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.................. 3,000,000 None $30,000,000(2) $10,344.83
11 5/8% Senior Secured Notes.................. $5,000,000 None $ 5,000,000 $1,724.14
13% Senior Subordinated Notes................. $50,000,000 None $50,000,000 $17,241.37
===================================================================================================================================
</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.
(2) Based on the last sale reported for the Common Stock on the Nasdaq
Automated Quotation System on July 24, 1996.
--------------------
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.
================================================================================
COMMON STOCK
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; Plan of Distribution
6. Dilution.................................................. Not Applicable
7. Selling Security Holders.................................. Selling Stockholders
8. Plan of Distribution...................................... Outside Front Cover Page; Plan of Distribution
9. Description of Securities to be Registered................ Outside Front Cover Page; 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; Capitalization; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; The Company;
Management; Security Ownership of Certain
Beneficial Owners and Management; Certain
Relationships and Related Transactions;
Description of Capital Stock; Description of
Certain Indebtedness; Index to Financial
Statements
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................ Not Applicable
</TABLE>
Subject to Completion, dated -------------, 1996
PROSPECTUS
3,000,000 Shares
ANACOMP, INC.
Common Stock
This Prospectus relates to the offer and sale from time to time by each of
the stockholders listed under "Selling Stockholders" (collectively, the "Selling
Stockholders") of up to a total of 3,000,000 shares of common stock, par value
$.01 per share (the "Common Stock"), of Anacomp, Inc. (the "Company"). Such
shares may be offered in amounts, at prices and on terms to be determined at the
time of sale. See "Plan of Distribution." The Company will not receive any of
the proceeds from the sale of Common Stock by the Selling Stockholders.
The Common Stock is traded over-the-counter under the symbol "ANCO." The
last sale reported for the Common Stock on the Nasdaq Automated Quotation System
on July 24, 1996 was $10.00.
See "Risk Factors" beginning on page 8 for a discussion of certain
considerations relevant to an investment in the Common Stock.
----------------------
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.
----------------------
The shares of Common Stock to which this Prospectus relates may be offered
and sold from time to time by the Selling Stockholders to or through one or more
brokers, dealers or agents or directly to purchasers. See "Plan of
Distribution."
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
[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
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 Securities and Exchange Commission (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 Common Stock 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
Common Stock 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.
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 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. 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.
The Offering
Common Stock to be sold by
Selling Stockholders (a)....................... 3,000,000 Shares (a)
Common Stock to be outstanding after the
offering pursuant to this Prospectus........... 10,000,000 shares (b)
Use of Proceeds................................ The Company will not receive
any proceeds from the sale of
Common Stock by the Selling
Stockholders
Nasdaq Automated Quotation System Symbol....... ANCO
(a) The shares of Common Stock that may be offered and sold by the Selling
Stockholders under this Prospectus were issued by the Company to the Selling
Stockholders (or their transferors) pursuant to the Plan of Reorganization.
(b) Excludes 362,694 shares of Common Stock issuable upon exercise of
outstanding warrants to purchase Common Stock.
<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. 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) (2.25)
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 10,000,000
</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 $22,965
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................... 391,991 472,580
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) 82,303
- ---------------------------------
(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 to the transactions in
connection with the consummation of the Plan of Reorganization 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 in the Common Stock.
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 factors 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."
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.
PRICE RANGE OF COMMON STOCK
On July 24, 1996, the last sale reported for the Common Stock on the Nasdaq
Automated Quotation System was $10.00 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 24, 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.
USE OF PROCEEDS
All the shares of Common Stock offered by this Prospectus are being offered
for sale by the Selling Stockholders. The Company will not receive any portion
of the net proceeds of this offering.
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 to give
effect to the transactions in connection with the consummation of the Plan of
Reorganization on June 4, 1996, 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) 82,303
-------- ---------
Total Capitalization $207,533 $342,500
======== ========
<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. 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) (2.25)
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 10,000,000
</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 $22,965
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.............. 686,062 681,561 643,548 658,639 421,029 639,020 391,991 472,580
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) 82,303
</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 to the transactions in
connection with the consummation of the Plan of Reorganization on June
4, 1996, 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"). 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)
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
======== ======= ========
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.
<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........................ ($2.25)
========
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 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 $(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 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 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 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 2,600 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
interest at the rate of 11 5/8% per annum payable semi-annually on March 31
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.
Transfer Agent and Registrar
Chase Mellon Shareholder Services LLC 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 adversely affect the holders of Common Stock and that could have the
effect of delaying, deferring, or preventing a change in control of the Company
or an unsolicited acquisition proposal.
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.
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. Mr. Embry and Sam Zell were elected on July 27, 1992, as
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 SEC 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 SEC 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 four 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, shares of Common Stock, respectively. All of
such shares which in the aggregate represents 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 five percent 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 footnote 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.
SELLING STOCKHOLDERS
The following table sets forth certain information furnished by each of the
Selling Stockholders with respect the number of shares of Common Stock offered
by each such Selling Stockholder, which in each case is equal to the number of
shares beneficially owned by each of the Selling Stockholders as of June 4,
1996. The following table indicates by footnote reference any material
relationship which the Selling Stockholder has had with the Company during the
preceding three years.
Selling Stockholder Number of Shares of Common Stock
------------------- --------------------------------
<PAGE>
PLAN OF DISTRIBUTION
Each of the Selling Stockholders is offering the Common Stock for its own
account, and not for the account of the Company. The Company will not receive
any of the net proceeds of the offering.
The Common Stock to be offered by the Selling Stockholders may be sold,
from time to time, on the over-the-counter market, or exchanges (if the Common
Stock is listed for trading thereon), in regular brokerage transactions, in
transactions directly with market-makers or in privately negotiated transactions
at market prices prevailing at the time of sale, at prices related to such
prevailing prices, or at negotiated prices. The Selling Stockholders also may
pledge shares of Common Stock as collateral, and such shares could be sold
pursuant to the terms of such pledges.
Agents through whom the shares of Common Stock may be offered may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders and/or the purchasers of such shares for whom they may act
as agent. The Selling Stockholders and any such agents that participate in the
distribution of the Common Stock may be deemed to be underwriters, and any
profits on the sale of the Common Stock by them and any discounts, commissions
or concessions received by any such agents might be deemed to be underwriting
discounts and commissions under the Securities Act. To the extent the Selling
Stockholders may be deemed to be underwriters, the Selling Stockholders may be
subject to certain statutory liabilities of the Securities Act, including but
not limited to Sections 11 and 12 of the Securities Act and Rule 10b-5 under the
Exchange Act.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the Common Stock offered by this Prospectus may not
simultaneously engage in market making activities with respect to the Common
Stock during any applicable "cooling off" periods prior to the commencement of
such distribution. In addition, and without limiting the foregoing, such Selling
Stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder including, without limitation, Rules 10b-6
and 10b-7, which provisions may limit the timing of purchases and sales of
Common Stock by the Selling Stockholders.
The registration relating to this Prospectus is being made pursuant to
registration rights granted by the Company at the time the Common Stock was
issued. The Company has agreed to indemnify the Selling Stockholders and their
directors, officers and affiliates for certain losses, claims and liabilities in
connection with the sale of Common Stock pursuant to the Registration Statement
of which this Prospectus forms a part. The Company also has agreed to pay the
expenses in connection with the Registration Statement of which this Prospectus
forms a part, including filing fees. The Selling Stockholders will pay any
brokerage or other fees or commissions, as well as Selling Stockholders'
incidental expenses, in connection with the offering.
To the extent required, the Company will use its best efforts to file,
during any period in which offers or sales are being made, one or more
supplements to this Prospectus to describe any material information with respect
to the plan of distribution not previously disclosed in this Prospectus or any
material change to such information in this Prospectus.
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>
Page
Audited Financial Statements
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 3,000,000 Shares of Common Stock
which such an offer or solicitation is not Stock
authorized or in which the person making such
offer or solicitation is not qualified to do
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
Use of Proceeds............................10
Capitalization.............................11
Selected Consolidated Financial Data.......12
Pro Forma Unaudited Financial Data.........15
Management's Discussion and
Analysis of Results of Operations
and Financial Condition.................27
The Company................................33
Description of Certain Indebtedness........45
Description of Capital Stock...............47
Management.................................49
Security Ownership of Certain
Beneficial Owners and Management........54
Certain Relationships and Related
Transactions............................56
Plan of Distribution.......................57
Legal Matters..............................57
Experts....................................57
Index to Consolidated Financial
Statements..............................F-1
Dated , 1996
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>
<S> <C> <C>
Indiana 3577 35-1144230
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</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.
---------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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..... ------ shares None $-------(2) $--------
11 5/8% Senior Secured Notes..... $----- None $-------(3) $--------
13% Senior Subordinated Notes.... $----- None $------(3) $--------
</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.
(2) Based on the last sale reported for the Common Stock on the Nasdaq
Automated Quotation System on July 24, 1996.
(3) Based on 100% of the principal amount outstanding as of July 24, 1996.
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.
ANACOMP, INC.
11 5/8% SENIOR SECURED NOTES DUE 1999
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; Plan of Distribution
6. Dilution.................................................. Not Applicable
7. Selling Security Holders.................................. Selling Noteholders
8. Plan of Distribution...................................... Outside Front Cover Page; Plan of Distribution
9. Description of Securities to be Registered................ Outside Front Cover Page; Description of the
Senior Secured Notes
10. Interests of Named Experts and Counsel.................... Not Applicable
11. Information with Respect to the Registrant................ Outside Front Cover Page; Prospectus Summary;
Risk Factors; Capitalization; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; The Company;
Management; Security Ownership of Certain
Beneficial Owners and Management; Certain
Relationships and Related Transactions;
Description of the Senior Secured Notes;
Description of Other Obligations; Index to
Financial Statements
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................ Not Applicable
</TABLE>
Subject to Completion, Dated ________, 1996
PROSPECTUS
$5,000,000
ANACOMP, INC.
11 5/8% Secured Notes due 1999
This Prospectus related to the offer and sale from time to time by each of
the noteholders listed under "Selling Noteholders" (collectively, the "Selling
Noteholders") of up to a total of $5,000,000 principal amount of 11 5/8% Senior
Subordinated Notes due 1999 (the "Senior Secured Notes") of Anacomp, Inc. (the
"Company"). Such Senior Secured Notes may be offered in amounts, at prices and
on terms to be determined at the time of sale. See "Plan of Distribution." The
Company will not receive any of the proceeds from the sale of Senior Secured
Notes by the Selling Noteholders.
The Senior Secured Notes were issued on June 4, 1996, in an aggregate
principal amount of $112,190,000. The Senior Secured Notes mature on September
30, 1999. Interest on the Senior Secured Notes is payable semi-annually on each
March 31 and September 30, commencing September 30, 1996. The Company is
required to redeem $14,288,000, $14,286,000, $16,163,000, $16,161,000,
$17,100,000, $17,100,000 and 17,092,000 aggregate principal amounts on each of
the seven corresponding interest payment dates. The Senior Secured Notes are
redeemable at the option of the Company, in whole or in part, at any time, at
100% of the principal amount outstanding, plus accrued and unpaid interest. The
Senior Secured Notes are senior obligations of the Company secured by
substantially all the assets of the Company. They rank pari passu (on an equal
basis) in right of payment with all existing and future senior obligations of
the Company.
The Company does not intend to list the Senior Secured Notes on any
securities exchange. The Senior Secured Notes currently are traded
over-the-counter. No assurance can be given as to the continuance or liquidity
of any such market.
See "Risk Factors" beginning on page 9 for a discussion of certain
considerations relevant to an investment in the Senior Secured Notes.
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.
The Senior Secured Notes to which this Prospectus relates may be
offered and sold from time to time by the Selling Noteholders to or
through one or more brokers, dealers or agents or directly to purchasers.
See "Plan of Distribution."
_____________________, 1996
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.
<PAGE>
FOR CALIFORNIA RESIDENTS
WITH RESPECT TO SALES OF THE SENIOR SECURED NOTES BEING OFFERED HEREBY TO
CALIFORNIA RESIDENTS AS OF THE DATE OF THIS PROSPECTUS, SUCH SENIOR SECURED
NOTES MAY BE SOLD ONLY TO: (1) "ACCREDITED INVESTORS" WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT OF 1933, (2) BANKS, SAVINGS AND LOAN
ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT COMPANIES
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND PROFIT-SHARING
TRUSTS, CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH THE CORPORATION'S OR
OTHER ENTITY'S AFFILIATES, HAVE A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO
THEIR MOST RECENT REGULARLY PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN
REVIEWED, BUT NOT NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN
$14,000,000 AND SUBSIDIARIES OF THE FOREGOING OR (3) ANY PERSON (OTHER THAN A
PERSON FORMED FOR THE SOLE PURPOSE OF PURCHASING THE SENIOR SECURED NOTES BEING
OFFERED HEREBY) WHO PURCHASES AT LEAST $1,000,000 AGGREGATE AMOUNT OF THE SENIOR
SECURED NOTES OFFERED HEREBY OR (4) ANY PERSON WHO (A) HAS AN INCOME OF $65,000
AND A NET WORTH OF $250,000 OR (B) HAS A NET WORTH OF $500,000 (IN EACH CASE,
EXCLUDING HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES).
[ANY OTHER 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
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 Securities and Exchange Commission (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 Common Stock 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
Common Stock 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.
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 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. 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.
<PAGE>
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, $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.
The Offering
This Prospectus relates to the offer and sale from time to time by the
Selling Noteholders of up to a total of $5,000,000 principal amount of Senior
Secured Notes. The Company will not receive any of the proceeds from the sale of
Senior Secured Notes by the Selling Noteholders.
The Senior Secured Notes
Securities...............$112,190,000 aggregate principal amount of 11 5/8%
Senior Secured Notes due 1999.
Maturity Date............September 30, 1999.
Interest Payment Dates...March 31 and September 30, commencing September 30,
1996.
Mandatory Redemption.....The Company is required to redeem $14,288,000,
$14,286,000, $16,163,000, $16,161,000, $17,100,000,
$17,100,000 and $17,092,000 aggregate principal amount
of Senior Secured Notes on each of the seven
corresponding interest payment dates, in each case at a
redemption price equal to 100% of the principal amount
outstanding, plus accrued and unpaid interest. See
"Description of the Senior Secured Notes--Mandatory
Redemption."
Optional Redemption......The Senior Secured 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. See "Description of the Senior Secured
Notes--Optional Redemption."
Ranking..................The Senior Secured Notes are senior secured obligations
of the Company and rank pari passu (on an equal basis)
with all other existing and future senior obligations
of the Company, and are senior to all existing and
future subordinated or junior indebtedness of the
Company.
Security.................The collateral securing the Senior Secured Notes
consists of substantially all the assets of the
Company. The collateral includes after-acquired assets
of the Company to the extent such assets are acquired
by the Company without financing secured by a lien on
such assets. See "Risk Factors--Potential Inadequacy of
Security" and "Description of the Senior Secured
Notes--Collateral."
Change of Control........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. See "Description of the Senior Secured
Notes--Change of Control."
<PAGE>
Asset Sale Proceeds......The Company is required in certain circumstances to
make offers to purchase Senior Secured Notes at a
purchase price of 100% of the principal amount thereof,
plus accrued and unpaid interest, with the net cash
proceeds of certain sales or other dispositions of
assets by the Company or certain of its subsidiaries.
See "Description of the Senior Secured Notes--Certain
Covenants--Limitation on Sales of Assets and Restricted
Subsidiary Stock."
Certain Covenants........The indenture relating 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 and
(vii) consolidations and mergers and transfers of all
or substantially all the Company's and certain of its
subsidiaries' assets. However, all these limitations
and prohibitions are subject to a number of important
qualifications and exceptions. See "Description of the
Senior Secured Notes--Certain Covenants" and
"Description of the Senior Secured
Notes--Consolidation, Merger and Sale of Assets."
<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. 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) (2.25)
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 10,000,000
</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 $ 22,965
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................... 391,991 472,580
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) 82,303
- ---------------------------------
(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 to the transactions in
connection with the consummation of the Plan of Reorganization 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 in the Senior Secured Notes.
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 41.1 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 Subordinated 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. Future 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 Company's high level of indebtedness presents substantial risks to the
holders of the Senior Secured Notes, including the risk that the Company might
not generate sufficient cash to service the Senior Secured Notes and its other
debt 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, including the
Senior Secured Notes, 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 factors 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 ("Senior Secured
Indenture") and the indenture governing the Senior Subordinated Notes ("Senior
Subordinated Indenture") impose 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 the Senior Subordinated Indenture, as
applicable.
Potential Inadequacy of Security. The proceeds of any sale of the
collateral under the Senior Secured Indenture following an event of default
under the Senior Secured Indenture may not be sufficient to repay the Senior
Secured Notes in full. The Senior Secured Notes will be secured with a lien on
the collateral, which will consist of substantially all the Company's assets.
The collateral will include after-acquired assets of the Company to the extent
that such assets are acquired by the Company without financing secured by such
assets. The Senior Secured Indenture permits the collateral to be subject to
Permitted Liens (as defined below).
Although the collateral consists of substantially all the assets of the
Company, 56% of the Company's assets (on a pro forma basis) consist of
reorganization value in excess of identifiable assets, using the principles of
"fresh start" reporting required following the Company's reorganization and
other intangibles. Excluding working capital collateral, the tangible assets
comprising the collateral, which, as of March 31, 1996, had a book value of
approximately $59.7 million, consist primarily of processing equipment,
manufacturing equipment and tooling, long-term receivables and office furniture.
The only real property owned by the Company that is part of the collateral is
the Graham, Texas site on which the Company's U.S. magnetics manufacturing
facility is located. The collateral does not include facility leases under which
the Company operates data service centers and maintains certain other
operations. The common stock and assets (other than accounts receivable,
inventory and the proceeds thereof) of certain U.S. subsidiaries of the Company
are part of the collateral. However, such subsidiaries are non-operating
companies and have no significant assets. The collateral also includes, subject
to certain restrictions of foreign law, all of the common stock of certain
foreign subsidiaries that are owned directly by the Company or a U.S.
subsidiary. Although certain of the foreign subsidiaries are operating
companies, they have few assets, other than accounts receivables and inventory,
which may be pledged to secure foreign currency revolving credit facilities.
There is no public market for the common stock of either such U.S. or foreign
subsidiaries.
In addition, SKC America, Inc. has a security interest in up to $10 million
of products purchased by the Company pursuant to the supply agreement between
the Company and SKC. See "Description of Other Obligations--SKC Trade Payable
due 2001."
If a bankruptcy proceeding were to be commenced by or against the Company
and the bankruptcy court were to conclude that the Senior Secured Notes were
inadequately secured, the holders of the Senior Secured Notes would have only an
unsecured deficiency claim to the extent of such inadequacy and would not be
entitled to post-petition interest. Any deficiency claim (whether or not in a
bankruptcy proceeding involving the Company) of the holders of the Senior
Secured Notes would rank pari passu with any deficiency claims of other general
unsecured creditors. In addition, the ability of the holders of the Senior
Secured Notes to effect a sale of the collateral may be subject to certain
bankruptcy limitations in the event of a bankruptcy proceeding involving the
Company. See "Description of the Senior Secured Notes--Certain Bankruptcy
Limitations" and "Description of the Senior Secured Notes--Collateral."
Conflicts Between the Senior Subordinated Indenture and the Senior Secured
Indenture. The indenture for the Senior Subordinated Notes (the "Senior
Subordinated Indenture") requires the Company to offer to repurchase the Senior
Subordinated Notes upon the failure to comply with certain covenants including:
(i) changes of control; (ii) sales of assets or subsidiary stock; and (iii)
incurrence of indebtedness (collectively, the "Mandatory Repurchase Offers"). In
the event that the Company is required to make certain Mandatory Repurchase
Offers, the Senior Subordinated Indenture requires that the Company first obtain
the consent of the holders of the Senior Secured Notes or prepay in full the
Senior Secured Notes. In addition, the Company will be prohibited under the
Senior Secured Indenture from making any payment pursuant to any Mandatory
Repurchase Offer unless the Company can satisfy the conditions for making a
Restricted Payment (as defined herein) in the amount of such payment.
Failure to make any Mandatory Repurchase Offer or payment pursuant thereto,
including as a result of the failure to satisfy the consent or prepayment
condition described above, could result in an acceleration of the maturity of
the Senior Subordinated Notes, thereby triggering an event of default under the
Senior Secured Indenture. Conversely, if the Company makes a payment pursuant to
a Mandatory Repurchase Offer without satisfying the conditions for making a
Restricted Payment under the Senior Subordinated Indenture, the maturity of the
Senior Secured Notes may be accelerated, thereby triggering cross-acceleration
under the Senior Subordinated Indenture. Any such default or acceleration also
could result in the acceleration of other debt of the Company under agreements
that contain cross-default or cross-acceleration provisions. See "Description of
Other Obligations--Senior Subordinated Notes due 2002--Mandatory Repurchase
Offers."
Covenant Compliance. The terms and conditions of the Senior Secured
Indenture and the instruments applicable to the Company's other indebtedness
impose restrictions that limit, among other things, the Company's ability to:
(i) incur additional indebtedness (including indebtedness incurred by means of
guarantees); (ii) create liens on assets; (iii) sell assets; (iv) engage in
mergers or consolidations; (v) make acquisitions and investments; (vi) engage in
certain transactions with affiliates; and (vii) make dividends, payments and
certain other distributions.
The ability of the Company to comply with such covenants will be dependent
on the future financial performance of the Company which will be subject to
prevailing economic conditions and other factors, including factors beyond the
control of the Company. A failure to comply with any of these covenants could
result in a default or event of default under the relevant debt agreements
(including the Senior Secured Indenture), permitting lenders to accelerate the
maturity of the indebtedness under such agreements, to foreclose upon the
collateral securing such indebtedness and to terminate their commitments (if
any) with respect to additional funding obligations under such agreements. Any
such default, event of default, acceleration or failure to comply also could
result in the acceleration of other debt of the Company under agreements that
may contain cross-default or cross-acceleration provisions. Under any of these
circumstances, there can be no assurance that the Company would have sufficient
funds or other resources to satisfy all such obligations on a timely basis.
Public Market. The Company does not intend to list the Senior Secured Notes
on any securities exchange. The Senior Secured Notes currently are traded
over-the-counter. No assurance can be given as to the continuance or liquidity
of any such market. The price for the Senior Secured Notes may increase or
decrease depending on many factors, including prevailing interest rates, the
Company's operating results and the markets for similar securities.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Senior Secured Notes. There can be no assurance that the
non-investment grade debt market will not continue to be subject to such
disruptions.
USE OF PROCEEDS
All of the Senior Secured Notes offered by this Prospectus are being
offered for sale by the Selling Noteholders. The Company will not receive any
portion of the net proceeds of this offering.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1996 on a historical basis and as adjusted to give
effect to the transactions in connection with the consummation of the Plan of
Reorganization on June 4, 1996, 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 --
Senior Subordinated Notes -- 146,258
------- -------
Total Debt 381,230 260,197
Redeemable Preferred Stock 21,340 --
Stockholders' equity (195,037) 82,303
-------- --------
Total Capitalization $207,533 $342,500
======== ========
<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. 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) (2.25)
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 10,000,000
</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 $22,965
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.............. 686,062 681,561 643,548 658,639 421,029 639,020 391,991 472,580
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) 82,303
</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 to the transactions in
connection with the consummation of the Plan of Reorganization on June
4, 1996, 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"). 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)
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
======== ======= ========
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.
<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........................ ($2.25)
========
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 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 $(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 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 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 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>
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. 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) (2.25)
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 10,000,000
</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 $ 31,551 $ 34,569 $ 33,006 $ 34,615 $ 35,998 $17,187 $13,369 $45,518
amortization...........
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 1.72x 1.87x 1.76x 1.70x 1.09x 1.41x 1.97x 2.18x
expense................
Ratio of total debt to 3.75x 3.54x 3.61x 3.61x 5.04x -- -- --
EBITDA.................
Ratio of earnings to
fixed 1.36x 1.41x 1.27x 1.21x (e) (e) (e) (e)
charges (e)............
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30, As of March 31
(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 $22,965
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.............. 686,062 681,561 643,548 658,639 421,029 639,020 391,991 472,580
Total current liabilities 139,824 150,522 152,727 163,091 188,957 171,389 132,072 124,532
(h)....................
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) 82,303
</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 to the transactions in
connection with the consummation of the Plan of Reorganization on June
4, 1996, 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.
<PAGE>
(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"). 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)
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
======== ======= ========
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>
Accrued Current Portion Long-Term
Interest of Long-Term Debt Total
Debt
-------- ------------ ------------ -----
<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.
<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........................ ($2.25)
========
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 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
------- ------ -------
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.......... $(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)
==========
See Notes to the Pro Forma Consolidated Statement of Operations
</TABLE>
<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 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 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.
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 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.
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 $5.9
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 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 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.
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.
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.
<PAGE>
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 include $13.0 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 inhuman 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 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. 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:
Year Ended September 30,
1993 1994 1995
---- ---- ----
(Dollars in Thousands)
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%
======== === ======== === ======== ===
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 [2,600] 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 clean up 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 Delware ("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 is due to be filed on July 24, 1996.
MANAGEMENT
The current directors and executive officers of the Company and their ages
(as of June 4, 1996) and positions are listed below.
Name Age Position
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
The Company has five divisions with the president of each division
reporting to Mr. Lowrey.
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. The business experience of
each director and executive officer for the past five years is described below.
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 on March 31, 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 beginning in 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. Mr. Embry and Sam Zell were elected on July 27, 1992, as
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 SEC 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 SEC 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. In
addition, he served as President and Chief Executive Officer of the Burlington
Northern Railroad from 1985 to 1989. 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 four 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.
<TABLE>
<CAPTION>
Summary Compensation Table
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, Magnetics 1994 147,500 180,836 0 0 0
Group President and 1993 147,500 130,243 0 80,000 0
Chief Operating
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, shares of Common Stock, respectively. All of
such shares which in the aggregate represents 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 five percent 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 footnote 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships and related transactions that require
disclosure.
SELLING NOTEHOLDERS
The following table sets forth certain information furnished by each of the
Selling Noteholders with respect the amount of Senior Secured Notes offered by
such Selling Noteholder, which in each case is equal to the amunt of Senior
Secured Notes beneficially owned by each of the Selling Noteholders as of June
4, 1996. The following table indicates by footnote reference any material
relationship which the Selling Noteholder has had with the Company during the
preceding three years.
NAME OF REGISTERED HOLDER PRINCIPAL AMOUNT OF SENIOR SECURED NOTES
DESCRIPTION OF THE SENIOR SECURED NOTES
The Senior Secured Notes were issued under an indenture dated as of June 4,
1996 (the "Senior Secured Indenture"), between the Company, as issuer, and The
Bank of New York, as trustee (the "Trustee"). The following summary, which
describes certain material provisions of the Senior Secured Indenture and the
Senior Secured Notes, does not purport to be complete, and is subject to the
detailed provisions of, and is qualified in its entirety by reference to, the
provisions of the Senior Secured Indenture and the Senior Secured Notes,
including the definition therein of certain terms. The terms of the Senior
Secured Notes include those set forth in the Senior Secured Indenture and those
made part of the Senior Secured Indenture by reference to the Trust Indenture
Act of 1939 (the "Trust Indenture Act"), as in effect on the date of the Senior
Secured Indenture. Wherever particular provisions or definitions in the Senior
Secured Indenture or the Senior Secured Notes are referred to in this
Prospectus, such provisions or definitions are incorporated by reference. The
definitions of certain capitalized terms used in the following summary are set
forth in "Glossary of Terms" below. Other capitalized terms are used but not
defined in the following summary, and are defined in the Senior Secured
Indenture. For purposes of the following summary, the term "Company" refers to
Anacomp, Inc. and does not include its subsidiaries except for purposes of
financial data determined on a consolidated basis.
General
The Senior Secured Notes were issued on June 4, 1996, the effective date of
the Plan of Reorganization. The Senior Secured Notes are in an aggregate
principal amount of $112,190,000, bear interest at the rate of 11 5/8% per annum
and mature on September 30, 1999. Accrued and unpaid interest on the Senior
Secured Notes is payable semi-annually on March 31 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.
Principal of, and interest on, the Senior Secured Notes are payable, and
the Senior Secured Notes are exchangeable and transferable, at the Corporate
Trust Office of the Trustee, at 101 Barclay Street, New York, New York, or such
other office or agency permitted under the Senior Secured Indenture. The Senior
Secured Notes are issued only in fully registered form without coupons, in
denominations of $1,000 or any integral multiple thereof. No service charge will
be made for any registration of transfer or exchange of Senior Secured Notes,
except for any tax or other governmental charge that may be imposed in
connection therewith.
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 the U.S. Restricted Subsidiaries, including Accounts Receivable,
Inventory, general intangibles, plant, property and, equipment 100% of the stock
of Restricted Subsidiaries (collectively referred to as the "Collateral"). The
Collateral includes after-acquired assets of the Company and the U.S. Restricted
Subsidiaries to the extent that such assets are acquired by the Company or any
such U.S. Restricted Subsidiary without financing secured by a lien on such
assets.
Optional Redemption
The Senior Secured Indenture permits the Company to redeem Senior Secured
Notes in whole at any time or in part at any time and from time to 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 right of Holders of record on the
relevant record date to receive interest due on the related interest payment
date.
Mandatory Redemption
The Senior Secured Indenture requires the Company to redeem Senior Secured
Notes pursuant to the following sinking fund schedule at a redemption price of
100% of the principal amount thereof, plus accrued interest to the redemption
date:
DATE AMOUNT
------- -------
September 30, 1996 $14,288,000
March 31, 1996 14,286,000
September 30, 1997 16,163,000
March 31, 1997 16,161,000
September 30, 1998 17,100,000
March 31, 1998 17,100,000
September 30, 1999 17,092,000
The Company will receive a credit against the principal amount of the
Senior Secured Notes required to be redeemed equal to the principal amount of
any Senior Secured Notes that the Company has acquired or redeemed and delivered
to the Trustee for cancellation. Such credit shall be applied against required
redemption payments in the order of their maturity, except that in the case of a
credit for redemption of Senior Secured Notes pursuant clause (i)(y) of
paragraph 5 under "Certain Covenants-Limitation on Sales of Assets and
Restricted Subsidiary Stock, such credit shall be allocated pro rata to reduce
all mandatory redemption payments and in the case of a credit for redemption
pursuant to clause (ii) of paragraph 5 under "Certain Covenants--Limitation on
Sales of Assets and Restricted Subsidiary Stock", or pursuant to a pro rata
offer to the Holders of all Senior Secured Notes at a price less that 100% of
the principal amount of the Senior Secured Notes to be purchased (and not
otherwise required or provided for pursuant to the terms of the Senior Secured
Indenture), 50% of such credit shall be applied against redemption payments in
the order of their maturity and 50% of such credit shall be allocated pro rata
to reduce all mandatory redemption payments thereafter required. The Company may
receive such credit only once for any Senior Secured Note.
Change of Control
A "Change of Control" means the occurrence of any of the following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than an underwriter engaged in a firm commitment
underwriting in connection with a public offering of the Voting Stock of the
Company or a Restricted Subsidiary, is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person is
deemed to have "beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the total
voting power of the Voting Stock of the Company; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company (together with any new directors whose
election by such Board or whose nomination for election by the shareholders of
the Company was approved by a vote of a majority of the directors of the Company
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of such Board then in office; or (iii)
the Company, either individually or in conjunction with one or more of its
Subsidiaries, sells, conveys, leases or otherwise transfers, or one or more of
such Subsidiaries sell, convey, lease or otherwise transfer, all or
substantially all the assets of the Company and the Restricted Subsidiaries,
taken as a whole, to any Person (other than a Restricted Subsidiary).
In the event of a Change of Control, the Company will (i) within 30 days
after the occurrence of such Change of Control, notify the Trustee, who will in
turn notify the Holders, in writing of the occurrence of and the circumstances
and relevant facts regarding such Change of Control and (ii) make an offer to
purchase (the "Change of Control Offer") the Senior Secured Notes for cash at a
purchase price equal to 100% of the principal amount thereof, plus any accrued
and unpaid interest thereon to the Change of Control Purchase Date (as defined
below) (such price, together with such interest, the "Change of Control Purchase
Price") on or before the date specified in such notice, which date can be no
earlier than 30 days nor later than 60 days from the date such notice is mailed
(the "Change of Control Purchase Date"). The Change of Control Offer will remain
open from the time such offer is made until the Change of Control Purchase Date.
The Company will purchase all Senior Secured Notes properly tendered in the
Change of Control Offer and not withdrawn in accordance with the procedures set
forth in such notice. The Change of Control Offer will state, among other
things, the procedures that Holders of the Senior Secured Notes must follow to
accept the Change of Control Offer.
The occurrence of certain of the events which would constitute a Change of
Control could constitute a default under the Company's existing and future
indebtedness. In addition, the exercise by the Holders of the Senior Secured
Notes and of their right to require the Company to repurchase Senior Secured
Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, if a Change of Control Offer is made, there can be no
assurance that the Company will have sufficient funds or other resources to pay
the Change of Control Purchase Price for all the Senior Secured Notes that might
be delivered by Holders thereof seeking to accept the Change of Control Offer.
The Change of Control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving the Company and, thus, the
removal of incumbent management. The Change of Control provisions will not
prevent a change in a majority of the members of the Board of Directors of the
Company which is approved by a majority of the then-present Board of Directors
of the Company. One of the events that constitutes a Change of Control under the
Senior Secured Indenture is a sale, conveyance, transfer or lease of all or
substantially all the property of the Company and its Subsidiaries, taken as a
whole, to any Person (other than a Restricted Subsidiary). The phrase "all or
substantially all" is subject to judicial interpretation depending on the facts
and circumstances of the subject transaction. The Senior Secured Indenture is
governed by New York law, and there is no established quantitative definition
under New York law of "substantially all" the assets of a corporation.
Accordingly in certain circumstances it may be unclear whether a Change of
Control has occurred and whether the Company may therefore be required to make a
Change of Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Senior Secured Notes pursuant to any Change
of Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with provisions relating to the Change of Control Offer,
the Company will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the Change of Control
covenant by virtue thereof.
Certain Covenants
The Senior Secured Indenture contains, among others, the following
covenants:
Limitation on Indebtedness. Neither the Company nor any Restricted
Subsidiary is permitted to Incur any Indebtedness unless (i) no Default or Event
of Default has occurred and is continuing at the time of such Incurrence or
would occur as a consequence of such Incurrence, and the Indebtedness is
"Permitted Indebtedness."
"Permitted Indebtedness" is defined as:
(i) Indebtedness represented by the Senior Secured Notes and the
Senior Subordinated Notes;
(ii) Indebtedness to be outstanding immediately after the Issue Date
and listed on Schedule I to the Senior Secured Indenture;
(iii) Indebtedness owing to and held by any wholly owned subsidiary of
the Company; provided, however, that any subsequent issuance or
transfer of any Capital Stock that results in any such wholly
owned subsidiary of the Company ceasing to be a wholly owned
subsidiary of the Company or any subsequent transfer of any such
Indebtedness (except to the Company or another wholly owned
subsidiary of the Company) is deemed, in each case, to constitute
the occurrence of such Indebtedness by the issuer thereof;
(iv) Indebtedness in connection with a prepayment of the Senior
Secured Notes pursuant to a Change of Control Offer: provided,
however, that the aggregate principal amount of such Indebtedness
does not exceed 100% of the aggregate principal amount of the
Senior Secured Notes prepaid; provided, further, however, that
such Indebtedness (A) has an Average Life equal to or greater
than the remaining Average Life of the Senior Secured Notes and
(B) does not mature prior to the Stated Maturity of the Senior
Secured Notes;
(v) Indebtedness in respect of Guarantees by the Company of
Indebtedness of any Restricted Subsidiary permitted to be
Incurred under "Limitation on Restricted Subsidiary Indebtedness
and Preferred Stock";
(vi) Subordinated Indebtedness Incurred in connection with one or more
acquisitions of assets or capital stock of a business or
businesses in an aggregate principal amount not to exceed
$10,000,000 Incurred in any Fiscal Year of the Company (or, for
the period from the Issue Date until September 30, 1996, in an
aggregate principal amount not to exceed $3,333,333); provided,
however, that in the case of each such acquisition, the
Subordinated Indebtedness Incurred cannot represent more than
37.5% of the aggregate purchase price payable upon consummation
of such acquisition;
(vii) Refinancing Indebtedness Incurred in respect of the Senior
Secured Notes, or Indebtedness Incurred pursuant to clause (ii)
(other than the Senior Subordinated Notes), (iv) or (vii) above;
and
(viii) in addition to any Indebtedness permitted by clauses (i)
through (viii) above, Indebtedness at any one time outstanding
not to exceed $20,000,000 during the period prior to the first
anniversary of the Issue Date and thereafter $30,000,000.
Limitation on Restricted Subsidiary Indebtedness and Preferred Stock. No
Restricted Subsidiary is permitted to Incur any Indebtedness or issue any
Preferred Stock unless (i) no Default or Event of Default has occurred and is
continuing at the time of such Incurrence or would occur as a consequence of
such Incurrence and (ii) such Indebtedness or Preferred Stock is Permitted
Restricted Subsidiary Indebtedness.
"Permitted Restricted Subsidiary Indebtedness" is defined as:
(i) Indebtedness or Preferred Stock to be outstanding immediately
after the Issue Date and listed on Schedule I of the Senior
Secured Indenture;
(ii) Indebtedness or Preferred Stock owing to and held by the Company
or any wholly owned subsidiary of the Company; provided, however,
that any subsequent issuance or transfer of any Capital Stock
that results in any such wholly owned subsidiary of the Company
ceasing to be a wholly owned subsidiary of the Company or any
subsequent transfer of any such Indebtedness (except to the
Company or a wholly owned subsidiary of the Company) is deemed,
in each case, to constitute the occurrence of such Indebtedness
by the issuer thereof;
(iii)Refinancing Indebtedness Incurred in respect of Indebtedness
Incurred pursuant to clause (i); and
(iv) in addition to any Indebtedness permitted by clauses (i) through
(iii) above, up to an aggregate of $10,000,000 in principal
amount of Indebtedness of Foreign Restricted Subsidiaries at any
one time outstanding.
Limitation on Restricted Payments. Neither the Company nor any Restricted
Subsidiary is permitted to (i) declare or pay any dividend on, or make any
distribution on or in respect of, its Capital Stock (including any such payment
in connection with any merger or consolidation involving the Company), except
dividends payable solely in its Capital Stock (other than Disqualified Stock) or
in options, warrants or other rights to purchase such Capital Stock and except
dividends or distributions payable solely to the Company or any Restricted
Subsidiary, (ii) purchase, redeem, retire or otherwise acquire for value any
Capital Stock of the Company or any Restricted Subsidiary held by Persons other
than the Company or any Restricted Subsidiary, (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value (including pursuant to
mandatory repurchase covenants), any Subordinated Obligation or (iv) make any
Investment (other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being herein referred to as a "Restricted Payment").
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
No Restricted Subsidiary is permitted to create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on or
in respect of its Capital Stock to the Company or any Restricted Subsidiary or
pay any Indebtedness owed to the Company or any Restricted Subsidiary, (ii) make
loans or advances to the Company or any Restricted Subsidiary or (iii) transfer
any of its property or assets to the Company or any Restricted Subsidiary,
except for (a) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date, (b) any encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on
which such Restricted Subsidiary became a Subsidiary of, or was acquired by, the
Company (other than Indebtedness Incurred as consideration in, or to provide all
or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Restricted
Subsidiary became a Subsidiary of, or was acquired by, the Company) and
outstanding on such date, (c) any encumbrance or restriction pursuant to an
agreement relating to an acquisition of property, so long as the encumbrances or
restrictions in such agreement relate solely to the property so acquired, (d)
any encumbrance or restriction pursuant to an agreement effecting a refinancing
of Indebtedness Incurred pursuant to an agreement referred to in clause (a), (b)
or (c) or contained in any amendment to any such agreement or amendment;
provided, however, that any encumbrance or restriction contained in any such
refinancing agreement or amendment is no less favorable to the Holders of the
Senior Secured Notes than any encumbrance or restriction contained in such
agreement; and (e) in the case of clause (iii), any encumbrance or restriction
(1) that restricts in a customary manner the subletting, assignment or transfer
of any property or asset that is a lease, license, conveyance or contract or
similar property or asset, (2) arising by virtue of any transfer of, agreement
to transfer, option or right with respect to, or Lien on, any property or assets
of the Company or any Restricted Subsidiary not otherwise prohibited by the
terms of the Senior Secured Indenture or (3) arising or agreed to in the
ordinary course of business and that does not, individually or in the aggregate,
detract from the value of property or assets of the Company or any Restricted
Subsidiary in any manner material to the Company or any such Restricted
Subsidiary.
Limitation on Liens and Impairment of Collateral. Neither the Company nor
any Restricted Subsidiary is permitted to create or permit to exist any Lien on
any of its property or assets (including Capital Stock), whether owned or the
Issue Date or thereafter acquired, or any right, title or interest thereto,
other than Permitted Liens.
Except as permitted by the Senior Secured Indenture or any of the other
Collateral Documents, the Company will not, and the Company will not permit any
of its Subsidiaries to, directly or indirectly, (i) take or omit to take any
action which might or would have the result of adversely affecting or impairing
the perfected first priority Lien of the Senior Secured Indenture and the other
Collateral Documents with respect to the Collateral or any right, title or
interest thereto or (ii) grant to any Person any interest in, or right, title or
interest to, the Collateral, other than, in each case, Permitted Liens.
Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries. The Company will not permit (i) any Restricted Subsidiary to issue
any Capital Stock other than to the Company or a wholly owned subsidiary of the
Company; or (ii) any Person (other than the Company or a wholly owned subsidiary
of the Company) to, directly or indirectly, own or control any Capital Stock of
any Restricted Subsidiary (other than directors' qualifying shares); provided,
however, that clauses (i) and (ii) will not prohibit (a) any sale of 100% of the
shares of the Capital Stock of any Restricted Subsidiary owned by the Company or
any wholly owned subsidiary of the Company effected in accordance with
"Limitation on Sales of Assets and Restricted Subsidiary Stock", (b) any Person
from owning any of the Pledged Stock (as defined herein) subsequent to any
foreclosure on or other transfer of such Pledged Stock in connection with an
exercise of remedies under any of the Collateral Documents or (c) any issuance
of Preferred Stock to any Person permitted under "Limitation on Restricted
Subsidiary Indebtedness and Preferred Stock".
Limitation on Sales of Assets and Restricted Subsidiary Stock. Neither the
Company nor any Restricted Subsidiary is permitted to make any Asset Disposition
unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Disposition at least equal to
the Fair Market Value of the shares, property and assets subject to such Asset
Disposition and (ii) at least 75% of such consideration (or, in the event of any
Asset Disposition of all or any portion of the Company's Magnetics Division or
any Foreign Subsidiary, at least 50% of such consideration) consists of cash or
Temporary Cash Investments.
Upon the closing of any such Asset Disposition, the Company will cause the
Net Cash Proceeds from such Asset Disposition to be delivered to the Trustee and
pledged to the Trustee for deposit in a collateral account in the name and under
the sole dominion and control of the Trustee and will take such other actions,
at the sole expense of the Company, as is reasonably requested by the Trustee to
create in favor of the Trustee on behalf of the Holders of the Senior Secured
Notes a perfected first priority Lien in respect of such Net Cash Proceeds and
all other property and assets received in connection with such Asset Disposition
and to insure that all such Collateral is free and clear of all Liens other than
Permitted Liens. Any proceeds from an Asset Disposition, other than Net Cash
Proceeds, will be subject to the Lien of the Senior Secured Indenture and the
other Collateral Documents in accordance with the provisions of the Senior
Secured Indenture.
Within 365 days after the receipt of any Net Cash Proceeds in connection
with any Asset Disposition, the Company or such Restricted Subsidiary, as the
case may be, may, subject to the procedures set forth below, reinvest up to
$3,500,000 of such Net Cash Proceeds in any 365-day period in Replacement
Collateral (other than Inventory) at a purchase price which does not exceed the
Fair Market Value of such Replacement Collateral so purchased (a "Replacement
Collateral Purchase"). The Company will take such actions, at the sole expense
of the Company, to create in favor of the Trustee for the benefit of the Holders
of the Senior Secured Notes a perfected first priority Lien in respect of any
Replacement Collateral concurrently with the acquisition thereof. Such
Replacement Collateral will be free and clear of Liens other than Permitted
Liens. Upon receipt by the Trustee of such documents and instruments in a form
satisfactory to the Trustee and evidence of the taking of such actions
satisfactory to the Trustee, as may be necessary or desirable, to create then in
favor of the Trustee the Lien in respect of the related Replacement Collateral
required by the Senior Secured Indenture and the other Collateral Documents and
compliance with the provisions described under "Possession, Use and Release of
Collateral", unless a Default or Event of Default has occurred at any time and
be continuing, the Trustee will simultaneously release from the Lien of the
Senior Secured Indenture and the other Collateral Documents, and deliver to the
Company, the Net Cash Proceeds that were delivered to the Trustee, together with
the proceeds thereof in the amount requested by the Company or such Restricted
Subsidiary; provided, that such amount can not exceed the purchase price of the
Replacement Collateral. In the event any Replacement Collateral is Capital Stock
of any Person and such Person will be a Restricted Subsidiary, the Company must
cause such Capital Stock to be pledged to the Trustee for the benefit of Holders
of the Senior Secured Notes; provided, that, in the event such Person is a
Foreign Restricted Subsidiary, such pledge will be limited to an amount equal to
the lesser of: (i) 65% of the total voting power of shares of all the
outstanding Capital Stock of such Person entitled to vote in the election of
directors, managers or trustees of such Person and (ii) the percentage of the
shares of such Capital Stock equal to the maximum percentage of such shares that
can be pledged to the Trustee without constituting an investment of earnings in
United States property under Section 956 (or any successor provision) of the
Code that would trigger an increase in the gross income of the Company or any of
its Subsidiaries pursuant to Section 951 (or any successor provision) of the
Code. In the event of any such pledge of Capital Stock, all the assets and
property of the issuer of such Capital Stock will be considered, if such issuer
is a U.S. Restricted Subsidiary, Replacement Collateral and the requirements
described above relating to the pledge thereof to the Trustee will apply in
full. Any Net Cash Proceeds that are not used within the time period specified
in the provisions described in the first sentence of this paragraph and in
accordance with the procedures referenced in such sentence will constitute
"Excess Proceeds".
To the extent that any or all of the Net Cash Proceeds of any Foreign Asset
Disposition received by a Restricted Subsidiary is prohibited or delayed by
applicable local law from being repatriated to the United States of America, the
portion of such Net Cash Proceeds so affected but may be retained by the
applicable Restricted Subsidiary until such repatriation of any such affected
Net Cash Proceeds is permitted under the applicable local law; such repatriation
will be immediately effected and such repatriated Net Cash Proceeds will be
applied in the manner set forth above.
Each time that the aggregate amount of Excess Proceeds relating to Asset
Dispositions equals or exceeds $2,000,000, taking into account income earned on
such Excess Proceeds (the "Asset Disposition Trigger"), the Company will, at its
option, either (i) apply (x) 50% of such Excess Proceeds to the payment as and
when due of one or more scheduled installments of principal of the Senior
Secured Notes in order of maturity and (y) 50% of such Excess Proceeds to the
redemption of Senior Secured Notes in accordance with paragraph 6 of the Senior
Secured Notes in the Senior Securied Indenture or (ii) make an offer to purchase
(an "Asset Disposition Purchase Offer") an aggregate principal amount of
outstanding Senior Secured Notes equal to the aggregate Excess Proceeds at such
time (the "Asset Disposition Purchase Amount") for cash at a purchase price
(such price, the "Asset Disposition Purchase Price") equal to 100% of the
principal amount of the Senior Secured Notes so purchased plus any accrued and
unpaid interest thereon to the Asset Disposition Purchase Date, in accordance
with the procedures (including prorationing in the event of over subscription)
set forth in the Senior Secured Indenture. Any such Excess Proceeds which remain
after the acquisition by the Company of Senior Secured Notes tendered (and not
withdrawn) by Holders of the Senior Secured Notes pursuant to any such Asset
Disposition Purchase Offer in accordance with the procedures (including
proration in the event of oversubscription) set forth in the Senior Secured
Indenture ceases to be Excess Proceeds and, notwithstanding the restrictions set
forth in paragraph 3 above, may be reinvested by the Company in Replacement
Collateral.
Within 30 days of the occurrence of an Asset Disposition Trigger, (i) the
Company will notify the Trustee in writing of the occurrence of the Asset
Disposition Trigger and will inform the Trustee as to whether the Company elects
to make the Asset Disposition Purchase Offer, (ii) if the Company elects to make
the Asset Disposition Purchase Offer, (x) the Company will make such offer to
purchase Senior Secured Notes in an aggregate principal amount equal to the
Asset Disposition Purchase Amount at the Asset Disposition Purchase Price on or
before the date specified in such notice, which date will be no more than 60
Business Days after the occurrence of the Asset Disposition Trigger (the "Asset
Disposition Purchase Date"), (y) the Trustee will mail a copy of the Asset
Disposition Purchase Offer to each Holders of the Senior Secured Notes and (z)
the Company will cause a notice of the Asset Disposition Purchase Offer to be
sent to the Dow Jones News Service or similar business news service in the
United States of America. Any such Asset Disposition Purchase Offer will remain
open from the time such offer is made until the Asset Disposition Purchase Date.
The Company will purchase all Senior Secured Notes properly tendered pursuant to
any such Asset Disposition Purchase Offer and not properly withdrawn. The
Trustee will be under no obligation to ascertain, and the Trustee will not be
deemed to have knowledge of, the occurrence of an Asset Disposition Trigger or
to give notice with respect thereto other than as provided above upon receipt of
an Asset Disposition Purchase Offer from the Company. The Asset Disposition
Purchase Offer will state, among other things, the procedures that Holders of
the Senior Secured Notes must follow to accept the Asset Disposition Purchase
Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Senior Secured Notes pursuant to the Senior
Secured Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the Senior Secured Indenture, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under the Senior Secured
Indenture by virtue thereof.
Capital Expenditures. The total amount of capital expenditures made by the
Company for plant, property and equipment and acquisitions of assets or capital
stock of a business or businesses (excluding reinvestments in Replacement
Collateral purchased with Net Cash Proceeds in an amount not to exceed
$3,500,000 in any 365-day period at a purchase price which is not to exceed the
Fair Market Value of the Replacement Collateral) and investments in joint
ventures is not permitted to exceed in any Fiscal Year of the Company the sum of
(i) $15,000,000, (ii) an amount equal to the amount of Subordinated Indebtedness
incurred during such Fiscal Year in connection with acquisitions of assets or
capital stock of a business or businesses not to exceed $10,000,000 and (iii) an
amount equal to the amount of Capital Stock (other than Disqualified Stock) of
the Company issued during such Fiscal Year in connection with acquisitions of
assets or capital stock of a business or businesses. If the aggregate capital
expenditures made by the Company and its Subsidiaries in any Fiscal Year is less
than $15,000,000, the difference between the capital expenditures actually made
and $15,000,000 may be carried forward into the next Fiscal Year.
Limitation on Transactions with Affiliates. Neither the Company nor any
Restricted Subsidiary is permitted to conduct any business, enter into or permit
to exist any transaction (including, without limitation, the sale, conveyance,
disposition, purchase, exchange or lease of any property, the lending, borrowing
or advancing of any money or the rendering of any services) with, or for the
benefit of, any Affiliate of the Company (an "Affiliate Transaction") unless (i)
the terms of such Affiliate Transaction are in writing, (ii) such Affiliate
Transaction is in the best interest of the Company or such Restricted
Subsidiary, as the case may be, (iii) such Affiliate Transaction is on terms as
favorable to the Company or such Restricted Subsidiary, as the case may be, as
those that could be obtained at the time of such Affiliate Transaction for a
similar transaction in arm's-length dealings with a Person who is not such an
Affiliate and (iv) with respect to each Affiliate Transaction involving
aggregate payments or value in excess of $500,000, such Affiliate Transaction
was approved by a majority of the Board of Directors of the Company, including a
majority of the disinterested members of such Board, as evidenced by a
resolution of such Board, provided, however, that the foregoing will not
prohibit (A) any issuance of securities or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board of
Directories of the Company, (B) loans or advances permitted under the Senior
Secured Indenture to employees of the Company or any Restricted Subsidiary in
the ordinary course of business in accordance with past practices of the
Company, (C) the payment of reasonable fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or any Restricted
Subsidiary, (D) any transaction between the Company and a wholly owned
subsidiary of the Company or between Wholly Owned Subsidiaries or (E) reasonable
and customary indemnification arrangements between the Company or any Restricted
Subsidiary and their respective directors and officers (to the extent that such
indemnification arrangements are permitted under applicable law).
Consolidation, Merger and Sale of Assets
Neither the Company nor any Restricted Subsidiary is permitted to enter
into any transaction or series of transactions to consolidate, amalgamate or
merge with or into any other Person (other than the merger of a wholly owned
subsidiary of the Company (i) with another wholly owned subsidiary of the
Company or (ii) into the Company), or directly or indirectly through its
Subsidiaries sell, convey, assign, transfer, lease or otherwise dispose of all
or substantially all its property and assets to any Person (other than to one or
more Wholly Owned Subsidiaries or to the Company) unless (i) if the Company is a
party to such transaction and is not the surviving entity (the "Surviving
Entity"), the Person formed by such consolidation or amalgamation or into which
the Company is merged or that acquires, by sale, conveyance, assignment,
transfer, lease or other disposition, all or substantially all the properties
and assets of the Company as an entirety, will be a corporation organized and
validly existing under the laws of the United States or any State thereof or the
District or Columbia and will expressly assume (a) by a supplemental indenture
all the obligations of the Company pursuant to the Senior Secured Notes and the
Senior Secured Indenture and (b) by written instruments all the obligations of
the Company pursuant to the other Collateral Documents; (ii) the Surviving
Entity, if any Restricted Subsidiary is a party to such transaction and is not
the Surviving Entity, will by written instruments executed and delivered to the
Trustee, in form satisfactory to the Trustee, expressly assume all the
obligations of such Restricted Subsidiary pursuant to the Collateral Documents;
(iii) immediately before and after giving effect to such transaction or series
of transactions on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the Company, the Surviving Entity or any Restricted
Subsidiary as a result of such transaction or series of transactions as having
been incurred by the Company, such Surviving Entity or such Restricted
Subsidiary at the time of such transaction or series of transactions) no Default
or Event of Default will have occurred and be continuing; (iv) immediately after
giving effect to such transaction or series of transactions on a pro forma basis
(and treating any Indebtedness which becomes an obligation of the Company, the
Surviving Entity or any Restricted Subsidiary as a result of such transaction or
series of transactions as having been incurred by the Company, such Surviving
Entity or such Restricted Subsidiary at the time of such transaction or series
of transactions), the Company or the Surviving Entity, as the case may be, will
have a Consolidated Tangible Net Worth which is not less than the Consolidated
Tangible Net Worth of the Company immediately prior to such transaction or
transactions; and (v) the Company will have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating (A) that such
consolidation, amalgamation, merger or transfer and such supplemental indenture
(if any) and written instrument (if any) comply with the Senior Secured
Indenture, (B) that upon execution and delivery of such supplemental indenture
or written instrument the Company or such Surviving Entity will be bound by the
terms of the Senior Secured Indenture as thereby amended and the Senior Secured
as thereby amended will be enforceable against the Company or such Successor
Entity in accordance with its terms, and (C) that the perfected first priority
Lien of the Trustee for the benefit of the Holders of the Senior Secured Notes
with respect to the Collateral continues in all respects.
Upon any transaction involving the Company in which the Company is not the
Surviving Entity, such Surviving Entity will succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Senior Secured
Indenture, but the Company in the case of a transfer or lease will not be
released from the obligation to pay the principal of, and interest on, the
Senior Secured Notes.
Restricted and Unrestricted Subsidiaries
The Board of Directors of the Company may designate any Subsidiary of the
Company or any Restricted Subsidiary to be an Unrestricted Subsidiary if (i) the
Subsidiary to be so designated does not own any Capital Stock, Redeemable Stock
or Indebtedness of, or own or hold any Lien on any property or assets of, the
Company or any other Restricted Subsidiary, (ii) the Subsidiary to be so
designated is not obligated by any Indebtedness or Lien that, if in default,
would result (with the passage of time or notice or otherwise) in a default on
any Indebtedness of the Company or any Restricted Subsidiary, and (iii) either
(A) the Subsidiary to be so designated has total assets of $1,000 or less or (B)
such designation is effective immediately upon such Person becoming a Subsidiary
of the Company or of a Restricted Subsidiary. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company or
any Restricted Subsidiary will be classified as a Restricted Subsidiary. Except
as provided in the first sentence of this paragraph, no Restricted Subsidiary
may be redesignated as an Unrestricted Subsidiary. Subject to the following
paragraph, an Unrestricted Subsidiary may not be redesignated as a Restricted
Subsidiary. Any such designation by the Board of Directors of the Company will
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of such Board giving effect to such designation and an Officers'
Certificate certifying that such designation complies with the foregoing
provisions. As of the effective date of the Plan of Reorganization, the Company
designated Florida AAC Corporation as the only U.S. Restricted Subsidiary under
the Senior Secured Indenture. Substantially all the non-U.S. subsidiaries of the
Company are designated as Foreign Restricted Subsidiaries.
Events of Default
An "Event of Default" occurs under the Senior Secured Indenture if:
(i) the Company fails to make any payment of interest on any
Securities when the same is due and payable, and such failure
continues for a period of 30 days;
(ii) the Company (A) fails to make the payment of the principal of any
Securities when the same becomes due and payable at its Stated
Maturity, upon acceleration, redemption or declaration, or
otherwise or (B) fails to redeem or purchase Securities when
required pursuant to the Senior Secured Indenture or the
Securities;
(iii) the Company fails to comply with any of its covenants or
agreements described under "Consolidation, Merger and Sale of
Assets";
(iv) the Company fails to comply with any of its covenants or
agreements described under "Change of Control", "Certain
Covenants--Limitation on Indebtedness, "Certain
Covenants--Limitation on Restricted Subsidiary Indebtedness and
Preferred Stock, "Certain Covenants--Limitation on Restricted
Payments, "Certain Covenants--Transactions with Affiliates",
"Certain Covenants--Limitation on Liens and Impairment of
Collateral", "Certain Covenants--Limitation on Restrictions on
Distributions from Restricted Subsidiaries", "Certain
Covenants--Limitation on Sales of Assets and Restricted
Subsidiary Stock", "Certain Covenants--Limitation on Issuance and
Sale of Capital Stock of Restricted Subsidiaries" or "Reports to
Holders" (other than a failure to purchase Senior Secured Notes
when required under "Change of Control" and "Certain
Covenants--Limitation on Sales of Assets and Restricted
Subsidiary Stock"), and such failure continues for 30 days after
the notice specified below or the Company fails to give the
notice specified below;
(v) the Company fails to comply with any of its agreements in the
Securities or the Senior Secured Indenture (other than those
specified in clauses (i), (ii), (iii) and (iv)) and such failure
continues for a period of 60 days after the notice specified
below or the Company fails to give the notice specified below;
(vi) principal of or interest on any Indebtedness of the Company or
any Restricted Subsidiary for borrowed money is not paid when due
within any applicable grace period or any Indebtedness of the
Company or any Restricted Subsidiary is accelerated by the
holders thereof, in each case, if the total amount so unpaid when
due within any applicable grace period or accelerated exceeds
$5,000,000 or its Dollar Equivalent at the time;
(vii)(A) the Company fails to comply with any of its representations,
warranties, covenants or agreements contained or incorporated by
reference in any Collateral Document (other than the Senior
Secured Indenture) and such failure continues beyond the
applicable grace period provided in such Collateral Document, (B)
on or after the Issue Date, other than in accordance with the
provisions of the Senior Secured Indenture, for any reason, other
than the satisfaction in full and discharge of all obligations
secured thereby, any Collateral Document ceases to be or is not
in full force and effect or any Lien with respect to Collateral
with a Fair Market Value that exceeds $500,000 in the aggregate
intended to be created by any Collateral Document ceases to be or
is not a valid and perfected first priority Lien for more than 5
days, (C) the occurrence of any event of default under any
Collateral Document or (D) on or after the Issue Date, other than
in accordance with the provisions of the Senior Secured
Indenture, the Company asserts in writing that any Collateral
Document has ceased to be or is not in full force and effect;
(viii)any judgment or decree aggregating in excess of $5,000,000 or
its Dollar Equivalent at the time is rendered against the Company
or any Restricted Subsidiary and is not discharged and either (A)
an enforcement proceeding has been commenced by any creditor upon
such judgment or decree or (B) there is a period of 60 days
following the entry of such judgment or decree during which such
judgment or decree is not discharged, waived or the execution
thereof stayed;
(ix) the Company or any Restricted Subsidiary pursuant to or within
the meaning of any Bankruptcy Law: (A) commences a voluntary
case; (B) consents to the entry of an order for relief against it
in an involuntary case; (C) consents to the appointment of a
Custodian of it or for any substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency; or
(x) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that: (A) is for relief against the Company or
any Restricted Subsidiary in an involuntary case; (B) appoints a
Custodian of the Company or any Restricted Subsidiary or for any
substantial part of its property; or (C) orders the winding up or
liquidation of the Company or any Restricted Subsidiary; or any
similar relief is granted under any foreign laws and the order or
decree remains unstated and in effect for 60 days.
A Default under clause (iv) or (v) will not be an Event of Default until
the Trustee or the Holders of at least 25% in principal amount of the Senior
Secured Notes notify the Company of the Default and the Company does not cure
such Default within the time specified after receipt of such notice. Such notice
must specify the Default, demand that it be remedied and state that such notice
is a "Notice of Default".
The Company will deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event which, with the giving of notice and the lapse of time, would become
an Event of Default under clause (iv), (v), (vi) or (viii), its status and what
action the Company is taking or proposes to take with respect thereto.
If an Event of Default (other than an Event of Default specified in clause
(ix) or (x)) occurs and is continuing, the Trustee, by notice to the Company or
the Holders of at least 25% in principal amount of the Senior Secured Notes by
notice to the Trustee (who will promptly notify the Company), may declare the
principal of and accrued interest on all the Senior Secured Notes to be due and
payable. Upon such declaration, such principal and interest will be due and
payable immediately. If an Event of Default specified in clause (ix) or (x)
occurs, the principal of and interest on all the Senior Secured Notes will ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holders of Senior Secured Notes. The
Holders of a majority in principal amount of the Senior Secured Notes by notice
to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of acceleration. No such rescission
will affect any subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the Senior Secured Notes
by notice to the Trustee may waive an existing Default or Event of Default and
its consequences except (i) a Default or Event of Default in the payment of the
principal (other than principal due by reason of acceleration) of or interest on
a any Security or (ii) a Default or Event of Default in respect of a provision
that cannot be amended without the consent of each Holder affected. When a
Default or Event of Default is waived, it is deemed cured, but no such waiver
will extend to any subsequent or other Default or Event of Default or impair any
consequent right.
A Holder of Senior Secured Notes may not pursue any remedy with respect to
the Senior Secured Indenture, the other Collateral Documents or the Senior
Secured Notes unless: (i) such Holder gives to the Trustee written notice
stating that an Event of Default is continuing; (ii) Holders of at least 25% in
principal amount of the Senior Secured Notes make a written request to the
Trustee to pursue the remedy; (iii) such Holder or Holders offer to the Trustee
reasonable security or indemnity against any loss, liability or expense; (iv)
the Trustee does not comply with the request within 60 days after receipt of the
request and the offer of security or indemnity; and (v) the Holders of a
majority in principal amount of the Senior Secured Notes do not give the Trustee
a written direction inconsistent with the request during such 60-day period.
Certain Bankruptcy Limitations
The right of the Trustee to repossess and dispose of the Collateral upon
the occurrence of an Event of Default is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or
against the Company prior to the Trustee having repossessed and disposed of the
Collateral. Under the Bankruptcy Law, secured creditors such as the Trustee are
prohibited from repossessing their security from a debtor in a bankruptcy case,
or from disposing of security repossessed from such debtor, without bankruptcy
court approval. Moreover, the Bankruptcy Law permits the debtor to continue to
retain and to use collateral even though the debtor is in default under the
applicable debt instrument; provided, that the secured creditor is given
"adequate protection". The meaning of the term "adequate protection" may vary
according to circumstances, but it is intended in general to protect the value
of the secured creditor's interest in the collateral and may include cash
payments or the granting of additional security, if and at such times as the
court in its discretion determines, for any diminution in the value of the
collateral as a result of the stay of repossession or disposition or any use of
the collateral by the debtor during the pendency of the bankruptcy case. In view
of the lack of a precise definition of the term "adequate protection" and the
broad discretionary powers of a bankruptcy court, it is impossible to predict
how long payments under the Senior Secured Notes could be delayed following
commencement of a bankruptcy case, whether or when the Trustee could repossess
or dispose of the Collateral or whether or to what extent Holders of the Senior
Secured Notes would be compensated for any delay in payment or loss of value of
the Collateral through the requirement of "adequate protection". In addition,
the Holders of the Senior Secured Notes would not be entitled to post-petition
interest in any bankruptcy involving the Company if the bankruptcy court
concluded that the Senior Secured Notes were not fully secured.
Collateral
The Senior Secured Notes are secured by a Lien on the Collateral, which
consists of substantially all the assets, real and personal, of the Company and
the U.S. Restricted Subsidiaries. The Collateral includes after-acquired assets
of the Company and the U.S. Restricted Subsidiaries to the extent that such
assets are acquired by the Company or any such U.S. Restricted Subsidiary
without financing secured by a Lien on such assets.
The tangible assets of the Company pledged as part of the Collateral
consists primarily of processing equipment; manufacturing equipment and tooling;
spare parts; long-term receivables; leasehold improvements; and office
furniture. The only real property owned by the Company that is part of the
Collateral is the Graham, Texas site on which the Company's primary magnetics
manufacturing facility is located. The Collateral does not include leases under
which the Company operates data service centers and certain other facilities.
The Collateral also consists of the Company's Accounts Receivable and Inventory
and substantially all the assets of the Company's U.S. Restricted Subsidiaries
and a pledge of all the common stock of the U.S. Restricted Subsidiaries and the
Foreign Restricted Subsidiaries.
Possession, Use and Release of Collateral
Unless an Event of Default has occurred and be continuing, the Company will
have the right to remain in possession and retain exclusive control of the
Collateral securing the Senior Secured Notes (other than any cash, securities,
obligations and Temporary Cash Investments constituting part of the Collateral
and deposited with the Trustee and other than as set forth in the Collateral
Documents), to freely operate the Collateral and to collect, invest and dispose
of any income thereon.
Release of Collateral with Trustee Consent. Unless an Event of Default has
occurred and be continuing, the Company has the right at any time and from time
to time to sell, exchange or otherwise dispose of any of the Collateral (other
than Trust Monies, which are subject to release from the Lien of the Senior
Secured Indenture and the other Collateral Documents as described under "Use of
Trust Monies" or upon substituting Substitute Collateral therefor as described
under "Substitute Collateral" below) (a "Release Transaction"), upon compliance
with the requirements and conditions of the provisions described above under
"Limitation on Sales of Assets and Restricted Subsidiary Stock" and the
provisions described below, and the Trustee will release the same from the Lien
of the Senior Secured Indenture and any of the other Collateral Documents upon
receipt by the Trustee of a notice requesting such release and describing the
property to be so released, provided that:
(i) The security afforded by the Senior Secured Indenture and the
other Collateral Documents will not be impaired by such release
in contravention of the provisions of the Senior Secured
Indenture and the other Collateral Documents, and either (1)
other property is to be substituted as Substitute Collateral in
accordance with the provisions set forth below or (2) the
proceeds from the property to be released are being deposited in
accordance with the provisions set forth above under "Limitation
on Sales of Assets and Restricted Subsidiary Stock".
(ii) The Company has disposed of or will dispose of the Collateral so
to be released for a consideration representing its Fair Market
Value.
(iii) No Event of Default has occurred and is continuing (or will
result therefrom).
(iv) If the Collateral to be released is only a portion of a discrete
parcel of real property, following such release and the release
of the Lien of any applicable Mortgage with respect thereto, the
non-released mortgaged property will (A) have sufficient utility
services and sufficient access to transportation structures for
the continued use of such mortgaged property in substantially the
manner carried on by the Company and its Subsidiaries prior to
such release; (B) comply in all material respects with applicable
laws, rules, regulations and ordinances relating to land use and
building and workplace safety; and (C) following such release,
the Fair Market Value of the mortgaged property (exclusive of the
Fair Market Value of the released mortgaged property) not be less
than the Fair Market Value of such mortgaged property prior to
such release.
(v) If the Collateral to be released is only a portion of a discrete
parcel of real property, the Company will have delivered to the
Trustee a survey depicting the real property to be released.
(vi) The first priority perfected Lien pursuant to the Collateral
Documents is in full force and effect continuously and
uninterrupted at all times.
(vii) If the Collateral to be released is subject to a prior Permitted
Lien, there will be delivered to the Trustee a certificate of the
trustee, mortgagee or other holder of such prior Permitted Lien
that it has received the applicable Net Cash Proceeds (except to
the extent that the assignment thereof would violate the terms
thereof or any agreement relating thereto) and has been
irrevocably authorized by the Company to pay over to the Trustee
any balance of such Net Cash Proceeds remaining after the
discharge of the Indebtedness secured by such prior Permitted
Lien; and, if any property other than cash, Temporary Cash
Investments or other obligations is included in the consideration
for any Collateral to be released, there will be delivered to the
Trustee such instruments of conveyance, assignment and transfer,
if any, as may be reasonably necessary, in the Opinion of Counsel
to be given pursuant to clause (ix), to subject to the Lien of
the Senior Secured Indenture and the other Collateral Documents
all the right, title and interest of the Company in and to such
Collateral.
(viii) If the Collateral to be released is only a portion of a
discrete parcel of real property, there will be delivered to the
Trustee evidence that a title company has committed to issue an
endorsement to the title insurance policy relating to the
non-released mortgaged property confirming that after such
release, the Lien of the applicable Mortgage continues unimpaired
as a first priority perfected Lien upon the remaining mortgaged
property.
(ix) The Company will deliver to the Trustee an Officers' Certificate,
dated not more than 30 days prior to the date of the application
for such release (and with respect to certain matters relating to
the release an Opinion of Counsel), with respect to the matters
described in clauses (i) through (vii).
In case an Event of Default has occurred and is continuing, the Company,
while in possession of the Collateral (other than cash, Temporary Cash
Investments, securities and other personal property held by, or required to be
deposited or pledged with, the Trustee under the Senior Secured Indenture or the
other Collateral Documents or with the trustee, mortgagee or other holder of a
prior Permitted Lien), may do any of the things described in the above
paragraphs, if the Trustee, in its discretion, or the Holders of 66 2/3% in
aggregate principal amount of the Senior Secured Notes outstanding, by
appropriate action of such Holders, consent to such action, in which event any
certificate filed pursuant to this paragraph will omit the statement to the
effect that no Event of Default has occurred and is continuing. This paragraph
does not apply, however, during the continuance of an Event of Default of the
type specified in paragraphs (i), (ii), (iii), (ix) or (x) under "Events of
Default".
All cash or Temporary Cash Investments received by the Trustee pursuant to
this covenant will be held by the Trustee, for the benefit of the Holders of the
Senior Secured Notes, as Trust Monies subject to application as provided under
"Use of Trust Monies" and "Limitation on Sales of Assets and Restricted
Subsidiary Stock". All purchase money and other obligations received by the
Trustee pursuant to the paragraphs above is held by the Trustee for the benefit
of the Holders as Collateral.
Substitute Collateral. Unless an Event of Default has occurred and be
continuing, the Company is permitted to, at its option, obtain a release of any
of the Collateral (including any Trust Monies other than Trust Monies which at
such time (i) constitute Excess Proceeds as described under "Limitation on Sales
of Assets and Restricted Subsidiary Stock" or (ii) have been deposited with the
Paying Agent in an amount sufficient to pay (A) the aggregate Change of Control
Purchase Price of all Senior Secured Notes or portions thereof that are to be
purchased on the Change of Control Purchase Date as described under "Change of
Control" or (B) the redemption price of and accrued interest on all Senior
Secured Notes or portions thereof to be redeemed on the redemption date in
accordance with the requirements of the Senior Secured Notes) by subjecting
other property, if such substitute property has a Fair Market Value equal to or
greater than the Collateral to be released (the "Substitute Collateral"), to the
perfected first priority Lien of the Senior Secured Indenture and the other
Collateral Documents or a similar instrument in place of and in exchange for any
of the Collateral to be released upon receipt by the Trustee of certain
documentation, appraisals, an Opinion of Counsel, surveys (in certain cases) and
title insurance (in certain cases).
Disposition of Inventory and Accounts Receivable Without Release.
Notwithstanding the provisions of "Release of Collateral with Trustee Consent",
the Company may without any release or consent by the Trustee sell, exchange or
otherwise dispose of inventory in the Ordinary Course of Business, assign,
collect, liquidate, sell, factor or otherwise dispose of Accounts Receivable in
the Ordinary Course of Business and dispose of the Proceeds thereof in
connection with the Company's business or to make other cash payments permitted
by the Senior Secured Indenture. The fair value of all sales, exchanges or other
dispositions of inventory and collections, liquidations, sales, factoring or
other dispositions of Accounts Receivable and the use of each in connection with
the Company's business and to make cash payments permitted by the Senior Secured
Indenture by the Company in accordance with this paragraph will not be
considered in determining whether the aggregate fair value of Collateral
released from the Lien of the Senior Secured Indenture in any calendar year
exceeds the 10% threshold specified in Section 314(d) of the Trust Indenture
Act.
In the event that the Company has sold, exchanged or otherwise disposed of
or proposes to sell, exchange or other dispose of any item of inventory and
Accounts Receivable which under the provisions described above may be sold,
exchanged or otherwise disposed of by the Company without any release or consent
of the Trustee, and the Company requests the Trustee to furnish a written
disclaimer, release or quitclaim of any interest in such property under the
Senior Secured Indenture and the other Collateral Documents, the Trustee will
execute such an instrument upon delivery to the Trustee of (i) an Officers'
Certificate reciting the sale, exchange or other disposition made or proposed to
be made, describing in reasonable detail the property affected thereby, and
stating that such property may be sold, exchanged or otherwise disposed of by
the Company without any release or consent of the Trustee in compliance with the
provisions hereof and (ii) an Opinion of Counsel to the effect that the sale,
exchange or other disposition made or proposed to be made by the Company is in
compliance with the provisions hereof.
Any releases of Collateral made in compliance with the provisions herein
will be deemed not to impair the Lien of the Senior Secured Indenture and other
Collateral Documents in contravention of the provisions of the Senior Secured
Indenture.
Disposition of Collateral Without Trustee Consent. Notwithstanding the
provisions of "Limitation on Liens and Impairment of Collateral", "Release of
Collateral with Trustee Consent", "Substitute Collateral" and "Disposition of
Inventory and Accounts Receivable Without Release", so long as no Event of
Default has occurred and be continuing, the Company will be permitted to,
without any consent by the Trustee:
(i) sell or otherwise dispose of any machinery, equipment, furniture,
apparatus, tools or implements, materials or supplies or other
similar property subject to the Lien of the Senior Secured
Indenture and the other Collateral Documents, which may have
become worn or obsolete, not exceeding in value in any one
calendar year $2,000,000;
(ii) grant rights-of-way and easements over or in respect of any real
property rights relating to the Collateral; provided, that such
grant will not impair the usefulness of such property in any
material respect in the conduct of the Company's business and
will not be prejudicial to the interests of the Holders of the
Senior Secured Notes;
(iii) abandon, terminate, cancel, release or make alterations in or
substitutions of any leases, contracts or rights-of-way subject
to the Lien of the Senior Secured Indenture and the other
Collateral Documents; provided, that any altered or substituted
leases, contracts or rights-of-way will, without further action,
be subject to the Lien of the Senior Secured Indenture and the
other Collateral Documents to the same extent as those previously
existing;
(iv) surrender or modify any franchise, license or permit subject to
the Lien of the Senior Secured Indenture and the other Collateral
Documents which it may own or under which it may be operating;
provided, that, if, after the surrender or modification of any
such franchise, license or permit, the Company will not be
entitled, under some other, or without any, franchise, license or
permits to conduct its business in the territory in which it is
then operating and the Fair Market Value of such franchise,
license or permit exceeds $5,000,000, then the Board of Directors
of the Company will have determined, in its reasonable opinion,
that such territory is not material to the conduct of the
Company's business; or
(v) alter, repair, replace, change the location or position of and
add to its plants, structures, machinery, systems, equipment,
fixtures and appurtenances; provided, that no change in the
location of any such Collateral subject to the Lien of the Senior
Secured Indenture and the other Collateral Documents will be made
which (A) removes such property into a jurisdiction in which any
instrument required by law to preserve the Lien of the Senior
Secured Indenture and any other Collateral Document on such
property has not been recorded, registered or filed in the manner
required by law to preserve the Lien of the Senior Secured
Indenture and the other Collateral Documents on such property,
(B) does not comply with the terms of the Senior Secured
Indenture and the other Collateral Documents or (C) otherwise
impairs the Lien of the Senior Secured Indenture and the other
Collateral Documents.
Use of Trust Monies
All Trust Monies (including, without limitation, all Net Cash Proceeds
consisting of cash and Temporary Cash Investments required to be deposited with
the Trustee) will be held by the Trustee for the benefit of the Holders as a
part of the Collateral securing the Senior Secured Notes and, so long as no
Event of Default has occurred and be continuing, may, at the direction of the
Company, be applied by the Trustee from time to time in accordance with the
provisions described under "Limitation on Sales of Assets and Restricted
Subsidiary Stock" or to the acquisition of property or assets to be made subject
to the Lien of the Senior Secured Indenture and the other Collateral Documents
pursuant to the provisions described under "Possession, Use and Release of
Collateral--Substitute Collateral", to the payment of the principal of, and
interest on, any Senior Secured Notes from time to time, at maturity or upon
redemption, declaration or acceleration or in any one or more of such ways, in
each case in accordance with the terms of the Senior Secured Indenture.
Application of Trust Monies as described in this paragraph requires that the
Company provide the Trustee with Officers Certificates, Opinions of Counsel and
appraisals similar to those described in "Possession, Use and Release of
Collateral--Release of Collateral with Trustee Consent" and "Substitute
Collateral.
Amendment, Supplement and Waiver
Subject to certain exceptions, the Senior Secured Indenture may be amended
or supplemented with the written consent of the Holders of at least a majority
in principal amount of the Senior Secured Notes then outstanding and any
existing Default or compliance with any provisions may be waived with the
consent of the Holders of at least a majority in principal amount of the Senior
Secured Notes then outstanding. However, without the consent of each Holder of
an outstanding Senior Secured Note, no amendment may, among other things:
(i) reduce the percentage of principal amount of Senior Secured Notes
whose Holders must consent to an amendment;
(ii) reduce the rate of or extend the time for payment of interest on
any Senior Secured Notes;
(iii) reduce the principal of or extend the Stated Maturity of any
Senior Secured Notes;
(iv) change the time at which any Senior Secured Notes may be
redeemed;
(v) make any Note payable in money other than that stated in the
Note;
(vi) impair the right of any Holder of Senior Secured Notes to
institute suit for the enforcement of any payment on or with
respect to any Senior Secured Notes;
(vii) permit the creation of any Lien on the Collateral or any part;
thereof (other than the Lien of the Senior Secured Indenture and
the other Collateral Documents and other Permitted Liens (as
defined on the Issue Date)) or terminate the Lien of the Senior
Secured Indenture and the other Collateral Documents as to the
Collateral or any part thereof or deprive the Holders of Senior
Secured Notes of the security afforded by the Lien of the Senior
Secured Indenture and the other Collateral Documents or any part
thereof, except as set forth under "Limitation on Liens and
Impairment of Collateral" and "Possession, Use and Release of
Collateral"; or
(viii) make any change in the amount of Senior Secured Notes whose
Holders must consent to any amendment or action.
Without the consent of any Holder of the Senior Secured Notes, the Company
and the Trustee may, among other things, amend or supplement the Senior Secured
Indenture to cure any ambiguity, omission, defect or inconsistency, to establish
or maintain the Lien of the Senior Secured Indenture and the other Collateral
Documents as a perfected first priority Lien of the Trustee in respect of the
Collateral, to correct or amplify the description of any Collateral subject to
the Lien of the Senior Secured Indenture or the other Collateral Documents, to
subject additional property or assets to the Lien of the Senior Secured
Indenture or the other Collateral Documents, to add Guarantees with respect to
the Senior Secured Notes, to add to the covenants of the Company for the benefit
of the Holders of the Senior Secured Notes or to surrender any right or power
conferred upon the Company, to enter into any Intercreditor Agreement (as
defined in the Security and Pledge Agreement), to make any change that does not
adversely affect the rights of any Holder of the Senior Secured Notes, to
provide for the acceptance of appointment hereunder by a successor Trustee, or
to comply with any requirement of the Commission in connection with the
qualification of the Senior Secured Indenture under the Trust Senior Secured
Indenture Act; provided that the Company has delivered to the Trustee an Opinion
of Counsel and an Officer's Certificate stating that such amendment or
supplement complies with the foregoing provisions.
After an amendment under the paragraph above becomes effective, the Company
will mail to Holders of Senior Secured Notes a notice briefly describing such
amendment. The failure to give such notice to all Holders of Senior Secured
Notes, or any defect therein, does not impair or affect the validity of an
amendment under the paragraph above.
Satisfaction and Discharge of the Senior Secured Indenture
The Senior Secured Indenture will cease to be of further effect (except as
otherwise expressly provided for in the Senior Secured Indenture) when either
(i) all outstanding Senior Secured Notes have been delivered (other than lost,
stolen or destroyed Senior Secured Notes which have been replaced) to the
Trustee for cancellation or (ii) all outstanding Senior Secured Notes have
become due and payable and the Company has irrevocably deposited with the
Trustee funds sufficient to pay at maturity or upon redemption all outstanding
Senior Secured Notes, including interest thereon (other than lost, stolen or
destroyed Senior Secured Notes which have been replaced), and, in either case,
the Company has paid all sums payable under the Senior Secured Indenture.
Concerning the Trustee
The Bank of New York is the trustee under the Senior Secured Indenture. The
trustee's current address is 101 Barclay Street, New York, NY 10286.
Governing Law
The Senior Secured Indenture provides that it and the Senior Secured Notes
are governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
Certain Definitions
The following definitions, among others, are used in the Senior Secured
Indenture. Many of the definitions of terms used in the Senior Secured Indenture
have been negotiated specifically for the purposes of the Senior Secured
Indenture and may not be consistent with the manner in which such terms are
defined in other contexts. Prospective purchasers of Senior Secured Notes are
encouraged to read each of the following definitions carefully and to consider
such definitions in the context in which they are used in the Senior Secured
Indenture.
"Accounts Receivable" means any and all rights of the Company or any U.S.
Restricted Subsidiary to payment for Inventory sold or services performed in the
Ordinary Course of Business, whether due or to become due, whether or not earned
by performance, whether now in existence or arising from time to time hereafter,
including, without limitation, rights evidenced by or in the form of an account,
note, draft, letter of credit, contract right, security agreement, chattel paper
or other evidence of indebtedness or security. The term "Accounts Receivable"
does not include any such right classified as long-term or the equivalent
thereof on the Company's or such U.S. Restricted Subsidiary's financial
statements prepared in accordance with GAAP.
"Asset Disposition" means any direct or indirect sale, lease, transfer,
conveyance or other disposition (or series of related sales, leases, transfers,
conveyances or other dispositions) of shares of Capital Stock (including,
without limitation, the Pledged Stock) of any Restricted Subsidiary (other than
directors' qualifying shares), property or other assets (each referred to for
the purposes of this definition as a "disposition") by the Company or any
Restricted Subsidiary (including by means of a merger, consolidation or similar
transaction), other than (i) a disposition by a Restricted Subsidiary to the
Company or by the Company or a Restricted Subsidiary to a wholly owned
subsidiary of the Company, (ii) a disposition of the Company's or any Restricted
Subsidiary's Accounts Receivable, Lease Receivables or Inventory (other than the
disposition of Inventory pursuant to a Sale/Leaseback Transaction) at Fair
Market Value in the Ordinary Course of Business, (iii) a disposition of property
or assets, whether in a single transaction or a series of related transactions
which constitute a single plan of disposition, that have an aggregate Fair
Market Value not in excess of $100,000, (iv) an operating lease entered into in
the ordinary course of business with respect to property, plant or equipment
that in the judgment of the Board of Directors of the Company constitutes excess
capacity or (v) a "like-kind exchange" of an asset in exchange for an asset of a
third party, so long as, in the judgment of the Company's Board of Directors,
the asset received by the Company or such Restricted Subsidiary in such exchange
(x) has a Fair Market Value at least equal to the fair market value of the asset
transferred by the Company or such Restricted Subsidiary and (y) is usable in a
Permitted Line of Business to at least the same extent as the asset transferred
by the Company or such Restricted Subsidiary. The term "Asset Disposition"
includes the requisition of title to, seizure of or forfeiture of any property
or assets, or any actual or constructive total loss or an agreed or compromised
total loss of any property or assets. The term "Asset Disposition" when used
with respect to the Company does not include any disposition pursuant to
"Merger, Consolidation and Sale of Assets" which constitutes a disposition of
all or substantially all the assets of the Company.
"Bankruptcy Law" means Title 11, United States Code, or any similar Federal
or state law for the relief of debtors.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests (including partnership interests) in (however designated) equity of
such Person, including any Preferred Stock, but excluding any debt securities
convertible into such equity.
"Collateral Documents" means the Senior Secured Indenture, the Security and
Pledge Agreement, the Mortgages and each other document, agreement or instrument
evidencing, perfecting, assuring or otherwise relating to the Lien in respect of
the Collateral and all amendments, supplements or other modifications thereto.
"Consolidated Tangible Net Worth" means the amount by which (i) the total
of the amounts shown on the balance sheet of the Company and its consolidated
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of the Company ending at least 45 days
prior to the taking of any action for the purpose of which the determination is
being made, as (x) the par or stated value of all outstanding Capital Stock of
the Company plus (y) paid-in capital or capital surplus relating to such Capital
Stock plus (z) any retained earnings or earned surplus exceeds (ii) the sum of
(A) any accumulated deficit, (B) any amounts attributable to Disqualified Stock,
(C) the amounts appearing on the assets side of such balance sheet for all
contracts, patents, trademarks, copyrights and other intellectual property
rights, franchises, licenses, goodwill, treasury stock, unamortized debt
discount and expense and similar intangibles, (D) any increase in the amount of
capitalized research and development and capitalized interest subsequent to the
Issue Date, and (E) the amount of any write-up subsequent to the Issue Date in
the book value of any asset owned on the Issue Date resulting from the
revaluation thereof subsequent to such date, or any write-up in excess of the
cost of any asset acquired subsequent to that date.
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" of a Person means Redeemable Stock of such Person as
to which the maturity, mandatory redemption, conversion or exchange or
redemption at the option of the Holder thereof occurs, or may occur, on or prior
to the first anniversary of the Stated Maturity of the Senior Secured Notes.
"EBITDA" means, for any period, the Consolidated Net Income for such
period, plus, to the extent deducted in calculating such Consolidated Net
Income, (i) income tax expense, (ii) Consolidated Interest Expense, (iii)
depreciation expense, (iv) amortization expense and (v) any charge related to
any penalty paid in connection with redeeming or retiring any Indebtedness prior
to its Stated Maturity, in each case for such period.
The term "Consolidated Net Income" means, for any period, the net income
(loss) of the Company and its consolidated Subsidiaries for such period
determined in accordance with GAAP but excluding for such purposes the impact of
any Fresh Start Accounting adjustment. The term "Consolidated Net Income" does
not include (i) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that (A) subject to the limitations contained in
clause (iv), the Company s equity in the net income of any such Person for such
period is included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii)) and (B) the Company's equity in a net
loss of any such Person (other than an Unrestricted Subsidiary) for such period
will be included in determining such Consolidated Net Income, (ii) any net
income (loss) of any Person acquired by the Company or a Restricted Subsidiary
in a pooling of interests transaction for any period prior to the date of such
acquisition, (iii) any net income (loss) of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject to
the limitations contained in clause (iv), the Company's equity in the net income
of any such Restricted Subsidiary for such period will be included in such
Consolidated Net Income up to the aggregate amount of cash that could have been
distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend (subject, in the case of a dividend
to another Restricted Subsidiary, to the limitation contained in this clause)
and (B) the Company's equity in a net loss of any such Restricted Subsidiary for
such period will be included in determining such Consolidated Net Income, (iv)
any gain (but not loss) realized upon the sale or other disposition of any
property, plant or equipment of the Company or its consolidated Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) which is not sold or
otherwise disposed of in the ordinary course of business, (v) any gain (but not
loss) realized upon the sale or other disposition of any Capital Stock of any
Person, (vi) any extraordinary gain or loss, (vii) the cumulative effect of any
change in accounting principles and (viii) any nonrecurring restructuring
changes for any fiscal quarter in the Fiscal Year of the Company commencing
October 1, 1995.
The term "Consolidated Interest Expense" means, for any period, the sum of
(i) the total cash and non cash interest expense of the Company and its
consolidated Subsidiaries, plus, to the extent not included in such interest
expense, (A) interest expense attributable to capital Lease Obligations, (B)
amortization of debt discount and debt issuance cost, (C) capitalized interest,
(D) accrued interest, (E) commissions, discounts and other fees and charges paid
or owed with respect to letters of credit and bankers' acceptance financing, (F)
interest actually paid by the Company or any such Subsidiary under any Guarantee
of Indebtedness or other obligation of any other Person, (G) net costs
associated with Hedging Obligations (including amortization of discounts and
fees), (H) the interest portion of any deferred obligation, (I) Preferred Stock
dividends in respect of all Preferred Stock of Subsidiaries of the Company and
Redeemable Stock of the Company held by Persons other than the Company or a
wholly owned subsidiary of the Company and (J) cash contributions to any
employee stock ownership plan or similar trust to the extent such contributions
are used by such plan or trust to pay interest or fees to any Person (other than
the Company) in connection with Indebtedness Incurred by such plan or trust. The
term "Consolidated Interest Expense" does not include any such interest expense
of any Unrestricted Subsidiary to the extent the related Indebtedness is not
Guaranteed or paid by the Company or any Restricted Subsidiary, less (ii) to the
extent included in clause (i), amortization or write-off of deferred financing
costs of the Company and its consolidated Subsidiaries during such period and
any charge related to any penalty paid in connection with redeeming or retiring
any Indebtedness of the Company and its consolidated Subsidiaries prior to its
Stated Maturity.
"Fair Market Value" means, with respect to any property or asset, the price
which could be negotiated in an arms-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction; provided, that the foregoing
does not prohibit sales of inventory at a discount or on terms which are typical
in the industry to which such inventory relates.
"Foreign Asset Disposition" means an Asset Disposition in respect of
Capital Stock or assets of a Restricted Subsidiary of the type described in
Section 936 of the Internal Revenue Code of 1986, as amended, to the extent that
the proceeds of such Asset Disposition are received by a Person subject in
respect of such proceeds to the tax laws of a jurisdiction other than the United
States of America, any State thereof or the District of Columbia.
"Foreign Restricted Subsidiaries" means any Restricted Subsidiary that is
incorporated in a jurisdiction other than the United States of America, any
state thereof or the District of Columbia.
"Guarantee" means any obligation, contingent or otherwise, of any Person,
directly or indirectly, guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay for (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to take-or-pay
or to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part). The term "Guarantee" does not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Protection Agreement, Commodity Price Protection
Agreements or Currency Exchange Protection Agreement or other similar agreement
or arrangement.
"Incur" means to, directly or indirectly, create, issue, assume, guarantee,
incur (by conversion, exchange or otherwise) extend, assume, or otherwise become
liable for, contingently or otherwise. Any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) will be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. "Incurrence", "Incurred" and
"Incurring" each have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination, (without duplication) (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all Capital Lease
Obligations and all Attributable Indebtedness of such Person; (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except (A) Trade Payables and (B) any obligation to pay
any portion of such purchase price that becomes due only if the earnings
attributable to such property or services satisfy predetermined minimum amounts
subsequent to the purchase of such property or services and the amount of such
obligation cannot be determined on the date of such purchase); (v) all
obligations of such Person in respect of letters of credit, banker's acceptances
or other similar instruments or credit transactions (including reimbursement
obligations with respect thereto), other than obligations with respect to
letters of credit securing obligations (other than obligations described in
clauses (i) through (iv)) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the third
business day following receipt by such Person of a demand for reimbursement
following payment on any such letter of credit; (vi) the amount of all
obligations of such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock or, with respect to any Subsidiary of such
Person, any Preferred Stock (but excluding in each case, any accrued dividends);
(vii) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person; provided,
however, that the amount of such Indebtedness is the lesser of (A) the Fair
Market Value of such asset at such date of determination and (B) the amount of
such Indebtedness of such other Persons; (viii) all Indebtedness of other
Persons to the extent Guaranteed by such Person; and (ix) to the extent not
otherwise included in this definition, obligations of such Person in respect of
Hedging Obligations. For purposes of this definition, the maximum fixed
redemption, repayment or repurchase price of any Disqualified Stock or Preferred
Stock that does not have a fixed redemption, repayment or repurchase price is
calculated in accordance with the terms of such Stock as if such Stock were
redeemed, repaid or repurchased on any date on which Indebtedness is required to
be determined pursuant to the Senior Secured Indenture; provided, however, that
if such Stock is not then permitted to be redeemed, repaid or repurchased, the
redemption, repayment or repurchase price will be the book value of such Stock
as reflected in the most recent financial statements of such Person. The amount
of Indebtedness of any Person at any date will be the outstanding balance at
such date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date.
"Investments" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of any such Person) or
other extension of credit (including by way of Guarantee or similar arrangement)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others) such Person, or any purchase or acquisition of all or substantially all
the business or assets of, Capital Stock, Indebtedness any other evidence of
beneficial ownership or other similar instruments issued by, such Person. For
purposes of "Limitation on Restricted Payments" and "Restricted and Unrestricted
Subsidiaries", (i) the term "Investment" includes the portion (proportionate to
the Company's equity interest in such Subsidiary) of the Fair Market Value of
the net assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company will be
deemed to continue and have a permanent "Investment" in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in
such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the Fair
Market Value of the net assets of such Subsidiary at the time that such
Subsidiary is so redesignated a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary will be valued at its Fair
Market Value at the time of such transfer. In determining the amount of any
Investment in respect of any property or assets other than cash, such property
or asset will be valued at its Fair Market Value at the time of such Investment
(unless otherwise specified in this definition).
"Issue Date" means the date on which the Senior Secured Notes were issued
pursuant to the Senior Secured Indenture, which was June 4, 1996.
"Lien" means any mortgage, deed of trusts, pledge, hypothecation,
assignment, deposit arrangement, preference, priority, security interest,
encumbrance, easement, restriction, covenant, right-of-way, servitude, lien
(statutory or otherwise), charge, other security or similar agreement or
preferential arrangement of any kind or nature whatsoever or other adverse claim
of any kind or nature (including, without limitation, any conditional sale or
other title retention agreement or lease having substantially the same economic
effect of any of the foregoing.
"Magnetics Division" means the property and assets of the Company or any
Restricted Subsidiary used in connection with the manufacture, marketing and
sale of magnetic tape, computer tape or other magnetic products.
"Net Cash Proceeds" from an Asset Disposition means the sum of (i) cash
payments and Temporary Cash Investments received (including any cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring person of Indebtedness or other obligations relating to such
properties or assets or received in any other non-cash form) therefrom and (ii)
the Fair Market Value of all securities issued to the Company or a Subsidiary of
the Company in connection therewith, in each case net of (A) all legal, title
and recording tax expenses, commissions and other fees and expenses incurred,
and all Federal, state, provincial, foreign and local taxes required to be paid
or accrued as a liability under GAAP as a consequence of such Asset Disposition,
(B) all payments made on any Indebtedness which is secured by any property or
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon such property or assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of the proceeds from such Asset Disposition, (C) all distributions
and other payments required to be made to minority interest Holders in
Subsidiaries or joint ventures as a result of such Asset Disposition and (D) the
deduction of appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property or
assets disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition; provided, that, in the event
that any consideration for such Asset Disposition (which would otherwise
constitute Net Cash Proceeds) is required to be held in escrow pending
determination of whether a purchase price adjustment will be made, such
consideration (or any portion thereof) is Net Cash Proceeds only at such time as
it is released to the Company or any Restricted Subsidiary from escrow;
provided, further, that any non-cash consideration received in connection with
such Asset Disposition, which is subsequently converted to cash, will be deemed
to be Net Cash Proceeds at such time and will thereafter be applied in
accordance with "Limitation on Sales of Assets and Restricted Subsidiary Stock".
The term "Net Cash Proceeds" from an issuance or sale of Capital Stock means the
cash proceeds of such issuance or sale, net of attorneys' fees, accountants'
fees, underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees actually incurred in connection with such
issuance or sale and net of taxes paid or payable as a result thereof.
"Ordinary Course of Business" means sales or assignments of inventory or
accounts receivable or the performance of services at Fair Market Value or the
collection of accounts receivable in the ordinary course of business of the
Company and does not include any sale, assignment or collection (i) after any
Foreclosure Event or (ii) after the voluntary or involuntary bankruptcy of the
Company, including, without limitation, those events of the type described in
clauses (ix) and (x) of the "Events of Default". The ordinary course of business
includes (i) sales of inventory to customers, (ii) returns of merchandise to
manufacturers or distributors for refunds or credit and (iii) exchanges of
inventory with manufacturers or distributors for other inventory.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a wholly owned subsidiary of the Company (including any Person
which will become a wholly owned subsidiary of the Company as a result of such
Investment) or any Person that is merged or consolidated with or into, or
transfers or conveys all or substantially all of its business or assets to, the
Company or any wholly owned subsidiary of the Company at the time such
Investment is made; (ii) Temporary Cash Investments; (iii) receivables owing to
the Company or such Restricted Subsidiary, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; provided, however, that nothing in this paragraph limits
in any way the ability of the Company or such Restricted Subsidiary to settle,
compromise or otherwise deal with such receivables in the ordinary course of
business; (iv) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business; (v)
loans or advances, in the aggregate principal amount of $6,000,000 outstanding
from time to time, to employees of the Company or such Restricted Subsidiary
made in the ordinary course of business consistent with past practices of the
Company or such Restricted Subsidiary, as the case may be; (vi) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or such Restricted
Subsidiary or in satisfaction of judgments; (vii) joint ventures, whether in the
form of cash or through a contribution of assets (the nature of which, if other
than cash, to be determined in good faith by the Board of Directors of the
Company, in an amount not to exceed $10,000,000 at any one time for any joint
venture; provided, however, that the aggregate amount so invested in joint
ventures may not exceed the amount permitted under "Capital Expenditures"; and
(viii) any other property, asset or Person if made pursuant to any written
agreement of the Company or such Restricted Subsidiary in effect on the Issue
Date; and (ix) Investments made as a result of the receipt of non-cash
consideration from an Asset Disposition that was made pursuant to and in
compliance with the provisions under "Limitation on Sales and Assets and
Restricted Subsidiary Stock" or a disposition of assets pursuant to and in
compliance with the provisions under "Successor Company" hereof.
"Permitted Liens" means (i) pledges or deposits by the Company or any
Restricted Subsidiary under workmen's compensation laws, unemployment insurance
laws, other types of social security benefits or similar legislation, or good
faith deposits in connection with bids, tenders or contracts (other than for the
payment of Indebtedness) or leases to which the Company or any Restricted
Subsidiary is a party, or deposits to secure public or statutory obligations or
deposits of cash or United States government bonds to secure surety or appeal
bonds to which the Company or any Restricted Subsidiary is a party, or deposits
as security for contested taxes or import duties or for the payment of rent, in
each case incurred by the Company or any Restricted Subsidiary in the ordinary
course of business consistent with past practice; (ii) Liens imposed by law,
such as carriers', warehousemen's and mechanics Liens, in each case for sums not
yet due from the Company or any Restricted Subsidiary or being contested in good
faith by appropriate proceedings by the Company or any Restricted Subsidiary, as
the case may be, or other Liens arising out of judgments or awards against the
Company or any Restricted Subsidiary with respect to which the Company or such
Restricted Subsidiary, as the case may be, is prosecuting an appeal or other
proceedings for review; (iii) Liens for property taxes or other taxes,
assessments or governmental charges of the Company or any Restricted Subsidiary
not yet due or payable or subject to penalties for nonpayment or which are being
contested by the Company or such Restricted Subsidiary, as the case may be, in
good faith by appropriate proceedings; (iv) Liens in favor of issuers of standby
letters of credit, performance bonds and surety bonds; (v) survey exceptions,
encumbrances, easements or reservations of, or rights of others for, licenses,
rights-of-way, sewers, electric lines, telegraph and telephone lines and other
similar purposes or zoning or other restrictions as to the use of real property
of the Company or any Restricted Subsidiary incidental to the ordinary course of
conduct of the business of the Company or such Restricted Subsidiary or as to
the ownership of properties of the Company or any Restricted Subsidiary, which,
in either case, were not incurred in connection with Indebtedness and which do
not in the aggregate materially adversely affect the value of said properties or
materially impair their use in the operation of the business of the Company or
any Restricted Subsidiary; (vi) Liens to secure Indebtedness permitted under
clause (i) of "Limitations of Indebtedness" and clause (iv) of "Limitations of
Subsidiary Indebtedness and Preferred Stock"; (vii) Liens outstanding
immediately after the Issue Date as set forth on Schedule II under the Senior
Secured Indenture (and not otherwise permitted by clause (vi)); (viii) Liens on
property, assets or shares of stock of any Restricted Subsidiary at the time
such Restricted Subsidiary became a Subsidiary of the Company; provided,
however, that (A) if any such Lien is Incurred in anticipation of such
transaction, such property, assets or shares of stock subject to such Lien will
have a Fair Market Value at the date of the acquisition thereof not in excess of
the lesser of (1) the aggregate purchase price paid or owed by the Company in
connection with the acquisition of such Restricted Subsidiary and (2) the Fair
Market Value of all property and assets of such Restricted Subsidiary and (B)
any such Lien can not extend to any other property or assets owned by the
Company or any Restricted Subsidiary; (ix) Liens on property or assets at the
time the Company or any Restricted Subsidiary acquired such property or assets,
including any acquisition by means of a merger or consolidation with or into the
Company or such Restricted Subsidiary; provided, however, that (A) if any such
Lien is incurred in anticipation of such transaction, such property or assets
subject to such Lien will have a Fair Market Value at the date of the
acquisition thereof not in excess of the lesser of (1) the aggregate purchase
price paid or owed by the Company or such Restricted Subsidiary in connection
with the acquisition thereof and of any other property and assets acquired
simultaneously therewith and (2) the Fair Market Value of all such property and
assets acquired by the Company or such Restricted Subsidiary and (B) any such
Lien will not extend to any other property or assets owned by the Company or any
Restricted Subsidiary; (x) Liens securing Indebtedness or other obligations of a
Restricted Subsidiary owing to the Company or a wholly owned subsidiary of the
Company; (xi) Liens to secure any extension, renewal, refinancing, replacement
or refunding (or successive extensions, renewals, refinancings, replacements or
refundings), in whole or in part, of any Indebtedness secured by Liens referred
to in any of clauses (vii), (viii) and (ix); provided, however, that any such
Lien will be limited to all or part of the same property or assets that secured
the original Lien (plus improvements on such property) and the aggregate
principal amount of Indebtedness that is secured by such Lien will not be
increased to an amount greater than the sum of (A) the outstanding principal
amount, or, if greater, the committed amount, of the Indebtedness described
under clauses (vii), (viii) and (ix) at the time the original Lien became a
Permitted Lien under the Senior Secured Indenture and (B) an amount necessary to
pay any premiums, fees and other expenses Incurred by the Company in connection
with such refinancing, refunding, extension, renewal or replacement; and (xii)
Liens on property or assets of the Company or any Restricted Subsidiary securing
Indebtedness (1) under Purchase Money Indebtedness or Capital Lease Obligations
permitted under, in the case of the Company, and, in the case of such Restricted
Subsidiary, "Limitations of Subsidiary Indebtedness and Preferred Stock";
provided, that (A) the amount of Indebtedness Incurred in any specific case does
not, at the time such Indebtedness is Incurred, exceed the lesser of the cost or
Fair Market Value of the property or asset acquired or constructed in connection
with such Purchase Money Indebtedness or Capital Lease Obligation, (B) such Lien
attachs to such property or asset upon acquisition of such property or asset,
and (C) no property or asset of the Company or any Restricted Subsidiary (other
than the property or asset acquired or contracted in connection with such
Purchase Money Indebtedness or Capital Lease Obligation) are subject to any Lien
securing such Indebtedness.
"Pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Senior Secured Indenture, a calculation in
accordance with Article 11 of Regulation S-X promulgated under the Securities
Act (to the extent applicable) as interpreted in good faith by the Board of
Directors of the Company after consultation with the independent certified
public accountants of the Company, or otherwise a calculation made in good faith
by such Board after consultation with such independent certified public
accountants, as the case may be.
"Purchase Money Indebtedness" means, with respect to any Person, all
obligations of such Person (i) consisting of the deferred purchase price of any
property or assets, conditional sale obligations, obligations under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business) and other purchase money obligations, in each case
where the maturity of such obligation does not exceed the anticipated useful
life of the property or asset being financed, (ii) Incurred to finance the
acquisition or construction of such property or asset and (iii) Incurred to
finance the acquisition of 100% of the capital stock (other than directors'
qualifying shares) of any other Person.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (collectively, "refinances," "refinancing"
and "refinanced" have a correlative meaning) any Indebtedness (including
Indebtedness of the Company that refinances Indebtedness of any Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary), including Indebtedness that
refinances Refinancing Indebtedness; provided, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average
Life of the Indebtedness being refinanced and (iii) such Refinancing
Indebtedness is Incurred in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less than
the sum of (A) the aggregate principal amount (or if issued with original issue
discount, the aggregate accreted value) then outstanding of the Indebtedness
being refinanced and (B) any premiums, fees and other expenses paid by the
Company or the Restricted Subsidiary, as the case may be, in connection with
such refinancing; provided, further, that Refinancing Indebtedness does not
include (x) Indebtedness of a Subsidiary of the Company that refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary; provided
further, that the covenants relating to the Refinancing Indebtedness are no more
restrictive in the aggregate than those of the Indebtedness being refinanced
and, if the Indebtedness being refinanced is subordinated to the Senior Secured
Notes, the Refinancing Indebtedness is at least as subordinated to the Senior
Secured Notes as the Indebtedness being refinanced.
"Redeemable Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or otherwise (including, without limitation,
upon the happening of any event) (i) matures or is mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (ii) is convertible or
exchangeable for Indebtedness (other than Preferred Stock) or Disqualified Stock
or (iii) is redeemable at the option of the holder thereof, in whole or in part.
"Refinancing Indebtedness" does not include (x) Indebtedness of a
Subsidiary of the Company that refinances Indebtedness of the Company or (y)
Indebtedness of the Company or a Restricted Subsidiary that refinances
Indebtedness of an Unrestricted Subsidiary.
"Replacement Collateral" means, at any relevant date in connection with an
Asset Disposition, property or assets used in, or Capital Stock of any Person
related to, the Company's business, other than the Collateral.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Senior Indebtedness" means all Indebtedness of the Company, including
interest thereon, whether outstanding on the Issue Date or thereafter issued,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is provided that such obligations are not superior in
right of payment to the Senior Secured Notes. Senior Indebtedness does not
include (i) any liability for Federal, state, local or other taxes owed or owing
by the Company, (ii) any Trade Payables, (iii) any Indebtedness, Guarantee or
obligation of the Company which is subordinate or junior in any respect to any
other Indebtedness, Guarantee or obligation of the Company, including any
Subordinated Obligations, (iv) any obligations with respect to any Capital
Stock, (v) any Indebtedness Outstanding or Incurred in violation of the Senior
Secured Indenture or (vi) any obligations of the Company to any Affiliate of the
Company. For purposes of "Limitation on Sales of Assets and Restricted
Subsidiary Stock", the amount of consideration received by the Company or any
Restricted Subsidiary for the assumption of Senior Indebtedness by any purchaser
of the Company's property, assets or shares are equal to the face value or the
accreted value of such Senior Indebtedness.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Indebtedness" means (i) the Senior Subordinated Notes and
(ii) any other unsecured Indebtedness of the Company (whether outstanding on the
Issue Date or thereafter Incurred) which, pursuant to the terms of the
instrument creating or evidencing the same or pursuant to the terms of any
written agreement, is subordinate in right of payment to the Senior Secured
Notes and as to which no principal is required to be repaid until after the
Stated Maturity of the Senior Secured Notes.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) investments in
U.S. Government Obligations maturing within 90 days of the date of acquisition
thereof; (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 90 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America or any State thereof having capital, surplus and
undivided profits aggregating in excess of $250,000,000 (or the Dollar
Equivalent thereof) and whose long-term indebtedness is rated "A" or higher
according to Moody's (or such equivalent rating by at least one "nationally
recognized statistical rating organization" (as defined in Rule 436 under the
Securities Act)); (iii) repurchase obligations with a term of not more than 7
days for underlying securities of the types described in clause (i) entered into
with a bank meeting the qualifications described in clause (ii) and (iv)
investments in commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America with a
rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's or "A-1" (or higher) according to S&P.
"Trust Monies" means all cash or Temporary Cash Investments received by the
Trustee in accordance with the terms of the Senior Secured Indenture and the
other Collateral Documents: (i) upon the release of property from the Lien of
the Senior Secured Indenture and any of the other Collateral Documents,
including all moneys received in respect of the principal of all purchase money,
governmental and other obligations; (ii) as compensation for, or proceeds of
sale of, any part of the Collateral taken by eminent domain or purchased by, or
sold pursuant to an order of, a governmental authority or otherwise disposed of;
(iii) as proceeds of insurance upon any part of the Collateral (other than any
liability insurance proceeds payable to the Company or the Trustee for any loss,
liability or expense Incurred by it); (iv) pursuant to certain provisions of the
Mortgages; or (v) for application under the Senior Secured Indenture as provided
in the Senior Secured Indenture or any other Collateral Documents, or whose
disposition is not elsewhere specifically provided for in the Senior Secured
Indenture or the other Collateral Documents.
"Unrestricted Subsidiary" means (i) each Subsidiary of the Company that the
Company has designated, or is deemed to have designated, pursuant to the
provisions described under "Restricted and Unrestricted Subsidiaries" as an
Unrestricted Subsidiary and that has not been redesignated a Restricted
Subsidiary and (ii) any Subsidiary of an Unrestricted Subsidiary.
"U.S. Government Obligations" means direct obligations (or certificates
representing an owner-ship interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"U.S. Restricted Subsidiaries" means any Restricted Subsidiary that is
incorporated in the United States of America, any state or the District of
Columbia.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
DESCRIPTION OF OTHER OBLIGATIONS
Senior Subordinated Notes due 2002
The 13% Senior Subordinated Notes mature on June 30, 2002 (the "Senior
Subordinated Notes"), and are limited to 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 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.
Principal of, and premium, if any, and interest on, the Senior Subordinated
Notes are payable, and the Senior Subordinated Notes are exchangeable and
transferable, at an office or agency of the trustee for the Senior Subordinated
Notes or such other office or agency permitted under the Senior Subordinated
Indenture. The Senior Subordinated Notes are issued only in fully registered
form, without coupons, in denominations of $1,000 or any integral multiple
thereof. No service charge will be made for any registration of transfer or
exchange of Senior Subordinated Notes, except for any tax, assessment or other
governmental charge that may be imposed in connection therewith.
The following is a summary of the Senior Subordinated Notes. Capitalized
terms used but not otherwise defined in this summary have the meanings assigned
thereto in the Senior Subordinated Indenture.
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. Upon (i) the maturity of any
Senior Indebtedness, whether by lapse of time, upon redemption or by
acceleration or otherwise, or (ii) any default in the payment of any amount due
in respect of principal or interest in respect of any Senior Indebtedness or
(iii) any distribution or payment of assets or securities of the Company upon
any dissolution, winding up, liquidation or reorganization of the Company, the
holders of Senior Indebtedness will be entitled to receive payment in full of
the principal thereof and interest due thereon before the holders of the Senior
Subordinated Notes are entitled to receive any payment. During the continuance
of any default or event of default under any agreement governing Senior
Indebtedness permitting acceleration of the maturity thereof (other than a
default or event of default relating to payment of principal or interest, either
at maturity, upon redemption, by declaration or otherwise) and upon giving
notice thereof, no payment may be made on the Senior Subordinated Notes for a
period of 179 days after the notice is given, but payments may thereafter be
resumed unless such payments are then prohibited by the Senior Subordinated
Indenture. Only one notice may be given effect within any period of 360
consecutive days, and no more than one notice may be given with respect to any
continuing default or event of default. If, in any of the situations referred to
above, a payment is made to the trustee for the Senior Subordinated Notes or to
any holder thereof before all Senior Indebtedness has been paid in full or
provision has been made for such payment to such trustee or such holder, such
payment must be paid over to the holders of Senior Indebtedness or their
respective representatives. The failure to make payment on account of principal
of or other interest on the Senior Subordinated Notes by reason of such
subordination will not prevent the occurrence of any event of default under 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 Senior Subordinated Notes Issue Date (as defined below), 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. Certain of the covenants in the Senior Subordinated
Indenture are more restrictive on the operations and activities of Anacomp than
the covenants in the Senior Secured Indenture. The covenants described are
subject to a number of important qualifications and limitations.
Limitation on Restricted Payments. The Senior Subordinated Indenture
provides that, subject to certain exceptions, neither the Company nor any
restricted subsidiary of the Company is permitted to, directly or indirectly,
make certain restricted payments if, at the time of such restricted payments or
after giving effect thereto: (i) a default or an event of default will have
occurred and be continuing under the terms of the Senior Subordinated Indenture,
(ii) the Company could not incur at least $1.00 of additional indebtedness as
described below under "Limitation on Indebtedness" or (iii) the aggregate amount
of all restricted payments subsequent to the Senior Subordinated Notes Issuance
Date (the "Senior Subordinated Notes Issue Date") would exceed (A) 50% of the
consolidated net income (or if consolidated net income is a deficit, minus 100%
of such deficit and also minus 100% of the amount of certain negative charges
not otherwise reflected in consolidated net income during such period), of the
Company accrued for the period (treated as one accounting period) beginning on
the first day of the fiscal quarter of the Company immediately following the
fiscal quarter in which the Senior Subordinated Notes Issue Date occurs and
ending on the last day of the Company's last fiscal quarter ended at least 45
days prior to the date of such proposed restricted payment; (B) the aggregate
net cash proceeds received by the Company from an issue or sale of certain of
its qualified capital stock, subsequent to the Senior Subordinated Notes Issue
Date (other than capital stock issued or sold to (x) a subsidiary of the
Company, (y) an employee stock ownership plan or other trust established by the
Company or any of its subsidiaries or (z) management employees); (C) the amount
by which indebtedness of the Company or its restricted subsidiaries, as
applicable, is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a subsidiary of the Company) of such indebtedness
subsequent to the Senior Subordinate Notes Issue Date for qualified capital
stock of the Company (less the amount of any cash or other property distributed
by the Company or any restricted subsidiary upon such conversion or exchange);
and (D) the net reduction in certain investments in unrestricted subsidiaries
resulting from (x) payments of dividends, repayments of loans or advances or
other transfers of assets to the Company or any restricted subsidiary, as
applicable, from unrestricted subsidiaries or (y) the redesignation of
unrestricted subsidiaries as restricted subsidiaries not to exceed, in the case
of any unrestricted subsidiary, the amount of investments previously made (and
treated as a restricted payment) by the Company or any restricted subsidiary in
such unrestricted subsidiary.
Limitation on Indebtedness. The Senior Subordinated Indenture provides
that, subject to certain exceptions, the Company is not permitted to, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise become
(directly or indirectly,) liable with respect to, contingently or otherwise
(collectively, "incur"), indebtedness, except that the Company may incur,
provided no default or event of default has occurred or is continuing and
subject to certain limitations: (i) indebtedness represented by the Senior
Secured Notes, the Senior Subordinated Notes and Accrued Interest Securities
issued in connection with the Senior Subordinated Notes; (ii) indebtedness
incurred by the Company and ranking pari passu with, or subordinated to, the
Senior Subordinated Notes if, after giving pro forma effect to such incurrence,
the consolidated coverage ratio would be equal to at least 1.75 to 1; (iii)
indebtedness under interest rate protection agreements (provided the notional
amount of such agreement does not exceed the principal amount of indebtedness
related thereto) and currency exchange protection agreements relating to certain
permitted indebtedness entered into in the ordinary course of the Company's
financial management; provided, further, any such agreement may not increase the
outstanding indebtedness of the Company other than as a result of fluctuations
of interest or exchange rates or by reason of customary fees and indemnities
payable thereunder; (iv) certain indebtedness owing to and held by any wholly
owned subsidiary; (v) certain indebtedness incurred in connection with a
prepayment of the Senior Subordinated Notes pursuant to a Change of Control
Offer (as defined below); provided such indebtedness, (A) does not exceed 101%
of the aggregate principal amount of the Senior Subordinated Notes and (B) has
an average life equal to or greater than the remaining average life of the
Senior Subordinated Notes and does not mature prior to the stated maturity
Senior Subordinated Notes; (vi) indebtedness in respect of certain purchase
money indebtedness or capital lease obligations directly incurred by the
Company; (vii) certain indebtedness incurred in the ordinary course of business
of the Company (A) with respect to trade credit made available to the Company in
connection with the obtaining of goods or services by the Company (in each case
for a period not to exceed 180 days, in an amount not to exceed the purchase
price for the goods or services for which such credit is made available) and (B)
relating to services to be performed by or on behalf of the Company; (viii)
indebtedness in respect of Company guarantees of permitted indebtedness incurred
by a restricted subsidiary; (ix) indebtedness which ranks senior to the Senior
Subordinated Notes and is not subordinated to any indebtedness of the Company
if, after giving pro forma effect to such incurrence, (A) the consolidated
coverage ratio will be equal to at least 2.5 to 1 or (B) the total principal
amount of senior debt will not exceed $80 million; (x) certain refinancing
indebtedness which refunds, refinances, replaces, renews, repays or extents
(collectively, "refinancing") indebtedness incurred in respect of clauses (i),
(v), (xi) and (xii) hereof; (xi) the Senior Secured Notes in an aggregate
principal amount not to exceed $112,190,000, less actual repayments of the
Senior Secured Notes; (xii) certain indebtedness outstanding on the Senior
Subordinated Notes Issue Date; and (xiii) in addition to indebtedness permitted
in clauses (x)-(xii) above, up to an aggregate of (A) $25 million in principal
amount of indebtedness at any one time outstanding minus (B) the outstanding
principal amount of refinancing indebtedness of any restricted subsidiaries. The
Company will not directly or indirectly incur any indebtedness if the proceeds
thereof are used, directly or indirectly, to repay, prepay, redeem, defease,
retire, refund or refinance any subordinated obligations unless such
indebtedness is subordinated to the Senior Subordinated Notes to at least the
same extent as such subordinated obligations.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Senior Subordinated Indenture provides that neither the Company nor any
restricted subsidiary is permitted to, directly or indirectly, create or
otherwise cause or permit to exist or become effective any encumbrance or
restriction on the ability of any restricted subsidiary to (i) pay dividends or
make any other distributions on or in respect to its capital stock to the
Company or any restricted subsidiary or pay any indebtedness owed to the Company
or any restricted subsidiary, (ii) make loans or advances to the Company or
(iii) transfer any of its property or assets to the Company or any restricted
subsidiary, except under certain limited circumstances. Notwithstanding the
restrictions contained in the preceding sentence, the Company may permit any
restricted subsidiary to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction (a) pursuant
to an agreement entered into or in effect on the Senior Subordinated Note Issue
Date, (b) pursuant to an agreement relating to any indebtedness incurred by such
restricted subsidiary on or prior to the date on which such restricted
subsidiary became a subsidiary of, or was acquired by, the Company (other than
indebtedness incurred as consideration in, or to provide any portion of the
funds or credit support utilized to consummate, the transactions pursuant to
which such restricted subsidiary became a subsidiary of the Company) and
outstanding on such date, (c) pursuant to an agreement relating to an
acquisition of property, so long as the encumbrances or restrictions in such
agreement relate solely to the property so acquired, (d) pursuant to an
agreement effecting a refinancing of indebtedness incurred pursuant to an
agreement (or any amendment thereof) referred to in clause (a), (b) or (c);
provided, however, that any encumbrance or restriction contained in any such
refinancing agreement is no less favorable to the holders of the Senior
Subordinated Notes than any encumbrance or restriction contained in such
agreement, and (e) in the case of clause (iii) any encumbrance or restriction,
(1) that restricts the subletting, assignment or transfer of any property or
asset that is a lease, license, conveyance or contract or similar property or
asset, (2) arising by virtue of any transfer of, option or right with respect
to, or lien on, any property or assets of the Company or any restricted
subsidiary not otherwise prohibited by the terms of the Senior Subordinated
Indenture or (3) arising or agreed to in the ordinary course of business and
that does not detract from the value of property or assets of the Company or any
restricted subsidiary in any material manner thereto.
Limitation on Sales of Assets and Restricted Subsidiary Stock. The Senior
Subordinated Indenture provides that neither the Company nor any restricted
subsidiary is permitted to, make any asset disposition except in limited
circumstances unless (i) consideration is received by the Company or restricted
subsidiary at the time of such asset disposition at least equal to the fair
market value of the shares, property and assets subject to such asset
disposition, (ii) except in certain limited circumstances, at least 75% of such
consideration consists of cash, temporary cash investments or the assumption of
senior indebtedness of the Company or any restricted subsidiary and the release
thereof from all liability relating thereto, (iii) 100% of the net cash proceeds
from such asset disposition are applied as follows: (A) within the 365 day
period after receipt of any net cash proceeds, or as permitted by the terms of
the Senior Secured Indenture (the last day of such period, an "Application
Date"), the Company or restricted subsidiary, as the case may be, may apply all
or a portion of such net cash proceeds to the repayment of the Senior Secured
Notes or the reinvestment (whether by acquisition of an existing business or
expansion, including, without limitation, capital expenditures) in one or more
certain permitted lines of business, or any combination thereof, and (B) to the
extent such net cash proceeds are not applied as set forth above in clause (A),
the Company will apply all remaining net cash proceeds of such asset disposition
to an offer to purchase (an "Asset Disposition Purchase Offer") Senior
Subordinated Notes, on the first Business Day occurring 60 Business Days after
the Application Date (the "Asset Disposition Purchase Date") for cash at a
purchase price equal to 100% of the principal amount of the Senior Subordinated
Notes so purchased plus accrued and unpaid interest thereon to the Asset
Disposition Purchase Date, in accordance with the procedures set forth in the
Senior Subordinated Indenture. Any net cash proceeds which remain after the
acquisition by the Company of Senior Subordinated Notes in accordance with the
procedures set forth in the Senior Subordinated Indenture will cease to be net
cash proceeds. Notwithstanding the foregoing, the Company will not be required
to make an Asset Disposition Purchase Offer until such time as the aggregate
amount of net cash proceeds from asset dispositions required to be so applied to
the purchase of Senior Subordinated Notes exceeds $10,000,000, and then the
total amount of such net cash proceeds will be applied to an Asset Disposition
Offer. The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Senior Subordinated Notes
pursuant to any Asset Disposition Purchase Offer. To the extent that the
provisions of any securities laws or regulations conflict with provisions
relating to the Asset Disposition Purchase Offer, the Company will comply with
the applicable securities laws and regulations and will not be deemed to have
breached its obligations described above by virtue thereof.
Limitations on Transactions with Affiliates. The Senior Subordinated
Indenture provides that neither the Company nor any restricted subsidiary is
permitted to, directly or indirectly, conduct any business, enter into or permit
to exist any transaction (including, without limitation, the sale, conveyance,
disposition, purchase, exchange or lease of any property, the lending, borrowing
or advancing of any money or the rendering of any services) with, or for the
benefit of, any affiliate of the Company unless such affiliate transaction (i)
is in the best interest of the Company or such restricted subsidiary, as the
case may be, (ii) is on terms as favorable to the Company or such restricted
subsidiary, as the case may be, as those that could be obtained at the time of
such transaction for a similar transaction in arm's-length dealings with a
Person who is not such an affiliate and (iii) with respect to each such
transaction involving aggregate payments or value in excess of $500,000, the
transaction is approved by a disinterested majority of the board of directors of
the Company; provided, however, that the foregoing will not prohibit (A) any
restricted payment permitted to be paid under "Limitation on Restricted
Payments", (B) any issuance of securities or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the board of
directors of the Company, (C) loans or advances permitted under the Senior
Subordinated Indenture to employees in the ordinary course of business in
accordance with past practices of the Company, (D) the payment of reasonable
fees to independent directors of the Company and its restricted subsidiaries,
(E) any transaction between the Company and a wholly owned subsidiary or between
wholly owned subsidiaries or (F) reasonable and customary indemnification
arrangements between the Company or any restricted subsidiary and their
respective directors and officers (to the extent that such indemnification
arrangements are permitted under applicable law).
Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries. The Senior Subordinated Indenture provides that the Company can
not permit (i) any restricted subsidiary to issue any capital stock other than
to the Company or a wholly owned subsidiary; or (ii) any Person (other than the
Company or a wholly owned subsidiary) to, directly or indirectly, own or control
any capital stock of any restricted subsidiary (other than directors' qualifying
shares); provided, however, that clauses (i) and (ii) will not prohibit (a) any
sale of 100% of the shares of the capital stock of any restricted subsidiary
owned by the Company or any wholly owned subsidiary effected in accordance with
"Limitation on Sales and Assets of Restricted Subsidiary Stock" or (b) any
issuance of preferred stock to permitted Persons under "Limitation on Restricted
Subsidiary Indebtedness and Preferred Stock".
Limitation on Sale/Leaseback Transactions. The Senior Subordinated
Indenture provides that neither the Company nor any restricted subsidiary is
permitted to, directly or indirectly, enter into, guarantee or otherwise become
liable with respect to any sale/leaseback transaction with respect to any
property or assets unless (i) the Company or such restricted subsidiary, as the
case may be, would be entitled to incur indebtedness secured by a permitted lien
on such property or assets in an amount equal to the certain attributable
indebtedness with respect to such sale/leaseback transaction, (ii) the net
proceeds from such sale/leaseback transaction are at least equal to the fair
market value of the property or assets subject to such transaction (such fair
market value determined, in the event such property or assets have a fair market
value in excess of $2 million, no more than 30 days prior to the effective date
of such transaction, by the board of directors (including a majority of
disinterested members) of the Company, and (iii) the net cash proceeds of such
sale/leaseback transaction are applied in accordance with the provisions
described under "Limitation on Sales of Assets and Restricted Subsidiary Stock".
Limitations on Liens. The Senior Subordinated Indenture provides that
neither the Company nor any of its restricted subsidiaries is permitted to to,
directly or indirectly, create or permit to exist any lien (other than certain
permitted liens) on any of its property or assets (including capital stock),
whether owned on the Senior Subordinated Note Issue Date or thereafter acquired,
or any right, title or interest thereto, unless the Company or such restricted
subsidiary secures all payments hereunder and under the Senior Subordinated
Notes on an equal and ratable basis with the obligation so secured until such
time as such obligation is no longer secured by a lien.
Limitation on Certain Senior Indebtedness. The Senior Subordinated
Indenture provides that neither the Company nor any subsidiary of the Company is
permitted to, incur, directly or indirectly, certain indebtedness which, by its
terms, is both (i) subordinate in right of payment to the Senior Secured Notes
and (ii) senior in right of payment to the Senior Subordinated Notes. The
Company is permitted to incur Senior Indebtedness under the Senior Subordinated
Indenture under certain circumstances. See "Limitation on Indebtedness."
Change of Control. The Senior Subordinated Indenture provides that upon a
change of control, the Company offer to purchase (the "Change of Control Offer")
the Senior Subordinated Notes for cash at a purchase price equal to 101% of the
principal amount thereof, plus any accrued and unpaid interest thereon to the
Change of Control Purchase Date (such price, together with such interest, the
"Change of Control Purchase Price") on or before the date specified in notice
given to the trustee (who will then in turn notify the holders of the Senior
Subordinated Notes), which date will be no earlier than 30 days nor later than
60 business days after the occurrence of the change of control (the "Change of
Control Purchase Date"). The Change of Control Offer will remain open from the
time such offer is made until the Change of Control Purchase Date. The Company
will purchase all Senior Subordinated Notes properly tendered in the Change of
Control Offer and not properly withdrawn. The occurrence of certain of the
events which would constitute a change of control could constitute a default
under the Company's existing and future indebtedness. In addition, the exercise
by the holders of the Senior Subordinated Notes of their right to require the
Company to repurchase Senior Subordinated Notes could cause a default under such
indebtedness, even if the change of control itself does not, due to the
financial effect of such repurchase on the Company. Finally, if a Change of
Control Offer is made, there can be no assurance that the Company will have
sufficient funds or other resources to pay the Change of Control Purchase Price
for all the Senior Subordinated Notes that might be delivered by holders thereof
seeking to accept the Change of Control Offer. Change of control for purposes of
the Senior Subordinated Indenture means the occurrence of any of the following
events: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than an underwriter engaged in a firm commitment
underwriting in connection with a public offering of the voting stock of the
Company or a restricted subsidiary, is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person be
deemed to have "beneficial ownership" of all shares that any such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the total
voting power of the voting stock of the Company; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the board of directors of the Company (together with certain directors elected
or nominated and subsequently approved by election during such two year period
by such board of directors) cease for any reason to constitute a majority of
such Board then in office; or (iii) the Company, either individually or in
conjunction with one or more of its subsidiaries, sells, conveys, leases or
otherwise transfers, or one or more of such subsidiaries sell, convey, lease or
otherwise transfer, all or substantially all the assets of the Company and the
restricted subsidiaries, taken as a whole, to any Person (other than a
restricted subsidiary). The Company will comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Senior Subordinated
Notes pursuant to any Asset Disposition Purchase Offer. To the extent that the
provisions of any securities laws or regulations conflict with provisions
relating to the Asset Disposition Purchase Offer, the Company will comply with
the applicable securities laws and regulations and will not be deemed to have
breached its obligations described above by virtue thereof.
SKC Trade Payable due 2001
Anacomp's Supply Agreement with SKC described under "Business--Raw
Materials and Suppliers" provides trade credit arrangements whereby the Company
may defer payment for certain products purchased under the Supply Agreement
having an aggregate purchase price of up to $25 million (the "SKC Trade
Payable"). As of June 4, 1996, the effective date of the Plan of Reorganization,
the SKC Trade Payable had an outstanding balance of $25 million. Interest on
amounts owing under the SKC Trade Payable begins to accrue 30 days after the
date of the related product invoice at a rate of 1.75% above the prime rate of
the First National Bank of Boston (10.25% as of December 31, 1994). Anacomp is
obligated to pay for products purchased under the Supply Agreement on a first
in, first out basis as necessary to ensure that the outstanding amount owed
under the SKC Trade Payable is equal to or less than $25 million and that the
total amount of unpaid invoices due under the Supply Agreement is equal to or
less than $29 million (subject to certain annual adjustments).
Amounts owing under the SKC Trade Payable become due and payable on the
earlier of December 31, 2001 and the occurrence of certain default events under
the Supply Agreement.
SKC has a security interest in up to $10 million of the products purchased
by Anacomp under the Supply Agreement. The SKC Trade Payable ranks pari passu in
right of payment with the Senior Secured Notes.
PLAN OF DISTRIBUTION
Each of the Selling Noteholders is offering the Senior Secured Notes for
its own account, and not for the account of the Company. The Company will not
receive any of the net proceeds of the offering.
The Senior Secured Notes to be offered by the Selling Noteholders may be
sold, from time to time, on the over-the-counter market, or if the Senior
Secured Notes is listed for trading thereon, exchanges, in regular brokerage
transactions, in transactions directly with market-makers or in privately
negotiated transactions at market prices prevailing at the time of sale, at
prices related to such prevailing prices, or at negotiated prices. The Selling
Noteholders also may pledge Senior Secured Notes as collateral, and such Senior
Secured Notes could be sold pursuant to the terms of such pledges.
Agents through whom the Senior Secured Notes may be offered may receive
compensation in the form of discounts, concessions or commissions from the
Selling Noteholders and/or the purchasers of the Senior Secured Notes for whom
they may act as agent. The Selling Noteholders and any such agents that
participate in the distribution of the Senior Secured Notes may be deemed to be
underwriters, and any profits on the sale of the Senior Secured Notes by them
and any discounts, commissions or concessions received by any such agents might
be deemed to be underwriting discounts and commissions under the Securities Act.
To the extent the Selling Noteholders may be deemed to be underwriters, the
Selling Noteholders may be subject to certain statutory liabilities of the
Securities Act, including but not limited to Section 11 and 12 of the Securities
Act and Rule 10b-5 of the Exchange Act.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the Senior Secured Notes offered by this Prospectus may not
simultaneously engage in market making activities with respect to the Senior
Secured Notes during any applicable "cooling off" periods prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, such Selling Noteholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder including, without
limitation, Rule 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of Senior Secured Notes by the Selling Noteholders.
The registration relating to this Prospectus is being made pursuant to
registration rights granted by the Company at the time the Senior Secured Notes
was issued. The Company has agreed to indemnify the Selling Noteholders and
their directors, officers and affiliates for certain losses, claims and
liabilities in connection with the sale of Senior Secured Notes pursuant to the
Registration Statement of which this Prospectus forms a part. The Company also
has agreed to pay the expenses in connection with the Registration Statement of
which this Prospectus forms a part, including filing fees. The Selling
Noteholders will pay any brokerage or other fees or commissions, as well as
Selling Noteholders' incidental expenses, in connection with the offering.
To the extent required, the Company will use its best efforts to file,
during any period in which offers or sales are being made, one or more
supplements to this Prospectus to describe any material information with respect
to the plan of distribution not previously disclosed in this Prospectus or any
material change to such information in this Prospectus.
LEGAL MATTERS
The validity of the Senior Secured Notes 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>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
<S> <C>
Audited Financial Statements
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
=========== ======== ========
See Notes to Consolidated Financial Statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended September 30
1995 1994 1993
-------------- -------------- ---------
(Dollars in thousands)
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 noncurrent 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.
<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, 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 $50,000,000
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 ANACOMP, INC.
having been authorized by the Company.
Neither the delivery of this Prospectus nor
any sale made hereunder shall under any
circumstances create any implication that
there has been no change in the affairs of 11 5/8% Senior Secured Notes
the Company since the date hereof. This due 1999
Prospectus does not constitute an offer or
solicitation by anyone in any jurisdiction in
which such an offer or solicitation is not
authorized or in which the person making such
offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to
make such offer or solicitation.
Table of Contents
Page
----
Available Information.......................2
Prospectus Summary..........................3 Prospectus
Summary Consolidated Financial Data.........6
Risk Factors................................9
Use of Proceeds............................13
Capitalization.............................13
Selected Consolidated Financial Data.......14
Pro Forma Unaudited Financial Data.........17
Management's Discussion and
Analysis of Results of Operations
and Financial Condition.................29
The Company................................36
Management.................................49
Security Ownership of Certain Beneficial
Owners and Management...................55
Certain Relationships and Related
Transactions............................57
Selling Noteholders........................57
Description of the Senior Secured Notes....58
Description of Other Obligations...........83
Plan of Distribution.......................89
Legal Matters..............................89
Experts....................................89
Index to Consolidated Financial
Statements.............................F-1
Dated , 1996
ANACOMP, INC.
13% SENIOR SUBORDINATED NOTES DUE 2002
CROSS REFERENCE SHEET
Pursuant to Item 501 of Regulation S-K
S-1 Item Number and Caption Location or Heading in Prospectus
1.Forepart of Registration Statement and
Outside Front Cover Page of Prospectus.. Outside Front Cover Page
2.Inside Front and Outside Back Cover Inside Front Cover Page;
Pages of Prospectus..................... Outside Back Cover Page
3.Summary of Information, Risk Factors Prospectus Summary; Risk
and Ratio of Earnings to Fixed Charges.. Factors; Selected Consolidated
Financial Data
4.Use of Proceeds......................... Use of Proceeds
5.Determination of Offering Price......... Outside Front Cover Page; Plan
of Distribution
6.Dilution................................ Not Applicable
7.Selling Security Holders................ Selling Noteholders
8.Plan of Distribution.................... Outside Front Cover Page; Plan
of Distribution
9.Description of Securities to be Outside Front Cover Page;
Registered.............................. Description of the Senior
Subordinated Notes
10.Interests of Named Experts and Counsel.. Not Applicable
11.Information with Respect to the Outside Front Cover Page;
Registrant.............................. Prospectus Summary; Risk
Factors; Capitalization; Selected
Consolidated Financial Data;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations; The
Company; Management; Security
Ownership of Certain Beneficial
Owners and Management; Certain
Relationships and Related
Transactions; Description of the
Senior Subordinated Notes;
Description of Other Obligations;
Index to Financial Statements
12.Disclosure of Commission Position on
Indemnification for Securities Act Not Applicable
Liabilities.............................
<PAGE>
Subject to Completion, Dated -------------, 1996
PROSPECTUS
$50,000,000
ANACOMP, INC.
13% Senior Subordinated Notes due 2002
This Prospectus related to the offer and sale from time to time by each of
the noteholders listed under "Selling Noteholders" (collectively, the "Selling
Noteholders") of up to a total of $50,000,000 principal amount of 13% Senior
Subordinated Notes due 2002 (the "Senior Subordinated Notes") of Anacomp, Inc.
(the "Company"). Such Senior Subordinated Notes may be offered in amounts, at
prices and on terms to be determined at the time of sale. See "Plan of
Distribution." The Company will not receive any of the proceeds from the sale of
Senior Subordinated Notes by the Selling Noteholders.
The Senior Subordinated Notes were issued on June 4, 1996, in an aggregate
principal amount of $160,000,000. The Senior Subordinated Notes mature on June
30, 2002. Interest on the Senior Subordinated Notes is payable semi-annually on
each June 30 and December 31, commencing December 31, 1996. The Company will
satisfy its obligations to pay interest on the Senior Subordinated Notes through
the issuance of a new Accrued Interest Securities, in the form of the Senior
Subordinated Notes. The Accrued Interest Securities will have a principal amount
corresponding to the amount of interest due on the Senior Subordinated Notes on
the related interest payment date. The Senior Subordinated Notes are redeemable
at the option of the Company, in whole or in part, at any time, at the
redemption prices expressed as a percentage of the principal amount thereof,
commencing June 30, 1996, as follows: (i) 1996 - 103%, (ii) 1997 - 103%, (iii)
1998 - 102.625%, (iv) 1999 - 102.250%, (v) 2000 - 101.875%, (vi) 2001 -
101.500%, and (vi) 2002 and thereafter 100.000%, plus accrued and unpaid
interest (if any) to the date of redemption. The Company is required to redeem
prior to June 30, 2001 a principal amount of the Senior Subordinated Notes equal
to the aggregate principal amount of the Accrued Interest Securities issued
prior to such date, plus accrued and unpaid interest on the Accrued Interest
Securities, at a redemption price equal to the price that would then be
applicable in the case of an optional redemption. The Senior Subordinated Notes
are unsecured senior subordinated obligations of the Company. They rank pari
passu (on an equal basis) with all other existing and future subordinated
obligations of the Company.
The Company does not intend to list the Senior Subordinated Notes on any
securities exchange. The Senior Subordinated Notes currently are traded
over-the-counter. No assurance can be given as to the continuance or liquidity
of any such market.
See "Risk Factors" beginning on page 9 for a discussion of certain
considerations relevant to an investment in the Senior Subordinated Notes.
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.
The Senior Subordinated Notes to which this Prospectus relates may be offered
and sold from time to time by the Selling Noteholders to or through one or more
brokers, dealers or agents or directly to purchasers. See "Plan of
Distribution."
--------------------, 1996
<PAGE>
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.
<PAGE>
FOR CALIFORNIA RESIDENTS
WITH RESPECT TO SALES OF THE SENIOR SECURED NOTES BEING OFFERED HEREBY TO
CALIFORNIA RESIDENTS AS OF THE DATE OF THIS PROSPECTUS, SUCH SENIOR SECURED
NOTES MAY BE SOLD ONLY TO: (1) "ACCREDITED INVESTORS" WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT OF 1933, (2) BANKS, SAVINGS AND LOAN
ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT COMPANIES
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND PROFIT-SHARING
TRUSTS, CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH THE CORPORATION'S OR
OTHER ENTITY'S AFFILIATES, HAVE A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO
THEIR MOST RECENT REGULARLY PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN
REVIEWED, BUT NOT NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN
$14,000,000 AND SUBSIDIARIES OF THE FOREGOING OR (3) ANY PERSON (OTHER THAN A
PERSON FORMED FOR THE SOLE PURPOSE OF PURCHASING THE SENIOR SECURED NOTES BEING
OFFERED HEREBY) WHO PURCHASES AT LEAST $1,000,000 AGGREGATE AMOUNT OF THE SENIOR
SECURED NOTES OFFERED HEREBY OR (4) ANY PERSON WHO (A) HAS AN INCOME OF $65,000
AND A NET WORTH OF $250,000 OR (B) HAS A NET WORTH OF $500,000 (IN EACH CASE,
EXCLUDING HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES).
[ANY OTHER 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
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 Securities and Exchange Commission (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 Common Stock 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
Common Stock 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 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. 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, 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.
The Offering
This Prospectus relates to the offer and sale from time to time by the
Selling Noteholders of up to a total of $50,000,000 principal amount of Senior
Subordinated Notes. The Company will not receive any of the proceeds from the
sale of Senior Subordinated Notes by the Selling Noteholders.
The Senior Subordinated Notes
Securities .........$160,000,000 aggregate principal amount of 13% Senior
Subordinated Notes due 2002.
Maturity Date.......June 30, 2002.
Interest Payment
Dates ..............June 30 and December 31, commencing December 31, 1996.
Accrued Interest
Securities .........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 obligations to pay interest on
the Senior Subordinated Notes through the issuance of a new
Accrued Interest Securities, in the form of the Senior
Subordinated Notes. The Accrued Interest Securities will
have a principal amount corresponding to the amount of
interest due on the Senior Subordinated Notes on the related
interest payment date. See "Description of the Senior
Subordinated Notes--General."
Optional
Redemption .........The Senior Subordinated Notes are redeemable at the option
of the Company, in whole or in part, at any time, at the
redemption prices expressed as a percentage of the principal
amount thereof, commencing June 30, 1996, as follows: (i)
1996 - 103%, (ii) 1997 - 103%, (iii) 1998 - 102.625%, (iv)
1999 - 102.250%, (v) 2000 - 101.875%, (vi) 2001 - 101.500%,
and (vi) 2002 and thereafter 100.000%, plus accrued and
unpaid interest (if any) to the date of redemption (subject
to the holders of record to receive interest due on the
related interest payment date). See "Description of the
Senior Subordinated Notes--Optional Redemption."
Mandatory
Redemption .........The Company is required to redeem prior to June 30, 2001 a
principal amount of the Senior Subordinated Notes equal to
the aggregate principal amount of the Accrued Interest
Securities issued prior to such date, plus accrued and
unpaid interest on the Accrued Interest Securities, at a
redemption price equal to the price that would then be
applicable in the case of an optional redemption. See
"Description of the Senior Subordinated Notes--Mandatory
Redemption."
Ranking ............The Senior Subordinated Notes are unsecured senior
subordinated obligations of the Company and rank pari passu
(on an equal basis) with all other existing and future
subordinated obligations of the Company.
Subordination ......The Company's payment of principal and interest on the
Senior Subordinated Notes is subordinated and subject to the
prior payment in full of the Company's senior indebtedness
as more fully described under "Description of the Senior
Subordinated Notes--Subordination." See "Description of the
Senior Subordinated Notes--Subordination."
Change of Control ..Upon a change of 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.
See "Description of the Senior Subordinated Notes--Change of
Control."
Asset Sale
Proceeds ...........The Company may, in certain circumstances, at the option of
the Company, (i) make offers to purchase Senior Subordinated
Notes or (ii) reinvest (whether by acquisition of an
existing business or expansion (including without
limitation, capital expenditures) with all or a portion of
the net cash proceeds of certain sales or other dispositions
of assets by the Company or certain of its subsidiaries. See
"Description of the Senior Subordinated Notes--Certain
Covenants--Limitation on Sales of Assets and Restricted
Subsidiary Stock."
Certain Covenants ..The indenture relating 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 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) sale/leaseback transactions
by the Company and certain of its subsidiaries and (vii)
consolidations and mergers and transfers of all or
substantially all the Company's and certain of its
subsidiaries' assets. However, all these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Description of the
Senior Subordinated Notes--Certain Covenants" and
"--Consolidation, Merger and Sale of Assets."
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. 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) (2.25)
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 10,000,000
</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 $22,965
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................... 391,991 472,580
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) 82,303
- ---------------------------------
(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 to the transactions in
connection with the consummation of the Plan of Reorganization 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 in the Senior Subordinated Notes.
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 41.1 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 Subordinated 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. Future 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 Company's high level of indebtedness presents substantial risks to the
holders of the Senior Subordinated Notes, including the risk that the Company
might not generate sufficient cash to service the Senior Subordinated Notes and
its other debt 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, including the
Senior Subordinated Notes, 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 factors 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 Subordinated Notes (the "Senior
Subordinated Indenture") and the indenture governing the Senior Secured Notes
(the "Senior Secured Indenture") impose 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 Subordinated Indenture or the Senior Secured Indenture,
as applicable.
Conflicts Between the Senior Subordinated Indenture and the Senior Secured
Indenture. The indenture for the Senior Subordinated Notes (the "Senior
Subordinated Indenture") requires the Company to offer to repurchase the Senior
Subordinated Notes upon the failure to comply with certain covenants including:
(i) changes of control; (ii) sales of assets or subsidiary stock; and (iii)
incurrence of indebtedness (collectively, the "Mandatory Repurchase Offers"). In
the event that the Company is required to make certain Mandatory Repurchase
Offers, the Senior Subordinated Indenture requires that the Company first obtain
the consent of the holders of the Senior Secured Notes or prepay in full the
Senior Secured Notes. In addition, the Company will be prohibited under the
Senior Secured Indenture from making any payment pursuant to any Mandatory
Repurchase Offer unless the Company can satisfy the conditions for making a
Restricted Payment (as defined herein) in the amount of such payment.
Failure to make any Mandatory Repurchase Offer or payment pursuant thereto,
including as a result of the failure to satisfy the consent or prepayment
condition described above, could result in an acceleration of the maturity of
the Senior Subordinated Notes, thereby triggering an event of default under the
Senior Secured Indenture. Conversely, if the Company makes a payment pursuant to
a Mandatory Repurchase Offer without satisfying the conditions for making a
Restricted Payment under the Senior Subordinated Indenture, the maturity of the
Senior Secured Notes may be accelerated, thereby triggering cross-acceleration
under the Senior Subordinated Indenture. Any such default or acceleration also
could result in the acceleration of other debt of the Company under agreements
that contain cross-default or cross-acceleration provisions. See "Description of
Other Obligations--Senior Subordinated Notes due 2002--Mandatory Repurchase
Offers."
Covenant Compliance. The terms and conditions of the Senior Subordinated
Indenture and the instruments applicable to the Company's other indebtedness
impose restrictions that limit, among other things, the Company's ability to:
(i) incur additional indebtedness (including indebtedness incurred by means of
guarantees); (ii) create liens on assets; (iii) sell assets; (iv) engage in
mergers or consolidations; (v) make acquisitions and investments; (vi) engage in
certain transactions with affiliates; and (vii) make dividends, payments and
certain other distributions. The Senior Subordinated Indenture contains various
covenants more restrictive on the operations and actions of the Company, and
certain events of default that are more likely to be declared, than the
covenants and events of default contained in the Senior Secured Indenture. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources" and "Description of Other
Obligations--Senior Subordinated Notes due 2002."
The ability of the Company to comply with such covenants will be dependent
on the future financial performance of the Company which will be subject to
prevailing economic conditions and other factors, including factors beyond the
control of the Company. A failure to comply with any of these covenants could
result in a default or event of default under the relevant debt agreements
(including the Senior Secured Indenture), permitting lenders to accelerate the
maturity of the indebtedness under such agreements, to foreclose upon the
collateral securing such indebtedness and to terminate their commitments (if
any) with respect to additional funding obligations under such agreements. Any
such default, event of default, acceleration or failure to comply also could
result in the acceleration of other debt of the Company under agreements that
may contain cross-default or cross-acceleration provisions. Under any of these
circumstances, there can be no assurance that the Company would have sufficient
funds or other resources to satisfy all such obligations on a timely basis.
Public Market. The Company does not intend to list the Senior Subordinated
Notes on any securities exchange. The Senior Subordinated Notes currently are
traded over-the-counter. No assurance can be given as to the continuance or
liquidity of any such market. The price for the Senior Subordinated Notes may
increase or decrease depending on many factors, including prevailing interest
rates, the Company's operating results and the markets for similar securities.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Senior Subordinated Notes. There can be no assurance that the
non-investment grade debt market will not continue to be subject to such
disruptions.
USE OF PROCEEDS
All of the Senior Subordinated Notes offered by this Prospectus are being
offered for sale by the Selling Noteholders. The Company will not receive any
portion of the net proceeds of this offering.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1996 on a historical basis and as adjusted to give
effect to the transactions in connection with the consummation of the Plan of
Reorganization on June 4, 1996, 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 --
Senior Subordinated Notes -- 146,258
------- -------
Total Debt 381,230 260,197
Redeemable Preferred Stock 21,340 --
Stockholders' equity (195,037) 82,303
-------- --------
Total Capitalization $207,533 $342,500
======== ========
<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. 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) (2.25)
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 10,000,000
</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 $22,965
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.............. 686,062 681,561 643,548 658,639 421,029 639,020 391,991 472,580
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) 82,303
</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 to the transactions in
connection with the consummation of the Plan of Reorganization on June
4, 1996, 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"). 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)
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
======== ======= ========
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.
<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........................ ($2.25)
========
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 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 $(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 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 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 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 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.
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 $5.9
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 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 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.
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 fromthe 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 include $13.0 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.
<PAGE>
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 has
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 [2,600] 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:
<TABLE>
<CAPTION>
Operating Other Corporate
Facilities Facilities Facilities Total
---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
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
========= ======= ====== =========
</TABLE>
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 Delware ("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 is due to be filed on July 24, 1996.
<PAGE>
MANAGEMENT
The current directors and executive officers of the Company and their ages
(as of June 4, 1996) and positions are listed below.
Name Age Position
- ---- --- --------
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
The Company has five divisions with the president of each division
reporting to Mr. Lowrey.
The business experience of the above officers and directors for the past
five years is described below. Each executive officer is elected for a term of
one year and holds office until his successor is chosen and qualified or until
his death, resignation or removal.
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 on March 31, 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 beginning in 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 Manger 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. Mr. Embry and Sam Zell were elected on July 27, 1992, as
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 SEC 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 SEC 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. In
addition, he served as President and Chief Executive Officer of the Burlington
Northern Railroad from 1985 to 1989. 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 owned more than ten percent of the Company's
old common stock, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission and the New York Stock
Exchange regarding their respective ownership of the Company's old common stock.
Officers, directors and greater-than-ten-percent beneficial owners are required
by SEC 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 four 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.
<TABLE>
Summary Compensation 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, Magnetics 1994 147,500 180,836 0 0 0
Group 1993 147,500 130,243 0 80,000 0
President and Chief Operating
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
<FN>
(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.
</FN>
</TABLE>
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 [FN1]
-----------------------------
Name Number Percent of Class
- ---- ------ ----------------
Magten Asset Management Corp [FN2] 2,888,111 28.9
Merrill Lynch & Co., Inc. [FN3] 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 [FN4] 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 45 *
officers as a group (21 persons) [FN5]
- ----------
* Less than 1%.
[FN1] 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.
[FN2] 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, shares of Common Stock, respectively. All of
such shares which in the aggregate represents 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 five percent 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.
[FN3] The address of Merrill Lynch & Co., Inc. is World Financial Center,
North Tower, 250 Vesey Street, New York, New York 10281.
[FN4) 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 footnote 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.
[FN5] Excludes shares beneficially owned by Mr. Embry, as to which Mr.
Embry disclaims beneficial ownership. See note 4 above.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships and related transactions that require
disclosure.
SELLING NOTEHOLDERS
The following table sets forth certain information furnished by each of the
Selling Noteholders with respect the amount of Senior Subordinated Notes offered
by each such Selling Noteholder, which in each case is equal to the amunt of
Senior Subordinated Notes beneficially owned by each of the Selling Noteholders
as of June 4, 1996. The following table indicates by footnote reference any
material relationship which the Selling Noteholder has had with the Company
during the preceding three years.
Principal Amount of Senior
Name of Registered Holder Subordinated Notes
------------------------- ------------------
<PAGE>
DESCRIPTION OF THE SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes were issued under an indenture dated as of
June 4, 1996 (the "Senior Subordinated Indenture") between the Company, as
issuer, and IBJ Schroder Bank and Trust Company, as trustee (the "Trustee"). The
following summary, which describes certain material provisions of the Senior
Subordinated Indenture and the Senior Subordinated Notes, does not purport to be
complete, and is subject to the detailed provisions of, and is qualified in its
entirety by reference to, the provisions of the Senior Subordinated Indenture
and the Senior Subordinated Notes, including the definition therein of certain
terms. The terms of the Senior Subordinated Notes include those set forth in the
Senior Subordinated Indenture and those made part of the Senior Subordinated
Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture
Act"), as in effect on the date of the Senior Subordinated Indenture. Wherever
particular provisions or definitions in the Senior Subordinated Indenture or the
Senior Subordinated Notes are referred to in this Prospectus, such provisions or
definitions are incorporated by reference. The definitions of certain
capitalized terms used in the following summary are set forth in "Glossary of
Terms" below. Other capitalized terms are used but not defined in the following
summary, and are defined in the Senior Secured Indenture. For purposes of the
following summary, the term "Company" refers to Anacomp, Inc. and does not
include its subsidiaries except for purposes of financial data determined on a
consolidated basis.
General
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 issued pursuant to the Senior Subordinated Notes).
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 Note (or any predecessor 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 a Accrued Interest Security, in the form of the Senior
Subordinated Notes, and having a principal amount corresponding to the amount of
interest due on the Senior Subordinated Notes on such interest payment date. The
Company will first pay interest on the Senior Subordinated Notes in cash on
December 31, 1996.
Principal of, and premium, if any, and interest on, the Senior Subordinated
Notes are payable, and the Senior Subordinated Notes are exchangeable and
transferable, at an office or agency of the Trustee at One State Street, New
York, New York 10004, or such other office or agency permitted under the Senior
Subordinated Indenture. The Senior Subordinated Notes are issued only in fully
registered form, without coupons, in denominations of $1,000 or any integral
multiple thereof.
Ranking
The Senior Subordinated Notes are subordinated in right of payment to the
prior payment in full of all Senior Indebtedness.
Optional Redemption
The Senior Subordinated Notes are redeemable at the option of the Company,
in whole or in part at any time and from time to time, on not less than 45 days'
nor more than 60 days' notice, at the redemption prices set forth below
(expressed as percentage of the principal amount), plus accrued and unpaid
interest (if any) to the date of redemption (subject to the right of the Holders
of record on the relevant date to receive interest due on the related interest
payment date):
<PAGE>
Year Percentage
---- ----------
1996 103.000%
1997 103.000%
1998 102.625%
1999 102.250%
2000 101.875%
2001 101.500%
2002 and thereafter 100.0%
Mandatory Redemption
The Company will, prior to June 30, 2001 (the first interest payment date
following the fifth anniversary of 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.
Change of Control
A "Change of Control" means the occurrence of any of the following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than an underwriter engaged in a firm commitment
underwriting in connection with a public offering of the Voting Stock of the
Company or a Restricted Subsidiary, is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
will be deemed to have "beneficial ownership" of all shares that any such Person
has the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 50% of the
total voting power of the Voting Stock of the Company; (ii) during any period of
two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of the
directors of the Company then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of such
Board then in office; or (iii) the Company, either individually or in
conjunction with one or more of its Subsidiaries, sells, conveys, leases or
otherwise transfers, or one or more of such Subsidiaries sell, convey, lease or
otherwise transfer, all or substantially all the assets of the Company and the
Restricted Subsidiaries, taken as a whole, to any Person (other than a
Restricted Subsidiary).
In the event of a Change of Control, the Company will (i) upon such Change
of Control, notify the Trustee, who will in turn notify the Holders of the
Senior Subordinated Notes, in writing of the occurrence of and the circumstances
and relevant facts regarding such Change of Control and (ii) make an offer to
purchase (the "Change of Control Offer") the Senior Subordinated Notes for cash
at a purchase price equal to 101% of the principal amount thereof, plus any
accrued and unpaid interest thereon to the Change of Control Purchase Date (as
defined below) (such price, together with such interest, the "Change of Control
Purchase Price") on or before the date specified in such notice, which date must
be no earlier than 30 days nor later than 60 business days after the occurrence
of the Change of Control (the "Change of Control Purchase Date"). The Change of
Control Offer will remain open from the time such offer is made until the Change
of Control Purchase Date. The Company will purchase all Senior Subordinated
Notes properly tendered in the Change of Control Offer and not withdrawn in
accordance with the procedures set forth in such notice of withdrawal delivered
to the Trustee by the Holder prior to or on the Change of Control Purchase Date.
The Change of Control Offer will state, among other things, the procedures that
Holders of the Senior Subordinated Notes must follow to accept the Change of
Control Offer.
The occurrence of certain of the events which would constitute a Change of
Control could constitute a default under the Company's existing and future
indebtedness. In addition, the exercise by the Holders of the Senior
Subordinated Notes of their right to require the Company to repurchase Senior
Subordinated Notes could cause a default under such indebtedness, even if the
Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, if a Change of Control Offer is made, there
can be no assurance that the Company will have sufficient funds or other
resources to pay the Change of Control Purchase Price for all the Senior
Subordinated Notes that might be delivered by Holders thereof seeking to accept
the Change of Control Offer.
The Change of Control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving the Company and, thus, the
removal of incumbent management. The Change of Control provisions will not
prevent a change in a majority of the members of the Board of Directors of the
Company which is approved by a majority of the then-present Board of Directors
of the Company. One of the events that constitutes a Change of Control under the
Senior Subordinated Indenture is a sale, conveyance, transfer or lease of all or
substantially all the property of the Company and its Subsidiaries, taken as a
whole, to any Person (other than a Restricted Subsidiary). The phrase "all or
substantially all" is subject to judicial interpretation depending on the facts
and circumstances of the subject transaction. The Senior Subordinated Indenture
is governed by New York law, and there is no established quantitative definition
under New York law of "substantially all" the assets of a corporation.
Accordingly in certain circumstances it may be unclear whether a Change of
Control has occurred and whether the Company may therefore be required to make a
Change of Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Senior Subordinated Notes pursuant to any
Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with provisions relating to the Change of Control
Offer, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
Change of Control covenant by virtue thereof.
Certain Covenants
The Senior Subordinated Indenture contains, among others, the following
covenants:
Limitation on Indebtedness. The Company is not permitted to Incur any
Indebtedness unless (i) no Default or Event of Default has occurred and is
continuing at the time of such Incurrence or would occur as a consequence of
such Incurrence and (ii) such Indebtedness is "Permitted Indebtedness."
"Permitted Indebtedness" is defined as:
(i) Indebtedness to be outstanding immediately after the Issue Date
and listed on Schedule II of the Senior Subordinated Indenture;
(ii) Indebtedness represented by the Senior Secured Notes and the
Senior Subordinated Notes, including the Accrued Interest
Securities;
(iii) Indebtedness Incurred by the Company and ranking on a parity
with, or subordinated to, the Senior Subordinated Notes if,
after giving pro forma effect to such Incurrence, the
Consolidated Coverage Ratio would be equal to at least 1.75 to
1;
(iv) Indebtedness (A) under Interest Rate Protection Agreements
relating to Indebtedness permitted hereunder entered into in the
ordinary course of the Company's financial management and not
for speculative purposes; provided, however, that the notional
amount of each such Interest Rate Protection Agreement does not
exceed the principal amount of the Indebtedness to which such
Interest Rate Protection Agreement relates; or (B) under
Currency Exchange Protection Agreements entered into in the
ordinary course of the Company's financial management and not
for speculative purposes; provided, however, in the case of
either clause (A) or (B), any such Interest Rate Protection
Agreement or Currency Exchange Protection Agreement, as the case
may be, does not increase the Indebtedness of the Company
outstanding at any time other than as a result of fluctuations
in the interest rates or exchange rates, as the case may be, or
by reason of customary fees, indemnities and compensation
payable thereunder;
(v) Indebtedness owing to and held by any Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of
any Capital Stock that results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of any such Indebtedness (except to the
Company or another Wholly Owned Subsidiary) will be deemed, in
each case, to constitute the occurrence of such Indebtedness by
the issuer thereof;
(vi) Indebtedness Incurred in connection with a prepayment of the
Senior Subordinated Notes pursuant to a Change of Control Offer;
provided, however, that the aggregate principal amount of such
Indebtedness does not exceed 101% of the aggregate principal
amount of the Senior Subordinated Notes prepaid; provided,
further, however, that such Indebtedness (A) has an Average Life
equal to or greater than the remaining Average Life of the
Senior Subordinated Notes and (B) does not mature prior to the
Stated Maturity of the Senior Subordinated Notes;
(vii) Indebtedness in respect of Purchase Money Indebtedness or
Capital Lease Obligations directly Incurred by the Company;
provided, however, that the sum of (A) the aggregate principal
amount of such Purchase Money Indebtedness incurred by the
Company or by Restricted Subsidiaries as permitted under
"Limitation on Restricted Subsidiary Indebtedness and Preferred
Stock" and (B) the aggregate amount of Capital Lease Obligations
Incurred by the Company or Incurred by Restricted Subsidiaries
as permitted under "Limitation on Restricted Subsidiary
Indebtedness and Preferred Stock" does not at any one time
outstanding exceed $20 million (such maximum permitted amount to
increase by $10,000,000 on each anniversary of the Issue Date);
(viii) Indebtedness Incurred (A) in the ordinary course of business of
the Company with respect to trade credit made available to the
Company in connection with the obtaining of goods or services by
the Company (including commercial letters of credit, bankers'
acceptances or accommodation Guarantees for the benefit of trade
creditors or suppliers), in each case for a period not to exceed
180 days, in an amount not to exceed the purchase price for the
goods or services for which such credit is made available and
which do not constitute obligations for borrowed money, and (B)
with respect to standby letters of credit, performance bonds and
surety bonds that do not constitute obligations for borrowed
money Incurred by the Company in the ordinary course of business
relating to services to be performed by or on behalf of the
Company;
(ix) Indebtedness in respect of Guarantees by the Company of
Indebtedness of any Restricted Subsidiary permitted to be
Incurred under "Limitation on Restricted Subsidiary Indebtedness
and Preferred Stock";
(x) Indebtedness Incurred by the Company which ranks senior to the
Senior Subordinated Notes and is not subordinated to any
Indebtedness of the Company if, after giving pro forma effect to
such Incurrence, (i) the Consolidated Coverage Ratio would be
equal to at least 2.5 to 1 or (ii) the total principal amount of
Senior Debt would not exceed $80 million;
(xi) Refinancing Indebtedness Incurred in respect of Indebtedness
Incurred pursuant to clause (i), (ii) or (vi) above; and
(xii) in addition to any Indebtedness permitted by clauses (i) through
(xii) above, up to an aggregate of (A) $25 million in principal
amount of Indebtedness at any one time outstanding minus (B) the
principal amount of Indebtedness at such time outstanding of any
Restricted Subsidiaries permitted pursuant to clause (vi) under
"Limitation on Restricted Subsidiary Indebtedness and Preferred
Stock."
The Company will not directly or indirectly Incur any Indebtedness if the
proceeds thereof are used, directly or indirectly, to repay, prepay, redeem,
defease, retire, refund or refinance any Subordinated Obligations unless such
Indebtedness is subordinated to the Senior Subordinated Notes to at least the
same extent as such Subordinated Obligations.
Limitation on Restricted Subsidiary Indebtedness and Preferred Stock.
Neither the Company nor any Restricted Subsidiary is permitted to Incur any
Indebtedness or issue any Preferred Stock unless (i) no Default or Event of
Default has occurred and is continuing at the time of such Incurrence or would
occur as a consequence of such Incurrence and (ii) such Indebtedness or
Preferred Stock is Permitted Restricted Subsidiary Indebtedness.
"Permitted Restricted Subsidiary Indebtedness" is defined as:
(i) Indebtedness or Preferred Stock to be outstanding immediately
after the Issue Date and listed on Schedule II to the Senior
Subordinated Indenture;
(ii) Indebtedness in respect of Purchase Money Indebtedness or
Capital Lease Obligations directly Incurred by any Restricted
Subsidiary; provided, however, that the sum of (A) the aggregate
amount of Capital Lease Obligations Incurred by Restricted
Subsidiaries or Incurred by the Company under "Limitation on
Indebtedness" and (B) the aggregate principal amount of Purchase
Money Indebtedness Incurred by Restricted Subsidiaries or
Incurred by the Company pursuant to clause (vii) under
"Limitation on Indebtedness" does not at any one time
outstanding exceed $20 million (such maximum permitted amount to
increase by $10,000,000 on each anniversary of the Issue Date);
(iii) Indebtedness Incurred (A) in the ordinary course of business of
any Restricted Subsidiary with respect to trade credit made
available to such Restricted Subsidiary in connection with the
obtaining of goods or services by such Restricted Subsidiary
(including commercial letters of credit, bankers' acceptances or
accommodation Guarantees for the benefit of trade creditors or
suppliers), in each case for a period not to exceed 180 days, in
an amount not to exceed the purchase price for the goods or
services for which such credit is made available and which do
not constitute obligations for borrowed money and (B) standby
letters of credit, performance bonds and surety bonds that do
not constitute obligations for borrowed money Incurred by any
Restricted Subsidiary in the ordinary course of business
relating to services to be performed by or on behalf of such
Restricted Subsidiary;
(iv) Indebtedness (A) under Interest Rate Protection Agreements
relating to Indebtedness permitted hereunder entered into in the
ordinary course of any Restricted Subsidiary's financial
management and not for speculative purposes; provided, however,
that the notional amount of each such Interest Rate Protection
Agreement does not exceed the principal amount of the
Indebtedness to which such Interest Rate Protection Agreement
relates; or (B) under Currency Exchange Protection Agreements
entered into in the ordinary course of any Foreign Subsidiary's
financial management and not for speculative purposes; provided,
however, in the case of either clause (A) or (B), any such
Interest Rate Protection Agreement or Currency Exchange
Protection Agreement, as the case may be, does not increase the
Indebtedness of such Subsidiary outstanding at any time other
than as a result of fluctuations in the interest rates or
exchange rates, as the case may be, or by reason of customary
fees, indemnities and compensation payable thereunder;
(v) Indebtedness or Preferred Stock owing to and held by the Company
or any Wholly Owned Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock that
results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of any such
Indebtedness (except to the Company or a Wholly Owned
Subsidiary) will be deemed, in each case, to constitute the
occurrence of such Indebtedness or Preferred Stock by the issuer
thereof;
(vi) Refinancing Indebtedness Incurred in respect of Indebtedness
Incurred pursuant to clause (i) above; and
(vii) in addition to any Indebtedness permitted by clauses (i) through
(v) above, up to an aggregate of $10 million in principal amount
of Indebtedness of Foreign Restricted Subsidiaries at any one
time outstanding.
Limitation on Restricted Payments. (a) Neither the Company nor any
Restricted Subsidiary is permitted to (i) declare or pay any dividend on, or
make any distribution on or in respect of, its Capital Stock (including any
payment in connection with any merger or consolidation involving the Company),
except dividends or distributions payable solely in its Capital Stock (other
than Disqualified Stock) or in options, warrants or other rights to purchase
such Capital Stock and except dividends or distributions payable solely to the
Company or any Restricted Subsidiary, (ii) purchase, redeem, retire or otherwise
acquire for value any Capital Stock of the Company or any Restricted Subsidiary
held by Persons other than the Company or any Restricted Subsidiary, (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for value
(including pursuant to mandatory repurchase covenants), prior to any scheduled
repayment, scheduled sinking fund payment or other scheduled maturity, any
Subordinated Obligation or (iv) make any Investment (other than a Permitted
Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or Investment
being herein referred to as a "Restricted Payment"), if at the time of and after
giving effect to the proposed Restricted Payment: (a) a Default or Event of
Default has occurred and is continuing (or would result therefrom); (b) the
Company could not Incur at least $1.00 of additional Indebtedness pursuant to
clause (iii) under "Limitation on Indebtedness"; or (c) the aggregate amount of
such Restricted Payment and all other Restricted Payments (the amount so
expended, if other than in cash, to be determined in good faith by the Board of
Directors of the Company) declared or made since the Issue Date, would exceed,
without duplication, the sum of (1) an amount equal to 50% of the Consolidated
Net Income accrued during the period (treated as one accounting period)
beginning on the first day of the fiscal quarter of the Company immediately
following the fiscal quarter in which the Issue Date occurs and ending on the
last day of the Company's last fiscal quarter ended at least 45 days prior to
the date of such proposed Restricted Payment (or, if such Consolidated Net
Income is a deficit, minus 100% of such deficit) and minus 100% of the amount of
any write-downs, write-offs, other negative reevaluations and other negative
extraordinary charges not otherwise reflected in Consolidated Net Income during
such period; (2) the aggregate Net Cash Proceeds received by the Company from
the issue or sale of its Capital Stock, including Capital Stock of the Company
issued upon conversion of convertible debt or the exercise of options, warrants
or rights to purchase Capital Stock of the Company, but excluding Disqualified
Stock, subsequent to the Issue Date (other than an issuance or sale to (x) a
Subsidiary of the Company, (y) an employee stock ownership plan or other trust
established by the Company or any of its Subsidiaries or (z) management
employees); (3) the amount by which the Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company) subsequent to
the Issue Date of any Indebtedness of the Company or its Restricted Subsidiaries
convertible or exchangeable for Capital Stock (other than Disqualified Stock) of
the Company (less the amount of any cash or other property distributed by the
Company or any Restricted Subsidiary upon such conversion or exchange) and (4)
the amount equal to the net reduction in Investments in Unrestricted
Subsidiaries resulting from (x) payments of dividends, repayments of loans or
advances or other transfers of assets to the Company or any Restricted
Subsidiary from Unrestricted Subsidiaries or (y) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made (and treated
as a Restricted Payment) by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary.
(b) The foregoing provisions do not under certain circumstances do not
prohibit: (i) any purchase or redemption of Capital Stock of the Company or
Subordinated Obligations made in exchange for, or out of the proceeds of, a
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
of the Company or an employee stock ownership plan or other trust established by
the Company or any of its Subsidiaries) or out of proceeds of an equity
contribution made substantially concurrently with such purchase or redemption;
provided, however, that (A) such purchase or redemption will be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds
from such sale will be excluded from subclause (2) of the above paragraph; (ii)
any purchase or redemption of Subordinated Obligations made in exchange for, or
out of the proceeds of the substantially concurrent sale of, Indebtedness of the
Company which is permitted to be Incurred pursuant to "Limitation on
Indebtedness"; provided, however, that (A) such Indebtedness is Incurred in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to or less than the aggregate sum of (1)
the aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of such Subordinated Obligations
being so purchased or redeemed and (2) any premiums, fees and other expenses
paid by the Company or any Restricted Subsidiary in connection with such
purchase or redemption, (B) such Indebtedness is at least as subordinated to the
Senior Subordinated Notes as such Subordinated Obligations so purchased or
redeemed and the covenants relating to such Indebtedness are no more restrictive
in the aggregate than those of such Subordinated Obligations, (C) such
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of such
Subordinated Obligations, (D) such Indebtedness has an Average Life at the time
such Indebtedness is Incurred equal to or greater than the Average Life of such
Subordinated Obligations and (E) such purchase or redemption will be excluded in
the calculation of the amount of Restricted Payments; (iii) any payment in cash
in lieu of the issuance of fractional shares of Capital Stock to any Holder of
Capital Stock warrants of the Company outstanding on the Issue Date pursuant to
the exchange of such warrants for other Capital Stock of the Company upon the
exercise of such warrants pursuant to the terms thereof; provided, however, that
such payment will be excluded in the calculation of the amount of Restricted
Payments; (iv) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied with
the above first paragraph of this section; provided, however, that (A) at the
time of payment of such dividend, no other Default has occurred and is
continuing (or would result therefrom) and (B) such dividend will be included in
the calculation of the amount of Restricted Payments from and after the date of
declaration of such dividend; or (v) so long as no Default or Event of Default
has occurred and is continuing or would occur as a consequence thereof, the
redemption or repurchase of Capital Stock of the Company, options in respect
thereof or related rights pursuant to and in accordance with the repurchase
provisions of any employee stock option or any stock purchase or other agreement
between the Company and any of its management employees; provided, however, that
such redemptions or repurchases pursuant to this clause (v) from and after the
Issue Date will not in the aggregate exceed $1,000,000, plus the amount of any
net cash proceeds to the Company from sales of Capital Stock of the Company to
management employees subsequent to the Issue Date.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
Neither the Company nor any Restricted Subsidiary is permitted to create or
otherwise cause or permit to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (i) pay dividends or
make any other distributions on or in respect to its Capital Stock to the
Company or any Restricted Subsidiary or pay any Indebtedness owed to the Company
or any Restricted Subsidiary, (ii) make loans or advances to the Company or
(iii) transfer any of its property or assets to the Company or any Restricted
Subsidiary, except for (a) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date, (b) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior
to the date on which such Restricted Subsidiary became a Subsidiary of, or was
acquired by, the Company (other than Indebtedness Incurred as consideration in,
or to provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Subsidiary of, or was acquired by, the
Company) and outstanding on such date, (c) any encumbrance or restriction
pursuant to an agreement relating to an acquisition of property, so long as the
encumbrances or restrictions in such agreement relate solely to the property so
acquired, (d) any encumbrance or restriction pursuant to an agreement effecting
a refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clause (a), (b) or (c) or contained in any amendment to any such agreement;
provided, however, that any encumbrance or restriction contained in any such
refinancing agreement or amendment is no less favorable to the Holders of the
Senior Subordinated Notes than any encumbrance or restriction contained in such
agreement, and (e) in the case of clause (iii), certain encumbrances or
restrictions that do not, individually or in the aggregate, detract from the
value of property or assets of the Company or any Restricted Subsidiary in any
manner material to the Company or any such Restricted Subsidiary.
Limitation on Sales of Assets and Restricted Subsidiary Stock. The Company
will not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) the Company or such Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Disposition at least
equal to the Fair Market Value of the shares, property and assets subject to
such Asset Disposition, (ii) at least 75% of such consideration (or, in the
event of any Asset Disposition of all or any portion of the Company's Magnetics
Division or a Foreign Subsidiary, at least 50% of such consideration) consists
of cash, Temporary Cash Investments or the assumption of Senior Indebtedness of
the Company or any Restricted Subsidiary and the release of the Company or such
Restricted Subsidiary from all liability under such Senior Indebtedness and
(iii) in connection with any Asset Disposition with an aggregate consideration
greater than $10 million, the Company delivers an Officer's Certificate to the
Trustee certifying that such Asset Disposition complies with clauses (i) and
(ii) and that such Asset Disposition was approved by a majority of the
disinterested members of the Board of Directors of Company, as evidenced by a
resolution delivered to the Trustee and (iv) 100% of the Net Cash Proceeds of
such Asset Disposition are applied as follows: (A) within 365 days after the
receipt of any Net Cash Proceeds or within such longer period after receipt
thereof, as permitted by the terms of the Senior Secured Indenture (the last day
of such period, an "Application Date"), the Company or Restricted Subsidiary, as
the case may be, may apply all or a portion of such Net Cash Proceeds to the
repayment of the Senior Secured Notes or the reinvestment (whether by
acquisition of an existing business or expansion, including, without limitation,
capital expenditures) in one or more Permitted Lines of Business, or any
combination thereof, and (B) to the extent any or all of such Net Cash Proceeds
are not applied as set forth above in clause (A), the Company will apply all
remaining Net Cash Proceeds of such Asset Disposition (the "Asset Disposition
Purchase Amount") to an offer to purchase (an "Asset Disposition Purchase
Offer") Senior Subordinated Notes, on the first Business Day occurring 60
Business Days after the Application Date (the "Asset Disposition Purchase Date")
for cash at a purchase price (such price, the "Asset Disposition Purchase
Price") equal to 100% of the principal amount of the Senior Subordinated Notes
so purchased plus accrued and unpaid interest thereon to the Asset Disposition
Purchase Date, in accordance with the procedures set forth in the Senior
Subordinated Indenture. Any such Net Cash Proceeds which remain after the
acquisition by the Company of Senior Subordinated Notes tendered (and not
withdrawn) by Holders of Senior Subordinated Notes pursuant to such Asset
Disposition Purchase Offer in accordance with the procedures (including
proration in the event of oversubscription) set forth in the Senior Subordinated
Indenture cease to be Net Cash Proceeds. Notwithstanding the foregoing, the
Company will not be required to make an Asset Disposition Purchase Offer until
such time as the aggregate amount of Net Cash Proceeds from Asset Dispositions
required to be so applied to the purchase of Senior Subordinated Notes exceeds
$10,000,000 (the "Asset Disposition Trigger"), and then the total amount of such
Net Cash Proceeds is required to be applied to an Asset Disposition Offer.
Within 30 business days of the occurrence of an Asset Disposition Trigger,
(i) the Company will notify the Trustee in writing of the occurrence of the
Asset Disposition Trigger and will make the Asset Disposition Purchase Offer to
purchase Senior Subordinated Notes in an aggregate principal amount equal to the
Asset Disposition Purchase Amount at the Asset Disposition Purchase Price on or
before Asset Disposition Purchase Date, (ii) the Company will mail a copy of the
Asset Disposition Purchase Offer to each Holder of the Senior Subordinated Notes
and (iii) the Company will cause a notice of the Asset Disposition Purchase
Offer to be sent to the Dow Jones News Service or similar business news service
in the United States of America. The Asset Disposition Purchase Offer will
remain open from the time such offer is made until the Asset Disposition
Purchase Date. The Company will purchase all Senior Subordinated Notes properly
tendered pursuant to the Asset Disposition Purchase Offer and not withdrawn in
accordance with the procedures set forth in the Asset Disposition Purchase
Notice (as defined in the Senior Subordinated Indenture). The Asset Disposition
Purchase Offer will state, among other things, the procedures that Holders of
the Senior Subordinated Notes must follow to accept the Asset Disposition
Purchase Offer.
Limitation on Liens. Neither the Company nor any Restricted Subsidiary is
permitted to create or permit to exist any lien (other than permitted liens) on
any of its property or assets (including capital stock), whether owned on the
Issue Date or thereafter acquired, or any right, title or interest thereto,
unless the Company or such Restricted Subsidiary secure all payments hereunder
and under the Senior Subordinated Notes on an equal and ratable basis with the
obligation so secured until such time as such obligation is no longer secured by
a lien.
Limitation on Transactions with Affiliates. Neither the Company nor any
Restricted Subsidiary is permitted to conduct any business, enter into or permit
to exist any transaction (including, without limitation, the sale, conveyance,
disposition, purchase, exchange or lease of any property, the lending, borrowing
or advancing of any money or the rendering of any services) with, or for the
benefit of, any Affiliate of the Company (an "Affiliate Transaction") unless (i)
the terms of such Affiliate Transaction are in writing, (ii) such Affiliate
Transaction is in the best interest of the Company or such Restricted
Subsidiary, as the case may be, (iii) such Affiliate Transaction is on terms as
favorable to the Company or such Restricted Subsidiary, as the case may be, as
those that could be obtained at the time of such Affiliate Transaction for a
similar transaction in arm's-length dealings with a Person who is not such an
Affiliate and (iv) with respect to each Affiliate Transaction involving
aggregate payments or value in excess of $500,000, such Affiliate Transaction
was approved by a majority of the Board of Directors of the Company, including a
majority of the disinterested members of such Board, provided, however, that the
foregoing does not prohibit (A) any Restricted Payment permitted to be paid as
described above under "Limitation on Restricted Payments", (B) any issuance of
securities or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directories of the Company, (C) loans
or advances permitted under the Senior Subordinated Indenture to employees in
the ordinary course of business in accordance with past practices of the
Company, (D) the payment of reasonable fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or any Restricted
Subsidiary, (E) any transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries or (F) reasonable and customary
indemnification arrangements between the Company or any Restricted Subsidiary
and their respective directors and officers (to the extent that such
indemnification arrangements are permitted under applicable law).
Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries. The Company will not permit (i) any Restricted Subsidiary to issue
any Capital Stock other than to the Company or a Wholly Owned Subsidiary; or
(ii) any Person (other than the Company or a Wholly Owned Subsidiary) to,
directly or indirectly, own or control any Capital Stock of any Restricted
Subsidiary (other than directors' qualifying shares); provided, however, that
clauses (i) and (ii) will not prohibit (a) any sale of 100% of the shares of the
Capital Stock of any Restricted Subsidiary owned by the Company or any Wholly
Owned Subsidiary effected in accordance with "Limitation on Sales of Assets and
Restricted Subsidiary Stock" or (b) any issuance of Preferred Stock to any
Person permitted under "Limitation on Restricted Subsidiary Indebtedness and
Preferred Stock."
Limitation on Sale/Leaseback Transactions. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into,
Guarantee or otherwise become liable with respect to any Sale/Leaseback
Transaction with respect to any property or assets unless (i) the Company or
such Restricted Subsidiary, as the case may be, would be entitled to Incur
Indebtedness secured by a Permitted Lien on such property or assets in an amount
equal to the Attributable Indebtedness with respect to such Sale/Leaseback
Transaction, (ii) the net proceeds from such Sale/Leaseback Transaction are at
least equal to the Fair Market Value of the property or assets subject to such
Sale/Leaseback Transaction (such Fair Market Value determined, in the event such
property or assets have a Fair Market Value in excess of $2 million, no more
than 30 days prior to the effective date of such Sale/Leaseback Transaction, by
the Board of Directors of the Company, including a majority of the disinterested
members of such Board, as evidenced by a resolution of such Board) and (iii) the
net cash proceeds of such Sale/Leaseback Transaction are applied in accordance
with the provisions described under "Limitation on Sales of Assets and
Restricted Subsidiary Stock."
Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Subsidiary of the Company or any
Restricted Subsidiary to be an Unrestricted Subsidiary if (i) the Subsidiary to
be so designated does not own any Capital Stock, Redeemable Stock or
Indebtedness of, or own or hold any Lien on any property or assets of, the
Company or any other Restricted Subsidiary, (ii) the Subsidiary to be so
designated is not obligated by any Indebtedness or Lien that, if in default,
would result (with the passage of time or notice or otherwise) in a default on
any Indebtedness of the Company or any Restricted Subsidiary, and (iii) either
(A) the Subsidiary to be so designated has total assets of $1,000 or less or (B)
such designation is effective immediately upon such Person becoming a Subsidiary
of the Company or of a Restricted Subsidiary. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company or
any Restricted Subsidiary will be classified as a Restricted Subsidiary. Except
as provided in the first sentence of this paragraph, no Restricted Subsidiary
may be redesignated as an Unrestricted Subsidiary. Subject to the following
paragraph, an Unrestricted Subsidiary may not be redesignated as a Restricted
Subsidiary.
The Company will not, and will not permit any Restricted Subsidiary to,
take any action or enter into any transaction or series of transactions that
would result in a Person becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of an Unrestricted Subsidiary or otherwise)
unless after giving effect to such action, transaction or series of
transactions, on a pro forma basis, (i) the Company could incur at least $1.00
of additional Indebtedness pursuant to clause (b)(iii) under "--Limitation on
Indebtedness", (ii) such Restricted Subsidiary could then Incur under
"--Limitation on Restricted Subsidiary Indebtedness and Preferred Stock" all
Indebtedness as to which it is obligated at such time, (iii) no Default or Event
of Default would occur or be continuing and (iv) there exist no Liens with
respect to the property or assets of such Restricted Subsidiary other than
Permitted Liens.
Events of Default
An "Event of Default" will occur under the Senior Subordinated Indenture if
(i) the Company fails to make any payment of interest on any Senior Subordinated
Note or Accrued Interest Security when the same is due and payable, and such
failure continues for a period of 30 days; (ii) the Company (A) fails to make
the payment of the principal of, or premium, if any, on, any Note when the same
becomes due and payable at its Stated Maturity, upon acceleration, redemption or
declaration, or otherwise or (B) fails to redeem or purchase Senior Subordinated
Notes when and to the extent required pursuant to the Senior Subordinated
Indenture or the Senior Subordinated Notes; (iii) the Company fails to comply
with any of the requirements described under Successor Company in the Senior
Subordinated Indenture; (iv) the Company fails to comply with any of its
covenants or agreements described under "SEC Reports", "Change of Control",
"Limitation on Indebtedness", "Limitation on Restricted Subsidiary Indebtedness
and Preferred Stock", "Limitation on Restricted Payments", "Limitation
Transactions with Affiliates", "Limitation on Liens", "Limitation on
Restrictions on Distributions from Restricted Subsidiaries", "Limitation on
Sales of Assets and Restricted Subsidiary Stock", "Limitation on Sale/Leaseback
Transactions" or "Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries" and such failure continues for 30 days after the notice specified
below, or the Company fails to give the notice specified below; (v) the Company
fails to comply with any of its agreements in the Senior Subordinated Notes or
the Senior Subordinated Indenture (other than those specified in clauses (i),
(ii), (iii) and (iv) above) and such failure continues for a period of 60 days
after the notice specified below or the Company fails to give the notice
specified below; (vi) Indebtedness of the Company or any Restricted Subsidiary
is not paid within any applicable grace period after final maturity or is
accelerated by the Holders thereof, if the total amount of such Indebtedness
unpaid or accelerated or exceeds $7,500,000 or its Dollar Equivalent at the
time; (vii) one or more judgments or decrees aggregating in excess of $7,500,000
or its Dollar Equivalent at the time is rendered against the Company or any
Restricted Subsidiary and is not discharged and either: (A) an enforcement
proceeding has been commenced by any creditor upon such judgment or decree; or
(B) there is a period of 60 days following the entry of such judgment or decree
during which such judgment or decree is not discharged, waived or the execution
thereof stayed; (viii) the Company or any Restricted Subsidiary pursuant to or
within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B)
consents to the entry of an order for relief against it in an involuntary case;
(C) consents to the appointment of a Custodian of it or for any substantial part
of its property; or (D) makes a general assignment for the benefit of its
creditors; or takes any comparable action under any foreign laws relating to
insolvency; or (ix) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (A) is for relief against the Company or any
Restricted Subsidiary in an involuntary case; (B) appoints a Custodian of the
Company or any Restricted Subsidiary or for any substantial part of its
property; or (C) orders the winding up or liquidation of the Company or any
Restricted Subsidiary; or any similar relief is granted under any foreign laws
and the order or decree remains unstated and in effect for 60 days.
A Default under clause (iv) or (v) will not be an Event of Default until
the Trustee or the Holders of at least 25% in principal amount of the Senior
Subordinated Notes notify the Company of the Default and the Company does not
cure such Default within the time specified after receipt of such notice. Such
notice must specify the Default, demand that it be remedied and state that such
notice is a "Notice of Default."
The Company will deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event which, with the giving of notice and the lapse of time, would become
an Event of Default under clause (iv), (v), (vi) or (vii), its status and what
action the Company is taking or proposes to take with respect thereto.
If an Event of Default (other than an Event of Default specified in clause
(viii) or (ix) under "Events of Default") occurs and is continuing, the Trustee
by notice to the Company, or the Holders of at least 25% in principal amount of
the Senior Subordinated Notes by notice to the Trustee, may declare the
principal of and accrued interest on all the Senior Subordinated Notes to be due
and payable. Upon such declaration, such principal and interest will be due and
payable immediately. If an Event of Default specified in clause (viii) or (ix)
under "Events of Default" occurs, the principal of and interest on all the
Senior Subordinated Notes becomes immediately due and payable without any
declaration or other act on the part of the Trustee or any Holders of Senior
Subordinated Notes. The Holders of a majority in principal amount of the Senior
Subordinated Notes by notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission will affect any subsequent Default or impair
any right consequent thereto.
A Holder of Senior Subordinated Notes may not pursue any remedy with
respect to the Senior Subordinated Indenture, or the unless: (i) such Holder
gives to the Trustee written notice stating that an Event of Default is
continuing; (ii) Holders of at least 25% in principal amount of the Senior
Subordinated Notes make a written request to the Trustee to pursue the remedy;
(iii) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of security or indemnity; and (v) the Holders of a majority in principal
amount of the Senior Subordinated Notes do not give the Trustee a direction
inconsistent with the request during such 60-day period.
A Holder of a Senior Subordinated Note may not use the Senior Subordinated
Indenture to prejudice the rights of another Holder of the Senior Subordinated
Notes or to obtain preference or priority over another Holder of the Senior
Subordinated Notes.
Subordination
The Company's payment of the principal of, interest on or any other amounts
due on the Senior Subordinated Notes is subordinated in the right of payment to
the prior payment in full of Senior Indebtedness. The expressions "prior payment
in full", "payment in full" and "paid in full" and any other similar term or
phrase when used in this herein with respect to Senior Indebtedness Prospectus
means the payment in full of such Senior Indebtedness in cash or provision for
such payment in cash or otherwise in a manner satisfactory to the Holders of the
Senior Indebtedness. Upon (i) the maturity of Senior Indebtedness, whether by
lapse of time, upon redemption or by acceleration or otherwise, or (ii) any
default in the payment of any amount due in respect of principal or interest in
respect of Senior Indebtedness, or (iii) any distribution or payment of assets
or securities of the Company upon any dissolution, winding up, liquidation or
reorganization of the Company of any kind or character, the Holders of Senior
Indebtedness will be entitled to receive payment in full (or to have such
payment duly provided for) of the principal thereof and interest due thereon
before the Holders of the Senior Subordinated Notes are entitled to receive any
payment on account of the principal of or interest on the Senior Subordinated
Notes. During the continuance of any default or event of default (other than a
default or event of default relating to payment of principal or interest, either
at maturity, upon redemption, by declaration or otherwise) under any agreement
governing Senior Indebtedness permitting acceleration of the maturity thereof
(whether or note such acceleration has occurred) and upon giving of notice
thereof, no payment may be made on the Senior Subordinated Notes for a period of
179 days after the notice is given, but payments may thereafter be resumed
unless such payments are then prohibited by Article 9 of the Senior Subordinated
Indenture. Only one notice may be given effect within any period of 360
consecutive days and no more than one notice may be given with respect to any
continuing default or event of default. If in any of the situations referred to
above, a payment is made to the Trustee or to any Holder of Senior Subordinated
Notes before all Senior Indebtedness has been paid in full or provision has been
made for such payment, the payment to the Trustee or such Holder of the Senior
Subordinated Notes must be paid over to the holders of Senior Subordinated Notes
or their representative. The failure to make payment on account of principal of
or other interest on the Senior Subordinated Notes by reason of such
subordination will not prevent the occurrence of any Event of Default.
Amendment, Supplement and Waiver
Subject to certain exceptions, the Senior Subordinated Indenture may be
amended or supplemented without notice to any Holder with the written consent of
the Holders of at least a majority in principal amount of the Senior
Subordinated Notes. However, without the consent of each Holder affected, no
amendment may, among other things, (i) reduce the percentage of principal amount
of Senior Subordinated Notes whose Holders must consent to an amendment, (ii)
reduce the rate of or extend the time for payment of interest on any Senior
Subordinated Notes, (iii) reduce the principal of or extend the Stated Maturity
of any Senior Subordinated Notes, (iv) reduce the premium payable upon the
redemption of any Note or change the time or times at which any Senior
Subordinated Notes may be redeemed, (v) make any Note payable in money other
than that stated in the Senior Subordinated Notes, (vi) impair the right of any
Holder of Senior Subordinated Notes to institute suit for the enforcement of any
payment on or with respect to any Senior Subordinated Notes, or (vii) make any
change in Sections 6.4 or 6.7 of the Senior Subordinated Indenture or the second
sentence of this paragraph.
Without notice to or the consent of any Holder of the Senior Subordinated
Notes, the Company and the Trustee may, among other things, amend or supplement
the Senior Subordinated Indenture to cure any ambiguity, omission, defect or
inconsistency; to provide for the assumption by a Successor Company of the
obligations of the Company under the Senior Subordinated Indenture; to provide
for uncertificated Senior Subordinated Notes in addition to or in place of
certificated Senior Subordinated Notes, provided, however, that the
uncertificated Senior Subordinated Notes are issued in registered form under the
Code; to add Guarantees with respect to the Senior Subordinated Notes; to add to
the covenants of the Company for the benefit of the Holders of the Senior
Subordinated Notes or to surrender any right or power conferred upon the
Company; to make any change that does not adversely affect the rights of any
Holder of the Senior Subordinated Notes or to comply with any requirement of the
SEC in connection with the qualification of the Senior Subordinated Indenture
under the Trust Indenture Act or to provide for the acceptance of appointment
hereunder by a successor Trustee.
Satisfaction and Discharge of the Senior Subordinated Indenture
The Senior Subordinated Indenture will cease to be of further effect
(except as otherwise expressly provided for in the Senior Subordinated
Indenture) when either (i) all outstanding Senior Subordinated Notes have been
delivered (other than lost, stolen or destroyed Senior Subordinated Notes which
have been replaced) to the Trustee for cancellation or (ii) all outstanding
Senior Subordinated Notes have become due and payable, whether at maturity or as
a result of the mailing of a notice of redemption pursuant to the terms of the
Senior Subordinated Indenture and the Company has irrevocably deposited with the
Trustee funds sufficient to pay at maturity or upon redemption all outstanding
Senior Subordinated Notes, including interest thereon (other than lost, stolen,
mutilated or destroyed Senior Subordinated Notes which have been replaced), and,
in either case, the Company has paid all other sums payable under the Senior
Subordinated Indenture. The Trustee is required to acknowledge satisfaction and
discharge of the Senior Subordinated Indenture on demand of the Company
accompanied by an Officer's Certificate and an Opinion of Counsel at the cost
and expense of the Company.
Concerning the Trustee
IBJ Schroder Bank and Trust Company is the Trustee under the Senior
Subordinated Indenture. The Trustee's current address is One State Street, New
York, New York 10004.
Governing Law
The Senior Subordinated Indenture provides that it and the Senior
Subordinated Notes will be governed by, and construed in accordance with, the
laws of the State of New York but without giving effect to applicable principles
of conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
Certain Definitions
The following definitions, among others, are used in the Senior
Subordinated Indenture. Many of the definitions of terms used in the Senior
Subordinated Indenture have been negotiated specifically for the purposes of the
Senior Subordinated Indenture and may not be consistent with the manner in which
such terms are defined in other contexts. Prospective purchasers of Senior
Subordinated Notes are encouraged to read each of the following definitions
carefully and to consider such definitions in the context in which they are used
in the Senior Secured Indenture.
"Asset Disposition" means any direct or indirect sale, lease, transfer,
conveyance or other disposition (or series of related sales, leases, transfers,
conveyances or dispositions) of shares of Capital Stock of any Restricted
Subsidiary (other than directors' qualifying shares), property or other assets
(each referred to for the purposes of this definition as a "disposition") by the
Company or any Restricted Subsidiary (including any disposition by means of a
merger, consolidation or similar transaction), other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of the Company's or
any Restricted Subsidiary's accounts receivable, lease receivables or inventory
(other than the disposition of inventory pursuant to a Sale/Leaseback
Transaction) at Fair Market Value in the Ordinary Course of Business, (iii) a
disposition of property or assets, whether in a single transaction or a series
of related transactions which constitute a single plan of disposition, that have
an aggregate Fair Market Value not in excess of $250,000, (iv) an operating
lease entered into in the ordinary course of business with respect to property,
plant and equipment that in the judgment of the Board of Directors constitutes
excess capacity or (v) a "like-kind exchange" of an asset in exchange for an
asset of a third party, so long as, in the judgment of the Company's Board of
Directors, the asset received by the Company or such Restricted Subsidiary in
such exchange (x) has a Fair Market Value at least equal to the fair market
value of the asset transferred by the Company or such Restricted Subsidiary and
(y) is usable in a Permitted Line of Business to at least the same extent as the
asset transferred by the Company or such Restricted Subsidiary. An Asset
Disposition will include the requisition of title to, seizure of or forfeiture
of any property or assets, or any actual or constructive total loss or an agreed
or compromised total loss of any property or assets. The term "Asset
Disposition" when used with respect to the Company will not include any
disposition pursuant to Successor Company provisions in the Senior Subordinated
Indenture which constitutes a disposition of all or substantially all the assets
of the Company.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP; the amount of Indebtedness represented by such
obligation will be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof will be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests (including partnership interests) in (however designated) equity of
such Person, including any Preferred Stock, but excluding any debt securities
convertible into such equity.
"Consolidated Coverage Ratio" means, as of any date of determination, the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period is to be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the discharge
of any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period, (2) if since the beginning of such period the
Company or any Restricted Subsidiary has made any Asset Disposition or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Asset Disposition, or both, EBITDA for such period will be reduced by an
amount equal to EBITDA (if positive) directly attributable to the property or
assets which are the subject of such Asset Disposition for such period, or
increased by an amount equal to EBITDA (if negative) directly attributable
thereto for such period and Consolidated Interest Expense for such period will
be reduced by an amount equal to Consolidated Interest Expense directly
attributable to any indebtedness of the Company or any Restricted Subsidiary
repaid, repurchased, defeased or otherwise discharged with respect to the
Company and the continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and the continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (3) if since the beginning of such period the
Company or any Restricted Subsidiary (by merger or otherwise) has made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing a calculation to be
made hereunder, which constitutes all or substantially all of an operating unit
of a business, EBITDA and Consolidated Interest Expense for such period will be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) has
made any Asset Disposition or any Investment that would have required an
adjustment pursuant to clause (2) or (3) if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense for such
period will be calculated after giving pro forma effect thereto as if such Asset
Disposition or Investment occurred on the first day of such period. For purposes
of this definition, whenever pro forma effect is to be given to an acquisition
of assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations will be determined in good
faith by a responsible financial or accounting officer of the Company and as
further contemplated by the definition of pro forma. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness is calculated as if the rate in effect on the date
of determination had been the applicable rate for the entire period (taking into
account any Interest Rate Protection Agreement applicable to such Indebtedness
if such Interest Rate Protection Agreement has a remaining term in excess of 12
months).
"Consolidated Interest Expense" means, for any period, the sum of (i) the
total cash and noncash interest expense of the Company and its consolidated
Subsidiaries, plus, to the extent not included in such interest expense, (A)
interest expense attributable to Capital Lease Obligations, (B) amortization of
debt discount and debt issuance cost, (C) capitalized interest, (D) accrued
interest, (E) commissions, discounts and other fees and charges paid or owed
with respect to letters of credit and bankers' acceptance financing, (F)
interest actually paid by the Company or any such Subsidiary under any Guarantee
of Indebtedness or other obligation of any other Person, (G) net costs
associated with Hedging Obligations (including amortization of discounts and
fees), (H) the interest portion of any deferred obligation, (I) Preferred Stock
dividends in respect of all Preferred Stock of Subsidiaries of the Company and
Redeemable Stock of the Company held by Persons other than the Company or a
Wholly Owned Subsidiary and (J) cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or trust;
provided, however, that there will be excluded from this clause (i), (x) any
such interest expense of any Unrestricted Subsidiary to the extent the related
Indebtedness is not Guaranteed or paid by the Company or any Restricted
Subsidiary and (y) any such interest expense attributable to original issue
discount as a result of Fresh Start Accounting Adjustments), less (ii) to the
extent included in clause (i), amortization or write-off of deferred financing
costs of the Company and its consolidated Subsidiaries during such period and
any charge related to any premium or penalty paid in connection with redeeming
or retiring any Indebtedness of the Company and its consolidated Subsidiaries
prior to its Stated Maturity.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries for such period determined in
accordance with GAAP but exceeding for such purpose the impact of any Fresh
Start Accounting adjustment; provided, however, that there will be excluded
therefrom (i) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that (A) subject to the limitations contained in
clause (iv) below, the Company's equity in the net income of any such Person for
such period will be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other distribution (subject,
in the case of a dividend or other distribution to a Restricted Subsidiary, to
the limitations contained in clause (iii) below) and (B) the Company's equity in
a net loss of any such Person (other than an Unrestricted Subsidiary) for such
period will be included in determining such Consolidated Net Income, (ii) any
net income (loss) of any Person acquired by the Company or a Restricted
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition, (iii) any net income (loss) of any Restricted
Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company, except that (A)
subject to the limitations contained in clause (iv) below, the Company's equity
in the net income of any such Restricted Subsidiary for such period will be
included in such Consolidated Net Income up to the aggregate amount of cash that
could have been distributed by such Restricted Subsidiary during such period to
the Company or another Restricted Subsidiary as a dividend (subject, in the case
of a dividend to another Restricted Subsidiary, to the limitation contained in
this clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period will be included in determining such Consolidated Net
Income, (iv) any gain (but not loss) realized upon the sale or other disposition
of any property, plant or equipment of the Company or its consolidated
Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is not
sold or otherwise disposed of in the ordinary course of business, (v) any gain
(but not loss) realized upon the sale or other disposition of any Capital Stock
of any Person, (vi) any extraordinary gain or loss, (vii) the cumulative effect
of any change in accounting principles and (viii) any non-recurring
restructuring charges for any fiscal quarter in the fiscal year of the Company
commencing October 1, 1995.
"Consolidated Tangible Net Worth" means the amount by which (i) the total
of the amounts shown on the balance sheet of the Company and its consolidated
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of the Company ending at least 45 days
prior to the taking of any action for the purpose of which the determination is
being made, as (x) the par or stated value of all outstanding Capital Stock of
the Company plus (y) paid-in capital or capital surplus relating to such Capital
Stock plus (z) any retained earnings or earned surplus exceeds (ii) the sum of
less (A) any accumulated deficit, (B) any amounts attributable to Disqualified
Stock, (C) the amounts appearing on the assets side of such balance sheet for
all contracts, patents, trademarks, copyrights and other intellectual property
rights, franchises, licenses, goodwill, treasury stock, unamortized debt
discount and expense and similar intangibles, (D) any increase in the amount of
capitalized research and development and capitalized interest subsequent to the
Issue Date, and (E) the amount of any write-up subsequent to the Issue Date in
the book value of any asset owned on the Issue Date resulting from the
revaluation thereof subsequent to such date, or any write-up in excess of the
cost of any asset acquired subsequent to that date.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" of a Person means Redeemable Stock of such Person as
to which the maturity, mandatory redemption, conversion or exchange or
redemption at the option of the Holder thereof occurs, or may occur, on or prior
to the first anniversary of the Stated Maturity of the Senior Subordinated
Notes.
"EBITDA" means, for any period, the Consolidated Net Income for such
period, plus, to the extent deducted in calculating such Consolidated Net
Income, (i) income tax expense, (ii) Consolidated Interest Expense, (iii)
depreciation expense, (iv) amortization expense and (v) any charge related to
any premium or penalty paid in connection with redeeming or retiring any
Indebtedness prior to its Stated Maturity, in each case for such period.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction; provided, that the foregoing
does not prohibit sales of inventory at a discount or on terms which are typical
in the industry to which such inventory relates. Fair Market Value is
determined, except as otherwise provided herein, (i) if such property or asset
has a Fair Market Value less than $5 million, by two officers of the Company in
an Officers' Certificate delivered to the Trustee or (ii) if such property or
asset has a Fair Market Value in excess of $5 million, by the Board of Directors
as a whole and evidenced by a Board Resolution, dated within 30 days of the
relevant transaction, of such Board delivered to the Trustee.
"Foreign Asset Disposition" means an Asset Disposition in respect of
Capital Stock or assets of a Restricted Subsidiary of the type described in
Section 936 of the Code to the extent that the proceeds of such Asset
Disposition are received by a Person subject in respect of such proceeds to the
tax laws of a jurisdiction other than the United States of America, any State
thereof or the District of Columbia.
"Foreign Restricted Subsidiary" means, any Restricted Subsidiary that is
incorporated in a jurisdiction other than the United States of America, any
State thereof or the District of Columbia.
"Fresh Start Accounting" means Fresh Start Accounting as described in
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" (Am. Inst. of Certified Public Accountants
1990), as then in effect, or any comparable statement then in effect.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any Person,
directly or indirectly, guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay for (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to take-or-pay
or to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" does not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Incur" means to, directly or indirectly, create, issue, assume, Guarantee,
incur (by conversion, exchange or otherwise) extend, assume, or otherwise become
liable for, contingently or otherwise; provided, however, that any Indebtedness
or Capital Stock of a Person existing at the time such Person becomes a
Subsidiary (whether by merger, consolidation, acquisition or otherwise) will be
deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary.
The terms "Incurrence," "Incurred" and "Incurring" each have a correlative
meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all Capital Lease
Obligations and all Attributable Indebtedness of such Person; (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except (A) Trade Payables and (B) any obligation to pay
any portion of such purchase price that becomes due only if the earnings
attributable to such property or services satisfy predetermined minimum amounts
subsequent to the purchase of such property or services and the amount of such
obligation cannot be determined on the date of such purchase); (v) all
obligations of such Person in respect of letters of credit, banker's acceptances
or other similar instruments or credit transactions (including reimbursement
obligations with respect thereto), other than obligations with respect to
letters of credit securing obligations (other than obligations described in
clauses (i) through (iv) above) entered into in the ordinary course of business
of such Person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than the third
Business Day following receipt by such Person of a demand for reimbursement
following payment on any such letter of credit; (vi) the amount of all
obligations of such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock or, with respect to any Subsidiary of such
Person, any Preferred Stock (but excluding in each case, any accrued dividends);
(vii) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person; provided,
however, that the amount of such Indebtedness is the lesser of (A) the Fair
Market Value of such asset at such date of determination and (B) the amount of
such Indebtedness of such other Persons; (viii) all Indebtedness of other
Persons to the extent Guaranteed by such Person; and (ix) to the extent not
otherwise included in the definition, obligations of such Person in respect of
Hedging Obligations. For purposes of this definition, the maximum fixed
redemption, repayment or repurchase price of any Disqualified Stock or Preferred
Stock that does not have a fixed redemption, repayment or repurchase price is
calculated in accordance with the terms of such Stock as if such Stock were
redeemed, repaid or repurchased on any date on which Indebtedness is required to
be determined pursuant to the Senior Subordinated Indenture; provided, however,
that if such Stock is not then permitted to be redeemed, repaid or repurchased,
the redemption, repayment or repurchase price is the book value of such Stock as
reflected in the most recent financial statements of such Person. The amount of
Indebtedness of any Person at any date is the outstanding balance at such date
of all unconditional obligations as described above and the maximum liability,
upon the occurrence of the contingency giving rise to the obligation, of any
contingent obligations at such date.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of any such Person) or
other extension of credit (including by way of Guarantee or similar arrangement)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others) such Person, or any purchase or acquisition of all or substantially all
the business or assets of, Capital Stock, Indebtedness, any other evidence of
beneficial ownership or other similar instruments issued by, such Person. For
purposes of "Limitation on Restricted Payments" and "Restricted and Unrestricted
Subsidiaries", (i) the term "Investment" includes the portion (proportionate to
the Company's equity interest in such Subsidiary) of the Fair Market Value of
the net assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company will be
deemed to continue and have a permanent "Investment" in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in
such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the Fair
Market Value of the net assets of such Subsidiary at the time that such
Subsidiary is so redesignated as a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary will be valued at its Fair
Market Value at the time of such transfer. In determining the amount of any
Investment in respect of any property or assets other than cash, such property
or asset will be valued at its Fair Market Value at the time of such Investment
(unless otherwise specified in this definition).
"Issue Date" means the first date on which the Senior Subordinated Notes
were issued pursuant to the Senior Subordinated Indenture, which was June 4,
1996.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, preference, priority, security interest,
encumbrance, easement, restriction, covenant, right-of-way, servitude, lien
(statutory or otherwise), charge, other security or similar agreement or
preferential arrangement of any kind or nature whatsoever or other adverse claim
of any kind or nature (including, without limitation, any conditional sale or
other title retention agreement or lease having substantially the same economic
effect of any of the foregoing).
"Magnetics Division" means the property and assets of the Company or any
Restricted Subsidiary used in connection with the manufacture, marketing and
sale of magnetic tape, computer tape or other magnetic products.
"Net Cash Proceeds" from an Asset Disposition means the sum of (i) cash
payments and Temporary Cash Investments received (including any cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring person of Indebtedness or other obligations relating to such
properties or assets or received in any other non-cash form) therefrom and (ii)
the Fair Market Value of all securities issued to the Company or a Subsidiary of
the Company in connection therewith, in each case net of (A) all legal, title
and recording tax expenses, commissions and other fees and expenses incurred,
and all Federal, state, provincial, foreign and local taxes required to be paid
or accrued as a liability under GAAP as a consequence of such Asset Disposition,
(B) all payments made on any Indebtedness which is secured by any property or
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon such property or assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of the proceeds from such Asset Disposition, (C) all distributions
and other payments required to be made to minority interest holders in
Subsidiaries or joint ventures as a result of such Asset Disposition and (D) the
deduction of appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property or
assets disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition; provided, that, in the event
that any consideration for such Asset Disposition (which would otherwise
constitute Net Cash Proceeds) is required to be held in escrow pending
determination of whether a purchase price adjustment will be made, such
consideration (or any portion thereof) will become Net Cash Proceeds only at
such time as it is released to the Company or any Restricted Subsidiary from
escrow; provided, further, that any non-cash consideration received in
connection with such Asset Disposition, which is subsequently converted to cash,
is deemed to be Net Cash Proceeds at such time and is thereafter be applied in
accordance with "--Limitation on Sales of Assets and Restricted Subsidiary
Stock." The term "Net Cash Proceeds" from an issuance or sale of Capital Stock
means the cash proceeds of such issuance or sale, net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Ordinary Course of Business" means sales or assignments of inventory or
accounts receivable or the performance of services at Fair Market Value or the
collection of accounts receivable in the ordinary course of business and does
not include any sale, assignment or collection after the voluntary or
involuntary bankruptcy of the Company, including, without limitation, those
events of the type described in Section (8) and (9) under "--Events of Default."
The ordinary course of business includes (i) sales of inventory to customers,
(ii) returns of merchandise to manufacturers or distributors for refunds of
merchandise to manufacturers or distributors for refunds or credit and (iii)
exchanges of inventory with manufacturers or distributors for other inventory.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Wholly Owned Subsidiary (including any Person which will
become a Wholly Owned Subsidiary as a result of such Investment) or any Person
that is merged or consolidated with or into, or transfers or conveys all or
substantially all of its business or assets to, the Company or any Wholly Owned
Subsidiary at the time such Investment is made; (ii) Temporary Cash Investments;
(iii) receivables owing to the Company or such Restricted Subsidiary, if created
or acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that nothing in this
paragraph limits in any way the ability of the Company or such Restricted
Subsidiary to settle, compromise or otherwise deal with such receivables in the
ordinary course of business; (iv) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses for accounting purposes and that are made in the ordinary course of
business; (v) loans or advances, in an aggregate principal amount of $6,000,000
outstanding from time to time, to employees of the Company or such Restricted
Subsidiary made in the ordinary course of business consistent with past
practices of the Company or such Restricted Subsidiary, as the case may be; (vi)
stock, obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or such Restricted
Subsidiary or in satisfaction of judgments; (vii) joint ventures, whether in the
form of cash or through a contribution of assets (the nature of which, if other
than cash, to be determined in good faith by the Board of Directors of the
Company, whose determination will be evidenced by a Board Resolution delivered
to the Trustee) in an amount not to exceed $10,000,000 at any one time; (viii)
any other property, asset or Person if made pursuant to any written agreement of
the Company or such Restricted Subsidiary in effect on the Issue Date; and (ix)
Investments made as a result of the receipt of non-cash consideration from an
Asset Disposition that was made pursuant to and in compliance with "--Limitation
on Sales of Assets and Restricted Subsidiary Stock" or a disposition of assets
pursuant to and in compliance with Successor Company provisions in the Senior
Subordinated Indenture.
"Permitted Liens" means: (i) pledges or deposits by the Company or any
Restricted Subsidiary under workmen's compensation laws, unemployment insurance
laws, other types of social security benefits or similar legislation, or good
faith deposits in connection with bids, tenders or contracts (other than for the
payment of Indebtedness ) or leases to which the Company or any Restricted
Subsidiary is a party, or deposits to secure public or statutory obligations or
deposits of cash or United States government bonds to secure surety or appeal
bonds to which the Company or any Restricted Subsidiary is a party, or deposits
as security for contested taxes or import duties or for the payment of rent, in
each case incurred by the Company or any Restricted Subsidiary in the ordinary
course of business consistent with past practice; (ii) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due from the Company or any Restricted Subsidiary or being contested in
good faith by appropriate proceedings by the Company or any Restricted
Subsidiary, as the case may be, or other Liens arising out of judgments or
awards against the Company or any Restricted Subsidiary with respect to which
the Company or such Restricted Subsidiary, as the case may be, will then be
prosecuting an appeal or other proceedings for review; (iii) Liens for property
taxes or other taxes, assessments or governmental charges of the Company or any
Restricted Subsidiary not yet due or payable or subject to penalties for
nonpayment or which are being contested by the Company or such Restricted
Subsidiary, as the case may be, in good faith by appropriate proceedings; (iv)
Liens in favor of issuers of standby letters of credit, performance bonds and
surety bonds issued pursuant to clause (b)(viii)(B) under "Limitation on
Indebtedness" or clause (b)(iii)(B) under "Limitation on Restricted Subsidiary
Indebtedness and Preferred Stock"; (v) survey exceptions, encumbrances,
easements or, reservations of, or rights of others for, licenses, rights-of-way,
sewers, electric lines, telegraph and telephone lines and other similar purposes
or zoning or other restrictions as to the use of real property of the Company or
any Restricted Subsidiary incidental to the ordinary course of conduct of the
business of the Company or such Restricted Subsidiary or as to the ownership of
properties of the Company or any Restricted Subsidiary, which, in either case,
were not incurred in connection with Indebtedness and which do not in the
aggregate materially adversely affect the value of said properties or materially
impair their use in the operation of the business of the Company or any
Restricted Subsidiary; (vi) Liens to secure Indebtedness permitted under clause
(b)(i) under "Limitation on Indebtedness" or clause (b)(vi) under "Limitation on
Restricted Subsidiary Indebtedness and Preferred Stock"; (vii) Liens remaining
outstanding immediately after the Issue Date as set forth on Schedule II to the
Senior Subordinated Indenture (and not otherwise permitted by clause (vi));
(viii) Liens on property, assets or shares of stock of any Restricted Subsidiary
at the time such Restricted Subsidiary became a Subsidiary of the Company;
provided, however, that (A) if any such Lien has been Incurred in anticipation
of such transaction, such property, assets or shares of stock subject to such
Lien will have a Fair Market Value at the date of the acquisition thereof not in
excess of the lesser of (1) the aggregate purchase price paid or owed by the
Company in connection with the acquisition of such Restricted Subsidiary and (2)
the Fair Market Value of all property and assets of such Restricted Subsidiary
and (B) any such Lien will not extend to any other assets owned by the Company
or any Restricted Subsidiary; (ix) Liens on property or assets at the time the
Company or any Restricted Subsidiary acquired such assets, including any
acquisition by means of a merger or consolidation with or into the Company or
such Restricted Subsidiary; provided, however, that (A) if any such Lien is
Incurred in anticipation of such transaction, such property or assets subject to
such Lien will have a Fair Market Value at the date of the acquisition thereof
not in excess of the lesser of (1) the aggregate purchase price paid or owed by
the Company or such Restricted Subsidiary in connection with the acquisition
thereof and of any other property and assets acquired simultaneously therewith
and (2) the Fair Market Value of all such property and assets acquired by the
Company or such Restricted Subsidiary and (B) any such Lien will not extend to
any other property or assets owned by the Company or any Restricted Subsidiary;
(x) Liens securing Indebtedness or other obligations of a Restricted Subsidiary
owing to the Company or a Wholly Owned Subsidiary; (xi) Liens to secure any
extension, renewal, refinancing, replacement or refunding (or successive
extensions, renewals, refinancings, replacements or refundings), in whole or in
part, of any Indebtedness secured by Liens referred to in any of clauses (vii),
(viii) and (ix); provided, however, that any such Lien will be limited to all or
part of the same property or assets that secured the original Lien (plus
improvements on such property) and the aggregate principal amount of
Indebtedness that is secured by such Lien will not be increased to an amount
greater than the sum of (A) the outstanding principal amount, or, if greater,
the committed amount, of the Indebtedness described under clauses (vii), (viii)
and (ix) at the time the original Lien became a Permitted Lien under the Senior
Subordinated Indenture and (B) an amount necessary to pay any premiums, fees and
other expenses Incurred by the Company in connection with such refinancing,
refunding, extension, renewal or replacement; (xii) Liens on property or assets
of the Company securing Hedging Obligations so long as the related Indebtedness
is, and is permitted to be under clause (b) under "--Limitation on
Indebtedness", secured by a Lien on the same property securing the relevant
Hedging Obligation; (xiii) Liens securing Indebtedness incurred under (A) in the
case of the Company, any revolving credit facility, provided, that such
Indebtedness constitutes Senior Debt permitted hereunder and such Liens relate
only to accounts receivable, inventory and proceeds thereof (other than proceeds
from the disposition of inventory pursuant to any Sale/Leaseback Transaction);
and (B) in the case of any Foreign Restricted Subsidiary, any foreign currency
revolving credit facility; provided, that such Indebtedness was incurred in
compliance with clause (b)(ii) of "--Limitation on Restricted Subsidiary
Indebtedness and Preferred Stock" and such Liens relate only to the accounts
receivable, inventory and proceeds thereof of such Foreign Restricted Subsidiary
(other than proceeds from the disposition of inventory pursuant to any
Sale/Leaseback Transaction); and (xiv) Liens on property or assets of the
Company or any Restricted Subsidiary securing Indebtedness (1) under Purchase
Money Indebtedness or Capital Lease Obligations permitted under, in the case of
the Company, clause (b)(vii) under "--Limitation on Indebtedness" and, in the
case of such Restricted Subsidiary, clause (b)(ii) under "--Limitation on
Restricted Subsidiary Indebtedness and Preferred Stock" or (2) under
Sale/Leaseback Transactions permitted under "--Limitation on Sale/Leaseback
Transactions"; provided, that (A) the amount of Indebtedness Incurred in any
specific case does not, at the time such Indebtedness is Incurred, exceed the
lesser of the cost or Fair Market Value of the property or asset acquired or
constructed in connection with such Purchase Money Indebtedness or Capital Lease
Obligation or subject to such Sale/Leaseback Transaction, as the case may be,
(B) such Lien will attach to such property or asset upon acquisition of such
property or asset and or upon commencement of such Sale/Leaseback Transaction,
as the case may be, and (C) no property or asset of the Company or any
Restricted Subsidiary (other than the property or asset acquired or contracted
in connection with such Purchase Money Indebtedness or Capital Lease Obligation
or subject to such Sale/Leaseback Transaction, as the case may be) are subject
to any Lien securing such Indebtedness.
"Permitted Line of Business" means (i) the line or lines of business in
which the Company or any of its Subsidiaries is engaged on the Issue Date and
(ii) a line or lines of business similar or related to the line or lines of
business described in the foregoing clause (i).
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Senior Subordinated Indenture, a calculation
in accordance with Article 11 of Regulation S-X promulgated under the Securities
Act (to the extent applicable) as interpreted in good faith by the Board of
Directors after consultation with the independent certified public accountants
of the Company, or otherwise a calculation made in good faith by such Board
after consultation with such independent certified public accountants, as the
case may be.
"Purchase Money Indebtedness" means, with respect to any Person, all
obligations of such Person (i) consisting of the deferred purchase price of any
property or assets, conditional sale obligations, obligations under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business) and other purchase money obligations, in each case
where the maturity of such obligation does not exceed the anticipated useful
life of the property or asset being financed, (ii) Incurred to finance the
acquisition or construction of such property or asset and (iii) Incurred to
finance the acquisition of 100% of the Capital Stock (other than directors'
qualifying shares) of any other Person.
"Redeemable Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or otherwise (including, without limitation,
upon the happening of any event) (i) matures or is mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (ii) is convertible or
exchangeable for Indebtedness (other than Preferred Stock) or Disqualified Stock
or (iii) is redeemable at the option of the Holder thereof, in whole or in part.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," "refinancing" and "refinanced"
has a correlative meaning) any Indebtedness (including Indebtedness of the
Company that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, that (i) the Refinancing Indebtedness has a
Stated Maturity no earlier than the Stated Maturity of the Indebtedness being
refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced and (iii) such Refinancing
Indebtedness is Incurred in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less than
the sum of (A) the aggregate principal amount (or if issued with original issue
discount, the aggregate accreted value) then outstanding of the Indebtedness
being refinanced and (B) any premiums, fees and other expenses paid by the
Company or the Restricted Subsidiary, as the case may be, in connection with
such refinancing; provided, further, that Refinancing Indebtedness does not
include (x) Indebtedness of a Subsidiary of the Company that refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary; provided,
further, that the covenants relating to the Refinancing Indebtedness are no more
restrictive in the aggregate then those of the Indebtedness being refinanced
and, if the Indebtedness being refinanced is subordinated to the Senior
Subordinated Notes, the Refinancing Indebtedness is at least as subordinated to
the Senior Subordinated Notes as the Indebtedness being refinanced.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the Holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Senior Subordinated Notes pursuant to the
terms of such Indebtedness or pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) investments in
U.S. Government Obligations maturing within 90 days of the date of acquisition
thereof; (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 90 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America or any State thereof having capital, surplus and
undivided profits aggregating in excess of $250,000,000 (or the Dollar
Equivalent thereof) and whose long-term debt is rated "A" or higher according to
Moody's (or such equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)); (iii) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) entered into with a
bank meeting the qualifications described in clause (ii); and (iv) investments
in commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America with a
rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investor Service, Inc. or "A-1" (or higher)
according to Standard and Poor's.
"Unrestricted Subsidiary" means (i) each Subsidiary of the Company that the
Company has designated, or is deemed to have designated, pursuant to the
provisions described under "--Restricted and Unrestricted Subsidiaries" as an
Unrestricted Subsidiary and that has not been redesignated a Restricted
Subsidiary and (ii) any Subsidiary of an Unrestricted Subsidiary.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary, all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or another Wholly Owned Subsidiary.
<PAGE>
DESCRIPTION OF OTHER OBLIGATIONS
11 5/8% Senior Secured Notes due 1999
General. The 11 5/8% Senior Secured Notes mature on September 30, 1999 (the
"Senior Secured Notes") and are in an aggregate principal amount of
$112,900,000. The Senior Secured Notes bear interest at the rate of 11 5/8% per
annum payable semi-annually on March 31 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.
Principal of, and premium, if any, and interest on, the Senior Secured
Notes are payable, and the Senior Secured Notes are exchangeable and
transferable, at an office or agency of the trustee, or such other office or
agency permitted under the indenture for the Senior Secured Notes (the "Senior
Secured Indenture"). The Senior Secured Notes are issued only in fully
registered form, without coupons, in denominations of $1,000 or any integral
multiple thereof.
The following is a summary of the Senior Secured Notes. Capitalized terms
used but not otherwise defined in this summary have the meanings ascribed to
them in the Senior Secured Indenture.
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 its U.S. restricted subsidiaries, including accounts receivable,
inventory, general intangibles, plant, property and equipment and 100% of the
stock of restricted subsidiaries (collectively referred to as the "Collateral").
The Collateral also includes after-acquired assets of the Company and the U.S.
restricted subsidiaries to the extent that such assets are acquired by the
Company or any such U.S. restricted 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 thereof, 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 described are
subject to a number of important qualifications and limitations.
Limitation on Restricted Payments. The Senior Secured Indenture provides
that, subject to certain exceptions, neither the Company nor any restricted
subsidiary of the Company is permitted to make the following restricted
payments: (i) declare or pay any dividend on, or make any distribution on or in
respect of, its capital stock (including any such payment in connection with any
merger or consolidation involving the Company), except dividends (A) payable
solely in its capital stock (other than disqualified stock) or in options,
warrants or other rights to purchase such capital stock and/or (B) distributions
payable solely to the Company or any restricted subsidiary, (ii) purchase,
redeem, retire or otherwise acquire for value any capital stock of the Company
or any restricted subsidiary held by Persons other than the Company or any
restricted subsidiary, (iii) purchase, repurchase, redeem, defease or otherwise
acquire or retire for value (including pursuant to mandatory repurchase
covenants), any subordinated obligation or (iv) make any investment (other than
a permitted investment).
Limitation on Indebtedness. The Senior Secured Indenture provides that,
subject to certain exceptions, the Company is not permitted to create, incur,
issue, assume, guarantee or otherwise become directly or indirectly, liable with
respect to, contingently or otherwise (collectively, "incur"), indebtedness,
except that the Company may incur, provided no default or event of default has
occurred or is continuing, and subject to certain limitations: (i) indebtedness
represented by the Senior Secured Notes and the Senior Subordinated Notes; (ii)
certain indebtedness owing to and held by any wholly owned subsidiary; (iii)
certain indebtedness incurred in connection with the prepayment of the Senior
Secured Notes pursuant to a Change of Control Offer (as defined below) provided
such indebtedness, (A) does not exceed 100% of the aggregate principal amount of
the Secured Notes and (B) has an average life equal to or greater than the
remaining average life of the Senior Secured Notes and does not mature prior to
the stated maturity of the Senior Secured Notes; (iv) indebtedness in respect of
Company guarantees of permitted indebtedness incurred by a restricted subsidiary
under "--Limitation on Restricted Subsidiary Indebtedness and Preferred Stock";
(v) indebtedness which refunds, refinances, replaces, renews, repays or extents
(collectively, "refinancing") indebtedness incurred in respect of clauses (iii),
(vi) (other than the Senior Subordinated Notes) or (vii) hereof; (vi)
indebtedness outstanding on the date the Senior Secured Notes were issued; (vii)
subordinated indebtedness incurred in connection with one or more acquisitions
of assets or capital stock of businesses in an aggregate principal amount not to
exceed $10,000,000 incurred in any fiscal year of the Company; provided,
however, that in the case of each such acquisition, the subordinated
indebtedness incurred is not permitted to represent more than 37.5% of the
aggregate purchase price payable upon consummation of such acquisition; and
(viii) in addition to any indebtedness permitted by clauses (i) through (vii)
above, indebtedness at any one time outstanding not to exceed $20,000,000 during
the period prior to the first anniversary of the date the Senior Secured Notes
were issued and thereafter $30,000,000.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Senior Secured Indenture provides that neither the Company nor any
restricted subsidiary is permitted to create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
restricted subsidiary to (i) pay dividends or make any other distributions on or
in respect to its capital stock to the Company or any restricted subsidiary or
pay any indebtedness owed to the Company or any restricted subsidiary, (ii) make
loans or advances to the Company or any restricted subsidiary or (iii) transfer
any of its property or assets to the Company or any restricted subsidiary,
except under certain limited circumstances. A restricted subsidiary may,
however, create or otherwise cause or permit to exist or become effective any
encumbrance or restriction (a) pursuant to an agreement entered into or in
effect on the date the Senior Secured Notes were issued, (b) pursuant to an
agreement relating to any indebtedness incurred by such restricted subsidiary on
or prior to the date on which such restricted subsidiary became a subsidiary of,
or was acquired by, the Company (other than indebtedness incurred as
consideration in, or to provide any portion of the funds or credit support
utilized to consummate, the transactions pursuant to which such restricted
subsidiary became a subsidiary of the Company) and outstanding on such date, (c)
pursuant to an agreement relating to an acquisition of property, so long as the
encumbrances or restrictions in such agreement relate solely to the property so
acquired, (d) pursuant to an agreement effecting a refinancing of indebtedness
incurred pursuant to an agreement (or any amendment thereof) referred to in
clause (a), (b) or (c); provided, however, that any encumbrance or restriction
contained in any such refinancing agreement is no less favorable to the holders
of the Senior Secured Notes than any encumbrance or restriction contained in
such agreement, and (e) in the case of clause (iii) any encumbrance or
restriction, (1) that restricts the subletting, assignment or transfer of any
property or asset that is a lease, license, conveyance or contract or similar
property or asset, (2) arising by virtue of any transfer of, option or right
with respect to, or lien on, any property or assets of the Company or any
restricted subsidiary not otherwise prohibited by the terms of the Senior
Secured Indenture or (3) arising or agreed to in the ordinary course of business
and that does not detract from the value of property or assets of the Company or
any restricted subsidiary in any material manner thereto.
Limitation on Liens and Impairment of Collateral. The Senior Secured
Indenture provides that neither the Company nor any restricted subsidiary is
permitted to create or permit to exist any lien on any of its property or assets
(including capital stock), whether owned on the date the Senior Secured Notes
were issued or thereafter acquired, other than certain permitted liens. Except
as permitted by the Senior Secured Indenture or any of the other collateral
documents, the Company will not, and the Company will not permit any of its
subsidiaries to, directly or indirectly, (i) take or omit to take any action
which might or would have the result of adversely affecting or impairing the
perfected first priority lien of the Senior Secured Indenture and the other
collateral documents with respect to the Collateral or any right, title or
interest thereto or (ii) grant to any Person any interest in, or right, title or
interest to, the Collateral, other than permitted liens.
Limitation on Sales of Assets and Restricted Subsidiary Stock. The Senior
Secured Indenture provides that the Company will not, and will not permit any
restricted subsidiary to, make any asset disposition except in limited
circumstances unless (i) consideration is received by the Company or restricted
subsidiary at the time of such asset disposition at least equal to the fair
market value of the shares, property and assets subject to such asset
disposition, (ii) except in certain limited circumstances, at least 75% of such
consideration consists of net cash proceeds and (iii) 100% of the net cash
proceeds from such asset disposition are applied as follows: (A) within the 365
day period after receipt of any net cash proceeds, the Company or restricted
subsidiary, as the case may be, may, subject to the procedures set forth below,
reinvest up to $3,500,000 of such net cash proceeds in replacement Collateral
(other than inventory) at a purchase price which does not exceed the fair market
value of such replacement Collateral so purchased. The Company will take such
actions to create a perfected first priority lien in favor of the trustee for
the benefit of the holders of the Senior Secured Notes in respect of any
replacement Collateral. Such replacement Collateral will be subject to solely to
permitted liens. Thereafter, unless a default or event of default occurred at
any time and is continuing, the net cash proceeds will be released from the lien
of the Secured Indenture and delivered to the Company, together with the
proceeds thereof in the amount requested by the Company or such restricted
subsidiary; provided, that such amount may not exceed the purchase price of the
replacement Collateral. In the event any replacement Collateral is capital stock
of any person which is a restricted subsidiary (other than a foreign subsidiary,
which is subject to less stringent requirements), the Company will cause such
capital stock to be pledged to the trustee for the benefit of holders of the
Senior Secured Notes. All the assets and property of the any restricted
subsidiary which issued such capital stock will be considered replacement
Collateral. Any net cash proceeds that are not used within the time period
specified in the provisions described herein will constitute "Excess Proceeds".
Each time that the aggregate amount of Excess Proceeds relating to asset
dispositions equals or exceeds $2,000,000, taking into account income earned on
such Excess Proceeds (the "Asset Disposition Trigger"), the Company will, at its
option, either (i) apply (x) 50% of such Excess Proceeds to the payment as and
when due of one or more scheduled installments of principal of the Senior
Secured Notes in order of maturity and (y) 50% of such Excess Proceeds to the
redemption of Senior Secured Notes in accordance with terms of the Senior
Secured Notes or (ii) make an offer to purchase (an "Asset Disposition Purchase
Offer") an aggregate principal amount of outstanding Senior Secured Notes equal
to the aggregate Excess Proceeds at such time (the "Asset Disposition Purchase
Amount") for cash at a purchase price (such price, the "Asset Disposition
Purchase Price") equal to 100% of the principal amount of the 11 5/8% Senior
Secured Notes so purchased plus any accrued and unpaid interest thereon to the
Asset Disposition Purchase Date (as defined below), in accordance with the
procedures (including prorationing in the event of over subscription) set forth
in the Senior Secured Indenture. Any remaining Excess Proceeds cease to be
Excess Proceeds and, may be reinvested by the Company in replacement Collateral.
Within 30 days of the occurrence of an Asset Disposition Trigger, the Company
may elect to make the Asset Disposition Purchase Offer, to purchase Senior
Secured Notes no more than 60 Business Days after the occurrence of the Asset
Disposition Trigger (the "Asset Disposition Purchase Date"). Any such Asset
Disposition Purchase Offer will remain open from the time such offer is made
until the Asset Disposition Purchase Date. The Company will purchase all Senior
Secured Notes properly tendered pursuant to any such Asset Disposition Purchase
Offer and not withdrawn in accordance with the procedures set forth in the
Senior Secured Indenture.
Limitations on Transactions with Affiliates. The Senior Secured Indenture
provides that neither the Company nor any restricted subsidiary is permitted to
conduct any business, enter into or permit to exist any transaction with, or for
the benefit of, any affiliate of the Company unless such affiliate transaction
(i) is in the best interest of the Company or such restricted subsidiary, as the
case may be, (ii) is on terms as favorable to the Company or such restricted
subsidiary, as the case may be, as those that could be obtained at the time of
such transaction for a similar transaction in arm's-length dealings with a
Person who is not such an affiliate and (iii) with respect to each such
transaction involving aggregate payments or value in excess of $500,000, the
transaction was approved by a disinterested majority of the board of directors
of the Company; provided, however, that the foregoing will not prohibit (A) any
issuance of securities or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors of the
Company, (B) loans or advances permitted under the Senior Secured Indenture to
employees in the ordinary course of business in accordance with past practices
of the Company, (C) the payment of reasonable fees to independent directors of
the Company and its restricted subsidiaries, (D) any transaction between the
Company and a wholly owned subsidiary or between wholly owned subsidiaries or
(E) reasonable and customary indemnification arrangements between the Company or
any restricted subsidiary and their respective directors and officers (to the
extent that such indemnification arrangements are permitted under applicable
law).
Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries. The Senior Secured Indenture provides that the Company will not
permit (i) any restricted subsidiary to issue any capital stock other than to
the Company or a wholly owned subsidiary; or (ii) any person (other than the
Company or a wholly owned subsidiary) to, directly or indirectly, own or control
any capital stock of any restricted subsidiary (other than directors' qualifying
shares); provided, however, that clauses (i) and (ii) will not prohibit (a) any
sale of 100% of the shares of the capital stock of any restricted subsidiary
owned by the Company or any wholly owned subsidiary in accordance with
"--Limitation on Sales of Assets and Restricted Subsidiary Stock"; (b) any
issuance of preferred stock to certain permitted Persons under "--Limitation on
Restricted Subsidiary Indebtedness and Preferred Stock"; or (c) any Person from
owning any of the Pledged Stock (as defined herein) subsequent to any
foreclosure on or other transfer of such Pledged Stock in connection with an
exercise of remedies under any of the collateral documents.
Limitation on Restricted Subsidiary Indebtedness and Preferred Stock. The
Senior Secured Indenture provides that the Company will not permit any
restricted subsidiary to, directly or indirectly, incur any indebtedness or
issue any preferred stock unless (i) no default or event of default has occurred
and is continuing at the time of such incurrence or would occur as a consequence
of such incurrence and (ii) such indebtedness or preferred stock is (A)
outstanding immediately after the date the Senior Secured Notes were issued; (B)
owing to and held by the Company or any wholly owned subsidiary; provided,
however, that any subsequent issuance or transfer of any capital stock that
results in any such wholly owned subsidiary ceasing to be a wholly owned
subsidiary or any subsequent transfer of any such indebtedness (except to the
Company or a wholly owned subsidiary) will be deemed, in each case, to
constitute the occurrence of such indebtedness by the issuer thereof; (C)
refinancing indebtedness incurred in respect of indebtedness incurred pursuant
to clause (i); and (D) in addition to any indebtedness permitted by clauses (i)
through (iii) above, no greater than the $10,000,000 in principal aggregate
amount of indebtedness of foreign restricted subsidiaries at any one time
outstanding.
Capital Expenditures. The total amount of capital expenditures made by the
Company for plant, property and equipment and acquisitions of assets or capital
stock of businesses (excluding reinvestments in replacement Collateral purchased
with net cash proceeds in an amount not to exceed $3,500,000 in any 365-day
period at a purchase price which is not to exceed the fair market value of the
replacement Collateral) and investments in joint ventures may not exceed in any
fiscal year of the Company the sum of (i) $15,000,000, (ii) the amount of
Subordinated Indebtedness incurred during such fiscal year in connection with
acquisitions of assets or capital stock of businesses not to exceed $10,000,000
and (iii) the amount of capital stock (other than disqualified stock) of the
Company issued during such fiscal year in connection with acquisitions of assets
or capital stock of a business or businesses. If the aggregate capital
expenditures made by the Company and its subsidiaries in any fiscal year is less
than $15,000,000, the difference between the capital expenditures actually made
and $15,000,000 may be carried forward into the next fiscal year.
Change of Control. The Senior Secured Indenture provides that upon a change
of control, the Company offer to purchase (the "Change of Control Offer") the
Senior Secured Notes for cash at a purchase price equal to 100% of the principal
amount thereof, plus any accrued and unpaid interest thereon to the Change of
Control Purchase Date (such price, together with such interest, the "Change of
Control Purchase Price") on or before the date specified in notice given to the
trustee (who will then in turn notify the holders of the Senior Secured Notes),
which date will be no earlier than 30 days nor later than 60 business days after
such notice is given to the holders of the Senior Secured Notes of any change of
control (the "Change of Control Purchase Date"). The Change of Control Offer
will remain open from the time such offer is made until the Change of Control
Purchase Date. The Company will purchase all Senior Secured Notes properly
tendered in the Change of Control Offer and not properly withdrawn. The
occurrence of certain of the events which would constitute a change of control
could constitute a default under the Company's existing and future indebtedness.
In addition, the exercise by the holders of the Senior Secured Notes of their
right to require the Company to repurchase Senior Secured Notes could cause a
default under such indebtedness, even if the change of control itself does not,
due to the financial effect of such repurchase on the Company. Finally, if a
Change of Control Offer is made, there can be no assurance that the Company will
have sufficient funds or other resources to pay the Change of Control Purchase
Price for all the Senior Secured Notes that might be delivered by holders
thereof seeking to accept the Change of Control Offer. Change of control for
purposes of the Senior Secured Indenture means the occurrence of any of the
following events: (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than an underwriter engaged in a firm
commitment underwriting in connection with a public offering of the voting stock
of the Company or a restricted subsidiary, is or becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
Person is deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 50% of
the total voting power of the voting stock of the Company; (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the board of directors of the Company (together with certain
directors elected or nominated and subsequently approved by election during such
two year period by such board of directors) cease for any reason to constitute a
majority of such board then in office; or (iii) the Company, either individually
or in conjunction with one or more of its subsidiaries transfers, or one or more
of such subsidiaries transfer, all or substantially all the assets of the
Company and the restricted subsidiaries, taken as a whole, to any Person (other
than a restricted subsidiary). The Company will comply, to the extent
applicable, with the requirements of Section 14(e) of the Exchange Act and any
other securities laws or regulations in connection with the repurchase of Senior
Secured Notes pursuant to any Asset Disposition Purchase Offer. To the extent
that the provisions of any securities laws or regulations conflict with
provisions relating to the Asset Disposition Purchase Offer, the Company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations described above by virtue thereof.
Collateral
The Senior Secured Notes are secured by a lien on the Collateral, which
consists of substantially all the assets, real and personal (including
after-acquired assets of the Company and the U.S. restricted subsidiaries to the
extent that such assets are acquired without financing secured by a lien on such
assets) of the Company and the U.S. restricted subsidiaries. The tangible assets
of the Company pledged as part of the Collateral consists primarily of
processing equipment, manufacturing equipment and tooling, spare parts,
long-term receivables, leasehold improvements, and office furniture. The only
real property owned by the Company that is part of the Collateral is the Graham,
Texas site on which the Company's primary magnetics manufacturing facility is
located. The Collateral also consists of the Company's accounts receivable and
inventory and a pledge of all the common stock of the U.S. restricted
subsidiaries and 100% of the common stock of the Company's foreign restricted
subsidiaries (such stock collectively referred to herein as the "Pledged
Stock"). The Senior Secured Indenture provides that, unless an event of default
has occurred and is continuing, the Company will have the right (i) to remain in
possession and retain exclusive control of the Collateral securing the Senior
Secured Notes (other than Collateral deposited with the trustee), (ii) other
than as set forth in the collateral documents, to freely operate the Collateral
and to collect, invest and dispose of any income thereon, and (iii) at any time
and from time to time to sell, exchange or otherwise dispose of any of the
Collateral (other than trust monies, which are subject to release as described
under "-- Use of Trust Monies" or upon substituting substitute Collateral
therefor as described below) (a "Release Transaction"), upon compliance with the
requirements and conditions of the provisions described above under "--
Limitation on Sales of Assets and Restricted Subsidiary Stock" and certain
provisions described below. Upon consummation of a Release Transaction, the
trustee will release the related Collateral from lien of the Senior Secured
Indenture and any of the other collateral documents, provided that (i) the
security afforded by the Senior Secured Indenture and the other collateral
documents will not be impaired by such release and either (A) other property is
to be substituted as in accordance with the provisions set forth below or (B)
the proceeds from the property to be released are being deposited in accordance
with the provisions set forth above under "--Limitation on Sales of Assets and
Restricted Subsidiary Stock"; (ii) the disposed Collateral is released for a
consideration representing its fair market value; (iii) if the Collateral to be
released is only a portion of a discrete parcel of real property, following such
release and the release of the lien of any applicable mortgage with respect
thereto, the non-released mortgaged property (A) will have sufficient utility
services sufficient access to transportation structures for the continued use of
such mortgaged property in substantially the manner carried on by the Company
and its subsidiaries prior to such release; (B) will comply in all material
respects with applicable laws, rules, regulations and ordinances relating to
land use and building and workplace safety; and (C) the fair market value of the
mortgaged property will not be less than the fair market value of such mortgaged
property prior to such release; (iv) the first priority perfected lien pursuant
to the collateral documents is in full force and effect continuously and
uninterrupted at all times; (v) if the Collateral to be released is subject to a
prior permitted lien, there will be delivered to the trustee any balance of such
net cash proceeds remaining after the discharge of the indebtedness secured by
such prior permitted lien and, if any property other than net cash proceeds or
other obligations is included in the consideration for any Collateral to be
released, all the right, title and interest of the Company in and to such
Collateral will be subject to the lien of the Senior Secured Indenture and the
other collateral documents; and (vi) an endorsement to the title insurance
policy relating to the non-released mortgaged property evidencing that after
such release, the lien of the applicable mortgage continues unimpaired as a
first priority perfected lien upon the remaining mortgaged property. In case
certain events of default have occurred and is continuing, the Company, while in
possession of the Collateral (other than net cash proceeds, securities and other
personal property required to be deposited or pledged with the trustee or holder
of a prior permitted lien under the Senior Secured Indenture or the other
collateral documents, may under certain do any of the things described in the
above paragraphs, if the trustee, in its discretion, or the holders of 66 2/3%
in aggregate principal amount of the Senior Secured Notes outstanding, consent
to such action. Notwithstanding the provisions contained herein , so long as no
event of default has occurred and is continuing, the Company will be permitted
to, without any consent by the trustee, to take certain limited actions with
respect to the Collateral. All net cash proceeds will be held by the trustee,
for the benefit of the holders of the Senior Secured Notes, as trust monies
subject to application as provided under "--Use of Trust Monies" and "Limitation
on Sales of Assets and Restricted Subsidiary Stock". All purchase money and
other obligations will be held by the trustee for the benefit of the holders of
the 13% Senior Secured Notes as Collateral.
Unless there has been an event of default, the Company is permitted to
obtain a release of any of the Collateral (including any trust monies other than
trust monies which at such time (i) constitute excess proceeds as described
under "Limitation on Sales of Assets and Restricted Subsidiary Stock" or (ii) is
sufficient to pay (A) the aggregate Change of Control Purchase Price as
described under "--Change of Control" or (B) the redemption price of and accrued
interest on all Senior Secured Notes or portions thereof to be redeemed on any
redemption date, by subjecting substitute property with a fair market value
equal to or greater than the Collateral to be released, to the perfected first
priority lien of the Senior Secured Indenture and the other collateral documents
or a similar instrument in place of and in exchange for any of the Collateral to
be released upon receipt by the trustee of certain documentation, appraisals, an
opinion of counsel, surveys (in certain cases)) and title insurance (in certain
cases). The Company may also dispose of inventory, accounts receivable and the
proceeds thereof in the ordinary course of business in connection with the
Company's business or to make other cash payments permitted by the Senior
Secured Indenture. "The fair value of all dispositions of inventory and accounts
receivable and the use of each in connection with the Company's business and to
make cash payments permitted by the Senior Secured Indenture by the Company in
accordance with this paragraph will not be considered in determining whether the
aggregate fair value of Collateral released from the lien of the Senior Secured
Indenture in any calendar year exceeds the 10% threshold specified in Section
314(d) of the Trust Indenture Act. Any releases of Collateral made in compliance
with the provisions herein will be deemed not to impair the lien of the Senior
Secured Indenture and other collateral documents in contravention of the
provisions of the Senior Secured Indenture."
SKC Trade Payable due 2001
The Company's Supply Agreement with SKC described under "Business--Raw
Materials and Suppliers" provides trade credit arrangements whereby the Company
may defer payment for certain products purchased under the Supply Agreement
having an aggregate purchase price of up to $25 million (the "SKC Trade
Payable"). As of June 4, 1996, the effective date of the Plan of Reorganization,
the SKC Trade Payable had an outstanding balance of $25 million. Interest on
amounts owing under the SKC Trade Payable begins to accrue 30 days after the
date of the related product invoice at a rate of 1.75% above the prime rate of
the First National Bank of Boston (10.25% as of December 31, 1994). Anacomp is
obligated to pay for products purchased under the Supply Agreement on a first
in, first out basis as necessary to ensure that the outstanding amount owed
under the SKC Trade Payable is equal to or less than $25 million and that the
total amount of unpaid invoices due under the Supply Agreement is equal to or
less than $29 million (subject to certain annual adjustments).
Amounts owing under the SKC Trade Payable become due and payable on the
earlier of December 31, 2001 and the occurrence of certain default events under
the Supply Agreement.
SKC has a security interest in up to $10 million of the products purchased
by Anacomp under the Supply Agreement. The SKC Trade Payable ranks pari passu in
right of payment with the Senior Secured Notes.
<PAGE>
PLAN OF DISTRIBUTION
Each of the Selling Noteholders is offering the Senior Subordinated Notes
for its own account, and not for the account of the Company. The Company will
not receive any of the net proceeds of the offering.
The Senior Subordinated Notes to be offered by the Selling Noteholders may
be sold, from time to time, on the over-the-counter market, or exchanges (if the
Senior Subordinated Notes are listed for trading thereon), in regular brokerage
transactions, in transactions directly with market-makers or in privately
negotiated transactions at market prices prevailing at the time of sale, at
prices related to such prevailing prices, or at negotiated prices. The Selling
Noteholders also may pledge Senior Subordinated Notes as collateral, and such
Senior Subordinated Notes could be sold pursuant to the terms of such pledges.
Agents through whom the Senior Subordinated Notes may be offered may
receive compensation in the form of discounts, concessions or commissions from
the Selling Noteholders and/or the purchasers of the Senior Subordinated Notes
for whom they may act as agent. The Selling Noteholders and any such agents that
participate in the distribution of the Senior Subordinated Notes may be deemed
to be underwriters, and any profits on the sale of the Senior Subordinated Notes
by them and any discounts, commissions or concessions received by any such
agents might be deemed to be underwriting discounts and commissions under the
Securities Act. To the extent the Selling Noteholders may be deemed to be
underwriters, the Selling Noteholders may be subject to certain statutory
liabilities of the Securities Act, including but not limited to Sections 11 and
12 of the Securities Act and Rule 10b-5 under the Exchange Act.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the Senior Subordinated Notes offered by this Prospectus
may not simultaneously engage in market making activities with respect to the
Senior Subordinated Notes during any applicable "cooling off" periods prior to
the commencement of such distribution. In addition, and without limiting the
foregoing, such Selling Noteholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder including, without
limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of Senior Subordinated Notes by the Selling Noteholders.
The registration relating to this Prospectus is being made pursuant to
registration rights granted by the Company at the time the Senior Subordinated
Notes were issued. The Company has agreed to indemnify the Selling Noteholders
and their directors, officers and affiliates for certain losses, claims and
liabilities in connection with the sale of Senior Subordinated Notes pursuant to
the Registration Statement of which this Prospectus forms a part. The Company
also has agreed to pay the expenses in connection with the Registration
Statement of which this Prospectus forms a part, including filing fees. The
Selling Noteholders will pay any brokerage or other fees or commissions, as well
as Selling Noteholders' incidental expenses, in connection with the offering.
To the extent required, the Company will use its best efforts to file,
during any period in which offers or sales are being made, one or more
supplements to this Prospectus to describe any material information with respect
to the plan of distribution not previously disclosed in this Prospectus or any
material change to such information in this Prospectus.
LEGAL MATTERS
The validity of the Senior Secured Notes 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>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
<S> <C>
Audited Financial Statements
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
=========== ======== ========
See Notes to Consolidated Financial Statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended September 30
1995 1994 1993
-------------- -------------- ---------
(Dollars in thousands)
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, Term 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 have been 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 Mach 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
Employee Stock Purchase Plan 2 466 -- -- 468
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, Term Loans, Series B Senior Notes, 15%
Senior Subordinated Notes, 13.875% Convertible Subordinated Debentures and 9%
Convertible Subordinated Debentures were canceled. In addition, the Company's
8.25% Cumulative Convertible Redeemable Exchangeable Preferred Stock 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 noncurrent 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 $50,000,000
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 ANACOMP, INC.
having been authorized by the Company.
Neither the delivery of this Prospectus nor
any sale made hereunder shall under any
circumstances create any implication that 13% Senior Subordinated Notes
there has been no change in the affairs of due 2002
the Company since the date hereof. This
Prospectus does not constitute an offer or
solicitation by anyone in any jurisdiction in
which such an offer or solicitation is not
authorized or in which the person making such
offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to
make such offer or solicitation.
Table of Contents
Page
Available Information.......................2
Prospectus Summary..........................3
Summary Consolidated Financial Data.........6 Prospectus
Risk Factors................................9
Use of Proceeds............................12
Capitalization.............................12
Selected Consolidated Financial Data.......13
Pro Forma Unaudited Financial Data.........16
Management's Discussion and
Analysis of Results of Operations
and Financial Condition.................27
The Company................................33
Management.................................44
Security Ownership of Certain
Beneficial Owners and Management........49
Certain Relationships and Related
Transactions............................51
Selling Noteholders........................51
Description of the Senior Subordinated
Notes...................................52
Description of Other Obligations...........73
Plan of Distribution.......................79
Legal Matters..............................79
Experts....................................79
Index to Consolidated Financial
Statements.............................F-1
Dated , 1996
<PAGE>
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
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]
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 Rule 415
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement.
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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 to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
<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 25, 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 25th 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 25, 1996
