- -- 281 281
BALANCE AT DECEMBER 31, 1994........ $ 459 $182,223 $ (1,241) $(132,534) $ 48,907
======== ======== ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Anacomp, Inc. and Subsidiaries (Debtor-In-Possession,
Effective January 5, 1996. See Note 3.)
NOTE 1. ADJUSTMENTS:
The condensed consolidated financial statements included herein have
been prepared by Anacomp, Inc. ("Anacomp" or the "Company") and its
wholly-owned subsidiaries without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are
adequate to make the information presented not misleading. The
condensed consolidated financial statements included herein should be
read in conjunction with the financial statements and the notes thereto
included in the Company's Report on Form 10-K as of September 30, 1995.
In the opinion of management, the accompanying interim financial
statements contain all material 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 condensed consolidated financial statements include the accounts of
Anacomp, Inc. and its wholly-owned subsidiaries. Material intercompany
transactions have been eliminated.
Foreign Currency Translation
Substantially all assets and liabilities of Anacomp's international
operations are translated at the period-end exchange rates; income and
expenses are translated at the average exchange rates prevailing during
the period. Translation adjustments are accumulated in a separate
section of stockholders' equity. Foreign currency transaction gains and
losses are included in net income.
Segment Reporting
Anacomp operates in a single business segment - providing equipment,
supplies and services for information management, including storage,
processing and retrieval.
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.
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Other Intangibles
Other intangibles, net of accumulated amortization, of $20.4 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.
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
December 31, 1995 total $5.7 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.
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Inventories
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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:
Dec. 31, Sept. 30,
(Dollars in thousands) 1995 1995
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Finished goods ..................... $ 36,025 $ 38,702
Work in process .................... 4,262 4,955
Raw materials and supplies ......... 6,478 10,338
$ 46,765 $ 53,995
======== ========
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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 $11.9
million at December 31, 1995 are included in "Other Assets" in the
accompanying Condensed Consolidated Balance Sheets. During the three
months ended December 31, 1995, the Company amortized $800,000 of debt
issuance costs which are included in "Interest Expense and Fee
Amortization" in the accompanying Condensed Consolidated Statement of
Operations.
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 $5.3 million is
being amortized over 15 years. Goodwill, net of accumulated
amortization of $132.2 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.
<PAGE> 10
NOTE 3. RECENT DEVELOPMENTS:
On January 5, 1996, Anacomp (the "Debtor") filed a prenegotiated Plan of
Reorganization ("Plan") with the U.S. Bankruptcy Court in Delaware under
Chapter 11 of the Bankruptcy Code. The Company currently is in default
under substantially all of its debt agreements as a result of its failure
to make $89.7 million principal payments scheduled for April 26, 1995 and
October 26, 1995 on the senior secured credit facilities (including $60.0
million relating to the revolving loan agreement which expired on October
26, 1995), the $34.1 million interest payments scheduled for May 1, 1995
and November 1, 1995 on its Senior Subordinated Notes, and the $1.6
million interest payment scheduled July 15, 1995 on the 13.875%
Subordinated Debentures, as well as certain financial covenant violations,
and the cross-default provisions of the other debt agreements.
After months of discussions and negotiations with representatives of
Anacomp's senior secured lenders and with unofficial committees
representing the 15% Senior Subordinated Notes and the 13.875% and 9%
Convertible Subordinated Debentures (the "Subordinated Debentures"), the
Company reached an agreement in principle with an unofficial committee
representing holders of the 15% Senior Subordinated Notes.
Pursuant to the Plan, (i) Anacomp's senior secured debt would be exchanged
for senior secured notes with a three year maturity, mandatory sinking
fund payments, and an interest rate of of LIBOR plus 3.75%; (ii) the 15%
Senior Subordinated Notes and related accrued interest would be exchanged
for $160.0 million in new 13% senior subordinated notes with a six year
maturity and 92.5% of new common stock to be issued by the Company; (iii)
the Subordinated Debentures and related accrued interest would be
exchanged for 7.5% of the Company's new common stock and warrants to
purchase 2.5% of the new common stock; (iv) the Preferred Stock and
related accrued dividends would be exchanged for warrants to purchase less
than 1% of the new common stock; and (v) the existing common stock would
be exchanged for warrants to purchase less than 1% of the new common
stock. Under the terms of the Plan, trade creditors will continue to be
paid under normal trade terms.
Certain representatives of Anacomp's senior secured lenders have indicated
that they do not support the Plan. The Company continues to negotiate
with all its lenders in an attempt to reach a consensual agreement. There
can be no assurance that this prenegotiated Plan will be accepted by the
Bankruptcy Court or all the necessary votes accepting the Plan will be
obtained from the lenders.
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. This will
result 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 will be reflected in the Company's results for
the quarter ended March 31, 1996. 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.
<PAGE> 11
The Company will adjust its interest expense on a prospective basis
according to these guidelines. The difference between the reported
interest expense and the stated amount of interest will be disclosed in
future filings.
NOTE 4. FINANCIAL RESTRUCTURING COSTS:
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 $2.8
million for the three months ended December 31, 1995 are included as
"Financial restructuring costs" in the accompanying Condensed Consolidated
Statements of Operations.
NOTE 5. 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 6. INCOME TAXES:
Income tax expense is reported for the three months ended December 31,
1995, 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 three months ended
December 31, 1995, the U.S. Federal tax rate is zero since the U.S. tax
provision of $1.3 million was offset by a corresponding reduction to the
valuation allowance. At December 31, 1995, the Company had U.S. Federal
net operating loss carryforwards ("NOLS") of approximately $218.0 million
available to offset future taxable income.
NOTE 7. 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.
Fully diluted earnings (loss) per share are the same as primary earnings
per share for the periods presented.
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Recent Developments
On January 5, 1996, the Company filed a prenegotiated Plan of Reorganization
("Plan") with the U.S. Bankruptcy Court in Delaware under Chapter 11 of the
Bankruptcy Code. The Company currently is in default under substantially all
of its debt agreements as a result of its failure to make $89.7 million
principal payments scheduled for April 26, 1995 and October 26, 1995 on the
senior secured credit facilities (including $60.0 million relating to the
revolving loan agreement which expired on October 26, 1995), the $34.1 million
interest payments scheduled for May 1, 1995 and November 1, 1995 on its Senior
Subordinated Notes, and the $1.6 million interest payment scheduled July 15,
1995 on the 13.875% Subordinated Debentures, as well as certain financial
covenant violations, and the cross-default provisions of the other debt
agreements.
After months of discussions and negotiations with representatives of Anacomp's
senior secured lenders and with unofficial committees representing the 15%
Senior Subordinated Notes and the 13.875% and 9% Convertible Subordinated
Debentures (the "Subordinated Debentures"), the Company reached an agreement
in principle with an unofficial committee representing holders of the 15%
Senior Subordinated Notes.
Pursuant to the Plan, (i) Anacomp's senior secured debt would be exchanged for
senior secured notes with a three year maturity, mandatory sinking fund
payments, and an interest rate of LIBOR plus 3.75%; (ii) the 15% Senior
Subordinated Notes and related accrued interest would be exchanged for $160.0
million in new 13% senior subordinated notes with a six year maturity and
92.5% of a new common stock to be issued by the Company; (iii) the
Subordinated Debentures and related accrued interest would be exchanged for
7.5% of the Company's new common stock and warrants to purchase 2.5% of the
new common stock; (iv) the Preferred Stock and related accrued dividends would
be exchanged for warrants to purchase less than 1% of the new common stock;
and (v) the existing common stock would be exchanged for warrants to purchase
less than 1% of the new common stock. Under the terms of the Plan, trade
creditors will continue to be paid under normal trade terms.
Certain representatives of Anacomp's senior secured lenders have indicated
that they do not support the Plan. The Company continues to negotiate with
all its lenders in an attempt to reach a consensual agreement. There can be
no assurance that this prenegotiated Plan will be accepted by the Bankruptcy
Court or all the necessary votes accepting the Plan will be obtained from the
lenders.
<PAGE> 13
Results of Operations
General
Net income available to common shareholders increased to $513,000 for the
three months ended December 31, 1995 compared to a loss of $259,000 for the
three months ended December 31, 1994. The first quarter results were
bolstered by a $6.2 million gain on the sale of the Image Conversion Services
Division ("ICS") which was effective November 1, 1995, and were reduced by
$2.8 million of financial restructuring costs. Operating income, i.e., income
before interest, other income, financial restructuring costs, and income
taxes, amounted to $16.2 million compared to $17.9 million for the same period
of the prior year.
Total revenues for the first quarter of $130.3 million represents a $21.5
million decrease from the first quarter of the prior year. Approximately $9.9
million of the decrease is due to the discontinuance and downsizing of product
lines including ICS ($3.2 million), flexible diskette media ($3.3 million),
reader and reader printer products ($2.1 million) and source document film
($1.3 million). An additional $8.0 million of the decrease is due to reduced
COM systems revenues which is due to fewer XFP 2000 sales in the current
quarter as well as the absence of revenue from sales of equipment for Anacomp
data centers under sale and leaseback arrangements which amounted to $3.5
million in the first quarter of the prior year.
Costs of services provided as a percent of services revenue were 55% in the
three months ended December 31, 1995, compared to 54% in the same period of
the prior year. Costs of equipment and supplies sold as a percent of
equipment and supplies sales were 78% for the three months ended December 31,
1995 compared to 75% in the same period of the prior year. The increase in
cost of equipment and supplies sold is primarily due to the relatively lower
level of COM systems sales which earn higher average gross margins.
Selling, general and administrative expenses were 19% of revenue in the three
months ended December 31, 1995 compared to 21% in the same period of the prior
year. This represents a decrease of $7.0 million which is consistent with the
cost reductions included in Anacomp's revised business plan.
Interest expense and fee amortization in the current quarter includes $2.4
million of default interest and interest on unpaid scheduled interest on the
senior secured debt and senior subordinated notes which is required by the
terms of the agreement.
Interest expense and fee amortization in the prior period included $1.4
million of accelerated amortization of debt fees as a result of accelerated
debt paydowns that occurred during the first quarter of fiscal 1995.
<PAGE> 14
Products and Services
COM systems revenues for the three months ended December 31, 1995 decreased
$8.0 million compared to the same period of the prior year. The Company sold
or leased 27 XFP 2000 COM systems to third party users in the current period
compared to 47 systems in the same period of the prior year. The Company
believes the reduced systems sales is, at least in part, due to customers
concerns regarding Anacomp's financial restructuring and also to the fact that
the first quarter of the prior year was a particularly strong quarter. Gross
margins as a percent of revenue were lower for the quarter compared to the
prior period, excluding the effect of the sale and leaseback revenues for
which all profits are deferred and recognized over the leaseback period, due
to reduced manufacturing levels and the resulting reduced manufacturing
efficiencies.
Micrographics supplies and equipment revenues for the three months ended
December 31, 1995 decreased $5.3 million compared to the same period of the
prior year principally as a result of the discontinuance and downsizing of
product lines mentioned above. Sales of original film were down 3% as a
result of lower volumes. Duplicate film sales were relatively unchanged
compared to the prior period. Micrographics supplies and equipment gross
margins as a percent of revenue improved three percentage points as a result
of changes in product mix due primarily to the sale and downsizing of product
lines.
Micrographics services revenues decreased $1.3 million for the three months
ended December 31, 1995 compared to the same three months of fiscal 1995,
excluding the effect of the ICS sale. COM services volumes, which comprise
over 90% of this category, decreased 5% and average selling prices decreased
approximately 3%. The decrease in average selling prices is the continuation
of a trend that the Company has experienced over recent periods. Gross
margins as a percent of revenue decreased as the reduction in selling prices
exceeded reductions in production costs.
Maintenance service revenues decreased $436,000 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 decreased slightly.
Magnetics revenues decreased $4.2 million for the three months ended December
31, 1995 compared to the same three months of fiscal 1995. The decline is
attributable to the closure of the Omaha, Nebraska factory which produced
flexible diskette media as well as decreased unit sales of open reel tape.
Magnetics gross margins as a percent of revenue decreased in the current
period principally due to increased costs of raw materials.
<PAGE> 15
Liquidity and Capital Resources
Anacomp's working capital at December 31, 1995, excluding the current portion
of long-term debt and accrued interest, amounted to $36.8 million compared to
$27.0 million at September 30, 1995. As discussed above, substantially all of
the accrued interest would be exchanged for new securities under the Plan of
Reorganization. As disclosed in the Condensed Consolidated Statements of Cash
Flows, net cash provided by operating activities increased to $9.2 million for
the first three months compared to net cash used in operating activities of
$8.7 million in the comparable prior period primarily due to significant
reductions in receivables and inventories. Net cash provided by investing
activities increased to $12.4 million in the current period, compared to $10.7
million in the comparable prior period, primarily as a result of reduced
capital expenditures. Net cash used in financing activities in the current
period include the $13 million repayment of debt with proceeds from the sale
of the ICS Division.
Prior to the Chapter 11 filing, the Company was experiencing a liquidity
shortfall caused by continued declining revenues and highly leveraged balance
sheet. Upon consummation of the Plan, the Company's pre-petition liquidity
problems will be resolved by (i) deferring principal and interest payments
that were due under the Company's senior secured debt; (ii) eliminating a
significant portion of the payment obligations under the 15% Senior
Subordinated Notes, all payment obligations under the Subordinated Debentures
and all payment obligations under the Company's Preferred Stock and (iii)
generating cash flow sufficient to service all of the Company's new debt.
The Company's cash balance as of December 31, 1995 was $27.2 million. Anacomp
anticipates that the Company will be able to operate its business in the
ordinary course during the pendency of the bankruptcy proceeding. Through the
utilization of cash available at the date the bankruptcy proceeding was filed,
and pursuant to an order of the Bankruptcy Court permitting Anacomp to use
cash collateral to pay expenses, Anacomp expects to have sufficient liquidity
to conduct its business without disruption and to pay trade creditors in the
ordinary course.
<PAGE> 16
ANACOMP, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C> <C>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On April 6, 1995, Anacomp defaulted on the payment of
its Senior Secured Debt. See Note 3.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Computation of Earnings (Loss) per Common Share. 17
(27) Financial data schedule (required for electronic
filing only)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended December 31, 1995.
</TABLE>
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANACOMP, INC.
/s/ Donald L. Viles
Donald L. Viles
Vice President and
Chief Accounting Officer
Dated this 24th day of January, 1996.
<PAGE> 1
EXHIBIT 11
Anacomp, Inc. and Subsidiaries (Debtor-In-Possession,
Effective January 5, 1996. See Note 3.)
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE (Unaudited)
PRIMARY
Three months ended
December 31,
(In thousands, except per share amounts) 1995 1994
(Note 3)
<S> <C> <C>
Earnings (loss) per Common Share:
Net income (loss) available to common
stockholders................................. $ 513 $ (259)
======= =======
Shares:
Weighted average number of shares
outstanding .................................. 46,221 45,843
Adjustments:
Assumed issuances under acquisition
contingencies................................ 1,462 --
Total shares ..................................... 47,683 45,843
======= =======
Earnings (loss) per common share.................. $ .01 $ (.01)
======= =======
</TABLE>
<PAGE> 2
EXHIBIT 11
Anacomp, Inc. and Subsidiaries (Debtor-In-Possession,
Effective January 5, 1996. See Note 3.)
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE (Unaudited)
ASSUMING FULL DILUTION
Three months ended
December 31,
(In thousands, except per share amounts) 1995 1994
(Note 3)
<S> <C> <C>
Earnings (loss) per Common Share:
Net income (loss) available to common
stockholders................................. $ 513 $ (259)
======= =======
Shares:
Weighted average number of shares
outstanding .................................. 46,221 45,843
Adjustments:
Assumed issuances under acquisition
contingencies................................ 1,462 --
Total shares ..................................... 47,683 45,843
======= =======
Earnings (loss) per common share.................. $ .01 $ (.01)
======= =======
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANACOMP,
INC.'S DECEMBER 31, 1995 FORM 10-Q QUARTERLY REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 27,209
<SECURITIES> 0
<RECEIVABLES> 78,102
<ALLOWANCES> 7,331
<INVENTORY> 46,765
<CURRENT-ASSETS> 164,430
<PP&E> 126,819
<DEPRECIATION> 88,100
<TOTAL-ASSETS> 398,119
<CURRENT-LIABILITIES> 180,228
<BONDS> 376,371
0
23,897
<OTHER-SE> (187,825)
<TOTAL-LIABILITY-AND-EQUITY> 398,119
<SALES> 79,337
<TOTAL-REVENUES> 130,265
<CGS> 61,761
<TOTAL-COSTS> 114,046
<OTHER-EXPENSES> (4,320)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,286
<INCOME-PRETAX> 2,253
<INCOME-TAX> 1,200
<INCOME-CONTINUING> 1,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 513
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
