<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): JUNE 18, 1998
ANACOMP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INDIANA 1-8328 35-1144230
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
12365 CROSTHWAITE CIRCLE, POWAY, CALIFORNIA 92064
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (619) 679-9797
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial statements of business acquired.
Set forth below with respect to First Image are the following financial
statements as of and for the periods indicated:
(1) Report of Independent Auditors
(2) Balance Sheets as of December 31, 1997 and 1996
(3) Statements of Income for the years ended
December 31, 1997, 1996 and 1995
(4) Statement of Division Equity for the years ended
December 31, 1997, 1996 and 1995
(5) Statement of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
(6) Notes to Financial Statements
(7) Unaudited Balance Sheet as of March 31, 1998
(8) Unaudited Statements of Income for the three months ended
March 31, 1998 and 1997
(9) Unaudited Statements of Cash Flows for the three months ended
March 31, 1998 and 1997
(10) Unaudited Notes to Financial Statements
2
<PAGE>
Report of Independent Auditors
The Board of Directors
of First Data Corporation
We have audited the accompanying balance sheets of First Image Management
Company (the "Company"), a division of First Data Corporation, as of December
31, 1997 and 1996, and the related statements of income, division equity, and
cash flows for each of the three years in the period ended December 31, 1997.
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 financial statements referred to above present fairly, in
all material respects, the financial position of First Image Management Company,
a division of First Data Corporation, at December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
Atlanta, Georgia
April 30, 1998, except as to
Note 15 as to which the
date is June 18, 1998
3
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Balance Sheets
<TABLE>
<CAPTION>
December 31
1997 1996
--------------------------------------------
(Dollar amounts in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................................... $ 388 $ 1,130
Accounts receivable, net of
allowance of $2,879 and $1,522 for 1997 and 1996,
respectively .......................................................... 47,635 40,530
Intercompany trade receivables.......................................... 521 2,327
Deferred tax assets..................................................... 3,921 3,676
Prepaid expenses and other current assets............................... 10,827 5,233
Supplies inventory...................................................... 5,128 5,101
-------- --------
Total current assets.................................................... 68,420 57,997
Property and equipment:
Land, buildings and improvements........................................ 3,787 3,711
Leasehold improvements.................................................. 8,737 8,341
Equipment............................................................... 78,171 67,783
Furniture and fixtures.................................................. 7,960 7,806
-------- --------
98,655 87,641
Accumulated depreciation................................................ (69,286) (60,442)
-------- --------
29,369 27,199
Goodwill and other intangible assets less
accumulated amortization of $50,920 and
$41,772 for 1997 and 1996, respectively ............................... 165,683 154,472
Other assets............................................................ 243 930
-------- --------
Total assets............................................................ $263,715 $240,598
-------- --------
-------- --------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
December 31
1997 1996
--------------------------------------------
(Dollar amounts in thousands)
<S> <C> <C>
Liabilities and division equity
Liabilities:
Accounts payable............................................... $ 5,331 $ 4,106
Intercompany trade accounts payable............................ 200 82
Accrued salaries and benefits.................................. 2,367 3,003
Other accrued liabilities...................................... 14,001 8,076
Deferred revenue............................................... 2,986 47
Notes payable and capital lease obligations
- current 429 399
-------- ---------
Total current liabilities...................................... 25,314 15,713
Deferred tax liability......................................... 1,865 3,143
Notes payable and capital lease obligations
- long term 806 1,075
Other liabilities.............................................. 426 342
Commitments and contingencies
Division equity................................................ 235,304 220,325
-------- ---------
Total liabilities and division equity.......................... $263,715 $240,598
-------- ---------
-------- ---------
</TABLE>
See accompanying notes.
5
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
------------------------------------------------------------
(Dollar amounts in thousands)
<S> <C> <C> <C>
Revenue ................................................ $221,983 $209,563 $220,450
Expenses:
Salaries and benefits................................... 85,870 80,998 92,709
Forms and supplies...................................... 25,285 23,844 26,802
Equipment and occupancy................................. 40,802 37,846 41,873
Other operating and administrative...................... 32,707 29,264 26,621
Depreciation and amortization........................... 19,660 17,622 18,164
Provision for employee severance
and office closure..................................... 667 - -
Provision for obsolete spare
parts inventory........................................ - - 3,748
Overhead charges from First Data
Corporation............................................ 2,220 2,096 2,204
--------- --------- ---------
Total expenses.......................................... 207,211 191,670 212,121
--------- --------- ---------
Operating income........................................ 14,772 17,893 8,329
Gain on divestiture of product line..................... 1,915 - -
Interest expense........................................ (84) (42) (102)
--------- --------- ---------
Income before income taxes.............................. 16,603 17,851 8,227
Provision for income taxes.............................. 8,345 8,909 4,980
--------- --------- ---------
Net income.............................................. $ 8,258 $ 8,942 $ 3,247
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
6
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Statements of Division Equity
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 1995....................................... $243,270
Return of capital to First Data Corporation..................... (20,077)
Net income...................................................... 3,247
---------
Balance at December 31, 1995..................................... 226,440
Return of capital to First Data Corporation..................... (15,057)
Net income...................................................... 8,942
---------
Balance at December 31, 1996..................................... 220,325
Capital contribution from First Data Corporation................ 6,721
Net income...................................................... 8,258
---------
Balance at December 31, 1997..................................... $235,304
---------
---------
</TABLE>
See accompanying notes.
7
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
-------------------------------------------------
(Dollar amounts in thousands)
<S> <C> <C> <C>
Operating activities
Net income.......................................................... $ 8,258 $ 8,942 $ 3,247
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation..................................................... 10,511 9,908 10,630
Amortization..................................................... 9,149 7,714 7,534
Gain on divestiture of product line.............................. (1,915) - -
Provision for obsolete spare parts inventory..................... - - 3,748
Deferred tax provision (benefit)................................. (1,523) 2,645 (3,002)
Changes in operating assets and liabilities:
Accounts receivable............................................. (7,105) (1,774) 9,133
Prepaid expenses, supplies inventory and other assets........... (5,033) 2,820 (1,744)
Accrued salaries and benefits................................... (636) (484) (1,082)
Accounts payable and other accrued liabilities.................. 6,959 (2,796) 1,278
Deferred revenue................................................ 2,939 (45) (483)
Intercompany trade accounts..................................... 1,924 (2,245) -
-------- -------- -------
Net cash provided by operating activities........................... 23,528 24,685 29,259
Investing activities
Purchases of property and equipment................................. (9,986) (8,851) (6,842)
Acquisitions........................................................ (20,533) - (1,907)
Proceeds from divestiture of product line........................... 2,086 - -
Other ............................................................ (2,157) - -
-------- -------- -------
Net cash used in investing activities............................... (30,590) (8,851) (8,749)
Financing activities
Capital contribution from (return of capital to)
First Data Corporation 6,721 (15,057) (20,077)
Repayment of note payable........................................... (401) (129) (464)
-------- -------- -------
Net cash provided by financing activities........................... 6,320 (15,186) (20,541)
Decrease in cash and cash equivalents............................... (742) 648 (31)
-------- -------- -------
Cash and cash equivalents at beginning of year...................... 1,130 482 513
-------- -------- -------
Cash and cash equivalents at end of year............................ $ 388 $ 1,130 $ 482
-------- -------- -------
-------- -------- -------
</TABLE>
See accompanying notes.
8
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Notes to Financial Statements
Years ended December 31, 1997, 1996, and 1995
(Dollar amounts in thousands, except per share amounts and where indicated)
1. Organization, Basis of Accounting and Description of Business
First Image Management Company ("First Image" or the "Company") operates in a
single business segment and is comprised of a group of document management
services business units which operate as a division of First Data Corporation
("First Data"). First Image was originally formed by First Financial Management
Corporation ("First Financial Management") through a series of acquisitions
which created a fully integrated document management services company. First
Image delivers a full range of services to a diverse client base, including:
document imaging on various media (microfiche, CD-ROM and laser disk); print and
mail services; demand publishing; health care and insurance claims entry; and
data capture. In October 1995, First Data, in a transaction accounted for under
the pooling of interests method, merged with First Financial Management. In
January 1998, First Data announced its intention to sell the Company. The
accompanying financial statements do not give any effect to any such possible
transaction.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Supplies Inventory
Supplies inventory consists of paper, toner, developer and other disposable
chemicals, film, compact discs and micrographic chemicals, and packaging
material. Supplies are valued at the lower of cost or market with cost
determined using the first-in-first-out method.
9
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Notes to Financial Statements (continued)
(Dollar amounts in thousands, except per share amounts and where indicated)
2. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are recorded at cost. Depreciation expense is calculated
over the estimated useful lives of the related assets (three to eight years)
using the straight-line method for financial reporting purposes. Leasehold
improvements are amortized over the term of the related lease.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over the fair value of net
tangible and identifiable intangible assets acquired and is being amortized
using the straight-line method over 40 years. At December 31, 1997 and 1996, the
Company had goodwill of $127.6 million and $131.4 million, respectively. Other
intangible assets consist primarily of acquired contract costs and, to a much
lesser extent, non-compete agreements. These costs are amortized on a
straight-line basis over the length of the agreement or benefit period,
generally ranging from 7 to 15 years. Goodwill and other intangible assets are
reviewed for impairment whenever events indicate that their carrying amount may
not be recoverable. In such reviews, estimated undiscounted future cash flows
associated with these assets are compared with their carrying value to determine
if a write-down to fair value (normally measured by discounting estimated future
cash flows) is required.
Revenue Recognition
Revenue from sales of products and services is recognized based upon shipment of
products or performance of services. Revenues from prepaid maintenance contracts
are deferred and recognized in earnings over the period the service is provided.
Postage related to mailing services is generally reimbursed by customers,
accordingly, revenue is presented net of postage reimbursements.
10
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Notes to Financial Statements (continued)
(Dollar amounts in thousands, except per share amounts and where indicated)
2. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company accounts for income taxes under the liability method required by
Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes, whereby deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting and tax purposes.
The taxable income of the Company is included in the U.S. federal income tax
return of First Data. For financial reporting purposes, the Company's provision
for income taxes has been determined as if the Company were a separate
tax-paying entity. Current income taxes payable are included in division equity.
Employee Stock Options
SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123") established
accounting and reporting standards for stock based employee compensation plans.
As permitted by the standard, First Data and the Company elected to continue to
account for employee stock options under Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations. Accordingly, adoption of the standard has not affected the
Company's results of operations or financial position.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
11
<PAGE>
3. Acquisition and Divestiture
In January 1997, the Company acquired certain assets associated with the
"computer output to microfiche" business of the Eastman Kodak Company. This
transaction has been accounted for as a purchase business combination and the
results of the acquired operations have been included in the Company's results
since the acquisition date. The consideration paid for this acquisition, after
adjustment, amounted to $20.5 million of which $16.0 million, $2.4 million and
$2.1 million were allocated to acquired contracts costs, a non-compete agreement
and equipment, respectively. The amortization periods for the acquired contract
costs and non-compete agreement are 7 and 5 years, respectively. The pro forma
impact of this acquisition is not material to the Company's results of
operations.
In December 1997, the Company sold its Micropublishing product line for cash
proceeds of $2.1 million and recognized a $1.9 million gain. The terms of the
sale agreement provide for the Company to earn up to an additional $0.5 million
in proceeds if certain revenue targets are met.
4. Related Party Transactions
The Company has various transactions with First Data and its affiliates. These
transactions can be generally classified into the following categories:
- trade activities - this involves the Company deriving revenues for
providing document management services to First Data affiliates and
incurring expenses from First Data affiliates for various services.
The following summarizes the Company's trade transactions with First
Data and affiliates:
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
--------------------- -------------------- --------------------
<S> <C> <C> <C>
Trade revenues......................... $12,058 $12,800 $ -
Trade expenses......................... 26 43 -
</TABLE>
12
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Notes to Financial Statements (continued)
(Dollar amounts in thousands, except per share amounts and where indicated)
4. Related Party Transactions (continued)
- allocation of general and administrative costs - this is a general
allocation of First Data corporate overhead based on 1% of the
Company's revenue. Functions provided by First Data corporate include
administration of employee benefit programs, internal audit,
financial systems licensing and processing, taxes and other support
services. This allocation is not necessarily indicative of the level
of expenses that might have been incurred had the Company contracted
directly with third parties. Management has not made a study or any
attempt to obtain quotes from third parties to determine what the
cost of obtaining such services from third parties would have been.
- direct charges - certain programs and activities are administered by
First Data on a company-wide basis. Examples are employee benefit
plans, group and other insurance programs and certain vendor
agreements that are negotiated by First Data on an enterprise wide
basis. The costs of these programs and activities are specifically
identifiable to each participating business unit and, for this
reason, the costs are not included in the table above.
Management believes that the overall amount of charges to and from First Data
are reasonable and that the accompanying financial statements reflect all of the
Company's costs of doing business.
First Data does not have any specific indebtedness related to the Company and
the accompanying financial statements do not reflect any allocations of First
Data interest expense. There are no formal financing arrangements with First
Data. However, cash not necessary for the Company's near term operating
requirements has been remitted to First Data which in turn has funded the
Company's operating, investing and financing activities as required.
Accordingly, apart from net income, the net change in the division equity
balance has been reflected as a financing activity in the accompanying statement
of cash flows. The average balance in division equity was $229.0 million, $223.4
million and $234.9 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
13
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Notes to Financial Statements (continued)
(Dollar amounts in thousands, except per share amounts and where indicated)
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets were comprised of:
<TABLE>
<CAPTION>
December 31
1997 1996
------------------- --------------------
<S> <C> <C>
Prepaid postage................................. $ 7,164 $3,544
Prepaid maintenance agreements.................. 2,530 770
Other ........................................ 1,133 919
-------- ------
$10,827 $5,233
-------- ------
-------- ------
</TABLE>
6. Other Accrued Liabilities
Other accrued liabilities were comprised of:
<TABLE>
<CAPTION>
December 31
1997 1996
------------------- --------------------
<S> <C> <C>
Accrued maintenance contract costs.................. $ 4,436 $1,177
Accrued sales and other non-income taxes............ 4,961 3,384
Accrued inventory purchases......................... 906 1,017
Other ............................................ 3,698 2,498
-------- ------
$14,001 $8,076
-------- ------
-------- ------
</TABLE>
7. Notes Payable
Notes payable are payable to various Kentucky governmental authorities and bear
interest at rates ranging from 2% to 7.89% and are due as follows: 1998 - $281;
1999 - $247; 2000 - $129; 2001 - $111; 2002 and thereafter - $69. Certain of the
Company's property and equipment are pledged as collateral against these notes.
14
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Notes to Financial Statements (continued)
(Dollar amounts in thousands, except per share amounts and where indicated)
8. Concentration of Credit Risk
The Company's customers, while concentrated in the United States, are spread
across diverse market sectors and range in size from small local to Fortune 500
companies. There were no single customers accounting for 5% or more of the
Company's revenues for the years ended December 31, 1997, 1996 and 1995. The
Company, through two separate subcontracts with two separate companies, derives
revenues from two agencies of the U.S. government aggregating to approximately
5% of revenues during each of 1995, 1996 and 1997. The Company's accounts
receivable are unsecured and the Company is at risk to the extent such amounts
become uncollectable. The Company establishes its allowance for doubtful
accounts based upon the credit risk of specific customers, historical trends and
other information.
9. Operating and Capital Leases
The Company leases certain office equipment and office space under
noncancellable lease agreements. Future minimum lease payments under
noncancellable operating and capital leases, with initial lease terms of at
least one year at the time of inception, are as follows at December 31, 1997:
<TABLE>
<CAPTION>
Operating Capital
---------------- ----------------
<S> <C> <C>
1998 8,190 $170
1999 7,031 104
2000 4,184 79
2001 2,812 63
2002 1,706 36
Thereafter 712 -
------- -----
Total minimum lease payments. $24,635 452
Less: amount representing interest ------- 54
------- -----
Present value of minimum lease payments $398
-----
-----
</TABLE>
15
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Notes to Financial Statements (continued)
(Dollar amounts in thousands, except per share amounts and where indicated)
9. Operating and Capital Leases (continued)
Total rent expense for all operating leases was approximately $8.0 million, $8.3
million and $7.4 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The gross and net book values of assets held under capital lease
agreements were $686.0 million and $398.0 million, respectively at December 31,
1997 and $524.0 and $353.0, respectively at December 31, 1996.
10. Stock Option Plan
The Company participates in a First Data plan that provides for the granting of
First Data stock options to key employees and other key individuals who perform
services for the Company. A total of 53.7 million shares of First Data common
stock have been reserved for issuance under First Data plans, of which 7.6
million shares remain available for future grant as of December 31, 1997. The
options have been issued at a price equivalent to First Data common stock's fair
market value at the date of grant, generally have ten year terms and generally
become exercisable in three or four equal annual increments beginning 12 months
after the date of grant.
In October 1996, First Data instituted an employee stock purchase plan for which
a total of six million shares have been reserved for issuance, of which 4.8
million shares remain available for future grant as of December 31, 1997. Monies
accumulated through payroll deductions elected by eligible employees are used to
effect quarterly purchases of First Data common stock at a 15% discount from the
lower of the market price at the beginning or end of the quarter.
The Company has elected to follow APB 25 for First Data stock options because,
as discussed below, the alternative fair value accounting under SFAS No. 123
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
stock options equals the market price of the underlying First Data stock on the
date of grant, no compensation expense is recognized.
16
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Notes to Financial Statements (continued)
(Dollar amounts in thousands, except per share amounts and where indicated)
10. Stock Option Plan (continued)
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, assuming the Company has accounted for its First Data employee
stock options granted subsequent to December 31, 1994 under the fair value
method of SFAS No. 123. The fair value for options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ----------------- -----------------
<S> <C> <C> <C>
Risk-free interest rate - options................................. 6.23% 6.28% 5.29%
Risk free interest rate - employee
stock purchase rights............................................. 6.23% 5.04% -
Dividend yield.................................................... 0.22% 0.22% 0.22%
Volatility of First Data common stock............................. 18.9% 16.9% 17.6%
Expected option life.............................................. 5 years 5 years 5 years
Expected employee stock purchase right life....................... 0.25 years 0.25 years -
Weighted-average fair value of options granted.................... 12 10 7
Weighted-average fair value of employee stock purchase rights..... 7 7 -
</TABLE>
The Company's pro forma net income after amortizing the fair value of the
options and the stock purchase rights over their vesting period is $7.6 million,
$8.6 million and $3.2 million for the years ended December 31, 1997, 1996 and
1995, respectively. SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, accordingly, its pro forma effect will not be fully reflected
until 1999.
Because the Company's First Data employee stock options have characteristics
significantly different from those of traded options for which the Black-Scholes
model was developed, and because changes in the subjective input assumptions can
materially affect the fair value estimate, the existing models, in management's
opinion, do not necessarily provide a reliable single measure of the fair value
of its First Data employee stock options.
17
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Notes to Financial Statements (continued)
(Dollar amounts in thousands, except per share amounts and where indicated)
10. Stock Option Plan (continued)
A summary of First Data stock option activity for the Company's employees is as
follows:
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
---------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period....... 295,592 $30 194,764 $19 90,506 $ 8
Granted ................................. 147,560 38 156,350 37 108,464 28
Exercised................................ (28,547) 34 (46,464) 15 (4,206) 5
Canceled................................. (92,657) 38 (9,058) 37 - -
--------- -------- --------
Outstanding at end of period............. 321,948 31 295,592 30 194,764 19
--------- -------- --------
--------- -------- --------
Exercisable.............................. 73,991 $18 86,510 $14 111,398 $12
--------- -------- --------
--------- -------- --------
</TABLE>
The following summarizes information about stock options outstanding as of
December 31, 1997:
<TABLE>
<CAPTION>
Options Exercisable Options Outstanding
- ---------------------------------------------------------------------------------------------------------
Weighted Average Weighted Weighted
Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Life Exercise Exercisable Exercise
Price Price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3 - $8 32,946 2.7 years $ 4 32,946 $ 4
$11 - $28 38,096 7.3 years $ 22 19,870 $19
$31 - $40 250,906 8.6 years $ 36 21,175 $37
------- ------
321,948 7.8 years $ 31 73,991 $18
------- ------
------- ------
</TABLE>
18
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Notes to Financial Statements (continued)
(Dollar amounts in thousands, except per share amounts and where indicated)
11. Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Federal ........................ $6,423 $6,857 $3,833
State and local................. 1,922 2,052 1,147
------ ------ ------
Total ........................ $8,345 $8,909 $4,980
------ ------ ------
------ ------ ------
</TABLE>
Deferred income taxes result from the recognition of temporary differences.
Temporary differences are differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements that will
result in differences between income for tax purposes and income for financial
statement purposes in future years.
The provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Current .................... $ 9,868 $6,264 $ 7,982
Deferred.................... (1,523) 2,645 (3,002)
--------- ------ ---------
Total .................... $ 8,345 $8,909 $ 4,980
--------- ------ ---------
--------- ------ ---------
</TABLE>
19
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Notes to Financial Statements (continued)
(Dollar amounts in thousands, except per share amounts and where indicated)
11. Income Taxes (continued)
The Company's net deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
December 31
1997 1996
---------------- -----------------
<S> <C> <C>
Deferred tax assets:
Accrued costs............................... $ 2,564 $ 3,051
Accounts receivable allowance............... 1,357 625
-------- --------
Total deferred tax assets................... 3,921 3,676
Valuation allowance......................... - -
-------- --------
Net deferred tax assets..................... 3,921 3,676
Deferred tax liabilities:
Depreciation and amortization............... (1,865) (3,143)
-------- --------
Total deferred tax liabilities.............. (1,865) (3,143)
-------- --------
Net deferred tax assets..................... $ 2,056 $ 533
-------- --------
-------- --------
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax rate
to income tax expense is:
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
-------------------- ------------------- --------------------
<S> <C> <C> <C>
Tax at U.S. statutory rate............... $5,811 $6,248 $2,879
Increases in taxes from:
State and local taxes.................... 1,249 1,334 745
Non-deductible goodwill.................. 1,267 1,268 1,268
Other non-deductible..................... 76 - -
Other ................................. (58) 61 88
------- ------ ------
Total ................................. $8,345 $8,909 $4,980
------- ------ ------
------- ------ ------
</TABLE>
20
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Notes to Financial Statements (continued)
(Dollar amounts in thousands, except per share amounts and where indicated)
12. Retirement Plan
First Data has an incentive savings plan which allows eligible employees of
First Data and its subsidiaries to contribute a percentage of their compensation
and provides for certain matching, service-related and other contributions. The
Company's matching and service-related contributions associated with the plan
were approximately $1.2 million, $0.7 million and $0.4 million for the years
ended December 31, 1997, 1996 and 1995.
13. Contingencies
The Company is involved in certain litigation arising in the ordinary course of
business. In the opinion of management, the ultimate resolution of these matters
will not have a material adverse effect on the Company's financial position or
results of operations.
14. Year 2000 Remediation (Unaudited)
The Company is faced with "Year 2000" remediation issues. Many computer programs
were written with a two digit date field and if these programs are not made Year
2000 compliant, they will be unable to correctly process date information on or
after the Year 2000. Remediation efforts go beyond the Company's internal
computer systems and require coordination with clients, vendors, government
entities and other third parties to assure that their systems and related
interfaces are compliant. Failure to achieve timely remediation of the Company's
computer systems that process client information and transactions would have a
material adverse effect on the Company's business, operations and financial
results.
21
<PAGE>
First Image Management Company
(a division of First Data Corporation)
Notes to Financial Statements (continued)
(Dollar amounts in thousands, except per share amounts and where indicated)
14. Year 2000 Remediation (Unaudited) (continued)
In response to the Year 2000 concerns, First Data created a Year 2000 Task Force
to coordinate and monitor the progress in the Year 2000 remediation efforts. The
Task Force reports directly to First Data's executive management and also
provides regular reports to the Board of Directors. In addition, at the
direction of the Audit Committee of the Board of Directors, First Data engaged
the Gartner Group to provide an independent analysis and assessment of its Year
2000 remediation efforts. The Gartner Group provides regular progress reports to
executive management and the Board of Directors and regularly meets with the
Audit Committee of the Board to discuss its reports.
The Company's plans call for all mission critical systems to be renovated and
compliance testing underway by the end of 1998. Acceptance testing with clients
and other third parties will take place between late 1998 and mid 1999.
Completion of all third party interfacing testing is dependent upon those third
parties completing their own internal remediation. The Company could be
adversely affected to the extent third parties with which it interfaces have not
properly addressed their Year 2000 issues.
The Company anticipates expenditures for Year 2000 remediation efforts
and testing to approximate $1.5 million in 1998 and $500 in 1999.
15. Subsequent Event
On May 5, 1998 First Data and First Financial Management entered into an asset
purchase agreement (the "Agreement") with Anacomp, Inc. ("Anacomp"). The
Agreement closed on June 18, 1998. Pursuant to the terms of the Agreement,
Anacomp purchased substantially all of the Company's assets, subject to certain
liabilities, for an initial purchase price of $150.0 million. The initial
purchase price is subject to adjustment based upon working capital delivered at
closing. The accompanying financial statements do not give effect to any of the
transactions contemplated under the Agreement.
22
<PAGE>
FIRST IMAGE MANAGEMENT COMPANY
(A DIVISION OF FIRST DATA CORPORATION)
BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................................... $ 363
Accounts receivable, net of allowance of $1,949................................ 49,100
Intercompany trade receivables................................................. 565
Deferred tax assets............................................................ 3,532
Prepaid expenses and other current assets...................................... 8,899
Supplies inventory............................................................. 4,847
-----------
Total current assets....................................................... 67,306
Property and equipment:
Land, buildings and improvements............................................... 3,761
Leasehold improvements......................................................... 8,973
Equipment...................................................................... 72,207
Furniture and fixtures......................................................... 6,781
-----------
91,722
Less: Accumulated depreciation................................................. (63,119)
-----------
Net property and equipment................................................. 28,603
Goodwill and other intangible assets less accumulated amortization of $53,322.... 163,375
Other assets..................................................................... 96
-----------
Total assets............................................................... $ 259,380
-----------
-----------
LIABILITIES AND DIVISION EQUITY
Liabilities:
Accounts payable............................................................... $ 5,203
Intercompany trade accounts payable............................................ 1,054
Accrued salaries and benefits.................................................. 3,246
Other accrued liabilities...................................................... 14,574
Deferred revenue............................................................... 2,650
Notes payable and capital lease obligations--current........................... 376
-----------
Total current liabilities.................................................. 27,103
Deferred tax liability........................................................... 1,865
Notes payable and capital lease obligations--long term........................... 753
Other liabilities................................................................ 425
Commitments and contingencies....................................................
Division equity.................................................................. 229,234
-----------
Total liabilities and division equity...................................... $ 259,380
-----------
-----------
</TABLE>
See accompanying notes.
23
<PAGE>
FIRST IMAGE MANAGEMENT COMPANY
(A DIVISION OF FIRST DATA CORPORATION)
STATEMENTS OF INCOME
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenue..................................................................................... $ 56,881 $ 57,422
Expenses:
Salaries and benefits..................................................................... 20,611 21,301
Forms and supplies........................................................................ 5,987 6,386
Equipment and occupancy................................................................... 9,502 10,355
Other operating and administrative........................................................ 8,435 7,419
Depreciation and amortization............................................................. 5,140 4,767
Provision for employee severance and office closure....................................... -- 275
Overhead charges from First Data Corporation.............................................. 569 574
--------- ---------
Total expenses........................................................................ 50,244 51,077
--------- ---------
Operating income............................................................................ 6,637 6,345
Interest expense............................................................................ (19) (21)
Provision for income taxes.................................................................. (3,327) (3,178)
--------- ---------
Net income............................................................................ $ 3,291 $ 3,146
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
24
<PAGE>
FIRST IMAGE MANAGEMENT COMPANY
(A DIVISION OF FIRST DATA CORPORATION)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................................ $ 3,291 $ 3,146
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation............................................................................ 2,738 2,570
Amortization............................................................................ 2,402 2,197
Deferred tax (benefit) provision........................................................ 389 (1,524)
Changes in operating assets and liabilities:
Accounts receivable................................................................... (1,465) (2,896)
Prepaid expenses, supplies inventory and other assets................................. 2,356 (1,373)
Accounts payable and accrued liabilities.............................................. 444 2,541
Accrued salaries and benefits......................................................... 879 67
Deferred revenue...................................................................... (336) 4,488
Intercompany trade accounts........................................................... 810 2,245
----------- ----------
Net cash provided by operating activities........................................... 11,508 11,461
INVESTING ACTIVITIES
Acquisitions.............................................................................. (94) (22,678)
Purchases of property and equipment....................................................... (1,972) (3,562)
----------- ----------
Net cash used in investing activities............................................... (2,066) (26,240)
FINANCING ACTIVITIES
Payment of long-term debt................................................................. (106) (264)
Capital contribution from (return of capital) to First Data Corporation................... (9,361) 14,262
----------- ----------
Net cash (used in) provided by financing activities................................. (9,467) 13,998
Decrease in cash and cash equivalents..................................................... (25) (781)
Cash and cash equivalents at beginning of period.......................................... 388 1,130
----------- ----------
Cash and cash equivalents at end of period................................................ $ 363 $ 349
----------- ----------
----------- ----------
</TABLE>
25
<PAGE>
FIRST IMAGE MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The accompanying financial statements of First Image Management Company
("FIMC" or the "Company") should be read in conjunction with the Company's
financial statements for the year ended December 31, 1997. Significant
accounting policies disclosed therein have not changed.
The accompanying financial statements are unaudited; however, in the opinion
of management, they include all normal recurring adjustments necessary for a
fair presentation of the financial position of the Company at March 31, 1998 and
the results of its operations and cash flows for the three months ended March
31, 1998 and 1997. Results of operations reported for interim periods are not
necessarily indicative of results for the entire year.
2. SUBSEQUENT EVENT
On May 5, 1998 First Data and First Financial Management entered into an
asset purchase agreement (the "Agreement") with Anacomp, Inc. ("Anacomp"). The
Agreement closed on June 18, 1998. Pursuant to the terms of the Agreement,
Anacomp purchased substantially all of the Company's assets, subject to certain
liabilities, for an initial purchase price of $150.0 million. The initial
purchase price is subject to adjustment based upon working capital delivered at
closing. The accompanying financial statements do not give effect to any of the
transactions contemplated under the Agreement.
26
<PAGE>
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ----------------------------------------------------------------------
<S> <C> <C>
2.1 -- Asset Purchase Agreement, dated as of May 5, 1998, among Anacomp,
Inc., First Financial Management Corporation and First Data
Corporation.*
2.2 -- Amendment No. 1, dated as of June 18, 1998, to the Asset Purchase
Agreement, dated as of May 5, 1998, among Anacomp, Inc., First
Financial Management Corporation and First Data Corporation.*
4.1 -- Indenture, dated as of June 18, 1998, between the Anacomp, Inc.,
as issuer, and IBJ Schroder Bank & Trust Company, as trustee, relating
the 10 7/8% Series C Senior Subordinated Notes due 2004 and the
10 7/8% Series D Senior Subordinated Notes due 2004 (containing, as
exhibits, specimens of such Series C Notes and Series D Notes).*
4.2 -- Purchase Agreement, dated June 12, 1998, between Anacomp, Inc.
and NatWest Capital Markets Limited, relating the 10 7/8% Series C
Senior Subordinated Notes due 2004.*
4.3 -- Exchange and Registration Rights Agreement, dated June 18, 1998
between Anacomp, Inc. and NatWest Capital Markets Limited, relating
the 10 7/8% Series C Senior Subordinated Notes due 2004 and the
10 7/8% Series D Senior Subordinated Notes due 2004.*
4.4 -- First Supplemental Indenture, dated as of June 12, 1998, to the
Indenture, dated as of March 24, 1997, between Anacomp, Inc., as
issuer, and IBJ Schroder Bank & Trust Company, as trustee, relating
the 10 7/8% Senior Subordinated Notes due 2004, Series A and the
10 7/8% Senior Subordinated Notes due 2004, Series B (containing, as
exhibits, specimens of such Series A Notes and Series B Notes).*
10.1 -- Revolving Credit Agreement, dated as of June 15, 1998, among
Anacomp, Inc., the various lending institutions named therein and
BankBoston, N.A. as agent.*
23.1 -- Consent of Ernst & Young LLP
99.1 -- Press release of the Company, dated June 18, 1998.*
</TABLE>
- -------------
* Previously filed.
27
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf of the
Registrant by the undersigned thereunto duly authorized.
ANACOMP, INC.
By: /s/ DONALD L. VILES
------------------------------------
DONALD L. VILES
Executive Vice President and
Chief Financial Officer
Date: August 11, 1998
28
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ----------------------------------------------------------------------
<S> <C> <C>
2.1 -- Asset Purchase Agreement, dated as of May 5, 1998, among Anacomp,
Inc., First Financial Management Corporation and First Data
Corporation.*
2.2 -- Amendment No. 1, dated as of June 18, 1998, to the Asset Purchase
Agreement, dated as of May 5, 1998, among Anacomp, Inc., First
Financial Management Corporation and First Data Corporation.*
4.1 -- Indenture, dated as of June 18, 1998, between the Anacomp, Inc.,
as issuer, and IBJ Schroder Bank & Trust Company, as trustee, relating
the 10 7/8% Series C Senior Subordinated Notes due 2004 and the
10 7/8% Series D Senior Subordinated Notes due 2004 (containing, as
exhibits, specimens of such Series C Notes and Series D Notes).*
4.2 -- Purchase Agreement, dated June 12, 1998, between Anacomp, Inc.
and NatWest Capital Markets Limited, relating the 10 7/8% Series C
Senior Subordinated Notes due 2004.*
4.3 -- Exchange and Registration Rights Agreement, dated June 18, 1998
between Anacomp, Inc. and NatWest Capital Markets Limited, relating
the 10 7/8% Series C Senior Subordinated Notes due 2004 and the
10 7/8% Series D Senior Subordinated Notes due 2004.*
4.4 -- First Supplemental Indenture, dated as of June 12, 1998, to the
Indenture, dated as of March 24, 1997, between Anacomp, Inc., as
issuer, and IBJ Schroder Bank & Trust Company, as trustee, relating
the 10 7/8% Senior Subordinated Notes due 2004, Series A and the
10 7/8% Senior Subordinated Notes due 2004, Series B (containing, as
exhibits, specimens of such Series A Notes and Series B Notes).*
10.1 -- Revolving Credit Agreement, dated as of June 15, 1998, among
Anacomp, Inc., the various lending institutions named therein and
BankBoston, N.A. as agent.*
23.1 -- Consent of Ernst & Young LLP
99.1 -- Press release of the Company, dated June 18, 1998.*
</TABLE>
- --------------
* Previously Filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-19061) pertaining to the 1996 Restructure Recognition
Incentive Plan, 1996 Long-term Incentive Plan, 1996 Stock Options to
Non-employee Directors, 1996 Non-employee Director Stock Option Plan, and 1997
Qualified Employee Stock Purchase Plan of Anacomp, Inc. of our report dated
April 30, 1998 (except for note 15, as to which the date is June 18, 1998),
with respect to the financial statements of First Image Management Company (a
division of First Data Corporation) included in this Current Report on
Form 8-K/A of Anacomp, Inc. dated August 11, 1998, filed with the Securities
and Exchange
Commission.
ERNST & YOUNG LLP
Atlanta, Georgia
August 10, 1998
