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, 1998
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
12365 Crosthwaite Circle
Poway, California 92064
Registrant's Telephone Number is (619) 679-9797
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 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 documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
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, 1998, the close of the period covered by this report, was 14,028,624.
ANACOMP, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 1998 and September 30, 1997.............................. 3
Condensed Consolidated Statements of Operations Three Months
and Six Months Ended March 31, 1998 and 1997....................... 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 1998 and 1997.......................... 5
Supplemental Disclosures of Cash Flow Information.................. 6
Supplemental Schedule of Non-cash Investing
and Financing Activities........................................... 6
Condensed Consolidated Statements of Stockholders' Equity
Six Months Ended March 31, 1998 and 1997........................... 7
Notes to Condensed Consolidated Financial Statements............... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................... 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities...............................................16
Item 6. Exhibits and Reports on Form 8-K....................................16
SIGNATURES...................................................................17
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
Anacomp, Inc. and Subsidiaries
March 31, September 30,
(Dollars in thousands, except per share amounts) 1998 1997
- ---------------------------------------------------------------------------------------------
ASSETS (unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents ..................................... $ 30,803 $ 58,060
Restricted cash ............................................... 4,052 7,433
Accounts and notes receivable, less allowances for doubtful
accounts of $5,744 and $5,501, respectively .............. 66,835 58,628
Current portion of long-term receivables ...................... 3,823 3,647
Inventories ................................................... 26,757 25,261
Prepaid expenses and other .................................... 8,527 6,853
--------- ---------
Total current assets .............................................. 140,797 159,882
--------- ---------
Property and equipment, at cost less accumulated depreciation and
amortization .................................................. 33,002 29,063
Long-term receivables, net of current portion ..................... 6,726 6,587
Excess of purchase price over net assets of businesses acquired and
other intangibles, net ........................................ 24,791 17,800
Reorganization value in excess of identifiable assets ............. 123,955 163,856
Other assets ...................................................... 14,548 14,763
========= =========
$ 343,819 $ 391,951
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Current portion of long-term debt ............................. $ 8,281 $ 9,595
Accounts payable .............................................. 30,649 39,270
Accrued compensation, benefits and withholdings ............... 15,731 16,481
Accrued income taxes .......................................... 14,310 13,471
Accrued interest .............................................. 14,317 14,738
Other accrued liabilities ..................................... 28,429 34,529
--------- ---------
Total current liabilities ......................................... 111,717 128,084
--------- ---------
Noncurrent liabilities:
Long-term debt, net of current portion ........................ 245,856 247,889
Other noncurrent liabilities .................................. 941 1,458
--------- ---------
Total noncurrent liabilities ...................................... 246,797 249,347
--------- ---------
Stockholders' (deficit) equity:
Preferred stock, 1,000,000 shares authorized, none issued ..... -- --
Common stock, $.01 par value; 20,000,000 shares authorized;
14,028,624 and 13,789,764 issued and outstanding,
respectively .............................................. 140 138
Capital in excess of par value ................................ 107,454 105,329
Cumulative translation adjustment from May 31, 1996 ........... (1,247) (1,128)
Accumulated deficit from May 31, 1996 ......................... (121,042) (89,819)
--------- ---------
Total stockholders' (deficit) equity .............................. (14,695) 14,520
========= =========
$ 343,819 $ 391,951
========= =========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Anacomp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
March 31, March 31,
(Amounts in thousands, except per share amounts) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Services provided ................................ $ 50,934 $ 47,320 $ 99,440 $ 92,745
Equipment and supply sales ....................... 66,659 67,200 135,967 138,228
--------- --------- --------- ---------
117,593 114,520 235,407 230,973
--------- --------- --------- ---------
Operating costs and expenses:
Costs of services provided ....................... 28,166 24,838 55,366 48,945
Costs of equipment and supplies sold ............. 49,656 50,881 100,727 101,813
Selling, general and administrative expenses ..... 26,977 21,973 53,437 43,421
Amortization of reorganization asset ............. 18,745 18,717 37,490 37,964
--------- --------- --------- ---------
123,544 116,409 247,020 232,143
--------- --------- --------- ---------
Loss from operations before interest, other income and
income taxes ..................................... (5,951) (1,889) (11,613) (1,170)
--------- --------- --------- ---------
Interest income ...................................... 554 1,139 1,339 2,123
Interest expense and fee amortization ................ (7,957) (9,736) (15,878) (19,538)
Other expense ........................................ (401) (780) (571) (795)
--------- --------- --------- ---------
(7,804) (9,377) (15,110) (18,210)
--------- --------- --------- ---------
Loss before income taxes and extraordinary loss ...... (13,755) (11,266) (26,723) (19,380)
Provision for income taxes ........................... 2,100 3,300 4,500 8,100
--------- --------- --------- ---------
Net loss before extraordinary loss ................... (15,855) (14,566) (31,223) (27,480)
Extraordinary loss on extinguishment of debt, net of
income tax benefit of $4,325 ..................... -- 12,536 -- 12,536
--------- --------- --------- ---------
Net loss ............................................. $ (15,855) $ (27,102) $ (31,223) $ (40,016)
========= ========= ========= =========
Weighted average common shares outstanding ........... 13,873 13,701 13,843 13,134
========= ========= ========= =========
Basic and diluted loss per common share:
Net loss before extraordinary loss ................... $ (1.14) $ (1.06) $ (2.26) $ (2.09)
Extraordinary loss on extinguishment of
debt (net of tax benefit) ........................ -- (0.92) -- (0.96)
--------- --------- --------- ---------
Net loss ............................................. $ (1.14) $ (1.98) $ (2.26) $ (3.05)
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Anacomp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
March 31, March 31,
(Dollars in thousands) 1998 1997
- ------------------------------------------------------------------------ ----------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss......................................................... $ (31,223) $ (40,016)
Adjustments to reconcile net loss to net
Cash provided by (used in) operating activities:
Depreciation and amortization.................................. 49,978 45,442
Extraordinary loss on extinguishment of debt................... -- 12,536
Non-cash compensation.......................................... 502 510
Non-cash charge in lieu of taxes............................... 2,410 4,310
Other non-cash items........................................... 110 (116)
Restricted cash requirements................................... 3,381 (1,553)
Change in assets and liabilities, net of effects from acquisitions:
(Increase)/decrease in accounts and long-term receivables... (6,420) 2,481
(Increase)/decrease in inventories and prepaid expenses..... (1,417) 5,135
Increase in other assets.................................... (1,217) (347)
Decrease in accounts payable and accrued
expenses................................................. (19,694) (10,983)
Decrease in other noncurrent liabilities.................... (512) (1,655)
---------------- ------------------
Net cash (used in)/provided by operating activities....... (4,102) 15,744
---------------- ------------------
Cash flows from investing activities:
Purchases of property, plant and equipment....................... (5,456) (4,718)
Payments to acquire companies and customer rights................ (15,570) (16,464)
---------------- ------------------
Net cash used in investing activities..................... (21,026) (21,182)
---------------- ------------------
Cash flows from financing activities:
Proceeds from exercise of common stock rights ................... -- 24,271
Proceeds from exercise of common stock options .................. 2,007 --
Proceeds from revolving line of credit and long-term borrowings.. -- 251,414
Principal payments on long-term debt............................. (3,698) (270,416)
Payments related to the issuance and
extinguishment of debt....................................... -- (12,259)
---------------- ------------------
Net cash used in financing activities..................... (1,691) (6,990)
---------------- ------------------
Effect of exchange rate changes on cash.............................. (438) (286)
---------------- ------------------
Decrease in cash and cash equivalents................................ (27,257) (12,714)
Cash and cash equivalents at beginning of period..................... 58,060 38,198
---------------- ------------------
Cash and cash equivalents at end of period........................... $ 30,803 $ 25,484
================ ==================
</TABLE>
See notes to condensed consolidated financial statements
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Unaudited)
Anacomp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
March 31, March 31,
(Dollars in thousands) 1998 1997
- ------------------------------------------------------------- ----------------------- ----------------------
Cash paid during the period for:
<S> <C> <C>
Interest............................................. $ 14,443 $ 7,745
Income taxes......................................... $ 2,292 $ 3,995
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES (Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
March 31, March 31,
(Dollars in thousands) 1998 1997
- ------------------------------------------------------------- ----------------------- ----------------------
<S> <C> <C>
Assets acquired by assuming liabilities ................. $ 883 $ 1,553
Interest on subordinated notes satisfied with
additional notes........................................ $ -- $ 11,960
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
(DEFICIT) EQUITY (Unaudited)
Anacomp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1998
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, 1997 $ 138 $ 105,329 $ (1,128) $ (89,819) $ 14,520
Common stock issued for exercise of options 2 2,125 -- --
2,127
Translation adjustments for period......... -- -- (119) -- (119)
Net loss for the period.................... -- -- -- (31,223) (31,223)
-------------- ------------ ------------- ---------------- -------------
BALANCE AT MARCH 31, 1998 $ 140 $ 107,454 $ (1,247) $ (121,042) $ (14,695)
=====================================================================
</TABLE>
SIX MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
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>
See notes to condensed consolidated financial statements
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Anacomp, Inc. and Subsidiaries
NOTE 1. GENERAL:
The Condensed Consolidated Financial Statements ("Financial
Statements") included herein have been prepared by Anacomp, Inc. and
its wholly owned subsidiaries ("Anacomp" or the "Company") without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). 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 those SEC rules and regulations;
however, the Company believes that the disclosures are adequate to make
the information presented not misleading. The Financial Statements
included herein should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1997.
In the opinion of management, the accompanying 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 for the interim
periods presented. Certain amounts in the prior consolidated financial
statements included herein have been reclassified to conform to the
current period presentation.
NOTE 2. COMPONENTS OF CERTAIN BALANCE SHEET ACCOUNTS:
Inventories
Inventories are stated at the lower of cost or market, with 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) 1998 1997
----------------------------------------------------------- ------------------- -----------------
(Unaudited)
<S> <C> <C>
Finished goods....................................... $ 14,716 $ 14,887
Work in process...................................... 3,559 3,299
Raw materials and supplies........................... 8,482 7,075
=================== =================
$ 26,757 $ 25,261
=================== =================
</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.
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.
<PAGE>
NOTE 3. INCOME TAXES:
Amortization of "Reorganization value in excess of identifiable assets"
is not deductible for income tax purposes. Accordingly, the Company
incurs income tax expense even though it reports a pre-tax loss due to
such amortization.
For the six months ended March 31, 1998, and 1997, income tax expense
is reported for the Company based upon the estimated effective tax
rates. For fiscal 1998 and 1997, the effective tax rates were 42% and
43% of pretax income before amortization of reorganization value in
excess of identifiable assets, respectively. Also, for the six months
ended March 31, 1998, the limited tax benefit of the U.S. Federal net
operating loss carryforwards ("NOLs") of the Company resulted in a
reduction of $2.4 million to "Reorganization value in excess of
identifiable assets" and does not reduce income tax expense. For the
six months ended March 31, 1997, the Company recorded an extraordinary
loss on the extinguishment of debt and no NOLs were used during that
period.
At March 31, 1998, the Company had NOLs of approximately $143 million
available to offset future taxable income. This amount will increase to
$193 million as certain temporary differences reverse in future
periods. Usage of these NOLs by the Company is limited to approximately
$4 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. NOLs available to
offset taxable income for fiscal year 1998 are estimated to be $22
million.
NOTE 4. LOSS PER SHARE:
The computation of basic loss per common share is based upon the
weighted average number of common shares outstanding during the
periods. Diluted loss per share is the same as basic loss per share for
the periods presented due to the losses reported for the periods.
NOTE 5. ACQUISITIONS:
During the six months ended March 31, 1998, the Company acquired either
the customer bases and other specified assets or the stock of eight
businesses. Total consideration at closing was $17.2 million, of which
approximately $11.8 million was assigned to excess of purchase price
over net assets acquired.
The aggregate purchase prices consisted of $16.3 million cash at
closing, $0.9 million in assumed liabilities and contingent cash
payments of up to $10.9 million based upon future operating results of
the acquired businesses over the next 10 years.
NOTE 6. 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 used the proceeds
of the rights offering, approximately $25 million, for the acquisition
of businesses, assets and technologies.
NOTE 7. SUBSEQUENT EVENTS:
The Company executed an agreement on May 5th, 1998 with First Data
Corporation, Inc. to purchase the assets and assume certain liabilities
of First Image Management Company, a division of First Data
Corporation, for cash consideration of $150 million (subject to
adjustment).
First Image consists of the following businesses: the transformation of
computer-generated data and images to microfilm and compact disc,
print/mail services, and data entry/image scanning services, all
provided to customers on an outsourcing basis. The three businesses
generated revenues of approximately $220 million in 1997.
Consummation of the acquisition is subject to certain conditions,
including, among others, compliance with regulatory requirements. It is
expected that the transaction will close by mid-June 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 compared to the Three Months Ended March 31,
1997
Results of Operations
General
Anacomp reported a net loss of $15.9 million for the three months ended March
31, 1998, compared to a net loss of $27.1 million for the three months ended
March 31, 1997. Included in the net loss for the three months ended March 31,
1998 and 1997 is non-cash amortization of the Company's reorganization value
asset of $18.7 million. Also included in the net loss for the three months ended
March 31, 1997 is 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 the write-off of unamortized
discount on the Company's existing 13% subordinated notes of $11.6 million.
Earnings before interest, other expense, taxes, depreciation and amortization
("EBITDA") was $18.8 million for the three months ended March 31, 1998, compared
to $20.1 million for the three months ended March 31, 1997.
Total revenues for the second quarter of $117.6 million represents a $3.1
million increase from the revenues for the second quarter of the prior year. A
variety of factors contributed to the higher revenues, including large COM
services contracts with new customers, higher volumes in COM and CD services
from existing customers, and the positive effect of acquisitions. These
improvements were offset by expected historical declines in micrographics
supplies sales.
Cost of services provided as a percentage of services revenue was 55% for the
three months ended March 31, 1998, compared to 52% for the same period of the
prior year. The change is due primarily to the decrease in average selling
prices for output services as discussed below. Cost of equipment and supplies
sold as a percentage of equipment and supplies sales was 74% for the three
months ended March 31, 1998, compared to 76% for the same period of the prior
year. The change is due primarily to the improvement of COM systems
manufacturing costs.
Selling, general and administrative expenses were 23% of revenue for the three
months ended March 31, 1998, compared to 19% for those months ended March 31,
1997. These increased costs are due to investments in the Company's sales force,
including one-time training costs, and investments in product development and
support and sales support for the electronic delivery products. Additionally,
costs incurred in the transitioning of acquisitions into the company,
acceleration of goodwill amortization and additional amortization expense
associated with acquisitions subsequent to March 31, 1997 further contributed to
the increase.
Interest expense and fee amortization of $8.0 million for the three months ended
March 31, 1998, decreased $1.8 million over the prior year, as a result of the
refinancing of the Company's indebtedness during the second quarter of fiscal
1997.
Products and Services
Output services revenues increased $6.2 million, or 24%, for the three months
ended March 31, 1998 compared to the same three months of fiscal 1997. COM
services volumes increased 19%, while the average selling price decreased 17%.
Alva CD services revenues increased $1.2 million, or approximately 140%,
compared to the same three months of fiscal 1997. Data center acquisitions in
the United States and Europe as well as several large customer gains have
contributed to both the increase in volumes and the decrease in average selling
price. The acquired data centers contributed volumes, but at somewhat lower
selling prices. The large customer gains received favorable pricing due to their
volumes. Gross margins as a percentage of revenue decreased by one percentage
point due to the impact of the lower average selling price.
Technical services (primarily field maintenance) revenues decreased $1.7 million
for the three months ended March 31, 1998 compared to the prior year, primarily
due to the continuing decrease in the population of older generation COM systems
in the customer base. Gross margins as a percentage of revenue improved three
percentage points as a result of decreased personnel and equipment costs.
COM systems revenues for the three months ended March 31, 1998 remained level
compared to the same period of the prior year. Gross margins as a percentage of
revenue improved ten percentage points as a result of manufacturing efficiencies
and a change in product mix. A greater proportion of sales is represented by
refurbished systems, which have higher margins.
Digital systems revenues for the three months ended March 31, 1998 were $3.0
million compared to $2.5 million in the prior year. The increase was primarily
due to the sale of COLD systems by a business acquired in October 1997.
Micrographics supplies revenues for the three months ended March 31, 1998
decreased $7.8 million compared to the same period of the prior year. This
decrease is due to the decline in original COM film and duplicate film, which is
consistent with long-term trends. Gross margins as a percentage of revenue
improved by three percentage points due primarily to changes in product mix.
Magnetic media revenues for the three months ended March 31, 1998 increased $1.0
million compared to the same period of the prior year. Magnetics gross margins
as a percentage of revenue were comparable between periods.
Six Months Ended March 31, 1998 compared to the Six Months Ended March 31, 1997
Results of Operations
General
Anacomp reported a net loss of $31.2 million for the six months ended March 31,
1998, compared to a net loss of $40.0 million for the six months ended March 31,
1997. Included in the net loss for the six months ended March 31, 1998 and 1997
is non-cash amortization of the Company's reorganization value asset of $37.5
million and $38.0 million, respectively. Also included in the net loss for the
six months ended March 31, 1997 was 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 the
write-off of 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 results for the six months
ended March 31, 1997.
Earnings before interest, other expense, taxes, depreciation and amortization
("EBITDA"), excluding the Kodak payment noted above, was $37.8 million for the
six months ended March 31, 1998, compared to $39.9 million for the six months
ended March 31, 1997.
Total revenues for the six months ended March 31, 1998 of $235.4 million
represents an $8.0 million increase from the same period of the prior year,
excluding the Kodak payment noted above. A variety of factors contributed to the
higher revenues, including large COM services contracts with new customers,
higher volumes in COM and CD services from existing customers, and the positive
effect of acquisitions. These improvements were offset by expected historical
declines in micrographics supplies.
Cost of services provided as a percentage of services revenue was 56% for the
six months ended March 31, 1998, compared to 53% for the same period of the
prior year. The change is due primarily to the decrease in average selling
prices for output services as discussed below. 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 74% for the six months ended March 31,
1998 compared to 76% for the same period of the prior year.
The change is due primarily to improvement of COM systems manufacturing costs.
Selling, general and administrative expenses was 23% of revenue for the six
months ended March 31, 1998 and 19% for the six months ended March 31, 1997,
excluding the one-time $3.6 million payment noted above. These increased costs
are due to investments in the Company's sales force, including one-time training
costs, and investments in product development and support and sales support for
the electronic delivery products. Additionally, costs incurred in the
transitioning of acquisitions into the company, acceleration of goodwill
amortization and additional amortization expense associated with acquisitions
subsequent to March 31, 1997 further contributed to the increase.
Interest expense and fee amortization of $15.9 million for the six months ended
March 31, 1998, decreased $3.7 million over the prior year as a result of the
refinancing of the Company's indebtedness during the second quarter of fiscal
1997.
Products and Services
Output services revenues increased $11.5 million for the six months ended March
31, 1998, compared to the same six months of fiscal year 1997. COM service
volumes increased by 16% while average selling prices decreased by 15%. Alva CD
services revenues increased $2.2 million, or 163%, compared to the same six
months of fiscal year 1997. 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 approximately two percentage points due to the impact of lower
average selling prices.
Technical services (primarily field maintenance) revenues decreased $3.1 million
for the six months ended March 31, 1998, 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 three 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 31,1998, increased by $1.1
million compared to the same period of the prior year. The increase in revenue
is attributable to an increase in the number of systems sold and the mix and
pricing of new and used systems. Gross margins as a percentage of revenue
improved six percentage points primarily due to product mix and the result of
manufacturing efficiencies realized during fiscal 1998.
Digital systems revenues for the six months ended March 31, 1998, were $6.8
million compared to $4.2 million in the prior year. The increase was primarily
due to the sale of COLD systems by a business acquired in October 1997.
Micrographics supplies revenues for the six months ended March 31, 1998,
decreased $16.0 million compared to the same period of the prior year. The major
product categories experiencing a decrease in revenue were original COM film and
duplicate film. Gross margins as a percentage of revenue increased approximately
three percentage points as a result of changes in product mix.
Magnetic media revenues and gross margins for the six months ended March 31,
1998 remained level compared to the same period of the prior year.
Liquidity and Capital Resources
Anacomp's working capital at March 31, 1998, excluding the current portion of
long-term debt, was $37.4 million, compared to $41.4 million at September 30,
1997. Net cash used in operating activities was $ 4.1 million for the first six
months of fiscal 1998, compared to net cash provided by operating activities of
$15.7 million in the comparable prior period. The change in net cash provided by
(used in) operating activities was caused by a $10 million payment on the
Company's trade credit facility and by usual working capital changes. Net cash
used in investing activities was $21.0 million in the current period compared to
$21.2 million in the comparable prior period.
Net cash used in financing activities was $1.7 million for the six months ended
March 31, 1998, compared to net cash used in financing activities of $7.0
million in the comparable prior period. The Company's successful rights offering
of approximately 3.6 million shares of common stock provided $24.3 million in
cash during the first half of fiscal 1997. The company's debt refinancing and
principal reductions during the second quarter of fiscal 1997 used approximately
$31.3 million of cash.
As noted in Note 7, the Company executed an agreement to purchase the assets and
assume certain liabilities of First Image Management Company for cash
consideration of $150 million. The Company is currently evaluating financing
alternatives to fund this acquisition including, but not limited to, the
issuance of senior subordinated debt, the use of existing cash resources and/or
the use of its revolving credit facilities.
The Company's cash balance (including restricted cash) as of March 31, 1998 was
$34.9 million, compared to $65.5 million at September 30, 1997. The decrease was
primarily due to cash used for acquisitions. The Company also had available
$21.9 million of its $25 million revolving credit facility at March 31, 1998.
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. 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.
Year 2000
Anacomp has undertaken a comprehensive "Year 2000" program for the products that
it sells or distributes in the marketplace. Under this program, the Company has
sought to assess all of its critical software and hardware products to determine
what remediation, if any, is necessary for the proper functioning of these
systems in the year 2000 and beyond. The Company is also working with its
outside vendors to ensure that they will continue to support the products that
the vendors supply to Anacomp for resale, including the performance by the
vendors of any required Year 2000 remediation.
Anacomp is also in the process of analyzing the software and hardware systems
that it uses internally to determine if there are any Year 2000 issues. Where
necessary, the Company is updating its internal systems and working with the
vendors of any products from whom the Company still receives support.
Based upon its assessment to date, Anacomp believes that it will be able to
complete all required remediation of its supported and internal products in a
timely fashion, and that the effort and the cost of such remediation will not
have a material effect upon the Company's results of operations, liquidity or
capital resources. The Company expenses these costs as they are incurred.
Nevertheless, there can be no assurance that the Company will be able to
complete all of such remediation in the required time frame, or that the Company
will be able to identify all Year 2000 issues before problems manifest
themselves. Further, it is possible that the future level of expenses in the
Company's remediation efforts could rise significantly. Finally, there can be no
assurance that, if left unremedied, the products that the Company sells or
distributes would remain competitive in the marketplace or the products that the
Company uses internally would not have a material effect upon the ability of the
Company to report its financial results.
Anacomp has set a goal of completing its Year 2000 program, including all
required remediation work, by December 31, 1998, both for the products that it
supports and for the products that it uses internally. The Company is hopeful,
however, that it will complete its program for certain of its products before
that internal deadline.
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) Unregistered sales of securities
Pursuant to the 1996 Non-Employee Director Stock option Plan
(Amended and Restated as of December 1, 1997), non-employee
directors of the Company may elect to receive their annual
retainer in the form of options to acquire Common Stock of the
Company. Pursuant to such elections, during the six months ended
March 31, 1998, an aggregate of 2,500 options were granted to
four directors in lieu of aggregate cash compensation of $12,500.
The issuance of such options was effected in reliance on the
private placement exception set forth in Section 4(2) of the
Securities Act of 1933, as amended, on the basis of the
familiarity of such directors with the business and affairs of
the Company. No underwriting fees or discounts were applicable to
the transactions. The options are first exercisable six months
after the date of grant and remain exercisable through the tenth
anniversary of the grant date, at an exercise price of $15.625
per share.
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, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities 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 13th day of May, 1998
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ANACOMP, INC.'S MARCH 31, 1998 FORM 10-Q QUARTERLY REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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