UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH
31, 2000.
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.
(Exact name of registrant as specified in its charter)
INDIANA 35-1144230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12365 Crosthwaite Circle, Poway, California 92064
(858) 679-9797
(Address, including zip code, and telephone number, including area code,
of principal executive offices)
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
As of April 30, 2000, the number of outstanding shares of the registrant's
common stock, $.01 par value per share, was 14,514,693.
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at
March 31, 2000 and September 30, 1999....... 2
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999.. 3
Condensed Consolidated Statements of Operations
Six Months Ended March 31, 2000 and 1999.... 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 2000 and 1999.... 5
Condensed Consolidated Statements of
Stockholders' Equity (Deficit) and
Comprehensive Income (Loss)
Six Months Ended March 31, 2000........... 6
Notes to the Condensed Consolidated Financial
Statements..................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......... 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk....................................... 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................. 16
Item 2. Changes in Securities and Use of Proceeds......... 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information................................. 16
Item 6. Exhibits and Reports on Form 8-K.................. 17
SIGNATURES................................................... 18
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
(in thousands) 2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................... $ 2,458 $ 11,144
Accounts and notes receivable, net............ 70,277 75,259
Current portion of long-term receivables, net. 2,094 2,952
Inventories................................... 23,508 19,659
Prepaid expenses and other.................... 10,530 8,589
----------- -----------
Total current assets............................. 108,867 117,603
Property and equipment, net...................... 49,699 47,439
Long-term receivables, net of current portion.... 5,077 7,635
Goodwill......................................... 124,740 132,965
Reorganization value in excess of identifiable
assets, net .................................. --- 12,003
Other assets..................................... 12,682 12,872
----------- -----------
$ 301,065 $ 330,517
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Bank borrowings and current portion of
long-term debt.............................. $ 19,690 $ 9,987
Accounts payable.............................. 37,236 34,058
Accrued compensation, benefits and withholdings 14,240 17,229
Accrued income taxes.......................... 3,339 6,509
Accrued interest.............................. 16,980 17,061
Other accrued liabilities..................... 30,437 38,798
----------- -----------
Total current liabilities........................ 121,922 123,642
----------- -----------
Noncurrent liabilities:
Long-term debt, net of current portion........ 311,056 313,885
Other noncurrent liabilities.................. 10,719 10,626
----------- -----------
Total noncurrent liabilities..................... 321,775 324,511
----------- -----------
Stockholders' equity (deficit):
Preferred stock............................... ---- ----
Common stock.................................. 145 149
Capital in excess of par value................ 110,244 108,997
Accumulated other comprehensive loss.......... (62) (1,222)
Accumulated deficit........................... (252,959) (225,560)
----------- -----------
Total stockholders' deficit...................... (142,632) (117,636)
----------- -----------
$ 301,065 $ 330,517
=========== ===========
</TABLE>
See the notes to the condensed consolidated financial statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
(in thousands, except per share amounts) 2000 1999
---------- ----------
<S> <C> <C>
Revenues:
docHarbor.................................... $ 949 $ 206
Document Solutions........................... 56,739 59,361
Field Service................................ 15,807 18,492
DatagraphiX.................................. 31,378 34,483
---------- ----------
104,873 112,542
---------- ----------
Cost of revenues:
docHarbor.................................... 3,066 101
Document Solutions........................... 34,454 37,548
Field Service................................ 7,904 9,592
DatagraphiX.................................. 23,303 20,062
---------- ----------
68,727 67,303
---------- ----------
Gross Profit.................................... 36,146 45,239
Costs and expenses:
Engineering, research and development........ 2,751 1,877
Selling, general and administrative.......... 23,923 23,385
Amortization of reorganization asset......... --- 17,946
Amortization of intangible assets............ 4,793 5,098
Restructuring charges........................ 6,966 ---
---------- ----------
Operating loss from continuing operations....... (2,287) (3,067)
---------- ----------
Other income (expense):
Interest income.............................. 416 691
Interest expense and fee amortization........ (10,040) (10,317)
Other........................................ (255) (860)
---------- ----------
(9,879) (10,486)
---------- ----------
Loss from continuing operations before income
taxes........................................ (12,166) (13,553)
Provision for income taxes...................... 29 1,845
---------- ----------
Loss from continuing operations................. (12,195) (15,398)
Income from discontinued operations, net of
income taxes................................. --- 520
---------- ----------
Net loss........................................ $ (12,195) $ (14,878)
========== ==========
Basic and diluted per share data:
Loss from continuing operations................. $ (0.85) $ (1.08)
Income from discontinued operations............. --- 0.04
---------- ----------
Basic and diluted net loss...................... $ (0.85) $ (1.04)
========== ==========
Shares used in computing basic net loss per
share........................................ 14,431 14,233
========== ==========
</TABLE>
See the notes to the condensed consolidated financial statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
------------------------
(in thousands, except per share amounts) 2000 1999
---------- ----------
<S> <C> <C>
Revenues:
docHarbor.................................... $ 1,812 $ 386
Document Solutions........................... 115,199 117,637
Field Service................................ 34,288 36,873
DatagraphiX.................................. 55,398 72,011
---------- ----------
206,697 226,907
---------- ----------
Cost of revenues:
docHarbor.................................... 5,271 201
Document Solutions........................... 71,781 74,179
Field Service................................ 17,224 18,931
DatagraphiX.................................. 38,703 42,817
---------- ----------
132,979 136,128
---------- ----------
Gross Profit.................................... 73,718 90,779
Costs and expenses:
Engineering, research and development........ 5,232 4,391
Selling, general and administrative.......... 47,031 47,111
Amortization of reorganization asset......... 12,003 35,891
Amortization of intangible assets............ 10,167 9,634
Restructuring charges........................ 6,966 ---
---------- ----------
Operating loss from continuing operations....... (7,681) (6,248)
---------- ----------
Other income (expense):
Interest income.............................. 698 1,079
Interest expense and fee amortization........ (19,636) (20,278)
Other........................................ (230) (631)
---------- ----------
(19,168) (19,830)
---------- ----------
Loss from continuing operations before income
taxes........................................ (26,849) (26,078)
Provision for income taxes...................... 550 4,122
---------- ----------
Loss from continuing operations................. (27,399) (30,200)
Income from discontinued operations, net of
income taxes................................. --- 809
---------- ----------
Net loss........................................ $ (27,399 $ (29,391)
========== ==========
Basic and diluted per share data:
Loss from continuing operations................. $ (1.90) $ (2.12)
Income from discontinued operations............. --- 0.06
---------- ----------
Basic and diluted net loss...................... $ (1.90) $ (2.06)
========== ==========
Shares used in computing basic net loss per
share........................................ 14,388 14,250
</TABLE>
See the notes to the condensed consolidated financial statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
------------------------
(in thousands) 2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................... $ (27,399) $ (29,391)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Income from discontinued operations, net of
income taxes.............................. --- (809)
Depreciation and amortization............... 31,754 55,106
Non-cash compensation....................... 10 573
Non-cash charge in lieu of taxes............ --- 3,108
Restricted cash requirements.............. --- 3,383
Loss on sale of assets.................... --- (618)
Change in assets and liabilities, net of
effects from acquisitions:
(Increase)/decrease in accounts and
long-term receivables................... 8,061 (1,296)
(Increase)/decrease in inventories and
prepaid expenses........................ (5,917) 223
Increase in other assets.................. (1,188) (937)
Decrease in accounts payable and accrued
expenses................................ (15,324) (12,147)
(Increase)/decrease in other noncurrent
liabilities............................. 93 (371)
---------- ----------
Net cash provided by (used in) continuing
operations............................. (9,910) 16,824
Net operating cash provided by
discontinued operations................ --- 2,278
---------- ----------
Net cash provided by (used in) operating
activities............................. (9,910) 19,102
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment... (11,476) (14,384)
Capital expenditures of discontinued
operations................................. --- (165)
Proceeds from sale of assets................. --- 2,732
Payments to acquire companies and customer
rights..................................... --- (9,533)
---------- ----------
Net cash used in investing activities..... (11,476) (21,350)
---------- ----------
Cash flows from financing activities:
Proceeds from the exercise of options and
warrants................................... 2,067 382
Proceeds from employee stock purchases....... 510 782
Repurchases of common stock.................. (1,600) (2,188)
Proceeds from liquidation of currency swap
contracts.................................. 3,424 ---
Net proceeds from revolving line of credit... 10,000 ---
Principal payments on long-term debt......... (283) (337)
---------- ----------
Net cash provided by (used in) financing
activities............................. 14,118 (1,361)
---------- ----------
Effect of exchange rate changes on cash......... (1,418) (491)
---------- ----------
Decrease in cash and cash equivalents........... (8,686) (4,100)
Cash and cash equivalents at beginning of period 11,144 17,721
---------- ----------
Cash and cash equivalents at end of period...... $ 2,458 $ 13,621
========== ==========
Supplemental Information:
Cash paid for interest........................ $ 18,325 $ 15,712
========== ==========
Cash paid for income taxes.................... $ 1,735 $ 3,127
========== ==========
Assets acquired by assuming liabilities....... $ --- $ 490
========== ==========
</TABLE>
See the notes to the condensed consolidated financial statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
other
(in thousands) comprehensive
Common paid-in income Accumulated
Stock capital (loss) Deficit Total
----- ------- ------ ------- -----
BALANCE AT SEPTEMBER 30, 1999 $149 $108,997 $(1,222) $(225,560) $(117,636)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loss...................... --- --- --- (27,399) (27,399)
Translation adjustment........ --- --- (2,264) --- (2,264)
Realized gain on currency
swap contracts........... --- --- 3,424 --- 3,424
----------
Comprehensive loss............ (26,239)
----------
Common stock issued for
exercise of stock
options.................. --- 2,333 --- --- 2,333
Common stock issued for
employee stock
purchases................ --- 510 --- --- 510
Common stock purchased and
retired.................. (4) (1,596) --- --- (1,600)
================================================================================
BALANCE AT MARCH 31, 2000 $145 $110,244 $ (62) $(252,959) $(142,632)
================================================================================
</TABLE>
See the notes to the condensed consolidated financial statements
<PAGE>
ANACOMP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of Anacomp, Inc. ("Anacomp" or the "Company") and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. These financial statements, except for the balance sheet as of
September 30, 1999, have not been audited but, in the opinion of the Company's
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for all periods presented. These
financial statements should be read in conjunction with the Company's financial
statements and notes thereto for the year ended September 30, 1999, included in
the Company's 1999 Annual Report on Form 10-K. Interim operating results are not
necessarily indicative of operating results for the full year.
Note 2. Management Estimates and Assumptions
The Company's preparation of the accompanying condensed consolidated financial
statements in conformity with generally accepted accounting principles requires
its management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Estimates have been prepared
on the basis of the most current available information and actual results could
differ from those estimates.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
Note 3. Reorganization Asset
As of May 31, 1996, the Company adopted Fresh Start Reporting, which resulted in
material changes to its consolidated balance sheet, including valuation of
assets, intangible assets and liabilities at fair market value and valuation of
equity based on the appraised reorganization value of the ongoing business. The
net result of the valuation of identifiable assets, the recognition of
liabilities at fair market value and the valuation of equity was the Company
recognizing an asset entitled "Reorganization value in excess of identifiable
assets" (the "Reorganization Asset") totaling $267.5 million as of May 31, 1996.
The Reorganization Asset was fully amortized as of November 30, 1999.
Note 4. Recent Accounting Pronouncements
In June of 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," and in June 1999
issued SFAS No. 137, "Deferral of the Effective Date of FASB Statement No. 133."
SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. The objective of the
statement is to establish accounting and reporting standards for derivative
instruments and hedging activities. The Company uses cross-currency swap
agreements that hedge the U.S. dollar value of its net assets of certain foreign
subsidiaries. The adoption of this new accounting pronouncement is not expected
to be material to the Company's consolidated financial position or results of
operations as the accounting for such cross-currency swap agreements is
essentially unchanged by the provisions of SFAS No. 133.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements", in which the SEC interprets existing accounting literature related
to revenue recognition. SAB No. 101 must be implemented no later than the first
fiscal quarter of the fiscal year beginning after December 15, 1999. The Company
is currently assessing the impact of SAB 101 on its financial position and
results of operations.
<TABLE>
<CAPTION>
Note 5. Inventories
March 31, September 30,
---------- ------------
(in thousands) 2000 1999
---------- ------------
<S> <C> <C>
Finished goods................................ $ 10,871 $ 9,827
Work in process............................... 2,943 2,433
Raw materials and supplies.................... 9,694 7,399
---------- ------------
$ 23,508 $ 19,659
========== ============
</TABLE>
<PAGE>
Note 6. Income Taxes
The Company's amortization of the Reorganization Asset is not deductible for
income tax purposes. Accordingly, the Company may incur income tax expense even
though it reports a pre-tax loss due to such amortization.
For the six months ended March 31, 2000, income tax expense reported for the
Company primarily represents taxes on its foreign operations. For the six months
ended March 31, 1999, income tax expense is based upon an effective tax rate of
42% of pretax income before amortization of the Reorganization Asset. For the
six months ended March 31, 1999, the limited tax benefit of the U.S. federal net
operating loss carryforwards of the Company resulted in a reduction of $3.3
million in the Company's Reorganization Asset and did not reduce income tax
expense.
Note 7. Hedging
In 1999, the Company entered into three cross-currency swap agreements that
hedge the U.S. dollar value of the Company's investment in the net assets of
certain foreign subsidiaries. These agreements effectively swapped higher
fixed-rate U.S. dollar debt for lower fixed-rate debt in the subsidiaries'
respective local currencies.
In February 2000, the Company liquidated its cross currency swap hedge positions
and received $3.4 million in cash. This is reflected in the Company's March 31,
2000 Condensed Consolidated Balance Sheet as an increase to accumulated other
comprehensive income in the Condensed Consolidated Statements of Stockholders'
Equity (Deficit).
Note 8. Loss Per Share
Basic earnings per share is computed based upon the weighted average number of
shares of the Company's common stock outstanding during the period. Diluted
earnings per share is computed based upon the weighted average number of shares
of common stock and potentially dilutive securities outstanding during the
period. Potentially dilutive securities include options granted under the
Company's stock option plans using the treasury stock method and shares of
common stock expected to be issued under the Company's employee stock purchase
plan. Potentially dilutive securities were not used to calculate diluted
earnings per share because of their anti-dilutive effect. There are no
reconciling items in calculating the numerator for basic and diluted earnings
per share for any of the periods presented.
Note 9. Sale of Magnetics Solutions Division
In February 1999, the Company adopted a plan to dispose of its Magnetics
Solutions Group division ("the Magnetics Division"), and on April 28, 1999, the
Company signed a definitive agreement to sell the Magnetics Division. The sale
was effective June 1, 1999, and the sales price of $40 million included $37
million in cash at closing and an interest bearing $3 million subordinated note.
A post-closing adjustment resulted in the Company returning to the buyer $1.2
million to reflect a shortfall in the agreed-upon working capital for the
Magnetics Division. The balance on the subordinated note at March 31, 2000 was
$2.7 million, which represents the net present value of the $3 million note due
in 2006 on which interest has been deferred until June 2001. There can be no
assurance that Magnetics will be able to fund the interest payments or principal
at maturity. The Company recognized a gain upon the sale of the Magnetics
Division during the third fiscal quarter of 1999.
The results of operations of the Magnetics Division have been reported
separately as "Income from discontinued operations, net of income taxes" in the
condensed consolidated statements of operations for the three and six month
periods ended March 31, 1999.
The operating results of the discontinued operations are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1999
-------------------- ----------------
<S> <C> <C>
Revenues....................... $ 25,962 $ 50,544
==================== ================
Operating income............... $ 1,579 $ 2,763
Income taxes................... 1,059 1,954
-------------------- ----------------
Net income..................... $ 520 $ 809
==================== ================
</TABLE>
<PAGE>
Note 10. Engineering, Research and Development
Engineering, research and development expenses consist of (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Digital ............ $ 1,609 $ 694 $ 3,237 $ 1,838
COM and other....... 1,142 1,183 1,995 2,553
----------- ----------- ------------ ------------
Total .............. $ 2,751 $ 1,877 $ 5,232 $ 4,391
=========== =========== ============ ============
</TABLE>
Note 11. Restructuring Charges
In the second quarter of fiscal 2000, the Company effected a reorganization
of its workforce in the United States and in Europe along its four lines of
business and, as part of its program to decentralize corporate services
consistent with the business unit structure, also reorganized parts of its
corporate staff. Included in the Company's operating results for the three and
six months ended March 31, 2000 are restructuring charges of $7 million. These
charges resulted from the Company's transition to four business units as the
Company plans to reduce operating costs to better monitor its results by lines
of business. These charges consisted of $5.4 million in employee severance and
termination-related costs, $1.0 million for professional fees and other costs,
and $0.6 million in facility related charges. Employee severance and
termination-related costs were for approximately 110 employees terminated in the
quarter ended March 31, 2000. The professional fees relate to negotiations to
terminate facility leases and other costs associated with implementation of the
business unit structure and the reorganization of the four business units into
separate entities.
Restructuring expenses totaling $2.9 million have been paid and charged against
this reserve through March 31, 2000. The remaining liability of $4.1 million is
included as Other Accrued Liabilities on the March 31, 2000 Condensed
Consolidated Balance Sheet.
The Company continues to evaluate its operating activities and it is anticipated
that additional restructuring charges, which will be significant, will be
required in the future.
Note 12. Stock Repurchase Program
During the quarter ended December 31, 1999, the Company repurchased 93,200
shares of its common stock in accordance with a previously announced stock
buyback program. On February 8, 2000, the Company terminated the stock
repurchase program.
Note 13. Operating Segments
Anacomp's business is focused in the document management industry. The Company
manages its business through four operating units: docHarbor-SM-, an application
service provider ("ASP"), which provides Internet-based document-management
services; Document Solutions, which provides document-management outsource
services; Field Service, which provides equipment maintenance services for
Anacomp and for third-party manufactured products; and DatagraphiX(R), which
provides COM and CD systems and related supplies and contract manufacturing
services.
Management evaluates operating unit performance based upon earnings before
interest, other income, reorganization items, non-recurring and restructuring
charges, taxes, depreciation and amortization, and extraordinary items (referred
to as "EBITDA"). The excluded costs are managed at the Corporate level and not
in the operating units.
<PAGE>
As of and for the Three Months Ended March 31,
<TABLE>
<CAPTION>
Document Field
(in thousands) docHarbor Solutions Service DatagraphiX Corporate Consolidated
- -------------------------------------------------------------------------------
2000
<S> <C> <C> <C> <C> <C> <C>
Digital/Renewal
Revenue $ 949 $ 18,253 $ 4,776 $ 8,760 $ --- $ 32,738
COM Revenue --- 38,486 11,031 22,618 --- 72,135
--------------------------------------------------------------
Total Revenues 949 56,739 15,807 31,378 --- 104,873
EBITDA (6,762) 14,090 7,144 4,171 (4,339) 14,304
1999
Digital/Renewal
Revenue $ 206 $ 13,171 $ 3,764 $ 490 $ --- $ 17,631
COM Revenue --- 46,190 14,728 33,993 --- 94,911
--------------------------------------------------------------
Total Revenues 206 59,361 18,492 34,483 --- 112,542
EBITDA (1,250) 13,053 8,082 10,220 (5,613) 24,492
</TABLE>
As of and for the Six Months Ended March 31,
<TABLE>
<CAPTION>
Document Field
(in thousands) docHarbor Solutions Service DatagraphiX Corporate Consolidated
- -------------------------------------------------------------------------------
2000
<S> <C> <C> <C> <C> <C> <C>
Digital/Renewal
Revenue $ 1,812 $ 38,108 $ 9,184 $ 9,810 $ --- $ 58,914
COM Revenue --- 77,091 25,104 45,588 --- 147,783
--------------------------------------------------------------
Total Revenues 1,812 115,199 34,288 55,398 --- 206,697
EBITDA (12,045) 28,239 15,687 8,537 (9,328) 31,090
1999
Digital/Renewal
Revenue $ 386 $ 24,959 $ 6,843 $ 2,072 $ --- $ 34,260
COM Revenue --- 92,678 30,030 69,939 --- 192,647
--------------------------------------------------------------
Total Revenues 386 117,637 36,873 72,011 --- 226,907
EBITDA (1,981) 26,021 16,165 20,861 (12,290) 48,776
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain statements in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended. Such forward-looking statements involve known and unknown
risks, uncertainties and other important factors that could cause the actual
results, performance or achievements the Company, or industry results, to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and other
important factors include, among others: general economic and business
conditions; industry trends; industry capacity; competition; raw materials costs
and availability; currency fluctuations; the loss of any significant customers;
changes in business strategy or development plans; successful development of new
products; availability, terms and deployment of capital; ability to meet debt
service obligations; availability of qualified personnel; changes in, or the
failure or inability to comply with, government regulations; and other factors
referenced in this report. The words "may", "could", "should", "would",
"believe", "anticipate", "estimate", "expect", "intend", "plan" and similar
expressions or statements regarding future periods are intended to identify
forward-looking statements. All forward-looking statements are inherently
uncertain as they involve substantial risks and uncertainties beyond the
Company's control. The Company undertakes no obligation to update or revise any
forward-looking statements for events or circumstance after the date on which
such statement is made. New factors emerge from time to time, and it is not
possible for the Company to predict all such factors. Further, the Company
cannot assess the impact of each such factor on its business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
<PAGE>
Results of Operations
As of May 31, 1996, the Company adopted Fresh Start Reporting, which
resulted in material changes to its consolidated balance sheet. The net result
of the valuation of identifiable assets, the recognition of liabilities at fair
market value and the valuation of equity was the Company recognizing the
Reorganization Asset totaling $267.5 million as of May 31, 1996. This Asset was
fully amortized at November 30, 1999.
In fiscal 1999, Anacomp moved to a four business unit reporting structure.
The four business units comprise docHarbor, Document Solutions, Field Service,
and DatagraphiX. In the second quarter of fiscal 2000 the Company effected a
reorganization of its workforce in Europe along the four lines of business and,
as part of its program to decentralize its corporate services consistent with
the business unit structure, also reorganized parts of its corporate staff. The
reorganization and cost reduction initiatives resulted in a restructuring charge
of $7.0 million in this quarter. These charges relate primarily to employee and
facility termination costs and other reorganization related costs. The Company
continues to evaluate its operating activities, and it is anticipated additional
restructuring charges, which will be significant, will be required in the
future.
Three Months Ended March 31, 2000 vs. Three Months Ended March 31, 1999
General. Anacomp reported a net loss of $12.2 million for the three months
ended March 31, 2000, compared to a net loss of $14.9 million for the three
months ended March 31, 1999. EBITDA was $14.3 million, or 14%, of revenues, for
the three months ended March 31, 2000. Excluding the investment in docHarbor,
EBITDA would have been $21.1 million, or 20% of revenues. This compares to
EBITDA of $25.7 million, or 23%, of revenues for the three months ended March
31, 1999.
Revenues. The Company's revenues decreased 7% from $112.5 million for the
three months ended March 31, 1999, to $104.9 million for the three months ended
March 31, 2000. The decrease was the result of the $22.8 million decline in
COM-related revenues across the four business units, partially offset by the
$15.1 million increase in digital and new revenues across the business units.
Revenues from the Document Solutions business decreased from the prior
year period, from $59.4 million to $56.7 million. Revenue contributed by digital
products was up, increasing 39% over the prior year period, from $13.2 million
to $18.3 million. The Company's growth in digital outsourcing services enabled
it to offset the long-term declines in the COM outsourcing business, which
dropped from 78% to 68% of revenues from the prior year period.
Field Service revenues decreased from the prior year period, from $18.5
million to $15.8 million. Approximately $1.7 million of this decline resulted
from the discontinuance of a segment of the COM maintenance business. Recently
signed agreements have enabled the unit to expand its presence in the rapidly
growing market for storage area network maintenance support. The unit's non-COM
related revenues increased 27% over the prior year period, partially offsetting
declines in COM hardware maintenance revenues. Non-COM revenues contributed 30%
of total Field Service revenues, compared to 20% in the prior year period.
docHarbor revenues increased $0.7 million versus the prior year period.
This was the result of increased revenues from existing customers and new
customer orders.
DatagraphiX revenues decreased 9%, or $3.1 million, compared to the three
months ended March 31, 1999. The decrease was attributable to a decline in the
computer systems marketplace in late 1999 due to Year 2000 concerns coupled with
the continuing decline in the market for COM systems and supplies. This was
offset by increased revenues from contract manufacturing.
Gross Margins. The Company's gross margin decreased from $45.2 million
(40% of revenues) for the three months ended March 31, 1999, to $36.1 million
(34% of revenues) for the three months ended March 31, 2000. The decrease in
margins was largely due to the results of the DatagraphiX unit where current
year revenues decreased in total from the prior year period. In addition, the
current year period includes contract manufacturing revenues that generate lower
gross margins than COM system sales.
The decrease in gross margin was also impacted by costs related to the
startup of the docHarbor data center in Washington D.C. Gross margins for
Document Solutions and Field Service were essentially unchanged from the prior
year period at 39% and 50%, respectively.
<PAGE>
Engineering, Research and Development. Engineering, research and
development expense increased from $1.9 for the three months ended March 31,
1999, to $2.8 million for the three months ended March 31, 2000. Spending on
digital product offerings increased to 58% of total spending compared to 37% in
the prior year period.
Selling, general and administrative. Selling, general and administrative
(SG&A) expenses increased from $23.4 million (21% of revenues) for the three
months ended March 31, 1999, to $23.9 million (23% of revenues) for the three
months ended March 31, 2000. This increase was primarily the result of increased
sales and marketing efforts for the docHarbor business unit offset by reductions
in corporate personnel expenses and costs savings realized from the integration
of the First Image Management Company business acquired in June 1998 into the
Company's Document Solutions business.
Amortization of intangible assets. Amortization of intangible assets
decreased 6% from $5.1 million ( 5% of revenues) for the three months ended
March 31, 1999, to $4.8 million (5% of revenues) for the three months ended
March 31, 2000. This decrease is primarily the result of the completion of
amortization for a number of 1997 acquisitions and reduced amortization related
to intangibles written off in the 1999 fourth fiscal quarter.
Interest Expense. Interest expense decreased 3% from $10.3 million for the
three months ended March 31, 1999, to $10 million for the three months ended
March 31, 2000. This decrease was the result of the fiscal year 1999 repurchase
of long-term subordinated debt.
Provision for Income Taxes. The provision for income taxes for the three
months ended March 31, 2000 of $29 thousand primarily related to earnings of the
Company's foreign subsidiaries. The provision of $1.8 million for the three
months ended March 31, 1999 was based upon an effective tax rate of 42% of
taxable income for the period.
Discontinued operations. During the second quarter of 1999, the Company
adopted a plan to dispose of its Magnetics Division for which the results of
operations were reported as discontinued operations. The Magnetics Division
income was $0.5 million during the three months ended March 31, 1999.
Six Months Ended March 31, 2000 vs. Six Months Ended March 31, 1999
General. Anacomp reported a net loss of $27.4 million for the six months
ended March 31, 2000, compared to a net loss of $29.4 million for the six months
ended March 31, 1999. EBITDA was $31.1 million, or 15% of revenues, for the six
months ended March 31, 2000. Excluding the investment in docHarbor, EBITDA would
have been $43.1 million, or 21% of revenues. This compares to EBITDA of $50.8
million, or 22 % of revenues for the six months ended March 31, 1999.
Revenues. The Company's revenues decreased 9% from $226.9 million for the
six months ended March 31, 1999, to $206.7 million for the six months ended
March 31, 2000. The decrease was primarily the result of declines in the
DatagraphiX business unit.
Revenues from the Company's Document Solutions business decreased from the
prior year period, from $117.6 million to $115.2 million. Revenue contributed by
digital products was up 53% over the prior year period, from $25.0 million to
$38.1 million. The Company's growth in digital outsourcing services enabled it
to offset the long-term declines it is experiencing in its COM outsourcing
business, which dropped from 79% to 67% of revenues from the prior year period.
Field Service revenues were down from the prior year period, decreasing
from $36.9 million to $34.3 million. Approximately $1.7 million of this decline
resulted from the discontinuance of a segment of the COM maintenance business.
Recently signed agreements have enabled the unit to expand its presence in the
growing market for storage area network maintenance support. The unit's non-COM
related revenues increased 34% over the prior year period, partially offsetting
declines in COM hardware maintenance revenues. Non-COM revenues contributed 27%
of total Field Service revenues compared to 19% in the prior year period.
Current year COM revenues include $1.1 million in non-recurring revenues from
the sale of a COM systems maintenance agreement to another vendor.
docHarbor revenues increased $1.4 million versus the six months ended
March 31, 1999. This was the result of increased revenues from existing
customers and new customer orders.
DatagraphiX revenues decreased 23%, or $16.6 million, compared to the
prior year period. The decrease was attributable to the continuing decline in
the market for COM systems and supplies coupled with general weaknesses in the
computer systems marketplace in late 1999 due to Year 2000 concerns.
<PAGE>
Gross Margins. The Company's gross margin decreased from $90.8 million
(40% of revenues) for the six months ended March 31, 1999, to $73.7 million (36%
of revenues) for the six months ended March 31, 2000. The decrease in margins
was largely due to the results of the DatagraphiX unit where current year
revenues decreased in total from the prior year period. In addition, the current
year period included contract manufacturing revenues that generate lower gross
margins than COM system sales.
The decrease in gross margin was also impacted by costs related to the
startup of the docHarbor data center in Washington D.C. Gross margins for
Document Solutions and Field Service were essentially unchanged from the prior
year period at 38% and 50%, respectively.
Engineering, Research and Development. Engineering, research and
development expense increased from $4.4 for the six months ended March 31, 1999,
to $5.2 million for the six months ended March 31, 2000. Spending on digital
product offerings increased to 62% of total spending compared to 42% in the
prior year period.
Selling, general and administrative. Selling, general and administrative
(SG&A) expenses decreased slightly from $47.1 million (21% of revenues) for the
six months ended March 31, 1999, to $47 million (23% of revenues) for the six
months ended March 31, 2000.
Amortization of intangible assets. Amortization of intangible assets
increased 6% from $9.6 million (4% of revenues) for the six months ended March
31, 1999, to $10.2 million (5% of revenues) for the six months ended March 31,
2000. This increase is principally the result of the amortization of goodwill
associated with the twelve acquisitions in fiscal year 1999.
Interest Expense. Interest expense decreased 3% from $20.3 million for the
six months ended March 31, 1999, to $19.6 million for the six months ended March
31, 2000. This decrease was the result of the fiscal year 1999 repurchase of
long-term subordinated debt.
Provision for Income Taxes. The provision for income taxes for the six
months ended March 31, 2000 of $0.6 million primarily related to earnings of the
Company's foreign subsidiaries. The provision of $4.1 million for the six months
ended March 31, 1999 was based upon an effective tax rate of 42% of taxable
income for the period.
Discontinued operations. During the second quarter of 1999, the Company
adopted a plan to dispose of its Magnetics Division for which the results of
operations were reported as discontinued operations. The Magnetics Division
income was $0.8 million during the six months ended March 31, 1999.
Liquidity and Capital Resources
Anacomp had negative working capital of $13.1 million at March 31, 2000,
compared to negative working capital of $6.0 million at September 30, 1999. Net
cash used in continuing operations was $9.9 million for the six months ended
March 31, 2000, compared to cash provided from operations of $16.8 million in
the comparable prior year period.
Net cash used in investing activities was $11.5 million in the current
period, compared to the use of $21.4 million in the comparable prior year
period. The prior year period included captial expenditures that were primarily
used to integrate the First Image business and capital used to acquire companies
and company rights. Current year expenditures were primarily for the development
of infrastructure for docHarbor.
Net cash provided by financing activities increased approximately $15.5
million during the six months ended March 31, 2000, from the same period in the
prior year. This increase was principally the result of $10 million in net
proceeds from the Company's revolving credit facility, the $3.4 million proceeds
from the liquidation of cross currency swap contracts, and various stock
transactions.
The Company's cash balance totaled $2.5 million at March 31, 2000, compared
to $11.1 million at September 30, 1999. The Company also has available a $75
million revolving credit facility (the "Credit Facility"). At March 31, 2000,
$18.9 million was outstanding under the Credit Facility, leaving $56.1 million
of available credit on that date. The Company has continued to draw upon the
Credit Facility subsequent to that date, in part to make the April 2000
semi-annual interest payment on the senior subordinated debt and to fund
docHarbor's growth initiatives, and the amount outstanding under the Credit
Facility reached a maximum amount of $50.9 million on April 30, 2000. The
Company anticipates that the outstanding amount will be reduced by September 30,
2000, and that there will be sufficient borrowing capacity to fund the
semi-annual interest payment due on the senior subordinated debt in October
2000.
<PAGE>
The Company is currently in compliance with all of the financial covenants
set forth in the Credit Facility. However, the Company anticipates that it may
be in violation of certain of those covenants at June 30, 2000, the next date
upon which compliance is measured. The Company believes that the violations will
not be significant in amount. The Company has initiated discussions with the
agent bank for the Credit Facility to negotiate a waiver of the violations or a
modification of the covenants at issue. Any such modification could require a
reduction in the amount available to the Company under the Credit Facility.
Further, there can be no assurance that the Company will be able to resolve this
matter on terms favorable to the Company.
The Company has significant debt obligations. At the same time, the Company
is seeking to fund its growth initiatives, especially with respect to docHarbor.
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. The Company believes that
cash on hand, cash generated from operations, and cash available under the
Credit Facility will be sufficient to fund its debt service requirements,
acquisition strategies and working capital requirements in the foreseeable
future. However, if the amount available under the Credit Facility is reduced by
the agent bank in connection with the resolution of the covenant violations
described above, then the Company may have to reduce its spending on its certain
initiatives in order to fund its debt service requirements.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has U.S. Dollar fixed-rate indebtedness, and in September 1999,
it entered into three cross currency swap agreements that hedge the U.S. Dollar
value of the Company's investment in the net assets of certain foreign
subsidiaries. These agreements effectively swapped higher fixed-rate U.S. dollar
debt for lower fixed-rate debt in the subsidiaries' respective local currencies.
In February 2000, due to the decline in the value of Swiss Franc and the Euro
against the U.S. Dollar, the Company liquidated its cross currency swap
agreements and received $3.4 million in cash. This amount is reflected as
accumulated comprehensive income in total stockholders' equity in the Company's
March 31, 2000 Condensed Consolidated Balance Sheet.
The Company is exposed to the risk of future currency exchange
fluctuations on such debt, which are accounted for as an adjustment to total
stockholders' equity. Therefore, changes from reporting period to reporting
period in the exchange rates between various foreign currencies and the U.S.
Dollar have had and will continue to have an impact on the foreign currency
translation component of stockholders' equity reported by the Company, and such
effect may be material in any individual reporting period.
The Company's revolving credit facility is affected by the general level
of U.S. interest rates and/or Libor. The Company had $18.9 million outstanding
under its revolving credit facility March 31, 2000.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are potential or named defendants in
several lawsuits and claims arising in the ordinary course of business. While
the outcome of such claims, lawsuits or other proceedings against the Company
cannot be predicted with certainty, management expects that such liability, to
the extent not provided for through insurance or otherwise, will not have a
material adverse effect on the financial conditions or results of operations of
the Company.
See the Company's Quarterly Report on Form 10-Q for the period ended
December 31, 1999, for a discussion of Access Solutions International, Inc. and
Malcolm G. Chase vs. Anacomp, Inc. and Eastman Kodak Company, and the related
matter Anacomp, Inc. vs. G. Graham Murray.
Item 2. Changes in Securities and Use of Proceeds
(c) Unregistered Securities
Pursuant to the Company's 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
three-month period ending March 31, 2000, an aggregate of 1,875 options was
granted to three directors in lieu of aggregate cash compensation of $9,375. The
issuance of such options was effected in reliance upon the private placement
exemption set forth in Section 4 (2) of the Securities Act, on the basis of the
directors' familiarity 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
$18.1875 per share.
Item 4. Submission of Matters to a Vote of Security Holders.
On February 7, 2000, the Company held its 2000 Annual Meeting of
Shareholders, at which Meeting Talton R. Embry, Darius W. Gaskins, Jr., Jay P.
Gilbertson, Ralph W. Koehrer, Richard D. Jackson, George A. Poole, Jr. and Lewis
Solomon were reelected as Directors. Each of the Directors received at least
13,672,125 votes, or 99.75% of the votes cast, in favor of reelection.
At that same Meeting, the Company's shareholders approved an amendment to
and restatement of the Company's Amended and Restated 1996 Long-Term Incentive
Plan to increase by 750,000 the number of shares of the Company's common stock
issuable thereunder, by a vote of 7,685,014 shares in favor of the amendment to
2,728,776 shares opposed, with 19,045 shares abstaining.
Item 5. Other Information
On May 2, 2000, the Company announced that Ralph Koehrer had resigned as
President and Chief Executive Officer and from the Board of Directors, effective
May 5, 2000. Richard D. Jackson and Lewis Solomon, Co-Chairmen of the Company's
Board of Directors, are serving as Co-CEOs until two chief executive officers,
one for docHarbor and one for the Company's other three business units, are
named.
On that same day, Anacomp announced that as a result of Allen & Company's
exploration of strategic and financial alternatives available to the Company, a
sale of the business as a whole or in parts is not anticipated. The Company
intends to continue to concentrate on increasing its traditional services,
offering complementary new products, and giving major emphasis to building the
docHarbor business.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27.1 - Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the quarter ended March 31,
2000.
<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/ David B. Hiatt
David B. Hiatt
Executive Vice President and
Chief Financial Officer
/s/ Linster W. Fox
Senior Vice President and
Corporate Controller
Date: May 12, 2000
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