UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 1-8328
ANACOMP, INC.
Indiana 35-1144230
11550 North Meridian Street
Post Office Box 40888
Indianapolis, Indiana 46240
Registrant's Telephone Number is (317) 844-9666
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
YES X NO
The number of shares outstanding of the Common Stock of the registrant on March
31, 1997, the close of the period covered by this report, was 13,700,764.
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 1997 and September 30, 1996..................... 3
Condensed Consolidated Statements of Operations
Three and Six Months Ended March 31, 1997 and 1996........ 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 1997 and 1996................ 6
Condensed Consolidated Statements of Stockholders' Equity
Six Months Ended March 31, 1997 and 1996.................. 8
Notes to Condensed Consolidated Financial Statements...... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 20
SIGNATURES.......................................................... 21
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
Anacomp, Inc. And Subsidiaries
<TABLE>
<CAPTION>
March 31, September 30,
(Dollars in thousands, except per share amounts) 1997 1996
- -------------------------------------------------------------------------------------------
ASSETS ........................................................ (unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents ................................. $ 25,484 $ 38,198
Restricted cash ........................................... 11,150 9,597
Accounts and notes receivable, less allowances for doubtful
accounts of $6,587 and $6,768, respectively ............. 60,356 58,806
Current portion of long-term receivables .................. 3,736 4,690
Inventories ............................................... 28,104 31,856
Prepaid expenses and other ................................ 6,584 4,383
--------- ---------
Total current assets .......................................... 135,414 147,530
Property and equipment, at cost less accumulated
depreciation and amortization ............................... 28,174 27,102
Long-term receivables, net of current portion ................. 8,605 10,632
Excess of purchase price over net assets of businesses
acquired and other intangibles, net ......................... 15,042 2,285
Reorganization value in excess of identifiable assets ......... 202,395 240,344
Other assets .................................................. 15,736 7,528
========= =========
$ 405,366 $ 435,421
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Current portion of long-term debt ......................... $ 3,687 $ 31,848
Accounts payable .......................................... 37,636 48,090
Accrued compensation, benefits and withholdings ........... 15,141 13,728
Accrued income taxes ...................................... 9,334 11,930
Accrued interest .......................................... 3,920 10,586
Other accrued liabilities ................................. 37,050 36,814
--------- ---------
Total current liabilities ..................................... 106,768 152,996
--------- ---------
Noncurrent liabilities:
Long-term debt, net of current portion .................... 251,523 217,044
Other noncurrent liabilities .............................. 5,123 6,812
--------- ---------
Total noncurrent liabilities .................................. 256,646 223,856
--------- ---------
Stockholders' equity:
Preferred stock, 1,000,000 shares authorized, none issued . -- --
Common stock, $.01 par value; 20,000,000 shares authorized;
13,700,764 and 10,099,050 issued respectively ......... 137 101
Capital in excess of par value ............................ 104,553 80,318
Cumulative translation adjustment from May 31, 1996 ....... (714) 159
Accumulated deficit from May 31, 1996 ..................... (62,024) (22,009)
--------- ---------
Total stockholders' equity .................................... 41,952 58,569
========= =========
$ 405,366 $ 435,421
========= =========
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Anacomp, Inc. And Subsidiaries
Reorganized Predecessor
Company Company
--------- ---------
Three Months Three Months
Ended Ended
March 31, March 31,
(Dollars in thousands, except per share amounts) ...................................... 1997 1996
- --------------------------------------------------------------------------------------- --------- ---------
Revenues:
<S> <C> <C>
Services provided .................................................................. $ 47,320 $ 48,262
Equipment and supply sales ......................................................... 67,200 77,649
--------- ---------
114,520 125,911
--------- ---------
Operating costs and expenses:
Costs of services provided ........................................................ 24,838 26,687
Costs of equipment and supplies sold .............................................. 50,881 58,813
Selling, general and administrative expenses ...................................... 21,973 23,148
Amortization of reorganization asset .............................................. 18,717 --
--------- ---------
116,409 108,648
--------- ---------
Income (loss) from operations before interest, other income,
reorganization items, income taxes and extraordinary loss ........................... (1,889) 17,263
--------- ---------
Interest income ....................................................................... 1,139 431
Interest expense and fee amortization ................................................. (9,736) (5,499)
Reorganization items .................................................................. -- (20,450)
Other income (loss) ................................................................... (780) 24
--------- ---------
(9,377) (25,494)
--------- ---------
Income (loss) before income taxes and extraordinary loss .............................. (11,266) (8,231)
Provision for income taxes ............................................................ 3,300 2,500
--------- ---------
Net income (loss) before extraordinary loss ........................................... (14,566) (10,731)
Extraordinary loss on extinguishment of debt, net of income
tax benefit of $4,325 ............................................................... 12,536 --
--------- =========
Net income (loss) available to common stockholders .................................... $ (27,102) $ (10,731)
--------- =========
Weighted average common shares outstanding ............................................ 13,701
---------
Earnings (loss) per common and common equivalent share:
Net income (loss) available to common stockholders before
extraordinary loss .................................................................. $ (1.06)
Extraordinary loss on extinguishment of debt (net of tax benefit) ..................... .92
---------
Net income (loss) available to common stockholders .................................... $ (1.98)
---------
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Anacomp, Inc. And Subsidiaries
Reorganized Predecessor
Company Company
----------------- ----------------
Six Months Six Months
Ended Ended
March 31, March 31,
(Dollars in thousands, except per share amounts) 1997 1996
- ----------------------------------------------------------------------- ----------------- ----------------
Revenues:
<S> <C> <C>
Services provided............................................. $ 92,745 $ 99,190
Equipment and supply sales.................................... 138,228 156,986
----------------- ----------------
230,973 256,176
----------------- ----------------
Operating costs and expenses:
Costs of services provided................................... 48,945 54,525
Costs of equipment and supplies sold......................... 101,813 120,574
Selling, general and administrative expenses................. 43,421 47,595
Amortization of reorganization asset......................... 37,964 --
----------------- ----------------
232,143 222,694
----------------- ----------------
Income (loss) from operations before interest, other income,
reorganization items, income taxes and extraordinary loss...... (1,170) 33,482
----------------- ----------------
Interest income.................................................. 2,123 932
Interest expense and fee amortization............................ (19,538) (23,785)
Reorganization items............................................. -- (23,251)
Other income (loss).............................................. (795) 6,644
----------------- ----------------
(18,210) (39,460)
----------------- ----------------
Income (loss) before income taxes and extraordinary loss......... (19,380) (5,978)
Provision for income taxes....................................... 8,100 3,700
----------------- ----------------
Net income (loss) before extraordinary loss...................... (27,480) (9,678)
Extraordinary loss on extinguishment of debt, net of income
tax benefit of $4,325.......................................... 12,536 --
----------------- ----------------
Net income (loss)................................................ (40,016) (9,678)
Preferred stock dividends and discount accretion................. -- 540
----------------- ================
Net income (loss) available to common stockholders............... $ (40,016) $ (10,218)
----------------- ================
Weighted average common shares outstanding....................... 13,134
-----------------
Earnings (loss) per common and common equivalent share:
Net income (loss) available to common stockholders before
extraordinary loss........................................... $(2.09)
Extraordinary loss on extinguishment of debt (net of tax benefit) .96
-----------------
Net income (loss) available to common stockholders............... $ (3.05)
=================
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Anacomp, Inc. And Subsidiaries
Reorganized Predecessor
Company Company
------------------ -----------------
Six Months Six Months
Ended Ended
March 31, March 31,
(Dollars in thousands, except per share amounts) 1997 1996
- ----------------------------------------------------------------------- ------------------ -----------------
Cash flows from operating activities:
<S> <C> <C>
Net loss...................................................... $ (40,016) $ (9,678)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization.............................. 45,442 14,564
Extraordinary loss on extinguishment of debt............... 12,536 --
Non-cash compensation...................................... 510 --
Non-cash charge in lieu of taxes........................... 4,310 --
Non-cash reorganization items.............................. -- 23,251
Gain on sale of ICS Division............................... -- (6,202)
Other non-cash items....................................... (116) 53
Restricted cash requirements................................... (1,553) --
Changes in assets and liabilities, net of acquisitions:
Decrease in accounts and long-term receivables............. 2,481 16,652
Decrease in inventories and prepaid expenses............... 5,135 9,501
Decrease (increase) in other assets........................ (347) 1,914
Decrease in accounts payable and accrued expenses.......... (10,983) (17,301)
Increase (decrease) in other noncurrent liabilities........ (1,655) 113
------------------ -----------------
Net cash provided by operating activities............... 15,744 32,867
------------------ -----------------
Cash flows from investing activities:
Proceeds from sale of ICS Division............................. -- 13,554
Purchases of property, plant and equipment..................... (4,718) (2,537)
Payments to acquire companies and customer rights.............. (16,464) --
------------------ -----------------
Net cash provided by (used in) investing activities (21,182) 11,017
------------------ -----------------
Cash flows from financing activities:
Proceeds from exercise of common stock rights.................. 24,271 --
Proceeds from revolving line of credit and long-term borrowings 251,414 1,329
Principal payments on long-term debt........................... (270,416) (14,991)
Payments related to the issuance and extinguishment of debt.... (12,259) --
------------------ -----------------
Net cash used in financing activities................... (6,990) (13,662)
------------------ -----------------
Effect of exchange rates on cash................................. (286) (378)
------------------ -----------------
Increase (decrease) in cash and cash equivalents................. (12,714) 29,844
Cash and cash equivalents at beginning of period................. 38,198 19,415
------------------ =================
Cash and cash equivalents at the end of the period............... $ 25,484 $ 49,259
------------------ =================
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION:
Reorganized Predecessor
Company Company
------------------ -----------------
Six Months Six Months
Ended Ended
March 31, March 31,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------- ------------------ -----------------
Cash paid during the period for:
<S> <C> <C>
Interest....................................................... $ 7,745 $ 8,175
Income taxes................................................... $ 3,995 $ 1,297
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Reorganized Predecessor
Company Company
------------------ -----------------
Six Months Six Months
Ended Ended
March 31, March 31,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
Assets acquired by assuming liabilities.......................... $ 1,553 $ --
Interest on subordinated notes satisfied with additional notes... $11,960 $ --
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
Anacomp, Inc. and Subsidiaries
SIX MONTHS ENDED MARCH 31, 1997 - REORGANIZED COMPANY
Capital in Cumulative
Common excess of Translation Accumulated
(Dollars in thousands) Stock par value Adjustment Deficit Total
- ------------------------------------------------ -------------- ------------ ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1996 $101 $80,318 $159 $(22,009) $58,569
Common stock issued for exercise of rights 36 24,235 -- -- 24,271
Translation adjustments for period......... -- -- (873) -- (873)
Other...................................... -- -- -- 1 1
Net loss for the period.................... -- -- -- (40,016) (40,016)
-------------- ------------ ------------- ---------------- -------------
BALANCE AT MARCH 31, 1997 $137 $104,553 $(714) $(62,024) $41,952
============== ============ ============= ================ =============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1996 - PREDECESSOR COMPANY
Capital in Cumulative
Common excess of Translation Accumulated
(Dollars in thousands) Stock par value Adjustment Deficit Total
- ------------------------------------------------ -------------- ------------ ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995 $462 $182,725 $1,329 $(372,759) $(188,243)
Preferred stock conversion................. 7 4,798 -- -- 4,805
Preferred stock dividends.................. -- -- -- (516) (516)
Accretion of redeemable preferred stock
discount................................. -- -- -- (24) (24)
Translation adjustments for period......... -- -- (1,381) -- (1,381)
NBS stock issuance......................... 11 (11) -- -- --
Net loss for the period.................... -- -- -- (9,678) (9,678)
============== ============ ============= ================ =============
BALANCE AT MARCH 31, 1996 $480 $187,512 $(52) $(382,977) $(195,037)
============== ============ ============= ================ =============
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Anacomp, Inc. and Subsidiaries
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 and the notes thereto
included in the Company's Report on Form 10-K for the fiscal year ended
September 30, 1996.
In the opinion of management, the accompanying interim Condensed
Consolidated Financial Statements contain all material adjustments
necessary to present fairly the consolidated financial condition,
results of operations, and changes in financial position and
stockholders' equity of Anacomp and its subsidiaries for the interim
periods presented. Certain amounts in the prior interim consolidated
financial statements have been reclassified to conform to the current
period presentation.
Due to the Company's Reorganization and implementation of Fresh Start
Reporting, The Condensed Consolidated Financial Statements for the new
Reorganized Company (period starting May 31, 1996) are not comparable
to those of the Predecessor Company. For financial reporting purposes,
the effective date of the Reorganized Company's emergence from
bankruptcy is considered to be the close of business on May 31, 1996.
A black line has been drawn on the accompanying Condensed Consolidated
Financial Statements to distinguish between the Reorganized Company and
the Predecessor Company.
NOTE 2. COMPONENTS OF CERTAIN BALANCE SHEET ACCOUNTS:
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:
<TABLE>
<CAPTION>
March 31, September 30,
(Dollars in thousands) 1997 1996
----------------------------------------------------------- ------------------- -----------------
<S> <C> <C>
Finished goods....................................... $17,493 $22,557
Work in process...................................... 3,226 2,748
Raw materials and supplies........................... 7,385 6,551
=================== =================
$28,104 $31,856
=================== =================
</TABLE>
Property and Equipment
Property and equipment are carried at cost. Depreciation and
amortization of property and equipment are generally provided under the
straight-line method for financial reporting purposes over the shorter
of the estimated useful lives or the lease terms. Tooling costs are
amortized over the total estimated units of production, not to exceed
three years. In accordance with Fresh Start Reporting, property and
equipment were reflected at fair market values as of May 31, 1996.
Restricted Cash
Restricted cash represents cash reserved as collateral for letters of
credit issued by the Company or cash held in escrow primarily to secure
certain contingent obligations of the Company. The contingent
obligations are primarily related to environmental liabilities and
certain insurance policies.
NOTE 3. REORGANIZATION ITEMS:
In accordance with SOP 90-7, expenses of the Predecessor Company
resulting from the Chapter 11 Reorganization are reported separately as
reorganization items in the accompanying Consolidated Statement of
Operations, and are summarized below:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
March 31, March 31,
(Dollars in thousands) 1996 1996
---------------------------------------------------------------- --------------- ----------------
<S> <C> <C>
Write-off of deferred debt issue costs and discounts $(17,551) $(17,551)
Legal and professional fees associated with bankruptcy (3,135) (5,936)
Interest earned on accumulated cash 236 236
=============== ================
$20,450 $23,251
=============== ================
</TABLE>
NOTE 4. 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 5. INCOME TAXES:
Income tax expense is reported for the Predecessor Company based on the
actual effective tax rate for the six month period ended March 31,
1996. For this period, the U.S. Federal tax provision is zero because
the Predecessor Company incurred a domestic loss for the period.
Amortization of "Reorganization value in excess of identifiable assets"
is not deductible for income tax purposes. Accordingly, the Reorganized
Company incurs income tax expense even though it reports a pre-tax loss
due to such amortization.
For the six month period ended March 31, 1997, income tax expense is
reported for the Reorganized Company based upon an estimated effective
tax rate for fiscal 1997 of 43%. Also during the period, the company
recorded an extraordinary loss on the extinguishment of debt as
discussed in Note 9. The income tax benefit of $4.3 million associated
with this charge is the amount available at March 31, 1997. This amount
is limited by other items affecting taxable income for the period and
may require adjustment in future periods as additional income tax
benefits become available.
At March 31, 1997, the Reorganized Company had NOLs of approximately
$116 million available to offset future taxable income. Usage of these
NOLs by the Reorganized Company is limited to $4 million annually.
However, the Reorganized 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 Reorganized Company expects that
substantial amounts of the NOLs will expire unused. NOLs available to
offset income for fiscal year 1997 is estimated to be $17 million.
NOTE 6. 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.
Fully diluted earnings (loss) per share are the same as primary
earnings per share for the periods presented.
The weighted average number of common shares outstanding and net income
(loss) per common share for periods prior to May 31, 1996 have not been
presented because, due to the restructuring and implementation of Fresh
Start Reporting, they are not comparable to subsequent periods.
NOTE 7. ACQUISITIONS:
During the six month period ended March 31, 1997, the Company acquired
either the customer bases and other assets or the stock of seven
businesses:
A San Diego based company that manufactures and markets CD output
systems, optical storage controllers and mainframe connectivity
solutions. The purchase price consisted of $10.4 million cash paid
at closing (net of cash acquired) and contingent cash and/or stock
payments of up to $3.2 million based upon future operating results
over the next two years.
Four companies operating seven service bureaus (three in Northern
California, one in Nevada, one in New York, one in Italy and one
in Belgium) specializing in Computer Output to Microfilm ("COM").
The combined purchase prices consisted of $4.0 million cash paid
at closing, notes payable of $880,000 and contingent cash payments
of up to $3.4 million based upon future operating results over the
next two years.
A Boston based company that provides maintenance services
relating to its manufactured equipment used for the cleaning,
testing, certifying and degaussing of computer tape. The purchase
price consisted of $1.5 million cash paid at closing, the
assumption of a $600,000 deferred revenue liability and contingent
cash payments of up to $2.7 million based upon future revenues
over the next five years.
<PAGE>
A Boston based company that specializes in the long-term storage
of critical business records. The purchase price consisted of
$180,000 cash paid at closing, the assumption of a $70,000 debt
obligation and contingent cash payments of up to $500,000 based
upon future operating results over the next three years.
NOTE 8. RIGHTS OFFERING:
On October 30, 1996, the Company completed a rights offering to its
existing shareholders that resulted in the issuance of 3.6 million
shares of common stock. For each share of Anacomp common stock held as
of the close of business on September 18, 1996, the Company distributed
0.36 rights to purchase an additional share of common stock at a
subscription price of $6.875 per share. The Company is using the
proceeds of the rights offering, approximately $24 million, for the
acquisition of businesses, assets and technologies.
NOTE 9. DEBT:
Senior Secured Credit Facility
On February 28, 1997, the Company and certain foreign subsidiaries
entered into a Credit and Guarantee Agreement (the "Credit Facility")
with a syndicate of banks and other financial institutions
(collectively, the "Senior Secured Lenders"), Lehman Commerical Paper
Inc., as arranger and syndication agent, and The First National Bank of
Chicago (in its individual capacity, "First Chicago"), as
administrative agent. The Credit Facility provides for a $55 million
term loan facility ("the Term Facility") and a $25 million revolving
credit facility (the "Revolving Facility"). The proceeds of the Term
Facility and available cash were used to repay the existing 11 5/8%
Senior Secured Notes due 1999 (the "Old Senior Secured Notes"). The
balance of the Old Senior Secured Notes at February 28, 1997, was $83.6
million, reflecting the prepayment of the March 31, 1997 installment of
$14.3 million made on February 20, 1997.
As of March 31, 1997, $55 million was outstanding under the Term
Facility, and no amounts were outstanding under the Revolving Facility.
The entire Revolving Facility is available for loans denominated in
U.S. dollars and certain foreign currencies ("Multicurrency Loans"),
and up to $10 million of the Revolving Facility is available for
letters of credit. The Term Facility is repayable in thirteen quarterly
installments commencing March 31, 1998, with the final installment due
on March 31, 2001. The Revolving Facility terminates on February 28,
2001.
The Company may elect to have loans under the Term Facility or the
Revolving Facility bear interest at (a) the Alternate Base Rate plus 2%
or (b) the Eurodollar Rate, or in the case of Multicurrency Loans, the
Eurocurrency Rate, plus 3%. Interest is payable quarterly and at the
end of the Interest Period (as defined in the Credit Facility). The
"Alternate Base Rate" for any day means the higher of (i) the corporate
base rate of interest announced by First Chicago and (ii) the federal
funds rate published by the Federal Reserve Bank of New York on the
next business day plus 1/2%. The "Eurodollar Rate" for any Interest
Period means (A) the applicable London interbank offered rate for
deposits in U.S. dollars two business days prior to the first day of
the Interest Period divided by (B) one minus the "Eurocurrency
Liabilities" under Regulation D of the Board of Governors of the
Federal Reserve System. The "Eurocurrency Rate" for any Interest Period
means the rate at which First Chicago offers to place deposits in the
applicable foreign currency with first-class banks in the London
interbank market two business days prior to the first day of the
Interest Period.
The Term Facility and the Revolving Facility are secured by all of the
Company's tangible and intangible assets (including intellectual
property, real property and all of the capital stock of each of the
Company's direct or indirect domestic subsidiaries and 65% of the
capital stock of each of the Company's material direct foreign
subsidiaries). All of the Company's obligations under the Credit
Facility are unconditionally guaranteed by the Company's direct or
indirect domestic subsidiaries. In addition to customary covenants, the
Credit Facility requires that the Company: (a) maintain certain ratios
of Consolidated EBITDA (as defined in the Credit Facility), (b) not
incur any indebtedness other than the 10 7/8% Senior Subordinated Notes
due 2004 (the "Notes"), indebtedness under the Credit Facility and
certain other indebtedness, (c) not permit any lien to exist on any of
its property, assets or revenues, except the liens in favor of the
Senior Secured Lenders, existing liens and certain other liens and (d)
not to incur any guarantee obligations, except the guarantee
obligations related to the Credit Facility and certain other guarantee
obligations.
The Company must use 25% of Consolidated Excess Cash Flow (as defined
in the Credit Facility) in fiscal 1997 and 50% of Consolidated Excess
Cash Flow thereafter to repay the Term Facility and reduce Revolving
Facility commitments. Additionally, 100% of the Net Proceeds (as
defined in the Credit Facility) of any Asset Sale (as defined in the
Credit Facility) and 75% of proceeds from the sale of Capital Stock (as
defined in the Credit Facility) not used for acquisitions or the
repurchase of subordinated debt, must be applied to repay the Term
Facility and reduce the Revolving Facility commitments. The Term
Facility repayment schedule is as follows:
Year ended
September 30,
(Dollars in
thousands)
-----------------
1998.......................................... $ 8,000
1999.......................................... 14,000
2000.......................................... 21,000
2001.......................................... 12,000
-----------------
$ 55,000
=================
10 7/8% Senior Subordinated Notes
On March 24, 1997, the Company issued $200 million of the Notes. The
Notes were sold at 98.2071% of the face amount to yield proceeds of
$196.4 million. The proceeds of the Notes were used to repay the
existing 13% Senior Subordinated Notes due 2002, including a 3% call
premium and accrued interest, to reduce the SKC trade payable by $10
million and associated accrued interest, and to pay certain fees and
expenses. As a result of the call premium ($5.2 million) and existing
discount on the 13% notes ($11.6 million), the Company recorded an
extraordinary loss on the extinguishment of debt of $12.5 million, net
of tax benefits.
<PAGE>
The Notes are not redeemable at the option of the Company prior to
April 1, 2000. On or after such date until April 1, 2003, the Notes
will be redeemable at the option of the Company in whole or in part at
prices ranging from 108.156% to 102.710% plus accrued and unpaid
interest. On or after April 1, 2003, the Notes may be redeemable at
100% plus accrued and unpaid interest. Prior to April 1, 2000, the
Company may, at its option, use the net cash proceeds of one or more
Public Equity Offerings (as defined in the Indenture), to redeem up to
35% of the aggregate principal amount at a redemption price equal to
110.875% plus unpaid interest to the date of redemption, provided that
at least $130 million of the aggregate principal amount of Notes
originally issued remains outstanding after any such redemption.
Also, upon a Change of Control (as defined in the Indenture), the
Company is required to make an offer to purchase the Notes then
outstanding at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest.
The Notes have no sinking fund requirements and are due in full on
April 1, 2004.
The Notes are general unsecured obligations of the Company and will be
expressly subordinated in right of payment to all existing and future
Senior Indebtedness (as defined in the Indenture) of the Company. The
Notes will rank pari passu with any future Senior Subordinated
Indebtedness (as defined in the Indenture) and senior to all
Subordinated Indebtedness (as defined in the Indenture) of the Company.
The indenture relating to the Notes contains covenants related to
limitations of indebtedness of the Company and restricted subsidiaries,
limitations on restricted payments, limitations on restrictions on
distributions from restricted subsidiaries, limitations on sale of
assets and restricted subsidiary stock, limitations on liens, a
prohibition on layering, limitations on transactions with affiliates,
limitations on issuance and sale of capital stock of restricted
subsidiaries and limitations of sale/leaseback transactions.
NOTE 10. STOCK PLANS
On February 3, 1997, the Company's shareholders approved the Anacomp,
Inc. 1997 Qualified Employee Stock Purchase Plan (the "Stock Purchase
Plan"). The Stock Purchase Plan allows qualified employees to purchase
shares of the Company's common stock at the lower of 85% of the fair
market value at the date of purchase or 85% of the fair market value on
the first day of the offering period. A maximum of 500,000 shares of
common stock is available for purchase under the Stock Purchase Plan.
On February 3, 1997, the Company's shareholders approved the Anacomp,
Inc. 1996 Long-Term Incentive Plan (the "Incentive Plan"). The Company
has reserved 1,450,000 shares of its common stock for issuance in
connection with options and awards under this plan.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 compared to the
Three Months Ended March 31, 1996
Results of Operations
General
Anacomp reported a net loss of $27.1 million for the three months ended March
31, 1997, compared to a net loss of $10.7 million for the three months ended
March 31, 1996. Included in the net loss for the three months ended March 31,
1997 is non-cash amortization of the Company's reorganization value asset of
$18.7 million and an extraordinary loss on the extinguishment of debt of $12.5
million, net of income tax benefits of $4.3 million. The extraordinary loss was
comprised of a 3% call premium of $5.2 million and unamortized discount on the
Company's existing 13% subordinated notes of $11.6 million.
Included in the net loss for the three months ended March 31, 1996 is $20.5
million in reorganization items including a write-off of deferred debt issue
costs and discounts of $17.6 million and legal and professional fees associated
with bankruptcy of $3.1 million. Earnings before interest, other income,
reorganization items, taxes, depreciation and amortization and extraordinary
loss ("EBITDA") was $20.1 million for the three months ended March 31, 1997,
compared to $23.6 million for the three months ended March 31, 1996.
Total revenues for the second quarter of $114.5 million represents an $11.4
million decrease from the second quarter of the prior year. Approximately $9.7
million of the decrease is due to expected downtrends in certain micrographics
supplies and magnetics product lines with the remainder primarily due to
decreased COM system revenues.
Cost of services provided as a percentage of services revenue was 52% for the
three months ended March 31, 1997, compared to 55% for the same period of the
prior year. The improvement is due primarily to cost reduction efforts in
maintenance services initiated by new management. Cost of equipment and supplies
sold as a percentage of equipment and supplies sales was 76% for both the three
months ended March 31, 1997 and the three months ended March 31, 1996
Selling, general and administrative expenses were 19% of revenue for the three
months ended March 31, 1997, compared to 18% of revenue for the three months
ended March 31, 1996.
Interest expense and fee amortization was $9.7 million for the three months
ended March 31, 1997, compared to $5.5 million for the same period of the prior
year. The increase in interest expense relates to the discontinuance of accrued
interest on the Predecessor Company's subordinated debt during bankruptcy
proceedings in the three months ended March 31, 1996.
Products and Services
Output services revenues decreased $.8 million for the three months ended March
31, 1997, compared to the same three months of fiscal year 1996. COM service
volumes increased by 2% while average selling prices decreased by 10%. Data
center acquisitions and several large customer gains have contributed to both
the increase in volumes and the decrease in average selling prices. The acquired
data centers contributed volumes, but at significantly lower average selling
prices. The large customer gains received favorable pricing due to their
volumes. Gross margins as a percentage of revenue decreased by 3% due to the
aforementioned impact of lower average selling prices.
Technology services (primarily maintenance) revenues decreased $.9 million for
the three months ended March 31, 1997, primarily due to the effect of replacing
older generation COM systems with the XFP, which has a significantly greater
capacity than the older COM systems. Gross margins as a percentage of revenue
improved 8.5 percentage points as a result of decreased personnel and supply
costs. Personnel costs decreased as planned reductions in the work force were
made to bring headcount in line with the declining base of COM recorders under
maintenance.
COM systems revenues for the three months ended March 31,1997, decreased by $2.2
million compared to the same period of the prior year. The decrease in revenue
is attributable to a decrease in the number of systems sold and the mix and
pricing of new and used systems. Gross margins as a percentage of revenue were
comparable between periods.
Digital systems revenues for the three months ended March 31, 1997, were $2.5
million. The Data/Ware acquisition accounted for $2.4 million of the revenue
total. There were no digital systems sold for the same period of the prior year.
Micrographics supplies revenues for the three months ended March 31, 1997,
decreased $4.9 million compared to the same period of the prior year. The major
product categories experiencing the expected decrease in revenue include readers
and reader/printers ($1.5 million), original COM film ($1.1 million), duplicate
film ($1.0 million) and micrographics accessories ($.8 million). Gross margins
as a percentage of revenue increased two percentage points as a result of
changes in product mix.
Magnetic media revenues for the three months ended March 31, 1997, decreased
$4.8 million compared to the same period of the prior year. The major product
categories experiencing the expected decrease in revenue include 3480 tape
cartridges ($2.0 million) and open reel tape ($2.6 million). Gross margins as a
percentage of revenue increased slightly due to product mix.
<PAGE>
Six Months Ended March 31, 1997 compared to the
Six Months Ended March 31, 1996
Results of Operations
General
Anacomp reported a net loss of $40.0 million for the six months ended March 31,
1997, compared to a net loss of $10.2 million for the six months ended March 31,
1996. Included in the net loss for the six months ended March 31, 1997 is
non-cash amortization of the Company's reorganization value asset of $38.0
million and an extraordinary loss on the extinguishment of debt of $12.5
million, net of income tax benefits of $4.3 million. This extraordinary loss was
comprised of a 3% call premium of $5.2 million and unamortized discount on the
Company's existing 13% subordinated notes of $11.6 million.
Pursuant to a 1990 OEM agreement Kodak was obligated to purchase an additional
151 XFP 2000 systems by October 1997 or pay a cash penalty to the Company. In
satisfaction of this earlier OEM agreement, the Company accepted a $3.6 million
cash payment from Kodak, which is included in the current period results, and a
commitment to purchase an additional 28 XFP 2000 systems by the end of calendar
1997, and a one-time purchase of spare parts.
Included in net income for the six months ended March 31, 1996 is a $6.2 million
gain on the sale of the Image Conversion Services Division ("ICS") and $23.3
million in reorganization items including a write-off of deferred debt issue
costs and discounts of $17.6 million and legal and professional fees associated
with bankruptcy of $5.9 million. EBITDA was $43.5 million for the six months
ended March 31, 1997 compared to $46.7 million for the six months ended March
31, 1996. Excluding the Kodak payment, EBITDA was $39.9 million for the current
period.
Total revenues for the six months ended March 31, 1997 of $231.0 million
represents a $25.2 million decrease from the same period of the prior year.
Approximately $7.7 million of the decrease is due to the discontinuance and
downsizing of product lines, including ICS ($1.5 million), reader and reader
printer products ($3.9 million), source document film ($.5 million) and
micrographics accessories ($1.8 million). The remaining $17.5 million decrease
in revenues is due primarily to the expected general downward trend in both the
micrographics and magnetics product lines.
Cost of services provided as a percentage of services revenue was 53% for the
six months ended March 31, 1997, compared to 55% for the same period of the
prior year. The improvement is due primarily to cost reduction efforts in
maintenance services initiated by new management. Cost of equipment and supplies
sold as a percentage of equipment and supplies sales, excluding the one-time
$3.6 million payment noted above, was 76% for the six months ended March 31,
1997, compared to 77% for the same period of the prior year.
Selling, general and administrative expenses were 19% of revenue for both the
six months ended March 31, 1997 and the six months ended March 31, 1996,
excluding the one-time $3.6 million payment noted above.
Interest expense and fee amortization of $19.5 million for the six months ended
March 31, 1997, decreased $4.2 million over the prior year, primarily due to the
Company's improved debt structure as a result of the Reorganization in fiscal
1996.
Products and Services
Output services revenues decreased $3.2 million for the six months ended March
31, 1997, compared to the same six months of fiscal year 1996, excluding the
effect of the ICS sale. COM service volumes increased by less than one percent
while average selling prices decreased by 9%. Data center acquisitions and
several large customer gains have contributed to both the increase in volumes
and the decrease in average selling prices. The acquired data centers
contributed volumes, but at significantly lower average selling prices. The
large customer gains received favorable pricing due to their volumes. Gross
margins as a percentage of revenue decreased by three percentage points due to
the aforementioned impact of lower average selling prices.
Technology services (primarily maintenance) revenues decreased $2.9 million for
the six months ended March 31, 1997, primarily due to the effect of replacing
older generation COM systems with the XFP, which has a significantly greater
capacity than the older COM systems. Gross margins as a percentage of revenue
improved 6.5 percentage points as a result of decreased personnel and supply
costs. Personnel costs decreased as planned reductions in the work force were
made to bring headcount in line with the declining base of COM recorders under
maintenance.
COM systems revenues for the six months ended March 31,1997, decreased by $4.3
million compared to the same period of the prior year. The decrease in revenue
is attributable to a decrease in the number of systems sold and the mix and
pricing of new and used systems. Gross margins as a percentage of revenue
improved primarily due to product mix and the result of manufacturing
efficiencies realized during fiscal 1997.
Digital systems revenues for the six months ended March 31, 1997, were $4.2
million. The sale of two XSTAR digital systems contributed $1.5 million in the
first quarter while the second quarter acquisition of Data/Ware contributed $2.4
million in revenues. There were no digital systems sold for the same period of
the prior year.
Micrographics supplies revenues for the six months ended March 31, 1997,
decreased $11.5 million compared to the same period of the prior year. The major
product categories experiencing the expected decrease in revenue include readers
and reader/printers ($3.9 million), original COM film ($1.5 million), duplicate
film ($2.3 million) and micrographics accessories ($1.8 million). Gross margins
as a percentage of revenue increased one percentage point as a result of changes
in product mix.
Magnetic media revenues for the six months ended March 31, 1997, decreased $9.0
million compared to the same period of the prior year. The major product
categories experiencing the expected decrease in revenue include 3480 tape
cartridges ($3.6 million), open reel tape ($2.6 million) and TK 50/52 tape ($2.0
million). Gross margins as a percentage of revenue increased slightly due to
increases in sales price on selected products and increased sales of higher
margin products.
Liquidity and Capital Resources
During the period ended March 31, 1997 Anacomp completed the refinancing of
substantially all of its significant debt obligations (see Note 9 to the
Condensed Consolidated Financial Statements). The refinancings will result in
significant interest savings to the Company. Anacomp's cash interest cost will
now be at an annual rate of approximately $30 million as compared to
approximately $40 million upon the Company's exit from bankruptcy on May 31,
1996. The Company's debt amortization has also been significantly reduced as a
result of the refinancings. Anacomp has no principal payments due on the new
debt during the remainder of fiscal 1997, $8 million due in fiscal 1997 and $14
million due in fiscal 1999. As of March 31, 1997, the current portion of
long-term debt was $3.7 million as compared to $31.8 million at September 30,
1996.
Anacomp's working capital at March 31, 1997, excluding the current portion of
long-term debt, was $32.3 million, compared to $26.4 million at September 30,
1996. Net cash provided by operating activities was $15.7 million for the first
six months of fiscal 1997, compared to $32.9 million in the comparable prior
period. The largest component of the decrease was a $10 million pay down of the
company's trade credit facility with SKC. Net cash used in investing activities
was $21.2 million in the current period, compared to net cash provided by
investing activities of $11.0 million in the comparable prior period. This
change was primarily the result of the Company using $16.5 million of cash for
acquisitions in the current period while the Company generated $13.6 million in
cash from the sale of the ICS Division in the prior period. Also, the Company
increased its capital expenditures for property, plant and equipment by $2.2
million during the current period, as compared to the prior year.
Net cash used in financing activities decreased to $7.0 million for the six
months ended March 31, 1997, compared to $13.7 million in the comparable prior
period. The Company's successful rights offering of approximately 3.6 million
shares of common stock provided approximately $24.3 million in cash in the
current period and the Company's debt refinancing and principal reductions used
approximately $31.3 million of cash.
The Company's cash balance (including restricted cash) as of March 31, 1997 was
$36.6 million, compared to $47.8 million at September 30, 1996, primarily due to
cash used in the Company's debt refinancing transactions. The Company also has
full availability on its $25 million revolving credit facility, which was
undrawn at March 31, 1997.
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. However, the Company
believes that cash on hand and cash generated from operations will be sufficient
to fund its debt service requirements, acquisition strategies and working
capital requirements in the foreseeable future.
Accounting Pronouncements
In February, 1997, the Financial Accounting Standards Board issued two
pronouncements related to the calculation and disclosure of Earnings Per Share
information. These pronouncements are effective for periods ending after
December 15, 1997 and consequently no adjustments are reflected in the Condensed
Consolidated Financial Statements for the period ended March 31, 1997. Due to
the Company's recent operating losses, adoption of these pronouncements is not
expected to have a significant effect on the Company's financial statements.
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial data schedule (required for electronic filing only)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
March 31, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANACOMP, INC.
/s/ Donald L. Viles
Donald L. Viles
Executive Vice President and
Chief Financial Officer
Dated this 12th day of May, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ANACOMP, INC.'S MARCH 31, 1997 FORM 10-Q QUARTERLY REQPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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