**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-K**

** **

| **(Mark One)**                                                                                                                                                                                                                                                                                                                  |
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| **ý**                                                                                                                                                                                                                                                                                                                      | **ANNUAL REPORT PURSUANT TO SECTION  13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
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| **For the fiscal year ended  September 30, 2003**                                                                                                                                                                                                                                                                          |
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| **or**                                                                                                                                                                                                                                                                                                                          |
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| **o**                                                                                                                                                                                                                                                                                                                           | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                            |   |
| **For the transition period from                          to                          .** |
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| **Commission File Number (1-8328)**                                                                                                                                                                                                                                                                                             |
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| **Anacomp,  Inc.**                                                                                                                                                                                                                                                                                                              |
| (Exact Name of  Registrant as Specified in Its Charter)                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                            |
| **Indiana**                                                                                                                                                                                                                                                                                                                     |   | **35-1144230** |
| (State  or Other Jurisdiction of Incorporation or Organization)                                                                                                                                                                                                                                                                 |   | (I.R.S.  Employer Identification No.) |
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| **15378 Avenue of Science, San Diego,  California  92128-3407  (858) 716-3400**                                                                                                                                                                                                                                            |
| (Address, Including Zip Code, and Telephone Number, Including Area  Code, of Principal Executive Office)                                                                                                                                                                                                                        |
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| Securities  registered pursuant to Section 12(b) of the Act:  **None**                                                                                                                                                                                                                                                     |
| Securities  registered pursuant to Section 12(g) of the Act:                                                                                                                                                                                                                                                                    |
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|                                                                                                                                                                                                                                                                                                                            | **Title of  each class** |   |
| **Class A Common Stock, $0.01 par  value**                                                                                                                                                                                                                                                                                      |
| **Class B Common Stock $0.01 par  value**                                                                                                                                                                                                                                                                                       |
| **Class B Common Stock Warrants**                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                 |  |  |  |  |  |  |  |  |

 

Indicate by check markwhether the registrant:  (1) has filedall reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months, and (2) has been subjectto such filing requirements for the past 90days.    Yes  ý  No  o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-K.  o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theAct.) Yes  o  No  ý

 

The aggregate marketvalue of the voting stock held by non-affiliates of the registrant wasapproximately $9,184,282 as of March 31, 2003 (the last business day ofthe registrant’s most recently completed second quarter) (based upon theaverage bid and asked prices for shares of the registrant’s common stock asreported by the OTC Bulletin Board). Shares of common stock held by each of theregistrant’s executive officers, directors and stockholders whose ownershipexceeds 10% of our common stock outstanding at December 19, 2003, havebeen excluded in that such persons may be deemed to be affiliates of theregistrant.  However, this determinationof affiliate status is not necessarily a conclusive determination for any otherpurpose.

 

Indicate by check markwhether the registrant has filed all documents and reports required to be filedby Section 12, 13 or 15(d) of the Securities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed by acourt.  Yes  ý  No  o

 

 

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As of December 19,2003, the number of outstanding shares of the registrant’s Class A CommonStock, $0.01 par value, was 4,039,900 and the number of outstanding shares ofthe registrant’s Class B Common Stock, $0.01 par value, was 4,034.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

**Portions of the registrant’sDefinitive Proxy Statement to be filed with the Securities and ExchangeCommission pursuant to Regulation 14A in connection with the registrant’s 2003Annual Meeting of Shareholders, currently scheduled to be held in February 2004are incorporated by reference into Part III of this report.  Such Definitive Proxy Statement (or anamendment to this report on Form 10-K containing the information to beincorporated by reference) will be filed with the Commission not later than 120days after the conclusion of the registrant’s fiscal year ended September 30,2003.**

 

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**ANACOMP, INC.**

 

**FORM 10-K**

 

**For the Fiscal Year EndedSeptember 30, 2003**

 

**INDEX**

** **
| **Part I**   |                                                                                              |   |
|--------------|---------------------------------------------------------------------------------------------------|--------|
| Item 1       | Business                                                                                          |   |
| Item 2       | Properties                                                                                        |   |
| Item  3      | Legal  Proceedings                                                                                |   |
| Item  4      | Submission  of Matters to a Vote of Security Holders                                              |   |
|         |                                                                                              |   |
| **Part II**  |                                                                                              |   |
| Item  5      | Market  for Registrant’s Common Equity and Related Stockholder Matters                       |   |
| Item 6       | Selected Financial Data                                                                           |   |
| Item  7      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations       |   |
| Item  7A     | Quantitative  and Qualitative Disclosures About Market Risk                                       |   |
| Item  8      | Financial  Statements and Supplementary Data                                                      |   |
| Item  9      | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure             |   |
| Item 9A.     | Controls and  Procedures                                                                          |   |
|         |                                                                                              |   |
| **Part III** |                                                                                              |   |
| Item  10     | Directors  and Executive Officers of the Registrant                                               |   |
| Item 11      | Executive Compensation                                                                            |   |
| Item  12     | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholders  Matters |   |
| Item  13     | Certain  Relationships and Related Transactions                                                   |   |
| Item 14      | Principal  Accountant Fees and Services                                                           |   |
|         |                                                                                              |   |
| **Part IV**  |                                                                                              |   |
| Item 15      | Exhibits, Financial Statement Schedules, and  Reports on Form 8-K                                 |   |
|         | Signatures                                                                                        |   |

 

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**PARTI**

 

**ITEM 1****.****                        BUSINESS**

 

This Annual Report,including Item 7, “Management’s Discussion and Analysis of Financial Conditionand Results of Operations”, contains “forward-looking statements” within themeaning of Section 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended regardingour business, financial condition, results of operations and prospects.  Words such as “expects,” “anticipates,”“intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions orvariations of such words are intended to identify forward-looking statements,but are not the exclusive means of identifying forward-looking statements inthis Annual Report.  Additionally,statements concerning future matters such as our future plans and operations,sales levels, liquidity needs, anticipated growth of the markets in which weoperate, anticipated revenue and expense trends, assumptions used in thecomputation of valuation in connection with our Fresh Start accounting andother statements regarding matters that are not historical are forward-lookingstatements.

 

Although forward-lookingstatements in this Annual Report on Form 10-K reflect the good faith andjudgment of our management, such statements can only be based on facts andfactors of which we are currently aware.  Consequently, forward-looking statements are inherently subject torisks and uncertainties.  Our actualresults, performance,  achievements andother items contained in the forward-looking statements may differ materiallyfrom those discussed in or anticipated by the forward-looking statements.  Factors that could cause or contribute tosuch differences in results and outcomes include without limitation thosediscussed under the heading “Risk Factors” below, as well as those discussedelsewhere in this Annual Report on Form 10-K. We encourage you to not place undue reliance on these forward-lookingstatements, which speak only as of the date of filing this Annual Report.  We undertake no obligation to revise orupdate any forward-looking statements in order to reflect any event orcircumstance that may arise as of the date of filing this Annual Report.  We encourage you to carefully review andconsider the various disclosures made in this Annual Report on Form 10-K, whichattempt to address the risks and factors that may affect our business,financial condition, results of operations and prospects.  Forward-looking statements involve known andunknown risks, uncertainties and other important factors that could cause ouractual results, performance or achievements, or industry results, to differmaterially from any future results, performance or achievements expressed orimplied by forward-looking statements. Risks, uncertainties and other important factors include, among others:

 

•                  generaleconomic and business conditions;

•                  industrytrends and growth rates;

•                  competition;

•                  technologydevelopment;

•                  theloss of any significant customers or suppliers;

•                  changesin business strategy or development plans;

•                  litigationissues;

•                  successfuldevelopment of new products and services;

•                  changesin, or the failure or inability to comply with, government regulations; or

•                  otherfactors referenced in this public filing.

 

**OVERVIEW**

 

Anacomp®, Inc. (together with its consolidatedsubsidiaries, “Anacomp” or the “Company”) is a global provider of informationoutsourcing services, maintenance support, and imaging and printsolutions.  Anacomp was incorporated inIndiana in 1968 and has active international subsidiaries in Austria, Belgium,Canada, France, Germany, Italy, the Netherlands, Scandinavia and the UnitedKingdom (U.K.).

 

We can be reached on the Internet athttp://www.anacomp.com.  Our most recentannual report on Form 10-K and certain of our other filings with the Securitiesand Exchange Commission (SEC) are available in PDF format through our InvestorRelations website athttp://www.anacomp.com/Corporate/FinancialReports.asp.  Our annual reports on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K and amendments to thosereports are also available on the SEC website at http://www.sec.gov which canbe reached from our Investor Relations website.

 

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For over 35 years, Anacomp has provided a broad rangeof analog and digital archive and retrieval services and systems to helpcompanies manage and distribute their critical business documents.  We are also one of the world’s leadingindependent, vendor neutral providers of Multi-Vendor Services (MVS), where weact as a third party maintainer, providing support services such as on-sitemaintenance, call center/help desk service and/or depot repair services, aswell as laser printer maintenance and associated hardware.  We offer expert installation, maintenanceand repair services for a broad array of third party equipment, such as massstorage devices and high-speed output systems. In addition, we provide systems and related supplies and services tomuch of the installed base of COM imaging systems worldwide through acombination of direct sales, telemarketing and distributors.  Anacomp was once the primary manufacturerfor most of the base of this installed COM equipment and today we provide “asnew” systems to our customers in North America, Japan and Europe.  We also refurbish high-speed laser printersand provide maintenance support for a number of these devices, as well asselling associated supplies.

 

Wedeliver our products and services to more than 7,000 businesses andorganizations in 70 countries directly or through our worldwide network ofdealers and distributors.  We have alarge base of premier customers in the banking, insurance and brokeragesectors, including approximately one half of the Fortune 500 companies.  Our information outsourcing sales effortsare focused heavily on these three segments, each of which has substantial anddiverse document management needs.  Weare currently expanding our range of outsource services, adding documentimaging (scanning) services, printing services, e-mail archive, as well asreport mining capabilities to meet the demanding requirements of these andother markets.  By meeting ourcustomers’ full range of information outsourcing needs in this way, we expectto provide increased value and to maximize our business with each customer.

 

The majority of our businessrelates to managing customer documents, supporting the devices these documentsare captured, printed or stored on, and providing supplies and service for thesame.  We attempt to service ourexisting and future customers by “bundling” an expanded list of services (e.g.,Web viewing, CD Services, printing, scanning and long-term archival storage).

 

**InformationTechnology (IT) Services Market**

 

The IT Services market,in which Anacomp provides outsourcing services in the areas of content/documentmanagement, as well as Multi-Vendor Services and Support, is a dynamic andrapidly growing industry.  Today, therapid increase in the number of unstructured content documents (i.e.,documents, images, emails) generated, the increase in the amount of structureddata stored, combined with the desire in both the commercial and non-commercialsectors to increase productivity and reduce cost by outsourcing non-corebusiness processes, is fueling

 

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growth in the IT Servicesindustry and demand for advanced digital technologies and other cost andefficiency improvements.  Anacompprovides these businesses and organizations with products and services forstoring, distributing and accessing critical documents, as well as supportingand maintaining the capture, print, storage and network devices on whichorganizations depend.  The overallinformation technology and related services market is projected to reach $633.6billion in 2004 and is forecasted to grow at a 6.3% compound annual growth ratebetween 2001 and 2006.  We believeAnacomp’s IT outsourcing solutions (document management and multi-vendorservices) meet the needs of the following customer requirements within the ITServices market:

 

*Outsourcing Alternatives*– Businesses are increasingly looking to outsource non-core activities.   It is estimated that approximately 60% ofbusinesses regularly use outsourcers. Document management has been identified as a potential candidate foroutsourcing.  Most companies can implementdocument management solutions faster, more effectively and less expensively byutilizing third parties.  MaintenanceService and Support has also become an accepted outsourcing strategy forOriginal Equipment Manufacturers (OEM’s). Many manufacturers are looking toshed non-core support activities surrounding their products and focus insteadon development and sale of their products.

 

*ImmediateAccess to Information* – To react quickly and effectively tochanging business conditions, companies need ready access to information ontheir business and on their customers. They also need to provide theircustomers with immediate access to their account information via the Web inorder to compete effectively in the financial marketplace.

 

*Application Focused Support*– Businesses are no longer content with generic document management products orservices; rather, they demand solutions that are tailored to the specific taskstheir personnel and customers perform, including the ability to have vitalbusiness information readily available in customer interactions.  To meet this need, document managementcompanies must focus on developing expertise on particular business processesin selected industries.

 

*Independent Service and Support*– IT manufacturers are reassessing their organizations, business structure andthe specific tasks their personnel and distributors perform in order to refocuson core activities around research and development and channelenhancement.  Independent ServiceOrganizations can provide critical services for customer installations,warranty support, call center and depot repair of equipment.  To meet this IT Services need, multi-vendorservice companies must focus on developing expertise in business processes,supporting technologies and deploying appropriately trained personnel tomaintain a large array of OEM equipment.

 

*GovernmentRegulation* – Current events have also begun to drive theadoption of new document management systems. In the wake of numerous government investigations, financial failuresand corporate misconduct, financial institutions and public companies are beingdriven by new regulations (e.g. Sarbanes-Oxley Act) to record and retain allactivity related to their ongoing business. In addition, modifications to andstricter enforcement of existing rules (e.g. SEC Rule 17a-4) that govern howfinancial documents (including e-mails and Instant Messages) must be stored,and newly issued HIPAA regulations, which affect the record-keepingrequirements of all health insurance providers, are pushing faster adoption ofdocument management technologies that provide the required retention, accessand control of regulated content.  The“government regulation” factor has only recently begun to impact the documentmanagement market, but could have a substantial effect in the long-term.

 

**Productsand Services**

** **

Anacomp provides archive and retrieval services basedupon the document accessibility, security and archival requirements of ourcustomers’ businesses. Utilizing our extensive infrastructure, a growing numberof our customers transmit their documents to our data and document servicecenters via our secure, high-speed, data network. We offer three primaryinformation outsourcing services:  (1)we host customer documents on a server and provide secure, high-speed access tothem via standard Web browsers, (2) we convert customer documents to industrystandard formats and package them on Compact Disc-Recordable (CD-R) media witha viewer and navigational tools and (3) we index these documents and capturethem on microfiche or microfilm—a very stable, economical, long-term storagealternative.

 

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Anacomp’s maintenance support services are offered inNorth America and Europe primarily through a dedicated, experiencedorganization of approximately 500 service and support professionals.  We extend this service to approximately 50countries through our worldwide network of affiliated, certified servicetechnicians.  We support more than 100hardware manufacturers, resellers and distributors.

 

During fiscal year 2003,we focused on enhancing the capabilities of our digital offerings and our MVSservices that we felt were important to strengthen Anacomp’s leadershipposition in the document management and related support servicesmarketplace.  Significant features andsoftware capabilities such as report mining and scanning software integrationwere added into our docHarbor solution, while an expansion to our call center/depotrepair capabilities will be completed to provide enhanced support and capacityfor our OEM partners.  The net effect ofthese additions was to introduce additional offerings to the market and tonurture the synergies between our customers’ business needs and Anacomp’s setof IT solutions.

 

*docHarbor®*.  Anacomp’s docHarbor solution (also referredto as docHarbor Web Presentment services), is one of two principal growth areasfor us and provides what we believe is an industry-leading capability forstoring, delivering and accessing documents using the Internet.  This outsource service provides worldwideaccess to critical information for authorized users.  Customer print data streams are securely transmitted to anAnacomp docHarbor Data Center, where the information is indexed and convertedto a format suitable for viewing through industry-standard Web browsers.  Critical customer information can be storedconcurrently at dual sites, facilitating disaster recovery planning.  Records for all aspects of the customerstorage process are maintained for the storage life of the document, providingan auditable record of all document activity. We believe that financial market businesses, with highly regulateddocument retention and control requirements, will be among the primary users ofthis service.  The docHarbor solution issold via Anacomp’s direct sales force and authorized resellers.

 

docHarbor revenuesincreased by 20% in fiscal year 2003, growing from $15.7 million in fiscal year2002 to $18.8 million in 2003. docHarbor revenues in fiscal year 2003 represent 9% of total Companyrevenues for the year.  We expectcontinued growth in our docHarbor solution revenue stream in fiscal year 2004based upon a number of factors, including increased customer awareness andrecognition; a strong sales pipeline at the end of fiscal year 2003; increasedacceptance of outsourcing non-core business processes; and tighter regulationsaround financial reporting and record keeping. docHarbor revenues are currently generated primarily in NorthAmerica.  We are working to expand theseservices to customers throughout the U.K. and Italy.

 

Competition is growing inthe Internet-based document management services market.  In the U.S., several smaller companies areoffering somewhat similar services on a regional basis.  Some nationwide competitors have alsoemerged and are focused on vertical market sectors or specific, more narrowlyfocused applications such as check presentment, enrollment or e-mail support.  In particular, there is intense competitionin the area of online document viewing. Nevertheless, the major competition for Anacomp’s docHarbor solution inNorth America is in-house solutions (i.e., software licenses sold tocorporations for running a Web service on internal computer equipment).  Providers of technology for compatiblein-house solutions include Mobius Management Systems, IBM, FileNET, Documentum,and Computer Associates.  During thelast year, some of these in-house software solutions providers, recognizing themerits and potential revenues of a services-based solution, have beguninitiating competing service offerings, by partnering with existing documentservices providers.  The currenteconomic conditions and widely reported limitations on capital spending bycompanies worldwide favor outsourcing as a more economical means of acquiringInternet-based document management solutions. In the U.K. and Italy, Anacomp competes with both global providers suchas IBM and individual document management outsource service providers withineach country.

 

*Multi-Vendor Services.*  Multi-Vendor Services (MVS) is the secondprincipal growth area for us.  Byproviding installation and maintenance for products made by other OEMs, we areable to leverage our considerable field services and support expertise and infrastructureby expanding beyond the range of our own products.  We offer Multi-Vendor Services using two approaches.  First, we contract with an OEM to providemaintenance services, including field services, as well as optional servicessuch as call center/help desk support, logistics support and depot repair forthe OEM’s end users.  For example, weoffer purchasers of Brocade fabric switches warranty and post-warranty supportfor their Storage Area Networks (SAN) infrastructure devices including installation,on-site repair and maintenance. As a second approach, Anacomp serves as analternative to maintenance services provided by the OEM or itsdistributors.  For example, we offerusers of Xerox high-speed laser printers a high-quality, economical alternativeto the service offered by Xerox Corporation itself.  There is a large installed base of Xerox printers

 

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worldwide and, in most cases, Xerox has been the majorsource of field maintenance services for these critical printing systems.

 

The first approach appeals to manufacturers that havegeographically limited maintenance capabilities or no capabilities of theirown, or whose own service operations are more costly to provide than ours.  We service many different makes and types ofstorage products, various routers and switches, high speed printing devices,tape subsystems and many other systems under these arrangements.  The second approach appeals to end-users ofdevices that are looking for maintenance and support service alternatives tothe more costly OEM.

 

We are striving to grow our MVS business by addingadditional OEM partners and Value Added Resellers (VARs), and possibly throughacquisitions.  Revenues in 2003 from MVSwere $34.1 million, representing 62% of total maintenance services revenues and17% of total Company revenues for the year. Annual MVS revenues increased $7.1 million or 26% in fiscal year 2003after increasing $4.7 million or 21% in fiscal year 2002 and $3.2 million or17% in fiscal year 2001.  MVS revenuesof $34.1 million continued to exceed Micrographic Maintenance Services revenuesof $20.8 million in fiscal year 2003.

 

We compete with a number of other providers in the MVSbusiness, including the OEMs themselves and with other third party maintenanceproviders such as DecisionOne Holdings, the Eastman Kodak Company (“Kodak”) andIBM.

 

*CD Services.*  Anacomp offers industry-leading outsourceservices for storing, delivering and accessing documents using the CD-Rmedium.  This outsource service providescustomers with an easy-to-use, high-capacity, portable, standardized solutionfor the electronic distribution, access and storage of invoices, reports,statements, policies, trade confirmations and other important documents.  Since entering the emerging field ofCD-based document management in 1995, Anacomp has become one of the world’slargest outsource service providers. Overall, fiscal year 2003 CD Services revenues were $28.3 million andrepresented 14% of total Company revenues.

 

Our CD Services revenuesdeclined by $5.4 million or 19% in fiscal year 2003 after a $2.1 milliondecrease in 2002. Prior to 2002, CD Services had been a consistently strongrevenue contributor, but industry adoption of Web technologies and product commoditizationcontinue to impact revenue.  We expectthe decline in CD revenues in fiscal year 2003 to continue into fiscal year2004 and beyond as CD services are becoming increasingly commodity-driven andprices continue to erode.  We believe wecan mitigate these effects through increasing product sales by linking CD usagewith our growing Web services segment. Primary competition in this market is from large document servicesproviders such as Lason and EPSIIA (a Fiserv company), from hundreds of localand regional CD services providers, and from in-house on-line viewingsystems.  These revenues are reported asCD/Digital in our financial statements.

 

*MicrographicServices.*  Anacomp isa world leader in Micrographic (COM) Services. With time-tested technological and operational expertise in COM, weimage nearly two billion original pages to microfiche each month for thousandsof customers worldwide.  Overall, fiscalyear 2003 Micrographic Services revenues were $70.8 million and represented 35%of total Company revenues.

 

Compared with prioryears, this line of business continued to decline in fiscal year 2003 largelyas the result of a decreased demand for the COM storage and retrievalmedium.  Overall, the MicrographicServices revenues declined $21.8 million in 2003, or 24%, reflecting the trendin the mature micrographics market segment. The decline in revenues in fiscal2002 from 2001 was $27.7 million and represented a 23% decrease.  We continue to manage the gross marginimpact of the declining micrographics market on our Micrographic Servicesbusiness and are currently implementing several cost containment strategiesthat are focused on retaining our business and relationships with ourcustomers, while providing an effective and efficient production and deliveryinfrastructure.

 

Our primary competitorsin the COM outsourcing business in the U.S. marketplace include Lason andSourceCorp.  We also compete on aregular basis with many local and regional COM service providers.  To date, competition in this arena has beenprimarily based on price.  We believe wecan sustain our market share by providing customers with bundled services thatprovide COM, print, Web and CD services in a single package.  We are also investigating using microficheand microfilm for additional applications that require very long retentionperiods.

 

*MicrographicMaintenance Services.* Anacomp maintains virtually the entire installed base ofAnacomp-manufactured COM systems in use today, as well as COM systemsmanufactured by other suppliers.  Wealso provide maintenance support for other micrographic equipment, such asretrieval devices, microfilm scanners,

 

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cameras andduplicators.  Revenues from micrographicmaintenance services were $20.8 million or 10% of total Company revenues infiscal year 2003.

 

We have few largecompetitors in our traditional micrographic maintenance services business, andthe majority of the equipment we maintain is our own proprietary equipment.

 

*Imagingand Print Systems.* Anacomp has the largest installed base of COM systems in the world.  Our flagship XFP2000® imaging platformremains the premier system in the marketplace, using precise laser-optics andadvanced film processing techniques to produce high-quality, original andduplicate images of reports and other documents on microfiche or 16mm rollfilm.  The XFP2000 is the most widelyused COM imaging system in the world. We also use the XFP2000 for our own Micrographic Servicesoperations.  While we no longermanufacture the XFP2000, we continue to offer “as new” XFP2000 imaging systemsfor sale, as well as refurbished laser printers. In addition, Anacomp expandedits relationship in 2003 with Hitachi Printing Solutions, America and HitachiLtd. in Europe to resell Hitachi’s line of high-speed production printers.  Revenues from imaging and print systems andrelated equipment in fiscal year 2003 were approximately $2.1 million or 1% oftotal Company revenues in fiscal year 2003. Imaging Systems revenues are included in Equipment/Supplies revenues inour financial statements.  For fiscalyear 2004 and beyond, we expect COM imaging systems sales will continue todecline.

 

*Imagingand Print Supplies.* Complementing Anacomp’s imaging and print systems product offerings, wesell and distribute an extensive assortment of supplies to help customers withtheir imaging needs.  These supplies aresold through a centralized telesales group and various distributors worldwide.

 

Primary products in oursupplies business include silver halide original COM film (used to producemaster images) and non-silver duplicating microfilm (used to produce copies ofmaster images).  The majority of silverhalide original COM film for use of Anacomp’s XFP2000 systems is sold in aproprietary package and is currently available only from Anacomp.  We obtain our proprietary silver halideproducts through an exclusive multi-year supply agreement with Kodak.  The supplies business also distributesnon-proprietary duplicating film to our installed base of imaging systemsusers.  We obtain our duplicate filmproducts through a long-term supply agreement with IntelicoatTechnologies.  We believe the users of ourimaging systems purchase the majority of their original, duplicate film and relatedchemicals from us.  Revenues fromsupplies sales in fiscal year 2003 were $29.1 million or 14% of total Companyrevenues and were reported as part of Equipment/Supplies revenues in ourfinancial statements.  One customercomprises 10% of total Equipment/Supplies revenue.

 

We have no significantcompetitors in our proprietary XFP2000 original COM film business.  In the original and duplicate COM filmmarket for older imaging systems, we compete with Global InformationDistribution, Agfa-Gevaert AG (“Agfa”) and Kodak.

 

**Engineering,Research and Development**

** **

Anacomp’s ability to meetcustomer needs for improved technology, and to maintain our leadership in thedocument management and related services industry, depends on our ability toincorporate evolving technologies into products and services to meet ourcustomers’ needs.  Our engineering anddevelopment expenses totaled $6.4 million in fiscal year 2003, $7.0 million infiscal year 2002 and $7.2 million in fiscal year 2001.

 

We own numerous patentsand licenses covering various aspects of our business lines and productionprocesses, as well as proprietary trade secret information relating to ourproducts and services.  While we believethat the protection provided by these patents, licenses and proprietaryinformation is important, we also feel that the knowledge and experience of ouremployees, along with their abilities to develop and market our services andproducts and to provide value added benefits to our customers, is equallysignificant.

 

**IntellectualProperty**

 

Anacomp has three patentsthat are material to our COM business that prevent competitors from developinga film canister that is usable in the XFP2000 imaging system.  As a result, it is more difficult forcompetitors to offer COM film directly to our customers.  Although the COM business is in decline,these patents help us to maintain our leadership in this business segment.  The patents described above expire atvarious times between September 2010 and January 2016.

 

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In addition, wehold patent and trade secrets relating to the compression technology applicableto our information outsourcing service offerings.  While some trade secrets may be patentable, we have not appliedfor patents for competitive reasons. Our compression technology affords us economies of storage, transmissionand back-up of data.  As these economiesreduce our costs, they provide a competitive advantage.  We attempt to protect our trade secrets byentering into confidentiality agreements with third parties, employees andconsultants.  Our employees andengineering consultants also sign agreements requiring that they assign to ustheir interests in patents and other intellectual property arising from theirwork for us.  Additionally, allemployees sign an agreement not to engage in any conflicting employment oractivity during their employment with us nor to disclose or misuse ourconfidential information.

 

**RawMaterials and Suppliers**

 

Polyester andsilver are the principal raw materials used in the manufacture of both originaland duplicate microfilm products.  Costsfor both polyester and silver remained generally stable in fiscal year 2003 asa result of a relative balance between supply and demand.  There can be no assurance, however, that thecurrent conditions will continue.

 

Intelicoat Technologiesand Anacomp entered into a four-year agreement in October 2001, in whichIntelicoat agreed to supply Anacomp with duplicate microfilm.  At this time Intelicoat is the exclusiveprovider of duplicate microfilm to Anacomp. There is only one other international qualified supplier of duplicatefilm.

 

Anacomp’s XFP2000 systemutilizes a proprietary, patented original film canister and the original filmused in that canister is supplied exclusively by Kodak.  We also purchase from Kodak substantiallyall of our requirements for original microfilm for earlier-generation systemsthat we manufactured as well as other older systems.

 

**IndustrySegments and Foreign Operations**

 

Anacomp’s businessis focused in the document management industry.  In prior years, our business results were reported in two primarybusiness lines, Document Solutions and Technical Services.  We now manage our business through oneoperating unit.  We believe thisapproach creates operating efficiencies in our sales and support organizations,and that it will promote business decisions that are more synergistic acrossproduct lines.  Financial informationconcerning our operations in different geographical areas is included in Note18 of the Notes to the Consolidated Financial Statements.

 

###### **Bankruptcy Reorganization**

 

OnOctober 19, 2001, we filed a voluntary petition for reorganization underChapter 11 of the U.S. Bankruptcy Code, together with a prepackaged plan ofreorganization, with the U.S. Bankruptcy Court for the Southern District ofCalifornia.  The U.S. Bankruptcy Courtconfirmed the plan on December 10, 2001, and we emerged from bankruptcyeffective December 31, 2001.

 

The primarybenefits of our bankruptcy were the elimination of $310 million of seniorsubordinated notes, related accrued interest of $52.3 million, and the relatedannual interest expense of approximately $34 million. Additionally, our creditfacility was amended such that we cured previous events of default.  New Common Stock was distributed to theholders of the notes as well as to holders of the previously existing CommonStock.

 

Also, as a resultof the Chapter 11 reorganization, the following occurred:

 

•                  all unexercised stock options werecanceled;

•                  prior stock option plans wereterminated;

•                  executory contracts were assumed orrejected;

•                  trade creditors were paid in theordinary course of business and were not impaired;

•                  members of a new Board of Directorswere designated by the holders of the subordinated notes;

•                  403,403 shares of new Class A CommonStock were authorized for use in new stock option plans; and

•                  the revolving credit facility wasamended.

 

TheU.S. Bankruptcy Court issued its final decree on September 27, 2002 closingthe Chapter 11 case.  There are noremaining claims or unrecorded obligations related to the bankruptcyproceedings.

 

**Employees**

 

As ofSeptember 30, 2003, we employed approximately 1,300 people atmultiple facilities and offices in North America and Europe.  Some of our employees in certain Europeancountries are represented by worker’s councils. We consider our employeerelations to be good.

 

**Executive Officers**

** **

The currentexecutive officers of the Company, their ages (as of November 22, 2003)and their positions with the Company are listed in the following table:

 
| **NAME**              |   | **AGE** |   | **PRINCIPAL OCCUPATION**                                                |
|-----------------------|--------|---------|--------|-------------------------------------------------------------------------|
| Jeffrey R. Cramer     |   | 50      |   | President and Chief  Executive Officer                                  |
| Linster W. Fox        |   | 54      |   | Executive Vice  President and Chief Financial Officer                   |
| Richard V. Keele      |   | 54      |   | Executive Vice  President, Global Marketing                             |
| Frank Roche           |   | 57      |   | Executive Vice  President and General Manager International             |
| Paul J. Najar         |   | 41      |   | Executive Vice  President-Administration, General Counsel and Secretary |
| Nicholas A. Salimbene |   | 52      |   | Executive Vice President  of North American Sales                       |
| Arthur J. DiScipio    |   | 51      |   | Senior Vice President  of North American Operations                     |
| James P. Hunt         |   | 44      |   | Senior Vice President  of Materials and Repair                          |

 

The business experienceof each executive officer for the past five years is described below.  Each executive officer holds office untilhis successor is chosen and qualified or until his earlier death, resignationor removal.

 

7

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*Jeffrey R. Cramer* was elected Chief Executive Officer onOctober 1, 2002 and President on March 18, 2002.  Prior to that, he was our Senior VicePresident-Technical Services since August 13, 1997.  Mr. Cramer joined Anacomp inJuly 1996 with Anacomp’s acquisition of COM Products, Inc., referred to asCPI, and served as Senior Vice President-Business Development fromFebruary to August 1997. Mr. Cramer had served as President of CPI since March 1987.

 

*Linster W. Fox* was elected Executive Vice President onApril 25, 2002, Director from November 2, 2001 until February 2003,and Senior Vice President and Chief Financial Officer on November 15,2000, having served as Senior Vice President and Corporate Controller sinceAugust 2, 1999, and Vice President and Controller since July 1998.  From January 1996 to June 1998,Mr. Fox served as Vice President and U.S. Controller.  Previously, Mr. Fox served as VicePresident and Controller of our Poway Operations from May 1995 toDecember 1995.  FromOctober 1992 to May 1995, Mr. Fox was Vice President of Financeand Administration for Poway Operations. Prior to that, Mr. Fox served as Vice President of Finance andAdministration for our International Operations from October 1990 toOctober 1992.

 

*RichardV. Keele*  was electedExecutive Vice President on April 25, 2002 and has led Anacomp’s GlobalMarketing since June 2002.  Mr.Keele served as Senior Vice President and Chief Technology Officer sinceSeptember 2000.  Mr. Keele joinedAnacomp in January 1997 with the Company’s acquisition of Data/WareDevelopment, Inc. thereafter he served as Senior Vice President of ProductDevelopment and President of the Data/Ware Group.

 

# ***Frank Roche***waselected Executive Vice President – International on July 22, 2002.  Mr. Roche joined Anacomp inNovember 1997 serving as Technical Services Director for the UK and thenwas promoted to Technical Services Director for the International Region.  Prior to joining Anacomp, Mr. Roche wasManaging Director and CEO for the Fortay Group Holdings in the UK from 1991 to1997.

# ** **

*Paul J. Najar* was elected Executive Vice President –Administration, General Counsel and Secretary on April 25, 2002 afterserving as Vice President- Administration, General Counsel and Secretary sinceNovember 15, 2000.  Mr. Najarhad served as Associate General Counsel and Assistant Secretary since joiningAnacomp in October 1996. Prior to joining Anacomp, Mr. Najar was anattorney for the University of California, Irvine from May 1992 toOctober 1996.

 

*NicholasA. Salimbene* was promoted to Executive Vice President ofNorth American Sales and Operations in April 2003 and then concentrated onjust Sales in September 2003. Before that, he served as Senior Vice President-West Operations for oneyear.  He now has overall responsibilityfor all North American sales activities. Mr. Salimbene came to Anacomp in 1980 and in addition to the roles ofEVP North American Sales and SVP-West Operations, Mr. Salimbene served asSenior Vice President–U.S. Operations Document Solutions; Senior Vice-PresidentEast Operations and Sales; Regional Vice President–Mid-America Sales andOperations; District Manager, Western Pennsylvania; and Sales Executive.

 

*ArthurJ. DiScipio* joined Anacomp in 1997 and is responsible forAnacomp’s North American Field Operations consisting of all of the Data Centersand the Field Service Delivery Organization. Mr. DiScipio leads the largestorganization in Anacomp responsible for the daily delivery of COM, print,scanning, CD, and multi-vendor field services. Mr. DiScipio formerly held the position of Senior Vice President of theEastern U.S. Operations and prior to that, Vice President of the U.S. andCanadian Technical Services Organization. Prior to joining Anacomp, Mr. DiScipio held key corporate and fieldmanagement positions during his 16-year career with Digital EquipmentCorporation.

 

*James P. Hunt* was elected to SeniorVice President of Materials and Repair on July 22, 2002 after serving asVice President of Resource and Materials Management since January 25,2001.  Mr. Hunt joined Anacomp in 1981,previously serving as Vice President of Materials, as well as in a variety ofmanagement roles within the materials/manufacturing arena.

 

**ITEM 2.****                        PROPERTIES**

 

Anacomp’sheadquarters are in San Diego, California. This facility houses our management, marketing, finance, accounting,legal and information technology groups. An additional facility located in Vista, California houses theequipment/supplies, Multi-Vendor Services, COM Professional Services groups,and our call center and a depot

 

8

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repair facility.We also lease office space for sales and service centers in a variety oflocations around the world.  Thefollowing table indicates the square footage of our facilities:

 
|            |   | **Operating  Facilities** |   | **Other  Facilities** |   | **Total** |   |
|-----------------|--------|---------------------------|--------|-----------------------|--------|-----------|--------|
| United  States: |   |                      |   |                  |   |      |   |
| Leased          |   | 550,517                   |   | 76,900                |   | 627,417   |   |
|            |   |                      |   |                  |   |      |   |
| International:  |   |                      |   |                  |   |      |   |
| Leased          |   | 146,327                   |   | 24,909                |   | 171,236   |   |
| Total           |   | 696,844                   |   | 101,809               |   | 798,653   |   |

 

“Other facilities”consists of currently unused space, portions of which have been subleased toothers.  Management considers itsfacilities adequate for its present needs and does not believe that it wouldexperience any difficulty in replacing any of its present facilities if any ofits current agreements were terminated.

 

**ITEM 3.****                        LEGALPROCEEDINGS**

 

Anacomp and itssubsidiaries are potential or named defendants in several lawsuits and claimsarising in the ordinary course of business. While the outcome of claims,lawsuits or other proceedings brought against us cannot be predicted withcertainty, management expects that any liability, to the extent not providedfor through insurance or otherwise, will not have a material adverse effect onour financial condition or results of operations.

 

**ITEM 4.****                        SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

###### ** **

## *During the three months endedSeptember 30, 2003, no matters were submitted to a vote of Anacomp’ssecurity holders through the solicitation of proxies or otherwise.*

 

9

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**PARTII**

 

**ITEM 5.****                        MARKET FORREGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

 

Anacomp’s Class A andClass B Common Stock are traded on the OTC Bulletin Board.  Class B Common Stock is not actively tradedand is quoted only on a limited basis, and, as a result there is no establishedpublic trading market with respect to Class B Common Stock.  The Class A Common Stock is traded under thesymbol ANCPA.  The following table setsforth the range of high and low closing prices for our Class A Common Stock forthe periods indicated, as reported by the OTC Bulletin Board (these quotationsreflect inter-dealer prices, without retail mark up, mark down, or commissions,and may not necessarily represent actual transactions):

 
|            |   | **Fiscal  Year 2003** |   | **Fiscal  Year 2002** |   |
|-----------------|--------|-----------------------|--------|-----------------------|--------|
|            |   | **High**              |   | **Low**               |   | **High** |   | **Low** |   |
| First  quarter  |   | $                     | 25.00  |                  | $      | 18.00 |   |   | (a) |   | (a) |
| Second  quarter |   | 20.25                 |   | 15.75                 |   | $ | 27.00 |   | $ | 21.00 |   |
| Third  quarter  |   | 17.25                 |   | 15.75                 |   | 31.00 |   | 26.00 |   |
| Fourth  quarter |   | 23.25                 |   | 15.00                 |   | 26.75 |   | 22.00 |   |
|                 |        |                       |        |                       |        |  |  |  |  |  |  |  |  |

 

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(a)          Due to the bankruptcyreorganization, common stock prices for Anacomp prior to December 31, 2001have been excluded.

 

Management currentlyintends to retain any future earnings for use in the operation and developmentof the business and, therefore, does not expect to declare or pay any cash dividendson our capital stock.  In addition, ourborrowing agreements prohibit the payment of cash dividends on our capitalstock.  As of December 19, 2003,there were approximately 114 holders of record of our Class A Common Stock andapproximately 70 holders of record of our Class B Common Stock.

 

**SecuritiesAuthorized for Issuance Under Equity Compensation Plans**

 

We currentlymaintain two compensation plans that provide for the issuance of our Class ACommon Stock to officers and other employees, directors and consultants.  These consist of the 2001 Stock Option Plan,which has been approved in the bankruptcy proceedings by the parties thatbecame our shareholders, and the 2003 Outside Director Compensation Plan (the“2003 Plan”), which has not been approved by our shareholders.  The following table sets forth informationregarding outstanding options and shares reserved for future issuance under theforegoing plans as of September 30, 2003:

 
|                                                        |   | **(a)**                                                                                          |   | **(b)**                                                                            |   | **(c)**                                                                                                                                         |    |
|-------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|---------|
| **Plan Category**                                           |   | **Number of  shares to  be issued upon  exercise of  outstanding options,  warrants and rights** |   | **Weighted-average  exercise price of  outstanding options,  warrants and rights** |   | **Number of  shares  remaining available  for future issuance  under equity  compensation plans  (excluding shares  reflected in column  (a))** |    |
| Equity  compensation plans approved by shareholders         |   | 210,000                                                                                          |   | $                                                                                  | 26.00  |                                                                                                                                            | 193,403 |   |
| Equity  compensation plans not approved by shareholders (1) |   | 0                                                                                                |   | N/A                                                                                |   | 50,000                                                                                                                                          |    |
| Total                                                       |   | 210,000                                                                                          |   | N/A                                                                                |   | 243,403                                                                                                                                         |    |
|                                                             |        |                                                                                                  |        |                                                                                    |        |                                                                                                                                                 |         |  |

 

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**(1)****        **On November 3, 2003, we offered grants of1,800 shares each to our five then current outside board members under the 2003Plan.  Three of these outside directorsaccepted grants of 5,400 restricted shares in aggregate for which there was noexercise price.  Two other directorselected to defer these grants.  Weintend to terminate the 2003 outside Director Compensation Plan aftershareholder approval of the 2004 Outside Director Compensation Plan.

 

10

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**Materialfeatures of the 2003 Outside Director Compensation Plan**

 

As ofSeptember 30, 2003, we had reserved 50,000 shares of Class A Common Stockfor issuance under the 2003 Plan.  The2003 Plan provides for a one time grant of 1,800 shares of Class A Common Stockto outside directors, the consideration of which shall be services actuallyrendered to Anacomp for its benefit. Under the terms of this Plan, outside directors can defer receipt ofthese shares (as well as cash directors fees). All deferred fees are paid immediately prior to the effective date of achange in control of Anacomp.

 

**ITEM6.****                        SELECTEDFINANCIAL DATA**

 

The Company priorto the bankruptcy reorganization is referred to in this Annual Report on Form10-K as the “Predecessor Company” and the Company after the bankruptcyreorganization is referred to in this Annual Report on Form 10-K as the“Reorganized Company.”  The followingSelected Financial Data of the Company should be read in conjunction with“Management’s Discussion and Analysis of Financial Condition and Results ofOperations” set forth in Item 7 of this Annual Report on Form 10-K, and withthe consolidated financial statements and the related notes thereto includedelsewhere herein:

 
|                                                          |   | **Reorganized  Company** |       | **Predecessor  Company** |       |
|---------------------------------------------------------------|--------|--------------------------|------------|--------------------------|------------|
|                                                          |   | **Year ended**           |       | **Nine  months  ended**  |       | **Three  months  ended** |   | **Year ended** |   | **Year ended** |   | **Year ended** |   |
| **(In thousands, except per share  data)**                    |   | **9/30/03**              | ** ** | **9/30/02**              | ** ** | **12/31/01** | ** ** | **9/30/01** | ** ** | **9/30/00** | ** ** | **9/30/99** | ** ** |
| Revenues                                                      |   | $                        | 204,023    |                     | $          | 173,807 |   | $ | 68,024 |   | $ | 306,348 |   | $ | 383,197 |   | $ | 442,162 |   |
| Operating  income (loss) from continuing operations           |   | 2,084                    |       | 3,219                    |       | 2,333 |   | (1,621 | ) | (67,648 | ) | (28,539 | ) |
| Reorganization  items (b)                                     |   | —                   |       | —                   |       | 13,328 |   | — |   | — |   | — |   |
| Gain  on extinguishment of debt (c)                           |   | —                   |       | —                   |       | 265,329 |   | — |   | — |   | — |   |
| Income  (loss) from continuing operations before income taxes |   | 1,071                    |       | 799                      |       | 277,810 |   | (44,274 | ) | (108,248 | ) | (66,045 | ) |
| Gain  on sale of discontinued operations (a)                  |   | 7,995                    |       | —                   |       | — |   | — |   | — |   | — |   |
| Net  income (loss)                                            |   | 7,306                    |       | (2,312                   | )          | 277,360 |   | (47,491 | ) | (111,434 | ) | (67,992 | ) |
| Basic  and diluted net income (loss) per share                |   | $                        | 1.81       |                     | $          | (0.57 | ) |   |   |   |   |   |   |   |   |
|                                                               |        |                          |            |                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
|                                      |   | **Reorganized  Company** |       | **Predecessor  Company** |       |
|-------------------------------------------|--------|--------------------------|------------|--------------------------|------------|
|                                      |   | **As of**                |       | **As of**                |       | **As of** |   | **As of** |   | **As of** |   |
| **(In thousands)**                        |   | **9/30/03**              | ** ** | **9/30/02**              | ** ** | **9/30/01** | ** ** | **9/30/00** | ** ** | **9/30/99** | ** ** |
| Current  assets                           |   | $                        | 57,471     |                     | $          | 72,453 |   | $ | 81,315 |   | $ | 85,442 |   | $ | 117,603 |   |
| Current  liabilities (d)                  |   | 41,460                   |       | 78,952                   |       | 475,603 |   | 458,673 |   | 124,787 |   |
| Total  assets                             |   | 164,941                  |       | 185,949                  |       | 207,818 |   | 238,289 |   | 330,517 |   |
| Long-term  debt, less current portion (d) |   | —                   |       | —                   |       | — |   | — |   | 312,740 |   |
| Stockholders’  equity (deficit)      |   | 101,143                  |       | 93,144                   |       | (277,927 | ) | (230,926 | ) | (117,636 | ) |
|                                           |        |                          |            |                          |            |  |  |  |  |  |  |  |  |  |  |  |

 

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**(a)**          We realized a gain of $8 million on the sale of our Switzerlandsubsidiaries effective on October 1, 2003.

**(b)**         Reorganization items represent expense and adjustments resulting fromour reorganization and consist of professional fees incurred subsequent to ourChapter 11 filing totaling $1 million, fair value adjustments made to assetsand liabilities totaling $16.9 million and other asset write-offs andsettlements totaling $2.6 million (primarily related to our extinguished debt)in Fresh Start Reporting.

**(c)**          Gain on extinguishment of debt resulted from our bankruptcy proceedingsand emergence from Chapter 11 proceedings on December 31, 2001.

**(d)**         We did not make required interest payments on our senior subordinated notes on October 1,2000 and April 1, 2001. Accordingly, the Notes balance outstanding, $310.9 million and $311.3million at September 30, 2001 and 2000, respectively, have been classifiedas a current liability.

 

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**ITEM 7.****                        MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

** **

**Overview**

 

*Our2001 Bankruptcy*

 

On October 19, 2001,we filed a voluntary petition for reorganization under Chapter 11 of the U.S.Bankruptcy Code, together with a prepackaged plan of reorganization with theU.S. Bankruptcy Court for the Southern District of California.  Under the plan we eliminated $310 million ofsenior subordinated notes, related accrued interest of $52.3 million and therelated annual interest expense of $34 million.  New Common Stock was distributed to the holders of the notes aswell as to holders of the previously existing Common Stock.  The U.S. Bankruptcy Court confirmed the planof reorganization on December 10, 2001, and we emerged from bankruptcyeffective December 31, 2001.  TheU.S. Bankruptcy Court issued its final decree on September 27, 2002closing the Chapter 11 case.  We are notaware of any remaining claims or unrecorded obligations related to thebankruptcy proceedings.

 

**CriticalAccounting Policies and Estimates**

 

Our discussion andanalysis of financial condition and our results of operations are based uponour consolidated financial statements, which have been prepared in accordancewith accounting principles generally accepted in the United States. Thepreparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues andexpenses, and related disclosure of contingent assets and liabilities. On anon-going basis, we evaluate our estimates, including those related to baddebts, inventories, intangible assets, income taxes, restructuring andcontingencies and litigation. We base our estimates on historical experienceand on various other assumptions that we believe to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates underdifferent assumptions or conditions. Our critical accounting policies are as follows:

 

•                  revenuerecognition;

•                  estimatingvaluation allowances and accrued liabilities, including the allowance fordoubtful accounts, inventory valuation and assessments of the probability ofthe outcomes of our current litigation and environmental matters;

•                  definedbenefit plans;

•                  accountingfor income taxes; and

•                  valuationof long-lived, intangible and reorganization assets.

 

***Revenue Recognition.***We recognizecontract revenue for the development and implementation of document servicessolutions under contracts over the contract period based on output measures asdefined by deliverable items identified in the contract. We make provisions forestimated losses on contracts, if any, during the period when the loss becomesprobable and can be reasonably estimated.

 

We record revenues fromsales of products and services or from leases of equipment under sales-typeleases based on shipment of products (and transfer of risk of loss),commencement of the lease, or performance of services. We recognize operatinglease revenues during the applicable period of customer usage.  We recognize revenue from maintenancecontracts ratably over the period of the related contract.  Amounts billed in advance of our performingthe related services are deferred and recognized as revenues as they areearned.  Under sales-type leases, werecord as revenue the present value of all payments due under the lease, chargethe cost of sales with the book value of the equipment plus installation costs,and defer and recognize future interest income over the lease term.

 

For contracts withmultiple obligations, we unbundle the respective components to determinerevenue recognition using vendor-specific objective evidence (VSOE).  In instances where VSOE is not determinable,all of the related revenue is deferred and amortized over the contract period.

 

In accordance withSOP 97-2, ‘‘Software Revenue Recognition,’’ we recognize revenues from softwarelicense agreements provided that all of the following conditions are met:

 

•                  anon-cancelable license agreement has been signed;

•                  thesoftware has been delivered and there are no material uncertainties regardingcustomer acceptance;

 

12

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•                  feesare fixed or determinable;

•                  collectionof the resulting receivable is deemed probable and the risk of concession isdeemed remote; and

•                  noother significant vendor obligations exist.

 

***Allowance for doubtful accounts, inventory valuations,litigation and environmental matters.***We must makeestimates of the uncollectability of our accounts receivable. When evaluatingthe adequacy of the allowance for doubtful accounts, we specifically analyze accountsreceivable as well as historical bad debts, customer concentrations, customercredit-worthiness, current economic trends and changes in our customer paymentterms. Our accounts receivable balance was $29.8 million, net of allowance fordoubtful accounts of $1.5 million, as of September 30, 2003.

 

We write down ourinventory for estimated obsolescence or unmarketable inventory equal to thedifference between the cost of inventory and the estimated market value basedupon assumptions about future demand and market conditions. If actual marketconditions are less favorable than management projects, we may need to writedown additional inventory.

 

We estimate ranges ofliability related to pending litigation based on claims for which we candetermine the probability of loss and estimate the amount and range of loss.When an estimate of loss is deemed probable we record our best estimate of theexpected loss or the minimum estimated liability related to those claims, wherethere is an estimable range of loss. Because of the uncertainties related toboth the outcomes and ranges of loss on currently pending litigation, we havenot accrued for any litigation losses as of September 30, 2003. Asadditional information becomes available, we will assess the potentialliability related to our pending litigation and revise our estimates asnecessary. Such revisions in our estimates of the potential liability couldmaterially impact our results of operations and financial position.

 

Xidex Corporation, acompany that we acquired in 1988, was designated by the United StatesEnvironmental Protection Agency (‘‘EPA’’) as a potentially responsible partyfor investigatory and cleanup costs incurred by state and federal authoritiesinvolving locations included on a list of EPA’s priority sites forinvestigation and remedial action under the federal Comprehensive EnvironmentalResponse, Compensation, and Liability Act. At September 30, 2003, we havean estimated EPA liability for cleanup costs for the aforementioned locationsand other sites totaling $1.2 million. During fiscal year 2001,we recorded a $1.0 million reduction to our EPAliability previously estimated and accrued upon release from certain furtherclean-up activity. Remedial action required by the EPA may exceed our currentestimates and reserves and we may incur additional expenses related toenvironmental clean-up.

 

***Defined benefit retirement plans.***  The plan obligations and related assets ofdefined benefit retirement plans are present in Note 13 of the Notes to ConsolidatedFinancial Statements.  Plan assets,which consist primarily of marketable equity and debt instruments, are valuedusing market quotations.  Planobligations and the annual pension expense are determined by independentactuaries and through the use of a number of assumptions.  Key assumptions in measuring the planobligations include the discount rate, the rate of salary increases and theestimated future return on plan assets. In determining the discount rate, we utilize the yield on high-quality,fixed-income investments currently available with maturities corresponding tothe anticipated timing of the benefit payments.  Salary increase assumptions are based upon historical experienceand anticipated future management actions. Asset returns are based upon the anticipated average rate of earningsexpected on the invested funds of the plans. At September 30, 2003, the range of weighted-average actuarialassumption of our international plans were: discount rate 5.43%; long-term rateof return on plan assets 6.63%; and assumed salary increases 3.07%.

 

***Accounting for income taxes.***As partof the process of preparing our consolidated financial statements we arerequired to estimate our income taxes in each of the jurisdictions in which weoperate. This process involves us estimating our actual current tax liabilitytogether with assessing temporary differences resulting from differingtreatment of items for tax and accounting purposes.  These differences result in deferred tax assets and liabilities,which are included within our Consolidated Balance Sheet. We must then assessthe likelihood that our deferred tax assets will be recovered from futuretaxable income and to the extent we believe that recovery is not likely, wemust establish a valuation allowance. To the extent we establish a valuationallowance or increase this allowance in a period, we must include an expensewithin the tax provision in the statement of operations.

 

Significant managementjudgment is required in determining our provision for income taxes, ourdeferred tax assets and liabilities and any valuation allowance recordedagainst our net deferred tax assets. The net deferred tax asset as ofSeptember 30, 2003 was zero, net of a valuation allowance of approximately$39.8 million, due to uncertainties related to our ability to utilize our netdeferred tax assets before they expire. The valuation allowance is based on our

 

13

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estimates of taxableincome by jurisdiction in which we operate and the period over which ourdeferred tax assets will be recoverable. In the event that actual resultsdiffer from these estimates or we adjust these estimates in future periods wecould materially impact our financial position and results of operations.

 

The tax benefits ofpre-reorganization net deferred tax assets will be reported first as areduction of the reorganization asset and then as a reduction to non-currentintangible assets arising from the reorganization, and finally as a credit tostockholders’ equity. These tax benefits will not reduce future income taxexpense for financial reporting purposes.

 

***Valuation of long-lived, intangible and reorganizationassets.***We assess the impairment of identifiableintangibles, long-lived assets and reorganization value in excess ofidentifiable assets annually or whenever events or changes in circumstancesindicate that the carrying value may not be recoverable.  Factors we consider important which couldtrigger an impairment review include the following:

 

•                  significantunderperformance relative to historical trends or projected future operatingresults;

•                  significantchanges in the manner of our use of our assets or the strategy for our overallbusiness, including potential asset dispositions;

•                  significantnegative industry or economic trends;

•                  significantdecline in our stock price for a sustained period; and

•                  ourmarket capitalization relative to net book value.

 

When we determinethat the carrying value of intangibles, long-lived assets and reorganizationvalue in excess of identifiable net assets may not be recoverable based uponthe existence of one or more of the above indicators of impairment, we measureany impairment based on a projected discounted cash flow method using adiscount rate determined by our management to be commensurate with the riskinherent in our current business model. Net intangible assets, long-livedassets, and reorganization value in excess of identifiable assets amounted to$107.5 million as of September 30, 2003.

 

The assigned fairvalues of the Reorganized Company and its assets and liabilities representsignificant estimates that we made based on facts and circumstances available.Valuation methodologies employed in estimating fair values also require theinput of highly subjective assumptions and predictions of future events andoperations. Actual future events and results could differ substantially frommanagement’s estimates and assumptions. Unfavorable changes compared to ourprojections used for Fresh Start Reporting purposes (which were based on ourbest estimates and information available at that time) could result in futureimpairments of our reorganization asset and identifiable intangible assets,which could be material.

 

Management hasdiscussed the development and selection of these critical accounting policieswith the Audit Committee of our Board of Directors and the Audit Committee hasreviewed our disclosure relating to it in this Management Discussion andAnalysis.

 

**Resultsof Operations**

 

The following results ofoperations information includes our historical information from prior toDecember 31, 2001, the effective date we emerged from bankruptcy and isidentified as results of operations of Predecessor Company.  The results of operations for the year endedSeptember 30, 2003 and for the nine months ended September 30, 2002represent the Reorganized Company after adopting Fresh Start Reporting.  Due to our reorganization and theimplementation of Fresh Start Reporting, the financial information for the ReorganizedCompany is not comparable to the Predecessor Company.  In addition, in the fourth quarter of fiscal year 2002 wecommitted to a plan to sell our Switzerland operations and in the third quarterwe sold two smaller operating units. The operating results for these units have been classified as incomefrom discontinued operations for the nine-month period ended September 30,2002.  For Predecessor Company priorperiods presented these units were not material to our consolidated results andare therefore not reported as discontinued operations.

 

To facilitate ameaningful comparison of Anacomp’s year-to-date operating performance, thefollowing discussion of results of operations on a consolidated basis ispresented on a traditional comparative basis for all periods.  However, the pro forma results of operationspresented below for the twelve-month period ended September 30, 2002combines the nine-month period ended September 30, 2002 on a ReorganizedCompany basis with the three-month period ended December 31, 2001 on aPredecessor Company basis.  Theseperiods and bases of accounting are not comparable and we have presented themseparately in the accompanying Consolidated Statements of Operations.

 

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**CONSOLIDATED RESULTS OF OPERATIONS**

 
|                                                                                    |   | **Fiscal  Year Ended September 30,** |    |
|-----------------------------------------------------------------------------------------|--------|-------------------------------------------|---------|
| **(in thousands, unaudited)**                                                           |   | **2003  (Reorganized  Company)**          |    | **2002  (Pro Forma Basis)** |   | **2001  (Predecessor  Company)** |   |
| Revenues:                                                                               |   |                                      |    |   |   |   |   |
| Services                                                                                |   | $                                         | 166,594 |   | $ | 195,837 |   | $ | 236,635 |   |
| Equipment  and supply sales                                                             |   | 37,429                                    |    | 45,994 |   | 69,713 |   |
|                                                                                    |   | 204,023                                   |    | 241,831 |   | 306,348 |   |
| Cost  of revenues:                                                                      |   |                                      |    |   |   |   |   |
| Services                                                                                |   | 113,789                                   |    | 131,729 |   | 155,273 |   |
| Equipment  and supply sales                                                             |   | 25,353                                    |    | 32,868 |   | 51,455 |   |
|                                                                                    |   | 139,142                                   |    | 164,597 |   | 206,728 |   |
|                                                                                    |   |                                      |    |   |   |   |   |
| Gross  profit                                                                           |   | 64,881                                    |    | 77,234 |   | 99,620 |   |
| Costs  and expenses:                                                                    |   |                                      |    |   |   |   |   |
| Engineering,  research and development                                                  |   | 6,397                                     |    | 6,985 |   | 7,208 |   |
| Selling,  general and administrative                                                    |   | 51,720                                    |    | 59,265 |   | 83,527 |   |
| Amortization  of intangible assets                                                      |   | 1,983                                     |    | 4,383 |   | 11,713 |   |
| Restructuring  charges (credits)                                                        |   | 2,697                                     |    | 1,049 |   | (1,207 | ) |
|                                                                                    |   |                                      |    |   |   |   |   |
| Operating  income (loss) from continuing operations                                     |   | 2,084                                     |    | 5,552 |   | (1,621 | ) |
|                                                                                    |   |                                      |    |   |   |   |   |
| Other  income (expense):                                                                |   |                                      |    |   |   |   |   |
| Interest  income                                                                        |   | 257                                       |    | 508 |   | 1,338 |   |
| Interest  expense and fee amortization                                                  |   | (1,789                                    | )       | (6,183 | ) | (43,860 | ) |
| Gain  on extinguishments of debt                                                        |   | —                                    |    | 265,329 |   | — |   |
| Other                                                                                   |   | 519                                       |    | 75 |   | (131 | ) |
|                                                                                    |   | (1,013                                    | )       | 259,729 |   | (42,653 | ) |
| Income  (loss) from continuing operations before reorganization items and income  taxes |   | 1,071                                     |    | 265,281 |   | (44,274 | ) |
| Reorganization  items                                                                   |   | —                                    |    | 13,328 |   | — |   |
| Income  (loss) from continuing operations before income taxes                           |   | 1,071                                     |    | 278,609 |   | (44,274 | ) |
| Provision  for income taxes                                                             |   | 1,760                                     |    | 4,474 |   | 3,217 |   |
| Income  (loss) from continuing operations                                               |   | (689                                      | )       | 274,135 |   | (47,491 | ) |
| Income  from discontinued operations, net of taxes                                      |   | —                                    |    | 913 |   | — |   |
| Gain  on sale of discontinued operations, net of taxes                                  |   | 7,995                                     |    | — |   | — |   |
| Net  income (loss)                                                                      |   | $                                         | 7,306   |   | $ | 275,048 |   | $ | (47,491 | ) |

 

We reported netincome of $7.3 million for the year ended September 30, 2003.  This was primarily due to our $8 milliongain from the sale of our Switzerland subsidiaries.  Excluding this gain, we would have reported a loss for the yearof $0.7 million, due primarily to the continuing decline in COM-based revenueand to the restructuring costs we incurred to mitigate the decline.  Net income for the year endedSeptember 30, 2002 was $275 million, due primarily to the cancellation ofour senior subordinated notes payable and the implementation of Fresh Startreporting subsequent to our 2001 bankruptcy. We reported a net loss of $47.5 million in fiscal year 2001, dueprimarily to interest costs incurred on our senior subordinated debt prior tobankruptcy.  Positive cash flowsprovided by operations were $14.4 million for the twelve months endedSeptember 30, 2003.  AtSeptember 30, 2003, we had positive working capital of $16 million, andstockholders’ equity of $101.1 million.

 

During the fiscal yearended September 30, 2003, our COM related revenues (including COM/OtherOutput Services, COM Professional Services, Equipment/Supplies and CD/Digital)continued to decline at historical rates. We consolidated our COM related operations in order to maintain ouroperating profit margins resulting in restructuring charges totaling $2.9million.

 

The decline in COMrelated revenue, during the most recent fiscal year was partially offset by thegrowth in revenue in our MVS and docHarbor Web Presentment product lines.  For the twelve months ended September 30,2003 we reported net income of $7.3 million, primarily resulting from the $8million gain on the sale of our Switzerland

 

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subsidiaries onOctober 18, 2003.  The proceedsfrom this sale along with cash flow generated from operations enabled us toreduce the balance outstanding on our credit facility by $24.1 million infiscal year 2003.

 

On November 24, 2003, we signed anew credit agreement with Fleet National Bank (“Agent”) and Union Bank ofCalifornia.  The new facility is for amaximum commitment of $22.5 million with a term of two years fromNovember 24, 2003. The agreement provides for a standby letter of creditsublimit of up to $10.0 million. Borrowing availability is limited to thelesser of (a) the maximum commitment of $22.5 million or (b) the borrowing baseplus an over-advance facility for acquisitions.

 

***Fiscal Year Ended September 30, 2003 vs. Fiscal YearEnded September 30, 2002***

 

*General*.  We reported net income of $7.3 million infiscal year 2003, primarily as a result of our gain on the sale of ourSwitzerland subsidiaries, compared to net income of $275 million in fiscal year2002, which was principally due to the cancellation of our senior subordinatednotes and implementation of Fresh Start accounting subsequent to our 2001bankruptcy.  COM based revenuescontinued to decline in line with historical trends; however, both MVS anddocHarbor Web Presentment revenues continued to grow at a double-digit rateover the prior year’s revenue.  Cashflow from operations for the twelve months ended September 30, 2003 was$14.4 million, which in addition to our September 30, 2002 cash on hand,and proceeds from the sale of our Switzerland subsidiaries, enabled us toreduce our outstanding credit facility balance by $24.1 million during thefiscal year.

 

*Revenues.*  Our revenues totaled $204 million in fiscalyear 2003, a decrease of 16%, or $37.8 million, from $241.8 million in fiscalyear 2002.

 

We define our product lines as follows:

 

MVS – Multi-Vendor Services where Anacomp acts as athird party maintainer, provides support services such as on-site maintenance,call center/help desk or depot repair, laser printer maintenance and associatedhardware sales.

 

docHarbor Web Presentment – Transmitted ingestion,storage, delivery and internet browser-based access to documents. Also includeslicense sales and maintenance for the docHarbor software that is our Webplatform in the US.

 

CD/Digital – CD based document management services,scanning, and digital software sales.

 

COM/ Other Output Services – Our Computer OutputMicrofilm and laser printer document management services.

 

COM Professional Services – Our maintenance servicesfor Computer Output Microfilm and other micrographic products.

 

Equipment/Supplies – Computer Output Microfilmoriginal and duplicate film, chemistry and hardware sales.

 
| **Product Line**           |   | **FY 2003** |    | **FY 2002** |   | **Change** |   | **Percentage  change** |    |
|----------------------------|--------|-------------|---------|-------------|--------|------------|--------|------------------------|---------|
| MVS                        |   | $           | 34,124  |        | $      | 27,069     |   | $                      | 7,055   |   | 26 | % |
| docHarbor  Web Presentment |   | 18,789      |    | 15,716      |   | 3,073      |   | 20                     | %       |
| CD/Digital                 |   | 28,300      |    | 39,639      |   | (11,339    | )      | (29                    | )%      |
| COM/Other  Output Services |   | 70,807      |    | 92,615      |   | (21,808    | )      | (24                    | )%      |
| COM  Professional Services |   | 20,834      |    | 25,402      |   | (4,568     | )      | (18                    | )%      |
| Equipment/Supplies         |   | 31,169      |    | 41,390      |   | (10,221    | )      | (25                    | )%      |
| Total                      |   | $           | 204,023 |        | $      | 241,831    |   | $                      | (37,808 | ) | (16 | )% |

 

The $7.1 million,or 26%, increase in MVS revenues over prior year revenue reflects the increasein new OEM agreements and the resulting continued growth in our Multi-VendorServices offerings.  We have experiencedseveral years of continuous growth in MVS revenues, and we expect continuedgrowth in this area as we expand our service offerings to include callcenter/help desk and depot repair capabilities.  The relative makeup of total professional services revenuescontinues to migrate from COM to MVS.  In fiscal year 2003, MVS revenues

 

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represented 62% oftotal professional services revenue (MVS plus COM professional services),compared to 52% in the prior year.

 

docHarbor WebPresentment revenues increased $3.1 million, or 20% over prior yearrevenue.  This reflects the addition ofnew customers and additional revenue from established customers as they haveincreased the number of their applications utilizing our Web services.  We expect continued revenue growth in thisproduct line resulting from increased customer awareness and recognition, astrong year-end sales pipeline, increased acceptance of outsourcing non-corebusiness processes and tighter regulations around financial reporting andrecord keeping.  We believe that pricingfor this product may become more aggressive in the future, and we must remaincompetitive with alternative in-house solutions.

 

CD/Digital revenuedeclined $11.3 million, or 29%, from prior year revenue.  This decrease was primarily the result ofthe sale of our Switzerland and other operations in 2002.  CD/Digital revenue from the Switzerlandoperations included in the twelve months ended September 30, 2002 totaled$6.1 million.  The remaining decline isdue primarily to the availability of alternative web-based or in-housesolutions that have become more affordable and practical.

 

COM/Other Output Servicesrevenue declined $21.8 million, or 24%, from the prior year.  This decline reflects the decreased volumesprocessed in our data centers and continues the trend experienced in prioryears.  We expect that COM revenues willcontinue to decline in future fiscal years.

 

COM Professional Servicesrevenues declined $4.6 million, or 18%, from the prior year.  This decline reflects the continued decreasein the number of COM units in operation worldwide.  We expect that the number of COM units in use worldwide willcontinue to decline as organizations choose to outsource the functions toservice centers, such as those operated by Anacomp, or elect to utilize otheroptions such as in-house or document storage systems.

 

Equipment and suppliesrevenue declined $10.2 million, or 25%, over the prior year.  This decrease was largely the result of thedecline in demand for and use of COM units.

 

Due to the generalweakening of the U.S. dollar during fiscal 2003, our total net revenues werefavorably impacted by foreign exchange as compared with fiscal 2002.  The impact of the foreign exchange benefitin fiscal 2003 as compared with fiscal 2002 approximated 4% on total netrevenues for fiscal 2003.

 

*GrossMargins. *Our grossmargin as a percentage of revenues remained steady at 32% for fiscal years 2003and 2002, and in dollars decreased from $77.2 million in 2002 to $64.9 millionin 2003.  We were able to maintain thegross margin percentage of revenues in spite of the revenue declines throughcost savings resulting from our recent and prior restructuring activities,which included the consolidation and downsizing of facilities and reductions inour work force.

 

*Engineering,Research and Development.* Engineering, research and development expenditures decreased $0.6million, or 8%, from the prior year. These costs represented 3% of total revenues in both fiscal years 2003and 2002.  These expenses will notnecessarily have a direct or immediate correlation to revenues.  We continue to build and support ouroutsource service solutions base and corresponding internet and digitaltechnologies.  Most of theseexpenditures were in support of the docHarbor Web Presentment and CD/Digitalservices and, to a lesser extent, COM products.

 

*Selling,General and Administrative.* SG&A expenses decreased from $59.3 million for the year endedSeptember 30, 2002 to $51.7 million for the year ended September 30,2003.  The $7.6 million, or 13%,decrease resulted in part from the sale of our Switzerland operations, whichhad $1.3 million of related expenses included in the prior period.  The majority of the decrease in 2003 was dueto benefits realized from our recent restructuring activities and cost savingsinitiatives.

 

*Amortizationof Intangible Assets.*Amortization of intangible assetsdecreased 55%, from $4.4 million for the year ended September 30, 2002, to$2 million for the year ended September 30, 2003.  The prior year period amortization expenseincluded amortization, during the first quarter of fiscal 2002, of goodwillrelated to prior year acquisitions.  Allgoodwill assets from the Predecessor Company were eliminated in conjunctionwith Fresh Start Reporting. Amortization expense after December 31, 2001 reflects theamortization of identifiable intangible assets valued as part of Fresh StartReporting.

 

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*Restructuring Charges. *In the third and fourthquarters of fiscal year 2003, we recorded restructuring charges totaling $2.9million related to data center consolidation and reorganization of parts of ourcorporate, marketing, sales, and international operating organizations.  The charges consist primarily of employeeseverance and termination-related costs totaling $2.5 million for approximately178 employees, all of whom were notified and have left the Company. Theremaining accrued but unpaid liability of $1.5 million is expected to be paidby the end of calendar year 2003 for all but one employee, whose payments willcontinue through March of 2004. Also included in the $2.9 million charge is $0.4 million of facilityclosure costs, including incremental travel and relocation costs incurred as aresult of our consolidation efforts.  AtSeptember 30, 2003, $0.3 million of this amount remains unpaid, and weexpect that payments (non-cancelable facility lease payments) will continuethrough December of 2007.

 

The$2.9 million current year restructuring charge is partially offset by $0.2million in credits to restructuring charges recorded in fiscal years 2002 and2000, resulting primarily from favorable lease transactions.

 

In thethird quarter of fiscal year 2002, we recorded a restructuring charge of $2.1million related to the reorganization of our operations from two business unitsto one entity.  The reorganization ofthe workforce consisted of combining the field organizations of DocumentSolutions and Technical Services into one organization, the establishment of anexecutive level position to oversee all sales and marketing activities and asingle support group for our data centers, docHarbor Web Presentmentoperations, field services operations and process quality.  The restructuring charges included $1.6million in employee severance and termination related costs for approximately100 employees, all of whom left the Company. The restructuring charges also include approximately $0.4 million forthe closure of a data center.

 

In the first quarter of fiscal year 2002, we reversed**$1million of business restructuring reserves primarily related to favorablecircumstances related to the shutdown of our Japanese subsidiary.  The closure costs to vacate our facility inJapan, cost to fulfill our contract obligations and severance and relatedprofessional costs up to that time were less than anticipated at the time theaccrual was recorded.

 

*InterestExpense and Fee Amortization. *Interestexpense decreased to $1.8 million for the year ended September 30, 2003from $6.2 million for the year ended September 30, 2002.  The expense from both periods is relatedprimarily to interest on the revolving credit facility.  The decrease in interest expense reflectedour lower credit facility liability balance in fiscal year 2003 due to therepayment of $24.1 million in the current fiscal year.  We expect interest expense to be less in2004 as a result of the reduction in the credit facility balance outstanding.

 

*Provisionfor Income Taxes. *Taxexpense totaled $1.8 million in fiscal 2003 and related primarily to earningsof our foreign subsidiaries.  Taxexpense in 2002, totaling $4.5 million, consisted of $1.7 million related toearnings of foreign subsidiaries and $2.8 million related to domesticoperations.  The significant fiscal year2002 provision compared to income before income taxes, results from taxesrelated to foreign operations and to cancellation of life insurance policiesfor which cash surrender value increases had not been tax effected in prior years.

 

*DiscontinuedOperations. *Duringthe fourth quarter of fiscal year 2002, we adopted a plan to divest ourSwitzerland businesses and on October 18, 2002 we completed a sale.  The Switzerland operations were not materialto our consolidated results prior to December 31, 2001.  As a result, the statements of operationsfor the fiscal year ended September 30, 2001 and for the three monthsended December 31, 2001 do not segregate the Switzerland operations asdiscontinued.

 

***Fiscal Year Ended September 30, 2002 vs. Fiscal YearEnded September 30, 2001***

 

*General*.  We reported net income of $275 million infiscal year 2002, primarily as a result of the extraordinary gain recognized asa result of our Chapter 11 reorganization effective December 31, 2001,compared to a net loss of $47.5 million in fiscal year 2001.  COM based revenues continued to decline inline with historical trends, however, both MVS and docHarbor Web Presentmentrevenues grew at a double-digit rate over the prior year revenue.  Cash flow from continuing operations for thetwelve months ended September 30, 2002 was $18.8 million, which inaddition to our September 30, 2001 cash on hand, enabled us to reduce ouroutstanding credit facility balance by $25 million during the fiscal year.

 

*Revenues.*  Our revenues totaled $241.8 million infiscal year 2002, a decrease of 21%, or $64.5 million, from $306.3 million infiscal year 2001.

 

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| **Product Line**           |   | **FY 2002** |    | **FY 2001** |   | **Change** |   | **Percentage  change** |    |
|----------------------------|--------|-------------|---------|-------------|--------|------------|--------|------------------------|---------|
| MVS                        |   | $           | 27,069  |        | $      | 22,383     |   | $                      | 4,686   |   | 21 | % |
| Web  Presentment           |   | 15,716      |    | 11,129      |   | 4,587      |   | 41                     | %       |
| CD/Digital                 |   | 39,639      |    | 54,662      |   | (15,023    | )      | (27                    | )%      |
| COM/Other  Output Services |   | 92,615      |    | 120,344     |   | (27,729    | )      | (23                    | )%      |
| COM  Professional Services |   | 25,402      |    | 34,523      |   | (9,121     | )      | (26                    | )%      |
| Equipment/Supplies         |   | 41,390      |    | 63,307      |   | (21,917    | )      | (35                    | )%      |
| Total                      |   | $           | 241,831 |        | $      | 306,348    |   | $                      | (64,517 | ) | (21 | )% |

 

The $4.7 million,or 21%, increase in MVS revenues over prior year revenue reflected the increasein new OEM agreements and the resulting continued growth in our Multi-VendorServices offerings.  In fiscal year2002, MVS revenues exceeded COM Professional Services revenues for the firsttime

 

Web Presentmentrevenues increased $4.6 million, or 41% over prior year revenue.  This reflected the addition of new customersand additional revenue from established customers as they have increased thenumber of applications utilizing our Web services.

 

CD/Digital revenuedeclined $15 million, or 27%, from prior year revenue.  This decrease was primarily the result ofthe treatment of the Switzerland operations as discontinued for the nine-monthsended September 30, 2002. Switzerland CD/Digital revenue totaled $17.7 million and $5.9 million inthe year ended September 30, 2001 and three-months ended December 31,2001 respectively.  Also, CD serviceshave become less specialized and more of a commodity, and customers have optedfor in-house or on-line solutions.

 

COM/Other Output Servicesrevenue declined $27.7 million, or 23%, from the prior year.  This decline reflected the decreased volumesprocessed in our data centers and continues the trend experienced in prioryears.

 

COM Professional Servicesrevenues declined $9.1 million, or 26%, from the prior year.  This decline reflected the continueddecrease in the number of COM units in operation worldwide.  We expect that the number of COM units inuse worldwide will continue to decline.

 

Equipment and suppliesrevenue declined $21.9 million, or 35%, over the prior year.  This decrease was largely the result of thedecline in demand and use of COM units.

 

*GrossMargins. *Our grossmargin as a percentage of revenues declined slightly from 33% ($99.6 million)for fiscal year 2001 to 32% ($77.2 million) for fiscal year 2002.  We were able to maintain the gross marginpercentage of revenues in spite of the revenue declines through cost savingsresulting from our recent and prior restructuring activities, which includedthe consolidation and downsizing of facilities and reductions in our workforce.

 

*Engineering,Research and Development.* Engineering, research and development expenditures decreased $0.2million, or 3%, over the prior year. These costs represented 3% and 2% of total revenues for fiscal years 2002and 2001, respectively.  These expenseswill not necessarily have a direct or immediate correlation to revenues.

 

*Selling,General and Administrative.* SG&A expenses decreased from $83.5 million for the year endedSeptember 30, 2001 to $59.3 million for the year ended September 30,2002.  The $24.3 million, or 29%,decrease was primarily the result of fiscal year 2001 charges of $5.4 millionfor the settlement of a litigation matter, $5.1 million in legal, professionaland financial advisory costs related to the restructuring of the Company’ssenior subordinated notes and $3.9 million in legal, professional, andseverance costs associated with preparations for a sale of DSI (DocumentSolutions International).  The remainder of the reduction in SG&Acosts were primarily attributable to the benefits of the integration of theformer web service business unit into the Document Solutions business unit,begun in May 2001. Additional annualized savings of approximately $3.5million were expected as a result of the 2002 reorganization of our operationsfrom two business units into one entity.

 

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*Amortizationof Intangible Assets.*Amortization of intangible assetsdecreased 63%, from $11.7 million for the year ended September 30, 2001,to $4.4 million for the year ended September 30, 2002.  Fiscal year 2001 amortization expenserepresented the amortization of goodwill related to acquisitions in prioryears.  All goodwill assets from the PredecessorCompany were eliminated in conjunction with Fresh Start Reporting.  Fiscal year 2002 amortization expensereflects the amortization of identifiable intangible assets valued as part ofFresh Start Reporting.

 

*Restructuring Charges(credits). *In thethird quarter of fiscal year 2002, we recorded a restructuring charge of $2.1million related to the reorganization of our operations from two business unitsto one entity.  The reorganization ofthe workforce consisted of combining the field organizations of DocumentSolutions and Technical Services into one organization, the establishment of anexecutive level position to oversee all sales and marketing activities and asingle support group for our data centers, docHarbor Web Presentmentoperations, field services operations and process quality.  The restructuring charges included $1.6million in employee severance and termination related costs for approximately100 employees, all of whom left the Company by September 30, 2002.  The restructuring charges also includedapproximately $0.4 million for the closure of a data center.  As a result of the restructuring weanticipated annual savings of approximately $7.1 million, or approximately $0.6million monthly.  We achieved a phase-inof cost savings in the fourth quarter of fiscal year 2002.

 

In the first quarter of fiscal year 2002, we reversed**$1 million of business restructuringreserves primarily related to favorable circumstances related to the shutdownof our Japanese subsidiary.  Ourclosure costs to vacate our facility in Japan, costs to fulfill our contractobligations and severance and related professional costs up to that time wereless than anticipated at the time the accrual was recorded.

 

In thethird quarter of fiscal year 2001, we reversed $1.2 million of businessrestructuring reserves consisting of $0.9 million and $0.3 million from our2000 and 1998 restructuring plans, respectively.

 

*InterestExpense and Fee Amortization. *Interestexpense decreased to $6.2 million for the year ended September 30, 2002from $43.9 million for the year ended September 30, 2001.  Current year expense included interest(approximately $1.7 million) on our senior subordinated notes only up toOctober 19, 2001, the date we filed Chapter 11 bankruptcy.  Prior year expense included a full twelvemonths of interest (approximately $34 million) on the notes.  The remainder of expense from both periodsis related primarily to interest on the revolving credit facility.

 

*Other income on Extinguishment ofDebt.  *Other income on extinguishment of debt, netof taxes, totaled $265.3 million for the three-month period endedDecember 31, 2001 as compared to none in the comparable prior year periodand resulted from our bankruptcy proceedings and emergence from Chapter 11proceedings on December 31, 2001.

 

*ReorganizationItems. *Reorganizationitems represent expenses and adjustments resulting from our reorganization andconsist of professional fees incurred subsequent to our Chapter 11 filingtotaling $1 million, fair value adjustments made to assets and liabilitiestotaling $16.9 million and other asset write-offs and settlements totaling $2.6million (primarily related to our extinguished debt) in Fresh Start Reporting.

 

*Provisionfor Income Taxes. *Infiscal year 2002, tax expense totaling $4.5 million consisted of $1.7 millionrelated to earnings of foreign subsidiaries and $2.8 million related todomestic operations.  The provision forincome taxes of $3.2 million for the year ended September 30, 2001 relatedprimarily to earnings of foreign subsidiaries. The significant fiscal year 2002 provision compared to income beforeincome taxes results from taxes related to foreign operations and tocancellation of life insurance policies for which cash surrender valueincreases had not been tax effected in prior years.

 

*Discontinued Operations. *During the fourth quarterof fiscal year 2002, we adopted a plan to divest our Switzerland businesses andon October 18, 2002 we completed a sale. The Switzerland operations were not material to our consolidated resultsprior to December 31, 2001.  As aresult, the statements of operations for the fiscal year endedSeptember 30, 2001 and for the three months ended December 31, 2001do not segregate the Switzerland operations as discontinued.

 

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**Liquidity and Capital Resources**

 

Our legacy business (COM)has declined in recent years and is forecasted to continue to decline as newtechnologies become available and are accepted in the marketplace.  Our ability to generate sufficient cash to fundoperations and to meet future bank requirements is dependent on successful andsimultaneous management of the decline in COM as well as the expansion ofalternative service offerings.  Otherfactors, such as an uncertain economy, levels of competition in the documentmanagement industry, and technological uncertainties will impact our ability togenerate cash and maintain liquidity. We believe the actions taken over the past two years, including new andenhanced product and service offerings, company downsizing, cost controlmeasures and the debt restructuring from our bankruptcy will allow us tomaintain sufficient cash flows from operations to meet our operating, capitaland debt requirements in the normal course of business for at least the nexttwelve months.

 

In fiscal year 2003, wegenerated cash from operations of $14.4 million, compared to $21.6 million infiscal year 2002.  Although we had netincome of $7.3 million in fiscal 2003, $8 million was from the sale ofdiscontinued operations.  The remainingchange in operating cash flows in 2003 consisted primarily of non-cash chargessuch as depreciation and amortization. Net cash from operations in fiscal year 2002 primarily reflects ouroperating income which was primarily the result the gain on extinguishments ofdebt and related results, offset by non-cash charges for depreciation,amortization and utilization of deferred tax asset without rate benefit and anincrease in payables.

 

Net cash provided byinvesting activities was $11.1 million in the current fiscal year, compared tocash used in investing activities of $3.9 million in the comparable prior yearperiod.  The current year periodincluded cash proceeds from the sale of our Switzerland operations andsubsidiaries.  Expenditures in bothyears were primarily for purchases of equipment.

 

During the quarter endedJune 30, 2003, we entered into a service agreement with Dot Hill SystemsCorp. (Dot Hill) to provide warranty and non-warranty service and on-siterepair support for certain storage network solutions products.  Under the terms of the agreement, Anacomppaid Dot Hill $500,000 to acquire new and used inventory, spare parts, testequipment, software, licenses, customer lists, and other commercial andproprietary information necessary for Anacomp to perform the agreed-upon services.  In addition, Anacomp will pay Dot Hillperiodic royalty payments over at least the next two years; a liability of $1.1million for the minimum royalty payments due is included in “Other accruedliabilities” in the Consolidated Balance Sheet at September 30, 2003.  Additional royalties will be owed to DotHill if revenue from services exceed a defined minimum amount.  The initial payment of $500,000 is includedas “Payments to acquire product line assets and customer rights” in theinvesting activities section of the Consolidated Statement of Cash Flows.

 

Net cash used infinancing activities was $24.1 million during the current twelve-month period,compared to $25.1 million used in financing activities in the prior yearperiod.  In both periods, cash was usedto pay down the revolving credit facility.

 

AtSeptember 30, 2003, the outstanding revolving credit borrowings were $5.9million (plus outstanding standby letters of credit of $6.1 million).  During the twelve month period endedSeptember 30, 2003, we paid $24.1 million to reduce the principaloutstanding.

 

Effective November 24, 2003, weentered into a new revolving credit agreement with Fleet National Bank(“Agent”) and Union Bank of California. The new credit facility is for a maximum commitment of $22.5 millionwith a term of two years from November 24, 2003. The agreement providesfor a standby letter of credit sublimit of up to $10.0 million. Borrowingavailability is limited to the lesser of (a) the maximum commitment of $22.5million or (b) the borrowing base plus an over-advance facility foracquisitions.

 

The new facility bears interest at abase rate equal to the higher of a) the annual rate of interest announcedfrom time to time by Fleet National Bank as its best rate, or b) one-halfof one percent above the Federal Funds Effective Rate, for the portion of thefacility equal to the borrowing base. The borrowing base equals 80% of eligibleaccounts, which include U.S. and Canadian accounts receivable. Eligibleaccounts of our U.K. based customers may be added at a later time after certainconditions are met.

 

For borrowings greater than theborrowing base the rate of interest under the new agreement is one and one-halfpercent higher than the base rate. Interest is due and payable monthly inarrears.  Borrowings greater than theborrowing base are in the form of an over-advance of up to a maximum of $5.0million at any time to be available exclusively for funding the cash portion ofthe purchase price of permitted acquisitions; but in no event shall

 

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exceed $10.0 million in a four-quarterperiod. The principal amount of any over-advance shall amortize 1/8 per quarterwith the remaining balance due and payable in full at the final maturity date.

 

The borrowing base for the new creditagreement was  $12.3 million as ofNovember 30, 2003, with borrowing base availability of $2.2 million.

 

The credit facility is secured byvirtually all Anacomp assets and 65% of the capital stock of our foreignsubsidiaries. The facility contains covenants relating to limitations on thefollowing:

 

• additional debt;

• permitted acquisitions; and

• liens and dividends.

 

The new credit facility also issubject to minimum operating cash flow, a leverage ratio covenant, minimumearnings before taxes and minimum liquidity. In addition, we are required toremit to the Bank Group the net proceeds of any significant capital assetsale.  The banks must approve anybuyback of our common stock.

 

As ofDecember 18, 2003, the outstanding revolving credit borrowings were $4.8million and borrowing capacity was $2.2 million.

 

During the pastyear, our significant paydown of the outstanding balance on our revolvingcredit facility through both scheduled reductions and from proceeds received onthe sale of our Switzerland subsidiaries has substantially improved our workingcapital position.  The working capitaldeficiency of $6.5 million at September 30, 2002, is now positive workingcapital of $16 million at September 30, 2003.

 

Our cash balance totaled$18.4 million at September 30, 2003 compared to $15.6 million atSeptember 30, 2002. Approximately 65% of the September 30, 2003 cashbalance is located at our foreign subsidiaries compared to approximately 49% atSeptember 30, 2002.  Our use ofexcess cash as additional payments against our credit facility resulted in thedecrease of domestic cash on hand.

 

***Off-balance sheet arrangements***

 

We have operating leasesfor all of our U.S. and international offices and certain equipment.  Rental expense for operating leases was $12.5million, $9.8 million, $3.3 million and $13.9 million for the year endedSeptember 30, 2003, the nine months ended September 30, 2002, thethree months ended December 31, 2001, and the year endedSeptember 30, 2001, respectively. Future minimum rental commitments under noncancellable leases are 2004,$10.7 million; 2005, $9 million; 2006 $8 million; 2007, $6.8 million; 2008,$6.2 million; and thereafter $14.4 million.

 

We provideindemnification of varying scope and size to certain customers against claimsof intellectual property infringement made by third parties arising from theuse of our products and services.  Weevaluate estimated losses for such indemnifications under SFAS 5, Accountingfor Contingencies, as interpreted by FIN 45. We consider such factors as the degree of probability of an unfavorableoutcome and the ability to make a reasonable estimate of the amount ofloss.  To date, aside from a patentinfringement case settled in fiscal year 2001, we have not encountered materialcosts as a result of such obligations and have not accrued any liabilitiesrelated to such indemnifications in our financial statements.

 

**RISKFACTORS**

 

*Youshould carefully consider the following risk factors and all of the otherinformation included in this Form 10-K in evaluating our business and ourprospects. Investing in our Class A or Class B Common Stock (collectively,“Common Stock”) involves a high degree of risk. Additional risks anduncertainties may also materially adversely affect our business and financialcondition in the future. Any of the following risks could materially adverselyaffect our business, operating results or financial condition and could resultin a complete loss of your investment.*

 

**Thedevelopment of alternate technologies in the document management industry isdecreasing the need for our micrographics services and products.**

 

The document managementindustry is rapidly changing. The recent trend of technological advances andattendant price declines in digital systems and products is expected tocontinue. As a result, in certain instances, potential

 

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micrographics customershave deferred, and may continue to defer, investments in micrographics systems(including our XFP2000 COM system) and the utilization of micrographics servicecenters while evaluating the abilities of other technologies. In addition, thecontinuing development of local area computer networks and similar systemsbased on digital technologies has resulted and will continue to result in manyof our customers changing their use of micrographics from document storage,distribution and access to primarily archival use. We believe that this is atleast part of the reason for the declines in recent years in both sales andprices of our duplicate film, readers and reader/printers. Our service centersalso are producing fewer duplicate microfiche per original for customers,reflecting the shift towards using micrographics primarily for long termarchival storage. Revenues for our micrographics services and products,including COM service revenues, COM system revenues, maintenance servicerevenues and micrographics supplies revenues, have been adversely affected foreach of the past five fiscal years and will likely in the future besubstantially adversely affected by, among other things, the increasing use ofdigital technology. COM revenues from services, system and supplies salesdeclined 23% in 2003 from fiscal year 2002 revenues.  Overall, COM revenues represented 60% of our revenues for thetwelve-month period ended September 30, 2003, 66% of our fiscal year 2002revenues, 71% of 2001 revenues, 77% of 2000 revenues, 83% of 1999 revenues, and91% of 1998 revenues.  Additionally, therapidly changing document management industry has resulted in price competitionin certain of our businesses, particularly COM services. We have been and weexpect to continue to be impacted adversely by the decline in the demand forCOM services, the declining market for COM systems and the attendant reductionin supplies revenues. We expect that our revenues for maintenance of COMsystems will continue to decline as a result of decreasing use and fewer salesof COM systems. Additionally, the growth of alternate technologies has createdconsolidation in the micrographics segment of the document management industry.To the extent consolidation in the micrographics segment has the effect ofcausing major providers of micrographics services and products to ceaseproviding such services and products, the negative trends in the segment, suchas competition from alternate technologies described above, may accelerate. Ifwe do not adapt to the rapid changes in the document management industry, ourbusiness will suffer and your investment will be adversely affected.

 

**Ourrevenues could continue to decrease over the next few years, which couldinhibit us from achieving or sustaining profitability or even prevent us fromcontinuing to operate.**

 

Our accumulated deficitthrough December 31, 2001 was eliminated as a result of Fresh StartReporting. However, we have not recorded sustained profitable operating resultsfor quite some time. To achieve sustained future profitability we will need togenerate and sustain planned revenues and maintain reasonable cost and expenselevels. We do not know when or if we will become profitable on a sustainedbasis. If we fail to achieve consistent profitability and generate sufficientcash flows, we will face liquidity and bank covenant issues and our creditfacility could become immediately due and payable on demand. Even though wegenerated operating income from continuing operations before taxes in the yearsended September 30, 2003 and 2002, we may not be able to sustain or increaseprofitability on a quarterly or an annual basis. Any failure on our part toachieve or sustain profitability could cause our stock price to decline.

 

**Thedevelopment of alternative technologies in the document management industry isdecreasing the need for our CD Services.**

 

The document managementindustry is continuing to change.  Thetechnological advances and price declines in digital systems and products areexpected to continue.  As a result, someof our CD services customers are choosing in-house digital solutions andproducts or other service providers instead of our CD service offerings. Webelieve that this is part of the reason for the recent declines in our CDservice revenues.  Revenues from our CDservices declined 6% in 2002 and 20% in 2003 compared to the prior year.  Revenues for CD services have been adverselyaffected for the last two years and will likely in the future be substantiallyadversely affected by, among other things, the increasing use of other digitaltechnologies.  Additionally, the rapidlychanging document management industry has resulted in price competition in theCD service business.  We expect that ourrevenues for CD services will continue to decline because of the availabilityof other technologies.  If we do notadapt to the rapid changes in the document management industry, our businesswill suffer and your investment will be adversely affected.

 

**If weare unable to decrease our costs to match the decline in our revenues, we maynot be able to achieve or sustain profitability.**

 

The decline in the demandfor COM services, systems and maintenance and the attendant reduction insupplies revenues have adversely affected our business. Over the past severalyears, COM revenues from services, system and

 

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supplies sales have beensteadily decreasing as a percentage of our revenues and declined 23% in 2003from fiscal year 2002 revenues. We expect that our revenues for maintenance ofCOM systems will continue to decline as a result of decreasing use and fewersales of COM systems. We have taken steps such as facilities consolidation andpersonnel reductions to reduce our cost structure and offset the decrease inCOM revenues. We intend to take additional measures as necessary to continue toreduce our cost structure. If these measures are unsuccessful, we will notrealize profits from our COM business and your investment may be adverselyaffected.

 

**Intensecompetition in the document management industry could prevent us from increasingor sustaining our revenues and prevent us from achieving or sustainingprofitability.**

 

The document managementindustry is becoming increasingly competitive, especially in the market forInternet-based document management services. We face, and will continue toface, competition from other document-management outsource service providers aswell as from document management software providers who offer in-housesolutions. Some of our competitors are leading original equipment manufacturerswith established client relationships in our target markets. Some of ourcompetitors are significantly larger than we are and have greater financialresources, greater name recognition and longer operating histories than wehave. Our competitors may be able to respond more quickly or adjust prices moreeffectively to take advantage of new opportunities or customer requirements.Increased competition could result in pricing pressures, reduced sales, reducedmargins or failure to achieve or maintain widespread market acceptance, any ofwhich could prevent us from increasing or sustaining our revenues and achievingor sustaining profitability.

 

**We facebusiness, political and economic risks because a significant portion of oursales is to customers outside of the United States.**

 

Revenues fromoperations outside the United States accounted for 31% of our total revenue forthe fiscal year ended September 30, 2003 and 28% of our total revenue infiscal year 2002.  Our success continuesto depend upon our international operations, and we expect that a significantportion of our total future revenues will be generated from internationalsales. Our international business involves a number of risks, including:

 

•                  ourability to adapt our products to foreign design methods and practices;

•                  culturaldifferences in the conduct of business;

•                  difficultyin attracting and retaining qualified personnel;

•                  longerpayment cycles for and greater difficulty collecting accounts receivable;

•                  unexpectedchanges in regulatory requirements, royalties and withholding taxes thatrestrict the repatriation of earnings;

•                  tariffsand other trade barriers;

•                  theburden of complying with a wide variety of foreign laws;

•                  political,economic or military conditions associated with current worldwide conflicts andevents;

•                  theexchange markets and our ability to generate, preserve and repatriate proceedsand dividends to the parent company in the United States; and

•                  tothe extent that profit is generated or losses are incurred in foreigncountries, our effective income tax rate may be significantly affected.

 

**Werecently effectuated a financial restructuring pursuant to a prepackagedChapter 11 plan of reorganization, we have a history of net losses and we mayface liquidity issues in the future.**

 

OnOctober 19, 2001 we filed a voluntary petition for reorganization underChapter 11 of the U.S. Bankruptcy Code and a prepackaged plan ofreorganization. The Bankruptcy Court confirmed the plan of reorganization onDecember 10, 2001 and we emerged from our bankruptcy proceedings effectiveDecember 31, 2001. However, our completion of bankruptcy proceedings doesnot assure our continued success. For example, the bankruptcy proceedingsdescribed above are our second bankruptcy: we previously filed a plan of reorganizationin January 1996 and emerged from those proceedings in June 1996. Ifour financial performance does not exceed our recent historical results, theprice of our Common Stock could decline and your investment could be materiallyadversely affected.  Our current creditfacility includes covenant restrictions concerning minimum EBITDA interestcoverage and leverage ratio covenants.

 

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**Fluctuationin our quarterly financial results may cause instability in our stock price.**

 

Our COM businesshas experienced and continues to decline; however, the rate at which thisdecline will impact our operations is difficult to predict. Additionally, weattempt to base our operating expenses on anticipated revenue levels, and asubstantial percentage of our expenses are fixed in the short term. As aresult, any delay in generating or recognizing revenues could cause ouroperating results to be below expectations. Moreover, the operating expensesfrom our growth initiatives may exceed our estimates. Any or all of thesefactors could cause the price of our common stock to decline.

 

**If ourfuture results do not meet or exceed the projections and assumptions we madefor Fresh Start Reporting purposes, we may have to write down the values ofsome of our assets.**

 

On December 31,2001, as a result of our emergence from bankruptcy, we adopted Fresh StartReporting. This resulted in material changes to our financial statementsincluding the recording of an asset for “Reorganization value in excess ofidentifiable net assets.” We determined the value of our business andaccordingly, our reorganization asset by making certain projections andassumptions based on historical results as well as our best estimates ofexpected future market conditions. Unfavorable changes compared to ourprojections used for Fresh Start Reporting purposes could result in futureimpairments of our reorganization asset and our identifiable intangible assets.If these assets were to be impaired, the value of your investment coulddecline.

 

**If weare unable to make technological advancements and upgrades to our currentproduct and services offerings, we will lose market share.**

 

In order to maintain andgrow market share, we continually invest in offering new customer solutions andin upgrading our storage and delivery systems and infrastructure. We cannotensure that we will be able to continue to develop innovations in our softwareto stay abreast of client needs. We also cannot ensure that we will be able tomaintain or upgrade our infrastructure to take advantage of new technology. Ourfuture plans for growth and a return to profitability would be detrimentallyaffected if we are unable to develop new and innovative customer solutions orif we are unable to sustain our infrastructure.

 

**Litigationor third party claims of intellectual property infringement could require us tospend substantial time and money and adversely affect our ability to developand commercialize products.**

 

Third parties may accuseus of employing their proprietary technology without authorization. Inaddition, third parties may obtain patents that relate to our technologies andclaim that our use of such technologies infringes these patents. Regardless oftheir merit, such claims could require us to incur substantial costs, includingthe diversion of management and technical personnel, in defending ourselvesagainst any such claims or enforcing our patents. In the event that asuccessful claim of infringement is brought against us, we may be required topay damages and obtain one or more licenses from third parties. We may not beable to obtain these licenses at a reasonable cost, or at all. Defense of anylawsuit or failure to obtain any of these licenses could adversely affect ourability to develop and commercialize products and our operating results.

 

**The lossof key personnel or the inability to attract and retain additional personnelcould impair our ability to expand our operations.**

 

We are highly dependenton the principal members of our management team and the technical expertise ofour personnel, especially in our Technical Services group. The success of thisbusiness is based on our technical expertise and proven ability to providefast, expert, on-site service and support around the clock. This service isprovided in North America and Europe by approximately 500 Anacomp serviceprofessionals, the loss of whose services might adversely impact theachievement of our business objectives. Moreover, our business operations willrequire additional expertise in specific industries and areas applicable toproducts identified and developed through our technologies. These activitieswill require the addition of new personnel, including management and technicalpersonnel as well as the development of additional expertise by existingemployees. Competition for experienced technicians may limit our ability toattract or retain such technicians. If we are unable to attract such personnelor to develop this expertise, we may not be able to sustain or expand ouroperations in a timely manner or at all.

 

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**We usehazardous chemicals in our business and any claims relating to improperhandling, storage or disposal of these materials could be time consuming and costly.**

 

Our operations involvethe use and sale of hazardous chemicals. Although we believe that our safetyprocedures for handling and disposing comply with the applicable standards, wecannot eliminate the risk of accidental contamination or discharge and anyresultant injury from these materials. Federal, state and local laws andregulations govern the use, manufacture, storage, handling and disposal ofhazardous materials. In the event of an accident, we may be sued for any injuryor contamination that results from our use or the use by third parties of thesematerials, and our liability may exceed our insurance coverage and our totalassets.

 

**Disclosureof trade secrets could aid our competitors.**

 

We attempt to protect ourtrade secrets by entering into confidentiality agreements with third parties,our employees and consultants. However, these agreements can be breached and,if they are, there may not be an adequate remedy available to us. If our tradesecrets become known we may lose our competitive position.

 

**If weare unable to adequately protect our intellectual property, third parties maybe able to use our technology, which could adversely affect our ability tocompete in the market.**

 

Our success will dependin part on our ability to obtain protection for our intellectual property. Wewill be able to protect our intellectual property rights from unauthorized useby third parties only to the extent that our software is copyrightable andbusiness methods are patentable under applicable intellectual property laws orare effectively maintained as trade secrets. The laws of some foreign countriesdo not protect intellectual property rights to the same extent as the laws ofthe United States and many companies have encountered significant problems inprotecting and defending such rights in foreign jurisdictions. Furthermore,others may independently develop similar or alternative technologies or designaround our intellectual property protections. In addition, our competitors mayindependently develop substantially equivalent proprietary information or mayotherwise gain access to our trade secrets.

 

**Difficultieswe may encounter managing our growth product lines may divert resources andlimit our ability to successfully expand our operations and implement ourbusiness plan.**

 

We anticipate that ourMVS and docHarbor Web Presentment product lines will continue to grow. Ourgrowth in the future anticipates potential acquisitions that may place a strainon our administrative personnel and operational infrastructure should suchacquisitions occur. We cannot assure you that we will be able to identifyacquisition candidates, or be able to consummate acquisitions on termsacceptable to us, if at all. Additionally, we cannot assure you that we willhave funds available for making acquisitions. Effectively managing growth willalso require us to improve our operational, financial and management controls,reporting systems and procedures. We may not be able to successfully implementimprovements to our management information and control systems in an efficientor timely manner and may discover deficiencies in existing systems andcontrols.

 

**We relyon a few suppliers to provide us COM products that while in decline, areessential to our operations.**

 

Supplies and system salesrepresented approximately 15% of our total revenue, for fiscal year 2003. Theprimary products in the supplies business are silver halide original COM filmand non-silver duplicating microfilm. We obtain all of our silver halideproducts through an exclusive multi-year supply agreement with a singleprovider and our duplicate film products from one other providers. Anydisruption in the supply relationship between Anacomp and such suppliers couldresult in delays or reductions in product shipment or increases in productcosts that adversely affect our operating results in any given period. In theevent of any such disruption, we cannot assure you that we could developalternative sources of raw materials and supplies at acceptable prices andwithin reasonable times. Additionally, as the demand for COM services declines,the demand for COM supplies falls as well. If the decline in COM supplies isgreater than planned, our profitability and liquidity would decline as well.

 

**Ourstock price may be volatile, and you may not be able to resell your shares ator above the price you paid, or at all.**

 

Since the effective dateof our bankruptcy restructuring, our common stock has had limited tradingactivity on the OTC Bulletin Board. We cannot predict the extent to whichinvestor interest in our stock will lead to the development of a more activetrading market, how liquid that market might become or whether it will besustained. The trading price of our common stock could be subject to widefluctuations due to the factors discussed in this risk

 

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factors section andelsewhere in this report. In addition, the stock markets in general haveexperienced extreme price and volume fluctuations. These broad market and industryfactors may decrease the market price of our common stock, regardless of ouractual operating performance.

 

**Our netdeferred tax asset may have no future value should we experience an OwnershipChange as defined by the Internal Revenue Code.**

 

Wemaintain a deferred tax asset for tax goodwill in excess of book reorganizationasset, certain temporary differences, net operating losses and other tax basiscarryforwards.  We have also establisheda valuation allowance in order to fully offset this net deferred taxasset.  We have been advised that in theevent of an Ownership Change (as defined by the Internal Revenue Code insection 382), our net deferred tax asset may have limited or no value andbe unavailable for us to utilize for our benefit in future periods.

 

Any of these factorscould significantly harm our future international sales and, consequently, ourrevenues and results of operations and business and financial condition.

 

**ITEM7A.****               QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS**

 

Revenues generatedoutside the United States, as a percentage of total revenues, were 31% infiscal year 2003, 28% in fiscal year 2002 and 30% in fiscal year 2001.  Fluctuations in foreign exchange rates couldimpact operating results through translation of the Company’s subsidiaries’financial statements.

 

The Company isexposed to the risk of future currency exchange rate fluctuations, which isaccounted for as an adjustment to stockholders’ equity. Therefore, changes fromreporting period to reporting period in the exchange rates between variousforeign currencies and the U.S. Dollar have had and will continue to have animpact on the accumulated other comprehensive loss component of stockholders’equity reported by the Company, and such effect may be material in anyindividual reporting period.

 

The Company’s bankrevolving credit facility is affected by the general level of U.S. interestrates.  The Company had $5.9 millionoutstanding under its bank line of credit on September 30, 2003.  If interest rates were to increase 2%, theCompany’s annual interest expense would increase approximately $0.1 millionbased on the $5.9 million outstanding balance.

 

**ForeignExchange Options**

** **

OnOctober 15, 2002, we entered into a Swiss Franc (CHF) forward contract toprotect the value of the expected cash receipts from the sale of ourSwitzerland operations. The contract protects Anacomp against an exchange rateabove 1.5425.

 

The forwardcontract was written in the amount of CHF 1.8 million and expires onApril 15, 2004. We receive full exchange benefits for a lower rate on 50%of the contract and the remaining 50% will be converted at 1.5425. The minimumU.S. dollar proceeds received would be $1.2 million if the buyer releases allfunds.

 

The Other Expensecategory of our Condensed Consolidated Statement of Operations for the twelvemonths ended September 30, 2003 includes the recognition of $25 thousandof exchange loss from currency fluctuations related to the Swiss receivable,the forward contracts and sale costs.

 

**ITEM 8.****                        FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA**

 

Financial statements andsupplementary financial information appear on pages A-1 to A-31 of this AnnualReport on Form 10-K.

 

**ITEM 9.****                        CHANGES INAND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES**

 

The information requiredby Item 9 with respect to changes in accountants is incorporated here in bythis reference to such information filed under Form 8-K dated May 29,2002.  The Company changed its public accountantsfrom Arthur Andersen LLP to Ernst & Young LLP for the fiscal year 2002.

 

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**ITEM 9A.****               CONTROLSAND PROCEDURES**

 

(a) Under the supervision and with the participation ofour management, including our principal executive officer and principalfinancial officer, we conducted an evaluation of our disclosure controls andprocedures, as such term is defined under Rule 13a-15(e) promulgated underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based onthis evaluation, our principal executive officer and our principal financialofficer concluded that our disclosure controls and procedures were effective asof the end of the period covered by this Annual Report on Form 10-K.

 

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**PARTIII**

 

**ITEM10.****                 DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT**

 

**Theinformation required by this item is incorporated by reference to theDefinitive Proxy Statement under the headings “Election of Directors”,“Section 16(a) Beneficial Ownership Reporting Compliance” and “Code ofEthics” from its Definitive Proxy Statement to be delivered to the shareholdersof the Company in connection with the 2003 Annual Meeting of Shareholders to beheld in February 2004.  Informationregarding executive officers is set forth in Item 1 of Part I of this Reportunder the caption “Executive Officers.”**

 

**ITEM 11.****                 EXECUTIVECOMPENSATION**

 

The information requiredby this item is incorporated by reference to the Definitive Proxy Statementunder the heading “Executive Compensation and Other Matters.”

 

**ITEM 12.****                 SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

The informationrequired by this item is incorporated by reference to the Definitive ProxyStatement under the heading, “Stock Ownership of Management and CertainBeneficial Owners” and “Equity Compensation Plan Information.”

 

**ITEM13.****                 CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS**

 

The information requiredby this item is incorporated by reference to the Definitive Proxy Statementunder the heading “Certain Relationships and Related Transactions.”

 

**ITEM14.****                 PRINCIPALACCOUNTANT FEES AND SERVICES**

 

The information required by this items in incorporated byreference to the information contained in the Definitive Proxy Statement underthe heading “Ratification of Appointment of Independent Auditors.”

 

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**PART IV**

 

**ITEM 15****.****                 EXHIBITS,FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K**

 
| (a)                                                                                                                    | 1.     | The following financial  statements and other information appear in Appendix A to this Annual                                                                                                                                                                                               |
|------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
|                                                                                                                   |   | Report on Form 10-K and  are filed as a part hereof:                                                                                                                                                                                                                                        |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
|                                                                                                                   |   | Report of Independent  Public Accountants.                                                                                                                                                                                                                                                  |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
|                                                                                                                   |   | Consolidated Balance  Sheets - September 30, 2003 and 2002.                                                                                                                                                                                                                            |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
|                                                                                                                   |   | Consolidated Statements  of Operations - Years Ended September 30, 2003, 2002 and 2001.                                                                                                                                                                                                |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
|                                                                                                                   |   | Consolidated Statements  of Stockholders’ Equity (Deficit) - Years Ended September 30, 2003, 2002  and 2001.                                                                                                                                                                      |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
|                                                                                                                   |   | Consolidated Statements  of Cash Flows - Years Ended September 30, 2003, 2002 and 2001.                                                                                                                                                                                                |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
|                                                                                                                   |   | Notes to the  Consolidated Financial Statements.                                                                                                                                                                                                                                            |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
|                                                                                                                   | 2.     | Financial Statement  Schedules are not filed with this Annual Report on Form 10-K because the  Schedules are either inapplicable or the required information is presented in  the financial statements listed immediately above or in the notes thereto.                                    |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
| (b)                                                                                                                    |   | Reports on Form 8-K:                                                                                                                                                                                                                                                                        |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
| During the fourth  quarter of the fiscal year covered by this report, Anacomp filed the  following report on Form 8-K: |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
|                                                                                                                   | 1.     | August 15, 2003  (quarterly earnings release) Reports that are “furnished” rather than “filed”  are not incorporated by reference into our filings under the Securities Act  nor Securities Exchange Act.                                                          |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
| (c)                                                                                                                    |   | The following exhibits  are filed with this Annual Report on Form 10-K or incorporated herein by  reference to the listed document previously filed with the Securities and  Exchange Commission (the “SEC”).   Previously unfiled documents are noted with an asterisk (*): |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
| 2.                                                                                                                     |   | Plan of Reorganization  dated August 29, 2001. (1)                                                                                                                                                                                                                                     |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
| 3.1                                                                                                                    |   | Amended and Restated  Articles of Incorporation of the Company as of December 31, 2001. (2)                                                                                                                                                                                            |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
| 3.2                                                                                                                    |   | Amended and Restated  Bylaws of the Company as of April 25, 2002. (3)                                                                                                                                                                                                                  |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
| 4.1                                                                                                                    |   | Shareholders Rights  Plan. (4)                                                                                                                                                                                                                                                              |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
| 4.2                                                                                                                    |   | Amendments to the  Shareholders Rights Plan. (5)                                                                                                                                                                                                                                            |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
| 4.3                                                                                                                    |   | Warrant Agreement by  and between the Company and Mellon Investor Services LLC dated  December 31, 2002. (2)                                                                                                                                                                           |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
| 10.1                                                                                                                   |   | Retirement / Part-Time  Employment Agreement dated October 27, 1999, between the Company and  William C. Ater. (6) (8)                                                                                                                                                                 |
|                                                                                                                   |   |                                                                                                                                                                                                                                                                                        |
| 10.2                                                                                                                   |   | Employment Agreement,  effective August 21, 2000, between the Company and Jeffrey R. Cramer.  (7) (8)                                                                                                                                                                                  |

 

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| 10.3   |   | Revolving Credit  Agreement, dated as of June 15, 1998, among Anacomp, Inc., the various  lending institutions named therein and BankBoston, N.A. as agent. (9)                                                                                                    |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                    |
| 10.4   |   | Forbearance and  Standstill Agreement, dated as of November 15, 2000, among Anacomp,  Inc., the various banks named therein, and Fleet National Bank as agent for  the banks. (6)                                                                                  |
|   |   |                                                                                                                                                                                                                                                                    |
| 10.5   |   | Amendment to the  Forbearance and Standstill Agreement, dated as of December 15, 2000,  between Anacomp, Inc. and Fleet National Bank. (6)                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                    |
| 10.6   |   | Amended and Restated  Master Supply Agreement, dated October 8, 1993, by and among the  Company, SKC America, Inc. and SKC Limited. (10)                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                    |
| 10.7   |   | First Cumulative  Amendment to the Amended and Restated Master Supply Agreement, dated  May 17, 1996, by and among the Company, SKC America, Inc. and SKC  Limited. (11)                                                                                           |
|   |   |                                                                                                                                                                                                                                                                    |
| 10.8   |   | Second Amended and  Restated Master Supply Agreement, dated as of July 1, 1997, by and among  the Company, SKC America, Inc. and SKC Limited. (12)                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                    |
| 10.9   |   | Second Amendment to  Amended and Restated Revolving Credit Agreement and Restructure of  Obligations dated as of December 19, 2002, by and among the Company, the  various banks named therein, and Fleet National Bank as agent for the banks.  (5)               |
|   |   |                                                                                                                                                                                                                                                                    |
| 10.10  |   | Lease Agreement by and  between the Company and Kilroy Realty, LP., a Delaware limited partnership  dated June 14, 2002. (13)                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                    |
| 10.11  |   | Consulting Agreement by  and between the Company and Steven G. Singer dated May 7, 2002. (13)                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                    |
| 10.12  |   | Employment Agreement  and Amended Employment Agreement between the Company and Edward P. Smoot  dated November 12, 2002 and April 28, 2003, respectively.                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                    |
| 10.13  |   | Revolving Credit  Agreement, dated as of November 21, 2003, by and among, Anacomp, Inc., Fleet  National Bank and Union Bank of California. (14)                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                    |
| 16.    |   | Letter by Arthur  Anderson to the SEC dated May 28, 2002 regarding change in certifying  accountant. (15)                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                    |
| 21.1   |   | Subsidiaries.                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                    |
| 23.1   |   | Consent of Ernst and  Young LLP, Independent Auditors.                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                    |
| 23.2   |   | Solely due to the  closure of Arthur Andersen LLP’s San Diego, California office, after  reasonable efforts, the Registrant was unable to obtain the written consent  of Arthur Andersen LLP to incorporate by reference its report dated  November 21, 2001. |
|   |   |                                                                                                                                                                                                                                                                    |
| 31     |   | Rule 13a – 14(a)/15(d)  – 14(a) Certifications                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                    |
| 32     |   | Section 1350  Certifications                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                    |
|        |
| (1)    |   | Incorporated by  reference to the Company’s Form 8-K filed on September 20, 2001 and  October 29, 2001.                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                    |
| (2)    |   | Incorporated  by reference to the exhibits to the registration statement of Form 8-A filed  by the Company on January 9, 2002.                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                    |
| (3)    |   | Incorporated  by reference to the Company’s Form 10-Q/A for the quarterly period ended  June 30, 2002.                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                    |
| (4)    |   | Incorporated  by reference to an exhibit to the Company’s Form 8-K filed on  September 21, 2002.                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                    |
| (5)    |   | Incorporated by  reference to the Company’s Form 10-K for the year ended September 30,  2002.                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                    |
| (6)    |   | Incorporated  by reference to the Company’s Form 10-K for the year ended September 30,  2000.                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                    |
| (7)    |   | Incorporated  by reference to the Company’s Form 10-K for the year ended September 30,  2001.                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                    |
| (8)    |   | Management  contract or compensation plan.                                                                                                                                                                                                                              |

 

31

----

 
| (9)    |   | Incorporated  by reference to the Company’s Form 8-K filed with the SEC on June 24,  1998 (File No. 1-8328).                                                                |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                  |
| (10)   |   | Incorporated  by reference to the Company’s Form 10-K for the year ended September 30,  1993.                                                                               |
|   |   |                                                                                                                                                                                  |
| (11)   |   | Incorporated by reference to the Company’s  Pre-Effective Amendment No. 1 to Form S-1 Registration Statement filed with  the SEC on September 19, 1996 (File No. 333-9395). |
|   |   |                                                                                                                                                                                  |
| (12)   |   | Incorporated by reference to the Company’s Form 10-K  for the year ended September 30, 1999.                                                                                |
|   |   |                                                                                                                                                                                  |
| (13)   |   | Incorporated by reference to  the Company’s Form 10-Q for the quarterly period ended June 30, 2002.                                                                         |
|   |   |                                                                                                                                                                                  |
| (14)   |   | Incorporated by  reference to the Company's Form 8-K filed on November 25, 2003.                                                                                                      |
|   |   |                                                                                                                                                                                  |
| (15)   |   | Incorporated by reference to an exhibit to the  Company’s Form 8-K filed with the SEC on May 29, 2002.                                                                 |

 

32

----

 

**1.****              SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
|                                | **ANACOMP,  INC.**                     |
|-------------------------------------|----------------------------------------|
|                                |                                   |
|                                |                                   |
|                                | By:                                    | /s/ Jeffrey R. Cramer |   |
|                                | Jeffrey R. Cramer                      |
|                                | President and Chief  Executive Officer |
|                                |                                   |
|                                |                                   |
| Dated:  December 22, 2003 |                                   |

 

Pursuant to therequirement of the Securities Exchange Act of 1934, this report has been signedbelow by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 

 
| Dated:  December 22, 2003 | By:    | /s/ Edward P. Smoot                                   |   |
|-------------------------------------|--------|-------------------------------------------------------|--------|
|                                |   | Edward P. Smoot                                       |
|                                |   | Chairman of the Board                                 |
|                                |   |                                                  |
|                                |   |                                                  |
| Dated:  December 22, 2003 | By:    | /s/ Jeffrey R. Cramer                                 |   |
|                                |   | Jeffrey R. Cramer                                     |
|                                |   | President and Chief  Executive Officer                |
|                                |   |                                                  |
|                                |   |                                                  |   |
| Dated:  December 22, 2003 | By:    | /s/ Gary J. Fernandes                                 |   |
|                                |   | Gary J. Fernandes,  Director                          |
|                                |   |                                                  |   |
|                                |   |                                                  |   |
| Dated:  December 22, 2003 | By:    | /s/ Mark Holdsworth                                   |   |
|                                |   | Mark Holdsworth,  Director                            |
|                                |   |                                                  |   |
|                                |   |                                                  |   |
| Dated:  December 22, 2003 | By:    | /s/ Fred G. Jager                                     |   |
|                                |   | Fred G. Jager, Director                               |
|                                |   |                                                  |   |
|                                |   |                                                  |   |
| Dated:  December 22, 2003 | By:    | /s/ James McGovern                                    |   |
|                                |   | James McGovern,  Director                             |
|                                |   |                                                  |   |
|                                |   |                                                  |   |
| Dated:  December 22, 2003 | By:    | /s/ Linster W. Fox                                    |   |
|                                |   | Linster W. Fox                                        |
|                                |   | Executive Vice  President and Chief Financial Officer |
|                                     |        |                                                       |        |  |  |  |  |

 

33

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**APPENDIX A**

 

**Annual Report on Form 10-K**

**Anacomp, Inc.**

 
| Report of Ernst  & Young LLP, Independent Auditor                                                                                                                                                                                     |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                      |   |
| Report of  Independent Public Accountants                                                                                                                                                                                                 |   |
|                                                                                                                                                                                                                                      |   |
| Consolidated Balance Sheets  – September 30, 2003 and 2002                                                                                                                                                                 |   |
|                                                                                                                                                                                                                                      |   |
| Consolidated  Statements of Operations – Year Ended September 30, 2003, Nine Months  Ended September 30, 2002, Three Months Ended December 31, 2001, and  Year Ended September 30, 2001                          |   |
|                                                                                                                                                                                                                                      |   |
| Consolidated  Statements of Stockholders’ Equity (Deficit) – Year Ended September 30,  2003, Nine Months Ended September 30, 2002, Three Months Ended  December 31, 2001, and Year Ended September 30, 2001 |   |
|                                                                                                                                                                                                                                      |   |
| Consolidated  Statements of Cash Flows – Year Ended September 30, 2003, Nine Months  Ended September 30, 2002, Three Months Ended December 31, 2001, and  Year Ended September 30, 2001                          |   |
|                                                                                                                                                                                                                                      |   |
| Notes to  the Consolidated Financial Statements                                                                                                                                                                                           |   |

 

A-1

----

 

**REPORTOF ERNST****& YOUNG LLP, INDEPENDENT AUDITOR**

 

To the Stockholders andtheBoard of Directors of Anacomp, Inc.:

 

We have auditedthe accompanying consolidated balance sheets of Anacomp, Inc. and subsidiariesas of September 30, 2003 and 2002, and the related consolidated statementsof operations, stockholders’ equity (deficit), and cash flows for the fiscalyear ended September 30, 2003 (Reorganized Company), the nine months endedSeptember 30, 2002 (Reorganized Company) and the three months endedDecember 31, 2001 (Predecessor Company). These consolidated financialstatements are the responsibility of Anacomp, Inc.’s management. Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audits. The consolidated financial statements ofAnacomp, Inc. for the fiscal year ended September 30, 2001 were audited byother auditors who have ceased operations. Those auditors opinion on those statementscontained an explanatory paragraph relating to the Company’s ability tocontinue as a going concern in their report dated November 21, 2001.

 

We conducted our auditsin accordance with auditing standards generally accepted in the United States.Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, thefiscal 2003 and 2002 consolidated financial statements referred to abovepresent fairly, in all material respects, the consolidated financial positionof Anacomp, Inc. and subsidiaries as of September 30, 2003 and 2002, andthe consolidated results of their operations and their cash flows for thefiscal year ended September 30, 2003 (Reorganized Company), the ninemonths ended September 30, 2002 (Reorganized Company) and the three monthsended December 31, 2001 (Predecessor Company) in conformity withaccounting principles generally accepted in the United States.

 

As discussed above, thefinancial statements of Anacomp, Inc. as of September 30, 2001, and for thefiscal year then ended were audited by other auditors who have ceasedoperations. As described in Note 2 these financial statements have been revisedto include the transitional disclosures required by Statement of FinancialAccounting Standards (Statement) No. 142, Goodwill and Other Intangible Assets,which was adopted by the Company as of January 1, 2002. Our audit procedureswith respect to the disclosures in Note 2 with respect to fiscal 2001 included(a) agreeing the previously reported net loss to the previously issuedfinancial statements and the adjustments to reported net loss representingamortization expense (including any related tax effects) recognized in thatperiod related to goodwill, intangible assets that are no longer beingamortized, to the Company’s underlying records obtained from management, and(b) testing the mathematical accuracy of the reconciliation of adjusted netloss to reported net loss. In our opinion, the disclosures for fiscal 2001 inNote 2 related to the transitional disclosures of Statement 142 areappropriate. However, we were not engaged to audit, review, or apply anyprocedures to the 2001 financial statements of the Predecessor Company otherthan with respect to such disclosures and, accordingly, we do not express anopinion or any other form of assurance on the Predecessor Company’s 2001financial statements taken as a whole.

 
|                   | /s/ ERNST&YOUNG LLP |   |
|------------------------|-------------------------|--------|
|                   |                    |
|                   |                    |
| San Diego, CA          |                    |
| November 24, 2003 |                    |

 

A-2

----

 

**REPORT OF INDEPENDENT PUBLICACCOUNTANTS**

 

To Anacomp, Inc.:

 

Wehave audited the accompanying consolidated balance sheets of Anacomp, Inc.(an Indiana corporation) and Subsidiaries as of September 30, 2001 and2000, and the related consolidated statements of operations, stockholders’deficit, and cash flows for each of the three years in the period endedSeptember 30, 2001. These financial statements are the responsibility ofthe Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

 

Weconducted our audits in accordance with auditing standards generally acceptedin the United States. Those standards require that we plan and perform theaudits to obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of Anacomp, Inc. andsubsidiaries as of September 30, 2001 and 2000, and the results of theiroperations and their cash flows for each of the three years in the period endedSeptember 30, 2001 in conformity with accounting principles generallyaccepted in the United States.

 

Theaccompanying financial statements have been prepared assuming that the Companywill continue as a going concern. As discussed in Note 1 to the financialstatements, the Company has defaulted on its debt obligations, has substantialoperating and liquidity issues, and has filed for voluntary bankruptcyprotection and reorganization under Chapter 11 of the United States BankruptcyCode, which raises substantial doubt about the Company’s ability to continue asa going concern. Management’s plans in regard to these matters are alsodescribed in Note 1. The financial statements do not include anyadjustments relating to the recoverability and classification of asset carryingamounts or the amount and classification of liabilities that might resultshould the Company be unable to continue as a going concern.

 
| /s/ ARTHUR ANDERSEN LLP |   |
|-------------------------|--------|
| San Diego, California   |
| November 21, 2001  |

 

 

NOTE: THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHURANDERSENLLP (“ANDERSEN”) IN CONNECTION WITH ANACOMP, INC.’S FORM 10-K FILINGFORTHE FISCAL YEAR ENDED SEPTEMBER 30, 2001. THE INCLUSION OF THIS PREVIOUSLYISSUED ANDERSEN REPORT IS PURSUANT TO THE “TEMPORARY FINAL RULE AND FINAL RULEREQUIREMENTS FOR ARTHUR ANDERSEN LLP AUDITING CLIENTS,” ISSUED BY THE U.S.SECURITIES AND EXCHANGE COMMISSION IN MARCH 2002. NOTE THAT THIS PREVIOUSLYISSUED ANDERSEN REPORT INCLUDES REFERENCES TO CERTAIN FISCAL YEARS, WHICH ARENOT REQUIRED TO BE PRESENTED IN THE ACCOMPANYING CONSOLIDATED FINANCIALSTATEMENTS AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000. THISAUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITHTHIS FILING ON FORM 10-K. SEE EXHIBIT 23.2 FOR FURTHER DISCUSSION.

 

A-3

----

 

**CONSOLIDATEDBALANCE SHEETS******Anacomp, Inc. and Subsidiaries

 
|                                                                                                  |   | **Reorganized  Company**     |       |
|-------------------------------------------------------------------------------------------------------|--------|------------------------------|------------|
| **(dollars in thousands, except  share amounts)**                                                     |   | **September 30,  2003** | ** ** | **September 30,  2002** | ** ** |
| **Assets**                                                                                            |   |                         |       |   |   |
| Current  assets:                                                                                      |   |                         |       |   |   |
| Cash  and cash equivalents                                                                            |   | $                            | 18,390     |   | $ | 15,561 |   |
| Receivable  on sale of Swiss subsidiaries                                                             |   | 1,262                        |       | — |   |
| Accounts  receivable, net                                                                             |   | 29,847                       |       | 34,949 |   |
| Current  portion of long term receivables, net                                                        |   | 889                          |       | 1,305 |   |
| Inventories                                                                                           |   | 3,174                        |       | 3,474 |   |
| Prepaid  expenses and other                                                                           |   | 3,909                        |       | 5,137 |   |
| Assets  of discontinued operations                                                                    |   | —                       |       | 12,027 |   |
| Total  current assets                                                                                 |   | 57,471                       |       | 72,453 |   |
|                                                                                                  |   |                         |       |   |   |
| Property  and equipment, net                                                                          |   | 18,398                       |       | 21,448 |   |
| Long  term receivables, net of current portion                                                        |   | 928                          |       | 1,188 |   |
| Reorganization  value in excess of identifiable net assets                                            |   | 73,363                       |       | 74,537 |   |
| Intangible  assets, net                                                                               |   | 8,829                        |       | 10,813 |   |
| Other  assets                                                                                         |   | 5,952                        |       | 5,510 |   |
|                                                                                                  |   | $                            | 164,941    |   | $ | 185,949 |   |
| **Liabilities and Stockholders’ Equity**                                                         |   |                         |       |   |   |
| Current  liabilities:                                                                                 |   |                         |       |   |   |
| Current  portion of revolving credit facility                                                         |   | $                            | —     |   | $ | 29,975 |   |
| Accounts  payable                                                                                     |   | 9,118                        |       | 10,756 |   |
| Accrued  compensation, benefits and withholdings                                                      |   | 14,233                       |       | 16,294 |   |
| Deferred  revenue                                                                                     |   | 7,784                        |       | 7,117 |   |
| Accrued  income taxes                                                                                 |   | 1,063                        |       | 1,264 |   |
| Other  accrued liabilities                                                                            |   | 9,262                        |       | 9,305 |   |
| Liabilities  of discontinued operations                                                               |   | —                       |       | 4,241 |   |
| Total  current liabilities                                                                            |   | 41,460                       |       | 78,952 |   |
|                                                                                                  |   |                         |       |   |   |
| Long-term  liabilities:                                                                               |   |                         |       |   |   |
| Senior  secured revolving credit facility                                                             |   | 5,917                        |       | — |   |
| Pension  benefit obligation                                                                           |   | 13,296                       |       | 10,987 |   |
| Other  long-term liabilities                                                                          |   | 3,125                        |       | 2,866 |   |
| Total  long-term liabilities                                                                          |   | 22,338                       |       | 13,853 |   |
|                                                                                                  |   |                         |       |   |   |
| Commitments  and contingencies                                                                        |   |                         |       |   |   |
|                                                                                                  |   |                         |       |   |   |
| Stockholders’  equity:                                                                           |   |                         |       |   |   |
| Preferred  stock, 1,000,000 shares authorized, none issued                                            |   | —                       |       | — |   |
| Common  stock, $.01 par value; 40,787,711 shares authorized; 4,038,534 shares issued  and outstanding |   | 40                           |       | 40 |   |
| Additional  paid-in capital                                                                           |   | 97,000                       |       | 96,942 |   |
| Accumulated  other comprehensive loss                                                                 |   | (891                         | )          | (1,526 | ) |
| Accumulated  earnings (deficit)                                                                       |   | 4,994                        |       | (2,312 | ) |
| Total  stockholders’ equity                                                                      |   | 101,143                      |       | 93,144 |   |
|                                                                                                  |   | $                            | 164,941    |   | $ | 185,949 |   |

 

See the notes tothe consolidated financial statements.

 

A-4

----

 

**CONSOLIDATED STATEMENTS OF OPERATIONS******Anacomp, Inc. and Subsidiaries

 
|                                                                                    |   | **Reorganized  Company (a)**             |    | **Predecessor  Company (a)**                     |   |
|-----------------------------------------------------------------------------------------|--------|------------------------------------------|---------|--------------------------------------------------|--------|
| **(dollars and shares in thousands,  except per share amounts)**                        |   | **Year ended  September 30,  2003** |    | **Nine  months ended  September 30,  2002** |   | **Three  months ended  December 31,  2001** |   | **Year ended  September 30,  2001** |   |
| Revenues:                                                                               |   |                                     |    |                                             |   |   |   |   |   |
| Services                                                                                |   | $                                        | 166,594 |                                             | $      | 140,739 |   | $ | 55,098 |   | $ | 236,635 |   |
| Equipment  and supply sales                                                             |   | 37,429                                   |    | 33,068                                           |   | 12,926 |   | 69,713 |   |
|                                                                                    |   | 204,023                                  |    | 173,807                                          |   | 68,024 |   | 306,348 |   |
| Cost  of revenues:                                                                      |   |                                     |    |                                             |   |   |   |   |   |
| Services                                                                                |   | 113,789                                  |    | 95,099                                           |   | 36,630 |   | 155,273 |   |
| Equipment  and supply sales                                                             |   | 25,353                                   |    | 22,994                                           |   | 9,874 |   | 51,455 |   |
|                                                                                    |   | 139,142                                  |    | 118,093                                          |   | 46,504 |   | 206,728 |   |
| Gross  profit                                                                           |   | 64,881                                   |    | 55,714                                           |   | 21,520 |   | 99,620 |   |
| Costs  and expenses:                                                                    |   |                                     |    |                                             |   |   |   |   |   |
| Engineering,  research and development                                                  |   | 6,397                                    |    | 5,305                                            |   | 1,680 |   | 7,208 |   |
| Selling,  general and administrative                                                    |   | 51,720                                   |    | 43,622                                           |   | 15,643 |   | 83,527 |   |
| Amortization  of intangible assets, including goodwill                                  |   | 1,983                                    |    | 1,487                                            |   | 2,896 |   | 11,713 |   |
| Restructuring  charges (credits)                                                        |   | 2,697                                    |    | 2,081                                            |   | (1,032 | ) | (1,207 | ) |
| Operating  income (loss) from continuing operations                                     |   | 2,084                                    |    | 3,219                                            |   | 2,333 |   | (1,621 | ) |
|                                                                                    |   |                                     |    |                                             |   |   |   |   |   |
| Other  income (expense):                                                                |   |                                     |    |                                             |   |   |   |   |   |
| Interest  income                                                                        |   | 257                                      |    | 353                                              |   | 155 |   | 1,338 |   |
| Interest  expense and fee amortization                                                  |   | (1,789                                   | )       | (3,069                                           | )      | (3,114 | ) | (43,860 | ) |
| Gain  on extinguishment of debt                                                         |   | —                                   |    | —                                           |   | 265,329 |   | — |   |
| Other                                                                                   |   | 519                                      |    | 296                                              |   | (221 | ) | (131 | ) |
|                                                                                    |   | (1,013                                   | )       | (2,420                                           | )      | 262,149 |   | (42,653 | ) |
| Income  (loss) from continuing operations before reorganization items and income  taxes |   | 1,071                                    |    | 799                                              |   | 264,482 |   | (44,274 | ) |
| Reorganization  items                                                                   |   | —                                   |    | —                                           |   | 13,328 |   | — |   |
| Income  (loss) from continuing operations before income taxes                           |   | 1,071                                    |    | 799                                              |   | 277,810 |   | (44,274 | ) |
| Provision  for income taxes                                                             |   | 1,760                                    |    | 4,024                                            |   | 450 |   | 3,217 |   |
| (Loss)  income from continuing operations                                               |   | (689                                     | )       | (3,225                                           | )      | 277,360 |   | (47,491 | ) |
| Gain  on sale of discontinued operations, net of taxes                                  |   | 7,995                                    |    | —                                           |   | — |   | — |   |
| Income  from discontinued operations, net of taxes                                      |   | —                                   |    | 913                                              |   | — |   | — |   |
| Net  income (loss)                                                                      |   | $                                        | 7,306   |                                             | $      | (2,312 | ) | $ | 277,360 |   | $ | (47,491 | ) |
|                                                                                    |   |                                     |    |                                             |   |   |   |   |   |
| Basic  and diluted per share data:                                                      |   |                                     |    |                                             |   |   |   |   |   |
| Basic  and diluted net loss from continuing operations                                  |   | $                                        | (0.17   | )                                                | $      | (0.80 | ) |   |   |   |   |
| Gain  on sale of discontinued operations                                                |   | 1.98                                     |    | —                                           |   |   |   |   |   |
| Basic  and diluted net income from discontinued operations                              |   | —                                   |    | 0.23                                             |   |   |   |   |   |
| Basic  and diluted net income (loss)                                                    |   | $                                        | 1.81    |                                             | $      | (0.57 | ) |   |   |   |   |
| Shares  used in computing basic and diluted net income (loss) per share                 |   | 4,039                                    |    | 4,036                                            |   |   |   |   |   |

 

----

(a)  Reorganized Company data includes results ofdiscontinued operations separately. Discontinued operations data has not been included for the PredecessorCompany as amounts are not material.

 

See the notes tothe consolidated financial statements.

 

A-5

----

 

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS****’ EQUITY(DEFICIT)**Anacomp, Inc. and Subsidiaries

 
|                                                    |   | **Common  Stock** |   | **Additional  Paid-in** |   | **Accumulated  Other  Comprehensive** |   | **Accumulated  Earnings** |   |          |   |
|---------------------------------------------------------|--------|-------------------|--------|-------------------------|--------|---------------------------------------|--------|---------------------------|--------|---------------|--------|
| **(in thousands, except share data)**                   |   | **Shares**        |   | **Amount**              |   | **Capital**                           |   | **Income  (Loss)**        |   | **(Deficit)** |   | **Total** |   |
| **SEPTEMBER 30,  2000 – PREDECESSOR COMPANY** |   | 14,566,198        |   | $                       | 146    |                                  | $      | 111,324                   |   | $             | (5,402 | ) | $ | (336,994 | ) | $ | (230,926 | ) |
| Net  loss                                               |   | —            |   | —                  |   | —                                |   | —                    |   | (47,491       | )      | (47,491 | ) |
| Translation  adjustment                                 |   | —            |   | —                  |   | —                                |   | (273                      | )      | —        |   | (273 | ) |
| Realized  gain on currency swap contracts               |   | —            |   | —                  |   | —                                |   | 763                       |   | —        |   | 763 |   |
| **Comprehensive  loss**                                 |   |              |   |                    |   |                                  |   |                      |   |          |   | (47,001 | ) |
| **SEPTEMBER 30,  2001 – PREDECESSOR COMPANY** |   | 14,566,198        |   | 146                     |   | 111,324                               |   | (4,912                    | )      | (384,485      | )      | (277,927 | ) |
| Net  income for three months                            |   | —            |   | —                  |   | —                                |   | —                    |   | 277,360       |   | 277,360 |   |
| Translation  adjustment for three months                |   | —            |   | —                  |   | —                                |   | 639                       |   | —        |   | 639 |   |
| **Comprehensive  income for three months**              |   |              |   |                    |   |                                  |   |                      |   |          |   | 277,999 |   |
| Reorganization items                                    |   | (14,566,198       | )      | (146                    | )      | (111,324                              | )      | 4,273                     |   | 107,125       |   | (72 | ) |
| New stock issuance                                      |   | 4,034,034         |   | 40                      |   | 96,885                                |   | —                    |   | —        |   | 96,925 |   |
| **DECEMBER 31,  2001 – REORGANIZED COMPANY**  |   | 4,034,034         |   | 40                      |   | 96,885                                |   | —                    |   | —        |   | 96,925 |   |
| Net  loss for nine months                               |   | —            |   | —                  |   | —                                |   | —                    |   | (2,312        | )      | (2,312 | ) |
| Translation  adjustment for nine months                 |   | —            |   | —                  |   | —                                |   | 1,996                     |   | —        |   | 1,996 |   |
| Unfunded  accumulated benefit obligation                |   | —            |   | —                  |   | —                                |   | (3,522                    | )      | —        |   | (3,522 | ) |
| **Comprehensive  loss for nine months**                 |   |              |   |                    |   |                                  |   |                      |   |          |   | (3,838 | ) |
| Common  stock issued for director stock grants          |   | 2,000             |   | —                  |   | 57                                    |   | —                    |   | —        |   | 57 |   |
| **SEPTEMBER 30,  2002 – REORGANIZED COMPANY** |   | 4,036,034         |   | 40                      |   | 96,942                                |   | (1,526                    | )      | (2,312        | )      | 93,144 |   |
| Net  income                                             |   | —            |   | —                  |   | —                                |   | —                    |   | 7,306         |   | 7,306 |   |
| Translation  adjustment                                 |   | —            |   | —                  |   | —                                |   | 900                       |   | —        |   | 900 |   |
| Unfunded  accumulated benefit obligation                |   | —            |   | —                  |   | —                                |   | (265                      | )      | —        |   | (265 | ) |
| **Comprehensive  income**                               |   |              |   |                    |   |                                  |   |                      |   |          |   | 7,941 |   |
| Common  stock issued for director stock grants          |   | 2,500             |   | —                  |   | 58                                    |   | —                    |   | —        |   | 58 |   |
| **SEPTEMBER 30,  2003 – REORGANIZED COMPANY** |   | 4,038,534         |   | $                       | 40     |                                  | $      | 97,000                    |   | $             | (891   | ) | $ | 4,994 |   | $ | 101,143 |   |

 

See the notes tothe consolidated financial statements.

 

A-6

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**CONSOLIDATED STATEMENTS OF CASH FLOWS**

Anacomp, Inc. andSubsidiaries

 
|                                                                                      |   | **Reorganized  Company**                 |   | **Predecessor  Company**                         |   |
|-------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|--------------------------------------------------|--------|
| **(dollars in thousands)**                                                                |   | **Year ended  September 30,  2003** |   | **Nine  months ended  September 30,  2002** |   | **Three  months ended  December 31,  2001** |   | **Year ended  September 30,  2001** |   |
| Cash  flows from operating activities:                                                    |   |                                     |   |                                             |   |   |   |   |   |
| Net  income (loss)                                                                        |   | $                                        | 7,306  |                                             | $      | (2,312 | ) | $ | 277,360 |   | $ | (47,491 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by operating activities: |   |                                     |   |                                             |   |   |   |   |   |
| Other  income due to extinguishment of debt                                               |   | —                                   |   | —                                           |   | (265,329 | ) | — |   |
| Adjustment  of assets and liabilities to fair value                                       |   | —                                   |   | —                                           |   | (16,916 | ) | — |   |
| Write  off of deferred debt issuance costs and unamortized premiums and discounts         |   | —                                   |   | —                                           |   | 2,216 |   | — |   |
| Gain  on sale of discontinued operations                                                  |   | (7,995                                   | )      | —                                           |   | — |   | — |   |
| Income  from discontinued operations                                                      |   | —                                   |   | (913                                             | )      | — |   | — |   |
| Depreciation  and amortization                                                            |   | 14,414                                   |   | 12,999                                           |   | 7,194 |   | 31,258 |   |
| Amortization  of debt fees, premiums and discounts                                        |   | 516                                      |   | 516                                              |   | 92 |   | 1,398 |   |
| Utilization  of deferred tax asset without rate benefit                                   |   | —                                   |   | 1,994                                            |   | — |   | — |   |
| Non-cash  legal settlement charge                                                         |   | —                                   |   | —                                           |   | — |   | 1,502 |   |
| Non-cash  compensation                                                                    |   | 58                                       |   | —                                           |   | — |   | — |   |
| Other  non-cash charges                                                                   |   | 32                                       |   | 358                                              |   | 349 |   | — |   |
| Change  in assets and liabilities:                                                        |   |                                     |   |                                             |   |   |   |   |   |
| Accounts  and other receivables                                                           |   | 5,102                                    |   | (1,239                                           | )      | 3,092 |   | 11,045 |   |
| Inventories                                                                               |   | 760                                      |   | (148                                             | )      | 739 |   | 3,332 |   |
| Prepaid  expenses and other assets                                                        |   | 1,708                                    |   | (5,497                                           | )      | 332 |   | (2,005 | ) |
| Accounts  payable, accrued expenses and other liabilities                                 |   | (7,518                                   | )      | 8,039                                            |   | (3,733 | ) | (13,874 | ) |
| Accrued  interest                                                                         |   | —                                   |   | (13                                              | )      | (387 | ) | 33,321 |   |
| Net  cash provided by continuing operations                                               |   | 14,383                                   |   | 13,784                                           |   | 5,009 |   | 18,486 |   |
| Net  operating cash provided by discontinued operations                                   |   | —                                   |   | 2,797                                            |   | — |   | — |   |
| Net  cash provided by operating activities                                                |   | 14,383                                   |   | 16,581                                           |   | 5,009 |   | 18,486 |   |
| Cash  flows from investing activities:                                                    |   |                                     |   |                                             |   |   |   |   |   |
| Purchases  of property and equipment for continuing operations                            |   | (3,068                                   | )      | (2,727                                           | )      | (1,075 | ) | (4,825 | ) |
| Purchases  of property and equipment for discontinued operations                          |   | —                                   |   | (48                                              | )      | — |   | — |   |
| Proceeds  from sale of discontinued operations and other assets                           |   | 14,631                                   |   | —                                           |   | — |   | — |   |
| Payments  to acquire product line assets and customer rights                              |   | (500                                     | )      | —                                           |   | — |   | (1,593 | ) |
| Net  cash provided by (used in) investing activities                                      |   | 11,063                                   |   | (2,775                                           | )      | (1,075 | ) | (6,418 | ) |
| Cash  flows from financing activities:                                                    |   |                                     |   |                                             |   |   |   |   |   |
| Proceeds  from liquidation of currency swap contracts                                     |   | —                                   |   | —                                           |   | — |   | 763 |   |
| Proceeds  from revolving line of credit                                                   |   | 2,500                                    |   | —                                           |   | — |   | — |   |
| Payments  on revolving line of credit                                                     |   | (26,558                                  | )      | (23,100                                          | )      | (2,000 | ) | (2,575 | ) |
| Net  cash used in financing activities                                                    |   | (24,058                                  | )      | (23,100                                          | )      | (2,000 | ) | (1,812 | ) |
| Effect  of exchange rate changes on cash                                                  |   | 1,441                                    |   | 725                                              |   | 637 |   | 64 |   |
| Increase  (decrease) in cash and cash equivalents                                         |   | 2,829                                    |   | (8,569                                           | )      | 2,571 |   | 10,320 |   |
| Less  increase in cash from discontinued operations                                       |   | —                                   |   | (2,749                                           | )      | — |   | — |   |
| Cash  and cash equivalents at beginning of period                                         |   | 15,561                                   |   | 26,879                                           |   | 24,308 |   | 13,988 |   |
| Cash  and cash equivalents at end of period                                               |   | $                                        | 18,390 |                                             | $      | 15,561 |   | $ | 26,879 |   | $ | 24,308 |   |

 

See the notes tothe consolidated financial statements.

 

A-7

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**SUPPLEMENTAL DISCLOSURES OF CASH FLOWINFORMATION:**

 
|                          |   | **Reorganized  Company**                 |   | **Predecessor  Company**                         |   |
|-------------------------------|--------|------------------------------------------|--------|--------------------------------------------------|--------|
| **(dollars in thousands)**    |   | **Year ended  September 30,  2003** |   | **Nine  months ended  September 30,  2002** |   | **Three  months ended  December 31,  2001** |   | **Year ended  September 30,  2001** |   |
| Cash  paid during period for: |   |                                     |   |                                             |   |   |   |   |   |
| Interest                      |   | $                                        | 1,323  |                                             | $      | 2,175 |   | $ | 1,434 |   | $ | 7,138 |   |
| Income  taxes                 |   | $                                        | 1,658  |                                             | $      | 2,208 |   | $ | 459 |   | $ | 2,569 |   |

 

See the notes tothe consolidated financial statements.

 

A-8

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**NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS**Anacomp, Inc. and Subsidiaries

 

**NOTE 1.COMPANY OPERATIONS AND BASIS OF PRESENTATION:**

 

Anacomp®,Inc. provides comprehensive information outsourcing services, maintenancesupport, and imaging and print solutions for businesses and organizationsaround the globe. We primarily serve customers in the financial services andinsurance sectors and, in the case of Multi-Vendor Services, the technologysector.

 

*Financial Restructuring andReorganization*

 

OnOctober 19, 2001, we filed a voluntary petition for reorganization underChapter 11 of the U.S. Bankruptcy Code, together with a prepackaged plan ofreorganization (the “Plan”), with the U.S. Bankruptcy Court for the SouthernDistrict of California.  The U.S.Bankruptcy Court confirmed the Plan on December 10, 2001, and we emergedfrom bankruptcy effective December 31, 2001.

 

Theprimary benefits of our bankruptcy were the elimination of $310 million ofdebt, related accrued interest of $52.3 million and the related annual interestexpense of approximately $34 million. Additionally, our credit facility wasamended such that we cured previous events of default.

 

Underthe Plan, our publicly traded 10-7/8% senior subordinated notes, relatedaccrued interest and existing Anacomp common stock (14,566,198 shares) werecanceled, and new common stock was issued. New Class A Common Stock was distributed to the holders of the notes, aswell as reserved for issuance as incentive compensation to Anacomp personnel.  New Class B Common Stock was issued anddistributed to holders of previously existing Anacomp common stock.

 

Pursuantto the reorganization, we are authorized to issue 40,000,000 shares of Class ACommon Stock, 787,711 shares of Class B Common Stock and 1,000,000 shares ofpreferred stock.  Terms and conditionsof the Class A and Class B Common Stock are identical, including voting rights,dividends, when and if declared, and liquidation rights, subject to any preferenceof preferred stock as may be issued in the future.  Class B Common Stock is also subject to potential furtherdilution if additional shares of Class B Common Stock are required to be issuedin satisfaction of claims pursuant to the reorganization.  Preferred stock is authorized to be issuedin one or more series with terms to be established at the time of issuance byour Board of Directors.

 

Inexchange for the notes totaling $310 million and related accrued interesttotaling $52.3 million, holders of the notes received 4,030,000 shares of newClass A Common Stock.

 

Foreach share of common stock outstanding immediately prior to the emergence frombankruptcy, common shareholders received .0002769 shares of new Class B CommonStock.  As a result, 4,034 shares of newClass B Common Stock were issued.  Inaddition, for each share of new Class B Common Stock issued, these shareholdersreceived 194.12 warrants.  Each warrantis exercisable for a period of five years for the purchase of one share of thenew Class B Common Stock at an exercise price of $61.54 per share.  As a result, 783,077 warrants to purchaseClass B Common Stock were issued.

 

Holdersof Class A Common Stock own 99.9% of our equity and those holding Class BCommon Stock own 0.1%.

 

Also,as a result of the Chapter 11 reorganization, the following occurred:

 

•                  allunexercised stock options were canceled;

•                  priorstock option plans were terminated;

•                  executorycontracts were assumed or rejected;

•                  tradecreditors were paid in the ordinary course of business and were not impaired;

•                  membersof a new Board of Directors were designated by the holders of the subordinatednotes;

•                  403,403shares of new Class A Common Stock were authorized for use in new stock optionplans; and

•                  therevolving credit facility was amended (see Note 4).

 

A-9

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Underbankruptcy law, an executory contract is an agreement between a debtor andthird party under which, as of the date of a debtor’s Chapter 11 petition,material performance on the agreement remains due from both the debtor andnon-debtor party, such that the failure of either side to perform itsobligations under the agreement would excuse the other party from furtherperformance.  The Bankruptcy Codepermits a Chapter 11 debtor to assume (i.e. agree to continue to be bound bothduring the Chapter 11 case and following emergence) or reject (breach and nolonger be bound during the Chapter 11 case or thereafter) any executorycontract.  We assumed all of ourexecutory contracts under our confirmed plan of reorganization except one,which was a nonresidential lease of real property.

 

TheU.S. Bankruptcy Court issued its final decree on September 27, 2002closing the Chapter 11 case.  There areno remaining claims or unrecorded obligations related to the bankruptcyproceedings.

 

*Basisof Presentation*

 

AtDecember 31, 2001, as a result of our emergence from bankruptcy, weadopted Fresh Start Reporting in accordance with AICPA Statement of Position90-7, “Financial Reporting by Entities in Reorganization under the BankruptcyCode.”  Fresh Start Reporting resultedin material changes to the Consolidated Balance Sheet as of December 31,2001, including adjustment of assets and liabilities to estimated fair values,the valuation of equity based on the reorganization value of the ongoingbusiness, and the recording of an asset for reorganization value in excess ofthe fair value of the separately identifiable assets and liabilities (similarto goodwill).

 

The accompanying financial statements includehistorical information from prior to December 31, 2001, the effective datewe emerged from bankruptcy, and are identified as financial statements of thePredecessor Company.  The ConsolidatedBalance Sheets, Statements of Operations and the Statements of Cash Flows as ofand for the nine-month and twelve-month periods ended September 30, 2002,and September 30, 2003, respectively, represent the Reorganized Companyafter adopting Fresh Start Reporting. Due to our reorganization, the implementation of Fresh Start Reporting(see Note 3), and our presentation of discontinued operations for thenine-month period ended September 30, 2002, the financial statements forthe Reorganized Company are not comparable to those of the Predecessor Company.  We did not reflect the discontinuedoperations presentation relating to the sale of Switzerland in the financialstatements of the Predecessor Company due to the immateriality of such resultsin those periods.

 

Theaccompanying consolidated financial statements include the accounts of Anacompand our wholly-owned subsidiaries. All significant intercompany accounts andtransactions have been eliminated in consolidation.  The financial statements, in the opinion of management, includeall adjustments (consisting of normal recurring accruals and the Fresh Startadjustments described in Note 3) necessary for a fair presentation of ourfinancial position, results of operations and cash flows for all periodspresented.

 

Preparationof the accompanying consolidated financial statements in conformity withaccounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities, the disclosure of contingent assets and liabilitiesat the date of the financial statements, and the reported amounts of revenuesand expenses during the periods presented. Estimates have been prepared on the basis of the most current availableinformation and actual results could differ from those estimates.

 

Certain prior periodamounts have been reclassified to conform to the current periodpresentation.  Such reclassificationsinclude the presentation of pension related assets previously netted againstpension related liabilities.

 

We account for our employee stock option plans inaccordance with APB Opinion No. 25, under which compensation expense isrecognized only to the extent the exercise price of the option is less than thefair market value of a share of stock at the date of grant (the intrinsic valuemethod).  Accordingly, we have adoptedthe disclosure only requirements of Statement of Financial Accounting Standards(“SFAS”) No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148,“Accounting for Stock-Based Compensation—Transition and Disclosure.”  Had employee compensation costs for theseplans been determined based on their fair value on their grant date inaccordance with SFAS No. 123, our net results would have been as follows (inthousands, except per-share amounts):

 

A-10

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|                                                                                                                                                                          |   | **Reorganized  Company**                 |   | **Predecessor  Company**                         |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|--------------------------------------------------|--------|
|                                                                                                                                                                          |   | **Year ended  September 30,  2003** |   | **Nine  months ended  September 30,  2002** |   | **Three  months ended  December 31,  2001** |   | **Year ended  September 30,  2001** |   |
| Net  income (loss) as reported                                                                                                                                                |   | $                                        | 7,306  |                                             | $      | (2,312 | ) | $ | 277,360 |   | $ | (47,491 | ) |
| Deduct:  Total stock-based employee compensation expense determined under fair value  method for all awards granted since December 31, 2001, net of related  tax effects |   | (607                                     | )      | (106                                             | )      | — |   | — |   |
| Pro  forma net income (loss)                                                                                                                                                  |   | $                                        | 6,699  |                                             | $      | (2,418 | ) | $ | 277,360 |   | $ | (47,491 | ) |
|                                                                                                                                                                          |   |                                     |   |                                             |   |   |   |   |   |
| Basic  and diluted net income (loss) per share:                                                                                                                               |   |                                     |   |                                             |   |   |   |   |   |
| As  reported                                                                                                                                                                  |   | $                                        | 1.81   |                                             | $      | (0.57 | ) |   |   |   |   |
| Pro  forma                                                                                                                                                                    |   | $                                        | 1.66   |                                             | $      | (0.60 | ) |   |   |   |   |

 

**NOTE 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:**

 

**Consolidation**

 

The consolidatedfinancial statements include the accounts of Anacomp and its wholly ownedsubsidiaries.  All significantintercompany accounts and transactions have been eliminated.

 

**Cash and Cash Equivalents**

 

Cash equivalentsprimarily represent highly liquid investments, with original maturities of 90days or less, in money market funds that are convertible to a known amount ofcash and carry an insignificant interest rate risk.

 

**Concentration of Credit Risk**

 

The Company sells its products to customers primarily in theUnited States, Canada, Europe and Asia. The Company maintains a reserve forpotential credit losses and historically such losses have been withinmanagement’s estimates.

 

**Inventories**

 

Inventories are stated atthe lower of cost or market, with cost being determined by methodsapproximating the first-in, first-out basis. We evaluate our ending inventories for estimated obsolescence orunmarketable inventory based upon assumptions about future demand and marketconditions.  Inventories in excess ofdemand are reserved.

 

**Property and Equipment**

 

Property and equipment,which includes leasehold improvements, is recorded at cost and depreciated oramortized using the straight-line method over estimated useful lives.  Leasehold improvements are amortized overthe shorter of their estimated useful life or the remaining term of the relatedlease.  Processing equipment and otherproperty and equipment have useful lives ranging from two to twelve years.  Repair and maintenance costs are expensed asincurred.

 

**Income Taxes**

 

Income tax expense generally is the amount of incometaxes expected to be payable for the current year.  During the application of Fresh Start accounting principles, avaluation allowance was recorded equal to pre-reorganization deferred taxassets.  A portion of the income taxexpense related to the United States based operating results will not bepayable as we will utilize pre-reorganization deferred tax assets.  Utilization of tax benefits frompre-reorganization deferred tax assets will be reported first as a reduction ofthe Reorganization Asset and then as a

 

A-11

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credit to equity. A deferred tax asset and/or liability is computed for both the expectedfuture impact of temporary differences between the financial statement and taxbasis of assets and liabilities and for the expected future tax benefit to bederived from tax loss and tax credit carryforwards.  Valuation allowances are established to reduce deferred taxassets to the amount expected to be realized in future tax returns.

 

**Foreign Currency Translation**

 

Substantially all assetsand liabilities of Anacomp’s international operations are translated atyear-end exchange rates; revenues and expenses are translated at the averageexchange rates prevailing during the year. Foreign currency translation adjustments are included as a component of“Accumulated other comprehensive loss” in the accompanying Consolidated BalanceSheets.  Foreign currency transactiongains and losses are charged to operations as incurred.  A foreign currency transaction gain of $41thousand was recorded for the twelve months ended September 30, 2003.  A foreign currency transaction gain of $0.3million was recorded for the nine months ended September 30, 2002, and aforeign currency transaction loss of $0.2 million was recorded for the threemonths ended December 31, 2001. Foreign currency transaction losses for the year endedSeptember 30, 2001 totaled $0.1 million. Foreign currency transaction gains and losses are included as acomponent of “Other income (expense)” in the accompanying ConsolidatedStatements of Operations.

 

**Goodwill**

 

The excess ofpurchase price over net assets of businesses acquired (“goodwill”) wasamortized on the straight-line method over the estimated periods of futurebenefit through December 31, 2001, and was eliminated as part of ourreorganization and implementation of Fresh Start accounting (see Note 3).

 

**Debt Issuance Costs**

 

The Company capitalizesall costs related to its issuance of debt and amortizes those costs using theeffective interest method over the life of the related debt instruments.  Unamortized debt issuance costs were $0.1million and $0.5 million at September 30, 2003 and 2002,respectively.  Unamortized debt issuancecosts are included in “Other assets” in the accompanying Consolidated BalanceSheets.  During the twelve months endedSeptember 30, 2003, the nine months ended September 30, 2002, thethree months ended December 31, 2001, and the year ended September 30,2001, the Company amortized $0.5 million, $0.5 million, $0.1 million and $1.8million, respectively, of debt issuance costs that are included in “Interestexpense and fee amortization” in the accompanying Consolidated Statements ofOperations.

 

**Revenue Recognition**

 

Contract revenue for thedevelopment and implementation of document services solutions under contractsis recognized over the contract period based on output measures as defined bydeliverable items identified in the contract. Provisions for estimated losses on contracts, if any, are made duringthe period when the loss becomes probable and can be reasonably estimated.

 

The Company adopted theprovisions of Staff Accounting Bulletin (“SAB”) 101, “Revenue Recognition inFinancial Statements” during the fourth quarter of fiscal 2001, which did nothave a material impact on the Company’s results of operations.  In accordance with SOP 97-2, “SoftwareRevenue Recognition”, revenues from software license agreements are recognized,provided that all of the following conditions are met:  a non-cancelable license agreement has beensigned, the software has been delivered, the fees are fixed or determinable,there are no material uncertainties regarding customer acceptance, collectionof the resulting receivable is deemed probable and the risk of concession isdeemed remote, and no other significant vendor obligations exist.  For contracts with multiple obligations, theCompany unbundles the respective components to determine revenue recognition usingvendor-specific objective evidence (VSOE). In instances where VSOE cannot be determined, the related fees aredeferred and amortized over the life of the contract.

 

Revenues from sales ofproducts and services or from leases of equipment under sales-type leases arerecorded based on shipment of products (and transfer of risk of loss),commencement of the lease, or performance of services.  Operating lease revenues are recognizedduring the applicable period of customer usage.  Revenue from maintenance contracts is recognized ratably over theperiod of the related contract.

 

A-12

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**Long-Lived Assets**

 

The Company evaluatespotential impairment of long-lived assets and long-lived assets to be disposedof in accordance with SFAS No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets”.  SFAS No. 144established procedures for review of recoverability and measurement ofimpairment (if necessary) of long-lived assets and certain identifiable intangiblesheld and used by an entity.  SFAS No.144 required that those assets be reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of the respectiveasset may not be fully recoverable.  Nosuch indicators of impairment were present in the fiscal year endedSeptember 30, 2003.

 

**Research and Development**

 

Research anddevelopment costs are expensed as incurred. Engineering costs associatedspecifically with research and development amounted to $2.1 million, $3.4million, $0.9 million and $3.6 million for the twelve months endedSeptember 30, 2003, the nine months ended September 30, 2002, thethree months ended December 31, 2001, and the year endedSeptember 30, 2001, respectively. The Company supports several engineeringprocesses, including basic technological research, service offering and productdevelopment, and sustaining engineering for its existing products.

 

**Income or Loss Per Share**

 

Basic income orloss per share is computed based upon the weighted average number of shares ofAnacomp’s common stock outstanding during the period. For the fiscal year endedSeptember 30, 2003, potentially dilutive securities include 783,077outstanding warrants to purchase Class B Common Stock, which were issued aspart of the reorganization.  Thesewarrants were excluded from diluted income per share as they were anti-dilutiveusing the treasury stock method.  Basicand diluted net income or loss for periods prior to the nine months endedSeptember 30, 2002 have not been presented as they are not comparable tosubsequent periods due to the implementation of Fresh Start Reporting (see Note3).

 

**Management Estimates and Assumptions**

 

The preparation offinancial statements in conformity with accounting principles generally acceptedin the United States requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities, the disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.  Estimates have been prepared on the basis ofthe most current available information and actual results could differ fromthose estimates.

 

**Recent Accounting Pronouncements**

 

In May 2003,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standard (“SFAS”) No. 150, “Accounting for Certain FinancialInstruments with Characteristics of Both Liabilities and Equity.”  This statement clarifies the definition of aliability, as currently defined under FASB Concepts Statement No. 6 “Elementsof Financial Statements”, as well as other items.  The statement requires that financial instruments that embody anobligation of an issuer be classified as a liability.  Furthermore, the standard provides guidance for the initial andsubsequent measurement as well as disclosure requirements of these financialinstruments.  This statement iseffective for financial instruments entered into after May 31, 2003.  The adoption of this statement has not had amaterial impact on our results of operations or financial condition.

 

InApril 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 onDerivative Instruments and Hedging Activities.”  This statement amends and clarifies the financial accounting andreporting requirements, as were originally established in FASB Statement No.133, for derivative instruments and hedging activities.  FASB Statement No. 149 provides greaterclarification of the characteristics of a derivative instrument so thatcontracts with similar characteristics will be accounted for consistently.  This statement is effective for contractsentered into or modified after June 30, 2003, as well as for hedgingrelationships designated after June 30, 2003, excluding certainimplementation issues that have been effective prior to this date under FASBStatement No. 133.  The adoption of thisstatement has not had a material impact on our results of operations orfinancial condition.

 

A-13

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InJanuary 2003, the FASB issued FASB Interpretation No. 46, or FIN 46,“Consolidation of Variable Interest Entities.” FIN 46 requires a variable interest entity to be consolidated by acompany if that company is subject to a majority of the risk of loss from thevariable interest entity’s activities or entitled to receive a majority of theentity’s residual returns or both.  Avariable interest entity either (a) does not have equity investors with votingrights, or (b) has equity investors that do not provide sufficient financialresources to the entity to support its activities.  FIN 46 is effective immediately for all new variable interestentities created or acquired after January 31, 2003.  For variable interest entities created oracquired prior to February 1, 2003, the provisions of FIN 46 must beapplied for the first interim or annual period beginning after June 15,2003.  The adoption of FIN 46 is notexpected to have a material impact on our results of operations or financial condition.

 

InDecember 2002, the FASB issued SFAS No. 148, “Accounting for Stock-BasedCompensation—Transition and Disclosure”, which amends SFAS No. 123 and providesalternative methods of transition for companies who elect to adopt the fairvalue method of accounting for stock-based employee compensation.  SFAS No. 148 also modifies the disclosurerequirements for such compensation. Anacomp has not elected to adopt the fair value method; we insteadaccount for our employee stock option plans using the intrinsic value method inaccordance with APB Opinion No. 25, under which compensation expense isrecognized only to the extent the exercise price of the option is less than thefair market value of a share of stock at the date of grant.  However, we are subject to the disclosurerequirements of SFAS Nos. 123 and 148. Accordingly, we have expanded our stock-based compensation disclosures(see Note 1).

 

InNovember 2002, the Emerging Issues Task Force (“EITF”) finalized aconsensus on Issue No. 00-21, “Accounting for Revenue Arrangements withMultiple Deliverables”, effective for arrangements entered into afterJune 15, 2003.  This issue definesunits of accounting for arrangements with multiple deliverables resulting inrevenue being allocated over the units of accounting for revenue recognitionpurposes.  The adoption of thisconsensus has not had a material effect on our results of operations orfinancial position.

 

On July 30,2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exitor Disposal Activities”, which addresses financial accounting and reporting forcosts associated with exit or disposal activities and nullifies EITF Issue No.94-3, “Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (Including Certain Costs Incurred in aRestructuring).”  The principaldifference between Statement 146 and Issue 94-3 relates to the timing of therecognition of a liability for a cost associated with an exit or disposalactivity.  Statement 146 requires that aliability for a cost associated with an exit or disposal activity be recognizedwhen the liability is incurred.  UnderIssue 94-3, a liability for an exit cost as generally defined in Issue 94-3 wasrecognized at the date of an entity’s commitment to an exit plan.  A fundamental conclusion reached by the FASBin this Statement is that an entity’s commitment to a plan, by itself, does notcreate an obligation that meets the definition of a liability.  Therefore, this Statement eliminates the definitionand requirements for recognition of exit costs in Issue 94-3.

 

SFAS No. 146 alsoestablishes that fair value is the objective for initial measurement of theliability.  Severance pay underStatement 146, in many cases, would be recognized over time rather than upfront.  The FASB decided that if thebenefit arrangement requires employees to render future service beyond a“minimum retention period” a liability should be recognized as employees renderservice over the future service period even if the benefit formula used tocalculate an employee’s termination benefit is based on length of service.  The provisions of this Statement areeffective for exit or disposal activities that are initiated after December 31,2002, with early application encouraged.

 

InJune 2001, the FASB issued SFAS No. 141, “Business Combinations”, and SFASNo. 142, “Goodwill and Other Intangible Assets.”  SFAS No. 141 requires that the purchase method of accounting beused for all business combinations initiated after June 30, 2001.  The Company adopted SFAS No. 142 beginningJanuary 1, 2002 upon application of Fresh Start Reporting (See Note3).  As a result of the implementationof Fresh Start Reporting, all goodwill on the books at December 31, 2001was eliminated. Under SFAS No. 142, purchased goodwill and intangible assetswith indefinite lives are no longer amortized, but instead are tested forimpairment at least annually. Accordingly, the Company does not amortize goodwill and intangibleassets with indefinite lives as of January 1, 2002.  Intangible assets with finite lives,primarily customer contracts, customer relationships and proprietary technologywill be amortized over their useful lives.

 

Thefollowing table reconciles our net income to net income adjusted for theamortization of intangible assets and goodwill.  Due to our net loss tax position in prior years, no tax benefitwas realized from this expense.

 

A-14

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|                                                         |   | **Reorganized  Company**                 |   | **Predecessor  Company**                    |   |
|--------------------------------------------------------------|--------|------------------------------------------|--------|---------------------------------------------|--------|
| **(in thousands)**                                           |   | **Year ended  September 30,  2003** |   | **Nine  months ended  September  30, 2002** |   | **Three  months ended  December  31, 2001** |   | **Year ended  September 30,  2001** |   |
| Net  income (loss) as reported                               |   | $                                        | 7,306  |                                        | $      | (2,312 | ) | $ | 277,360 |   | $ | (47,491 | ) |
| Goodwill  amortization                                       |   | —                                   |   | —                                      |   | 2,629 |   | 10,647 |   |
| Net  income (loss) excluding effect of goodwill amortization |   | $                                        | 7,306  |                                        | $      | (2,312 | ) | $ | 279,989 |   | $ | (36,844 | ) |

 

**NOTE 3.FRESH START REPORTING:**

 

Our enterprisevalue after reorganization at December 31, 2001 was determined based onthe consideration of many factors and resulted in a reorganization value (overthe fair value of identifiable net assets) of $73.4 million, as adjusted, andis reported as “Reorganization value in excess of identifiable net assets”.  Although the asset will not be subject tofuture amortization (in accordance with SFAS No. 142, “Goodwill and OtherIntangible Assets”), it will be subject to, at a minimum, annual impairmenttesting.

 

In developing theassumptions underlying the enterprise valuation, management consideredhistorical results as well as its best estimates of expected future marketconditions based on information available as of December 31, 2001.  Actual future events and results coulddiffer substantially from management’s estimates, assumptions and projections.  Unfavorable changes compared to ourprojections used for Fresh Start Reporting purposes could result in futureimpairments of our reorganization asset and identifiable intangible assets.

 

As a result ofFresh Start Reporting, identifiable intangible assets were valued and consistof the following to be amortized over the useful lives indicated:

 
| **(dollars in thousands)**                             |   | **Life in Years** |   | **September 30,  2003** |   |
|--------------------------------------------------------|--------|-------------------|--------|------------------------------|--------|
|                                                   |   |              |   |                         |   |   |   |
| Customer  contracts and related customer relationships |   | 10                |   |                         | $      | 7,600 |   |
| Digital technology  and intellectual property          |   | 3                 |   |                         | 3,100  |   |
| COM technology and intellectual property               |   | 10                |   |                         | 1,300  |   |
| COM production software                                |   | 5                 |   |                         | 300    |   |
| Total                                                  |   |              |   |                         | 12,300 |   |
| Less: accumulated amortization                         |   |              |   | (3,471                       | )      |
|                                                   |   |              |   | $                            | 8,829  |   |

 

The income due toextinguishment of debt, net of taxes, is reported as “Other income” in theConsolidated Statement of Operations for the period ended December 31,2001, and is calculated as follows:

 
| **(in  thousands)**                         |   | **Amount** |    |
|---------------------------------------------|--------|------------|---------|
| Carrying value of senior subordinated notes |   | $          | 310,000 |   |
| Carrying value of related accrued interest  |   | 52,254     |    |
| Issuance of new common stock                |   | (96,925    | )       |
| Other income due to extinguishment of debt  |   | $          | 265,329 |   |

 

The holders of thesenior subordinated notes received 99.9% of the new equity of the ReorganizedCompany; therefore, the net equity of the Reorganized Company was used as thebasis for consideration exchanged in determining the income due toextinguishment of debt.  There is noincome statement tax effect from the extinguishment of debt.

 

In accordance withStatement of Position 90-7, transactions of the Predecessor Company resultingfrom the Chapter 11 reorganization are reported separately as reorganizationitems in the accompanying Consolidated Statement of Operations for the periodended December 31, 2001, and are summarized below:

 

A-15

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| **(in  thousands)**                                                               |   | **Three Months Ended  December 31, 2001** |   |
|-----------------------------------------------------------------------------------|--------|------------------------------------------------|--------|
| Adjustment of assets and liabilities to fair value                                |   | $                                              | 16,916 |   |
| Write off of deferred debt issuance costs and  unamortized premiums and discounts |   | (2,216                                         | )      |
| Professional fees and other reorganization costs                                  |   | (1,023                                         | )      |
| Settlement of facility lease contract                                             |   | (349                                           | )      |
| Reorganization items                                                              |   | $                                              | 13,328 |   |

 

**NOTE 4.REVOLVING CREDIT FACILITY:**

 

OnDecember 31, 2001, Anacomp and Fleet National Bank, as agent, and itssyndicate of lenders (collectively, “the Bank Group”) entered into an Amendedand Restated Revolving Credit Agreement. The credit agreement provides for a commitment of $18.3 million as ofSeptember 30, 2003, with a $12.1 million direct borrowing sublimit and a$6.2 million letter of credit sublimit. The facility is available for new borrowings when borrowings are belowthe direct borrowing sublimit.

 

EffectiveDecember 19, 2002, we signed an amendment to the revolving credit agreement.The amendment modified certain financial covenants to accommodate the sale ofour Switzerland operations and current business plans. Other changes to theagreement included a permanent reduction to the credit facility commitment of$10.0 million and provisions for acquisitions and/or divestitures underspecified conditions.

 

AtSeptember 30, 2003, the outstanding revolving credit borrowings were $5.9million (plus outstanding standby letters of credit of $6.2 million).  During the twelve month period endedSeptember 30, 2003, we made net cash payments totaling $24.1 million.

 

The originalmaturity date of the amended facility was June 30, 2003.  Due to the receipt of proceeds from our saleof the Switzerland subsidiaries and the application of those proceeds to reduceour facility balance, it was extended to December 31, 2003 under the termsof the agreement.  We reduced theoutstanding borrowings and permanently reduced the borrowing sublimit of thecredit facility commitment by $11.9 million as a result of proceeds receivedfrom the October 2002 sale of our Switzerland operations and subsidiaries.

 

The creditagreement bears interest at a base rate equal to the higher of (a) the annualrate of interest announced from time to time by Fleet National Bank as its bestrate, or (b) one-half of one percent above the Federal Funds Effective Rate,for the portion of the facility equal to a Formula Borrowing Base (“FBB”).  The FBB equals 80% of eligible accounts,which include U.S. and Canadian accounts receivable.  The rate of interest is three percentage points higher than thebase rate for the facility balance outstanding in excess of the FBB.  Interest is due and payable monthly inarrears.  The interest rate was 4% forthe FBB portion and 7% for the excess portion at September 30, 2003.  At September 30, 2003, the FBB was$12.1 million; accordingly, there were no excess borrowings over the FBB.

 

The credit facility issecured by virtually all Anacomp assets and 65% of the capital stock of ourforeign subsidiaries. The facility contains covenants relating to limitationson the following:

 

•                  capital expenditures;

•                  additional debt;

•                  purchases of our common stock;

•                  mergers and acquisitions; and

•                  liens and dividends.

 

The credit facility alsois subject to minimum EBITDA, interest coverage and leverage ratiocovenants.  In addition, we are requiredto remit to the Bank Group the net proceeds of any capital asset sale.

 

Effective November 24, 2003, weentered into a new revolving credit agreement with Fleet National Bank(“Agent”) and Union Bank of California. The new credit facility is for a maximum commitment of $22.5 millionwith a term of two years from November 24, 2003. The agreement providesfor a standby letter of credit sublimit of

 

A-16

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up to $10.0 million. Availability islimited to the lesser of (a) the maximum commitment of $22.5 million or (b) theborrowing base plus an over-advance facility for acquisitions.

 

The new facility bears interest at a baserate equal to the higher of a) the annual rate of interest announced fromtime to time by Fleet National Bank as its best rate, or b) one-half ofone percent above the Federal Funds Effective Rate, for the portion of thefacility equal to the borrowing base. The borrowing base equals 80% of eligibleaccounts, which include U.S. and Canadian accounts receivable. Eligibleaccounts of our U.K. based customers may be added at a later time after certainconditions are met.

 

For borrowings greater than the borrowingbase the rate of interest under the new agreement is one and one-half percenthigher than the base rate. Interest is due and payable monthly in arrears.  Borrowings greater than the borrowing baseare in the form of an over-advance of up to a maximum of $5.0 million at anytime to be available exclusively for funding the cash portion of the purchaseprice of permitted acquisitions; but in no event shall exceed $10.0 million ina four-quarter period. The principal amount of any over-advance shall amortize1/8 per quarter with the remaining balance due and payable in full at the finalmaturity date.

 

The credit facility is secured byvirtually all Anacomp assets and 65% of the capital stock of our foreignsubsidiaries. The facility contains covenants relating to limitations on thefollowing:

 

• additional debt;

• permitted acquisitions; and

• liens and dividends.

 

The new creditfacility also is subject to minimum operating cash flow, a leverage ratiocovenant, minimum earnings before taxes and minimum liquidity. In addition, weare required to remit to the Bank Group the net proceeds of any significantcapital asset sale.  The banks mustapprove any buyback of open market purchases of our common stock.

 

**NOTE 5.SENIOR SUBORDINATED NOTES:**

 

The Predecessor Companyhad outstanding $310 million of publicly traded 10-7/8% senior subordinatednotes and related accrued interest of $52.3 million at October 19,2001.  As detailed in Note 1, the notesand related accrued interest were extinguished in the reorganization.  The accompanying Consolidated Statement ofOperations for the period ended December 31, 2001 includes approximately$1.7 million of interest expense on the notes through October 19, 2001,the date the Predecessor Company filed for bankruptcy.  Had interest on the senior subordinatednotes continued to accrue beyond the October 19, 2001 bankruptcy filingdate, we would have recognized an additional $6.9 million in interest expensethrough December 31, 2001.

 

**NOTE 6.RESTRUCTURING CHARGES:**

 

Anacompcontinues to experience revenue declines in the Computer Output to Microfiche(COM) other output services, COM maintenance, and equipment/supplies productlines.  Due to this ongoing trend, wemade adjustments to align our cost structure and infrastructure through theconsolidation and downsizing of facilities and adjustments to ourworkforce.  We recorded restructuringcharges totaling $2.9 million in the third and fourth quarters of fiscal 2003.  Adjustments to our workforce  (affecting approximately 178 employees)totaled $2.5 million, and all affected employees were notified and have leftthe Company.  The remaining accrued butunpaid liability of $1.5 million, as of September 30, 2003, is expected tobe paid by the end of calendar year 2003 for all but one employee, whosepayments will continue through March of 2004.  Also included in the $2.9 million charge is $0.4 million offacility closure costs, including incremental travel and relocation costsincurred as a result of our consolidation efforts.  At September 30, 2003 $0.3 million of this amount remainsunpaid, and we expect that payments (non-cancelable facility lease payments)will continue through December of 2007.

 

In fiscal year2002, we recorded a restructuring charge of $2.1 million related to thereorganization of our operations from two business units to one.  We reorganized our workforce by combiningthe field organizations of Document Solutions and Technical Services into oneorganization, establishing an executive level position to oversee all sales andmarketing activities and implementing a single support group for our datacenters, docHarbor Web Presentment operations, field services operations andprocess quality.  The restructuringcharges included $1.6 million in

 

A-17

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employee severanceand termination-related costs for approximately 100 employees, all of whom haveleft the company.  Substantially all ofthe severance payments have been completed. The restructuring charges also include approximately $0.4 million forthe closure of a data center.  Of the$0.4 million, $69 thousand represents a non-cash charge to write off the netbook value of leasehold improvements located in the closed data center.  Due to favorable negotiations, we terminatedthe facility lease early and were therefore able to reverse $128 thousand ofpreviously accrued restructuring expenses in the fourth quarter of 2003.

 

In the second andthird quarters of 2000, we effected a reorganization of our workforce in the UnitedStates and Europe along our lines of business, reorganized parts of ourcorporate staff and phased out our manufacturing operations.  To accomplish the reorganization of ourworkforce and corporate staff, we reassessed job responsibilities and personnelrequirements in each of our continuing business units and corporate staff.  The assessment resulted in substantialpermanent personnel reductions and involuntary terminations throughout ourorganization, primarily in our European operations and our corporate andmanufacturing staff.  We recordedrestructuring charges of $14.6 million related to these actions. Employeeseverance and termination-related costs were for approximately 300 employees,all of whom have left the company; we have paid all related severance.  Other fees relate to professional feesassociated with negotiations to terminate facility leases and other costsassociated with implementation of our new business unit structure and thereorganization of our business units into separate entities.  Inthe first quarter of fiscal year 2002, we vacated our Japanese facility,terminated substantially all related personnel and undertook other proceduresto wind down our Japanese subsidiary. As a result, we reversed approximately $1 million of fiscal 2000business restructuring reserves due to favorable circumstances related to theshutdown.  Our closure costs tovacate the facility in Japan, costs to fulfill our contract obligations andseverance and related professional costs up to that time were less than weanticipated at the time we recorded the accrual.  An additional $30 thousand reversing adjustment was made in thefourth quarter of 2003 due to reduced costs required to finalize the closure ofthe Japan facility.

 

The restructuringreserves are included as a component of “Other accrued liabilities” in theaccompanying Condensed Consolidated Balance Sheets.

 

The followingtables present the activity and balances of the restructuring reserves fromSeptember 30, 2002 to September 30, 2003 (in thousands):

 
| **Fiscal Year 2003 Restructuring**  |   |                         |       |            |       |                          |       |                         |       |
|-------------------------------------|--------|------------------------------|------------|-----------------|------------|-------------------------------|------------|------------------------------|------------|
|                                |   |                         |       |            |       |                          |       |                         |       |
|                                |   | **September 30,  2002** |       | **Additions**   |       | **Payments  and  Deductions** |       | **September 30,  2003** |       |
| Employee  Separations               |   | $                            | —     |            | $          | 2,492                         |       | $                            | (982       | ) | $ | 1,510 |   |
| Facility  Closing                   |   | —                       |       | 363             |       | (110                          | )          | 253                          |       |
|                                |   | $                            | —     |            | $          | 2,855                         |       | $                            | (1,092     | ) | $ | 1,763 | ** ** |
|                                |   |                         | ** ** |            | ** ** |                          | ** ** |                         | ** ** |
| **Fiscal  Year 2002 Restructuring** |   |                         |       |            |       |                          |       |                         |       |
|                                |   |                         |       |            |       |                          |       |                         |       |
|                                |   | **September 30,  2002** |       | **Adjustments** | ** ** | **Payments  and  Deductions** | ** ** | **September 30,  2003** | ** ** |
| Employee  Separations               |   | $                            | 233        |            | $          | —                        |       | $                            | (218       | ) | $ | 15 |   |
| Facility  Closing                   |   | 325                          |       | (128            | )          | (197                          | )          | —                       |       |
|                                |   | $                            | 558        |            | $          | (128                          | )          | $                            | (415       | ) | $ | 15 |   |
|                                |   |                         |       |            |       |                          |       |                         |       |
| **Fiscal  Year 2000 Restructuring** |   |                         |       |            |       |                          |       |                         |       |
|                                |   |                         |       |            |       |                          |       |                         |       |
|                                |   | **September 30,  2002** |       | **Adjustments** | ** ** | **Payments  and  Deductions** | ** ** | **September 30,  2003** | ** ** |
| Facility  Closing                   |   | $                            | 77         |            | $          | —                        |       | $                            | (70        | ) | $ | 7 |   |
| Contract  Obligations               |   | 126                          |       | (30             | )          | (96                           | )          | —                       |       |
|                                |   | $                            | 203        |            | $          | (30                           | )          | $                            | (166       | ) | $ | 7 |   |

 

A-18

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**NOTE 7.SALE OF SWITZERLAND AND OTHER OPERATIONS:**

 

Wecompleted a sale of our Switzerland operations and subsidiaries onOctober 18, 2002.  The acquiringcompany assumed operational responsibility effective October 1, 2002.

 

Under the terms of the sale agreement, we sold all of the outstandingshares of our two Swiss subsidiaries, Cominformatic AG and Anacomp TechnicalServices AG, to edotech Ltd. (a UK company) at a sales price of CHF 26.7million (Swiss francs).

 

The sales price is payable as follows: CHF 4.6 million, orapproximately $3.1 million, which was received at closing; CHF 18.2 million, orapproximately $11.8 million, which was received on March 10, 2003; CHF 1.1million, or approximately $0.7 million, which was received on April 17, 2003;CHF 1 million, or approximately $0.5 million, which was received on August 20,2003, and CHF 1.8 million is due on or before April 18, 2004 upon expiration ofcertain indemnification claim periods. As a result of a tax audit of the Switzerland operations for prior yearresults, we estimate we will incur additional costs not to exceed CHF 0.3million, or approximately $0.2 million. This will decrease the amount we will receive on or before April 18,2004.  The costs of the sale (includingthe $0.2 million tax audit costs) are estimated to be $2.4 million. Effectivelyall of the net proceeds (i.e. sales price less sale costs) received have beenused to reduce the revolving credit facility balance outstanding and 85% ofsuch proceeds have permanently reduced the total borrowing commitment under theterms of the 2002 Amended and Restated Revolving Credit Agreement.

 

The assets andliabilities of the Swiss operations have been classified separately as “Assetsof discontinued operations” and “Liabilities of discontinued operations” in theCondensed Consolidated Balance Sheet as of September 30, 2002.  The net assets of the disposed operatingunits are summarized as follows:

 
| **(dollars in thousands)**                      |   | **September 30,  2002** |   |
|-------------------------------------------------|--------|------------------------------|--------|
| Cash                                            |   | $                            | 2,749  |   |
| Accounts and notes receivable                   |   | 2,288                        |   |
| Inventories                                     |   | 1,067                        |   |
| Property,  plant and equipment                  |   | 5,227                        |   |
| Other  assets                                   |   | 696                          |   |
| Accounts  payable and other accrued Liabilities |   | (4,241                       | )      |
| Total  net assets                               |   | $                            | 7,786  |   |

 

Similarly, theresults of operations of the Switzerland and other operations have beenreported separately as “Income from discontinued operations, net of taxes” inthe Consolidated Statements of Operations for the nine months endedSeptember 30, 2002.  The results ofoperations reported below for the three months ended December 31, 2001,and the years ended September 30, 2001 and 2000 have not been segregatedas discontinued operations in the Consolidated Statements of Operations for therespective periods as they were not material to the operating results ofAnacomp in total.

 

|                       |   | **Reorganized  Company**                          |   | **Predecessor  Company**                          |   |
|----------------------------|--------|---------------------------------------------------|--------|---------------------------------------------------|--------|
| **(dollars in thousands)** |   | **Nine  Months  Ended  September 30,  2002** |   | **Three  Months  Ended  December 31,  2001** |   | **Twelve  Months  Ended  September 30,  2001** |   |
| Revenues                   |   | $                                                 | 20,440 |                                              | $      | 7,505 |   | $ | 24,579 |   |
| Income  before taxes       |   | 1,212                                             |   | 869                                               |   | 1,778 |   |
| Income  taxes              |   | 299                                               |   | 60                                                |   | 93 |   |
| Net  income                |   | $                                                 | 913    |                                              | $      | 809 |   | $ | 1,685 |   |

 

A-19

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**NOTE8.FAIR VALUES OF FINANCIAL INSTRUMENTS:**

 

SFAS No. 107,“Disclosures About Fair Value of Financial Instruments”, requires disclosure offair value information for certain financial instruments.  The carrying amounts for trade and otherreceivables and payables are considered to be their fair values, and thecarrying amount for our revolving credit facility is considered to be its fairvalue for all periods presented.

 

**NOTE 9.HEDGING:**

 

On October 15, 2002,we entered into three Swiss Franc (CHF) forward contracts to protect the valueof the expected cash receipts from the sale of our Switzerland operations. Thecontracts protect Anacomp against an exchange rate above 1.5425. The firstforward contract was written in the amount of CHF 18.2 million and expired onJanuary 29, 2003.  At expiration,the forward option was replaced with another short-term option for the sameamount, which provided $11.8 million in U.S. dollar proceeds on March 10,2003.  The second forward contract waswritten in the amount of CHF 2.1 million and expired on April 15,2003.   CHF 1.0 million of the contractexpired unused and the remaining CHF 1.1 million was converted at 1.5425,yielding $0.7 million.  The thirdforward contract was written in the amount of CHF 1.8 million and expires onApril 15, 2004. We receive full exchange benefits for a lower rate on 50%of the contract and the remaining 50% will be converted at 1.5425. The minimumU.S. dollar proceeds received would be $1.2 million if the buyer releases all funds.

 

The Other Expensecategory of our Consolidated Statement of Operations for the twelve monthsended September 30, 2003 includes the recognition of $25 thousand ofexchange loss from currency fluctuations related to the Swiss receivable, theforward contracts and sale costs.

 

**NOTE 10.SUPPLIER CONCENTRATION RISK:**

 

**Intelicoat Technologies Agreement**

 

Anacomp has asupply agreement with Intelicoat Technologies that expires October 1,2004.  Pursuant to the supply agreement,Anacomp can purchase coated duplicate microfilm from Intelicoat at fixed pricesfor a one year period, which can be modified as defined in the agreement infuture years.  The supply agreement hasno minimum purchase requirements. During fiscal 2003, we obtained all of our duplicate microfilm fromIntelicoat.

 

**Kodak Agreement**

 

We obtain our silverhalide film used to produce master images principally from the Eastman KodakCompany under a multi-year supply agreement. The supply agreement has no minimum purchase requirements.

 

A-20

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**NOTE 11.COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS:**

 
|                                                                                           |   | **Reorganized  Company**     |   |
|------------------------------------------------------------------------------------------------|--------|------------------------------|--------|
| **(dollars in thousands)**                                                                     |   | **September 30,  2003** |   | **September 30,  2002** |   |
| **Accounts Receivable:**                                                                       |   |                         |   |   |   |
| Trade  receivables, net of allowance for doubtful accounts of $1,532 and $2,693,  respectively |   | $                            | 29,469 |   | $ | 34,382 |   |
| Other                                                                                          |   | 378                          |   | 567 |   |
|                                                                                           |   | $                            | 29,847 |   | $ | 34,949 |   |
| **Inventories:**                                                                               |   |                         |   |   |   |
| Finished  goods, including purchased film                                                      |   | $                            | 593    |   | $ | 554 |   |
| Consumable  spare parts and supplies                                                           |   | 2,581                        |   | 2,920 |   |
|                                                                                           |   | $                            | 3,174  |   | $ | 3,474 |   |
| **Property and Equipment:**                                                                    |   |                         |   |   |   |
| Office  furniture                                                                              |   | $                            | 4,470  |   | $ | 6,087 |   |
| Field  support spare parts                                                                     |   | 7,768                        |   | 6,244 |   |
| Leasehold  improvements                                                                        |   | 7,778                        |   | 7,080 |   |
| Processing  and manufacturing equipment                                                        |   | 22,625                       |   | 18,152 |   |
|                                                                                           |   | 42,641                       |   | 37,563 |   |
| Less  accumulated depreciation and amortization                                                |   | (24,243                      | )      | (16,115 | ) |
|                                                                                           |   | $                            | 18,398 |   | $ | 21,448 |   |
| **Other Assets:**                                                                              |   |                         |   |   |   |
| Pension  related insurance policies                                                            |   | $                            | 4,465  |   | $ | 3,597 |   |
| Net  cash surrender values of life insurance policies                                          |   | 758                          |   | 730 |   |
| Other                                                                                          |   | 729                          |   | 1,183 |   |
|                                                                                           |   | $                            | 5,952  |   | $ | 5,510 |   |
|                                                                                           |   |                         |   |   |   |
| Face  amounts of life insurance policies                                                       |   | $                            | 1,418  |   | $ | 1,395 |   |
|                                                                                           |   |                         |   |   |   |
| **Other Accrued Liabilities:**                                                                 |   |                         |   |   |   |
| Sales  tax and VAT liability                                                                   |   | $                            | 1,665  |   | $ | 1,173 |   |
| Restructuring  reserves                                                                        |   | 1,785                        |   | 761 |   |
| Other                                                                                          |   | 5,812                        |   | 7,371 |   |
|                                                                                           |   | $                            | 9,262  |   | $ | 9,305 |   |

 

A-21

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**NOTE 12.LONG-TERM RECEIVABLES:**

 
|                                             |   | **Reorganized Company**      |   |
|--------------------------------------------------|--------|------------------------------|--------|
| **(dollars in thousands)Long-term receivables:** |   | **September 30,  2003** |   | **September 30,  2002** |   |
| Lease  contracts receivable                      |   | $                            | 1,817  |   | $ | 2,493 |   |
|                                             |   |                         |   |   |   |
| Less  current portion                            |   | (889                         | )      | (1,305 | ) |
|                                             |   | $                            | 928    |   | $ | 1,188 |   |

 

Lease contractsreceivable result from customer leases of products under agreements thatqualify as sales-type leases. Annual future lease payments to be received undersales-type leases are as follows:

 

| **(dollars in thousands)** |   | **Year Ended  September 30,** |   |
|----------------------------|--------|------------------------------------|--------|
| 2004                       |   | $                                  | 1,011  |   |
| 2005                       |   | 454                                |   |
| 2006                       |   | 299                                |   |
| 2007                       |   | 255                                |   |
| 2008                       |   | 42                                 |   |
|                       |   | 2,061                              |   |
| Less  deferred interest    |   | (244                               | )      |
|                       |   | $                                  | 1,817  |   |

 

**NOTE 13.RETIREMENT PLANS:**

 

**DefinedContribution Plans**

 

Anacomp has a retirementsavings plan for its U.S. employees that qualifies under Section 401(k) ofthe Internal Revenue Code. Participating employees may contribute up to 15% of their pretax salary,but not more than statutory limits. Anacomp may contribute, at its discretion, up to fifty cents for eachdollar a participant contributes, with a maximum contribution of $2,500 peremployee per plan year.  Company expensefor matching contributions was $1.3 million, $1.0 million, $0.3 million, and $0.7million for the year ended September 30, 2003, the nine months endedSeptember 30, 2002, the three months ended December 31, 2001, and forthe year ended September 30, 2001, respectively.

 

Certainof our non-U.S. subsidiaries have retirement plans that cover substantially allregular employees, for which we deposit funds under various fiduciary-typearrangements.  Company contributions aregenerally based on years of service as well as on the employee’s level of compensation.  The ranges of assumptions that are used forthese contributions reflect the different economic environments and statutoryrequirements within the various countries. Company expense for contributions to the non-U.S. plans was $1.7million, $0.8 million, $0.4 million, and $1.5 million for the year endedSeptember 30, 2003, the nine months ended September 30, 2002, for thethree months ended December 31, 2001, and for the year endedSeptember 30, 2001, respectively.

 

**DefinedBenefit Plans**

 

We have retirement plansin place for our United Kingdom and German subsidiaries that qualify as definedbenefit plans.  The plans providebenefits based primarily on years of service and employee compensationlevels.  Funding policy for the plans isto contribute amounts sufficient to meet minimum funding requirements as setforth in employee benefit and tax laws plus additional amounts as we maydetermine to be appropriate.

 

Plan assets areheld in trust and consist primarily of equity securities.  In addition, we have assets with a fairvalue of $4.5 million and $3.5 million as of September 30, 2003 and 2002,respectively, held specifically to meet pension obligations in Germany.  These assets do not qualify as pensionassets under U.S. GAAP definitions and are thus not included in the tablespresented below.

 

A-22

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Changes in theprojected benefit obligation for the plans are as follows:

 
| **(in  thousands)**                     |   | **Fiscal Year****2003** |   | **Fiscal Year****2002** |   |
|-----------------------------------------|--------|-------------------------|--------|-------------------------|--------|
| Benefit obligation at beginning of year |   | $                       | 29,831 |                    | $      | 24,490 |   |
| Service cost for benefits earned        |   | 882                     |   | 776                     |   |
| Participant contributions               |   | 242                     |   | 156                     |   |
| Interest cost                           |   | 1,735                   |   | 1,577                   |   |
| Actuarial loss                          |   | 1,298                   |   | 1,201                   |   |
| Foreign currency exchange rate changes  |   | 3,123                   |   | 2,669                   |   |
| Benefits paid                           |   | (1,153                  | )      | (1,038                  | )      |
| Benefit obligation at end of year       |   | $                       | 35,958 |                    | $      | 29,831 |   |

 

Changes in the fair valueof assets for the plans are as follows:

 
| **(in  thousands)**                            |   | **Fiscal Year****2003** |   | **Fiscal Year****2002** |   |
|------------------------------------------------|--------|-------------------------|--------|-------------------------|--------|
| Fair value of plan assets at beginning of year |   | $                       | 16,760 |                    | $      | 18,198 |   |
| Actual return on plan assets                   |   | 2,098                   |   | (2,479                  | )      |
| Employer contributions                         |   | 540                     |   | 450                     |   |
| Participant contributions                      |   | 242                     |   | 156                     |   |
| Foreign currency exchange rate changes         |   | 1,633                   |   | 1,396                   |   |
| Benefits paid                                  |   | (1,068                  | )      | (961                    | )      |
| Fair value of plan assets at end of year       |   | $                       | 20,205 |                    | $      | 16,760 |   |

 

Plan assets are held intrust and consist primarily of equity securities.

 

The accrued pension costsrecognized in the accompanying Consolidated Balance Sheets were computed asfollows:

 
| **(in  thousands)**                  |   | **Fiscal Year****2003** |    | **Fiscal Year****2002** |   |
|--------------------------------------|--------|-------------------------|---------|-------------------------|--------|
| Funded status at end of year         |   | $                       | (15,753 | )                       | $      | (13,071 | ) |
| Unrecognized net actuarial loss      |   | 6,244                   |    | 5,606                   |   |
| Net amount recognized                |   | $                       | (9,509  | )                       | $      | (7,465 | ) |
|                                 |   |                    |    |                    |   |
| Accrued benefit cost                 |   | $                       | (13,296 | )                       | $      | (10,987 | ) |
| Accumulated other comprehensive loss |   | 3,787                   |    | 3,522                   |   |
| Net amount recognized                |   | $                       | (9,509  | )                       | $      | (7,465 | ) |

 

The projected benefitobligation, accumulated benefit obligation and fair value of plan assets forthe defined benefit pension plans with accumulated benefit obligations inexcess of plan assets were $36.0 million, $32.6 million and $20.2 million,respectively as of September 30, 2003, and $29.8 million, $26.7 millionand $16.8 million, respectively as of September 30, 2002.

 

The recent under fundingof pension plans is primarily due to decreases in actual investment returns, adecrease in the assumed discount rates, and an increase in lifeexpectancy.  The company evaluates itsactuarial assumptions on an annual basis. These assumptions are revised based on an evaluation of long-term trendsand market condition in each country that may have an impact on the cost ofproviding retirement benefits.

 

Assumptions forthe defined benefit plans, which are reflected on a weighted average basis ofindividual country plans, were as follows:

 
|                                   |   | **Fiscal Year****2003** |   | **Fiscal Year****2002** |   |
|----------------------------------------|--------|-------------------------|--------|-------------------------|--------|
| Discount rate                          |   | 5.43                    | %      | 6.25                    | %      |
| Expected rate of return on plan assets |   | 6.63                    | %      | 7.5                     | %      |
| Rate of compensation increase          |   | 3.07                    | %      | 4                       | %      |

 

A-23

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Components of the netperiodic benefit cost were as follows:

 
|                           |   | **Reorganized Company** |   | **Predecessor  Company**                    |   |
|--------------------------------|--------|-------------------------|--------|---------------------------------------------|--------|
| **(in  thousands)**            |   | **Fiscal Year  2003**   |   | **Nine months  ended  September  30, 2002** |   | **Three months  ended  December 31,  2001** |   |
|                           |   |                    |   |                                        |   |   |   |
| Service cost                   |   | $                       | 882    |                                        | $      | 581 |   | $ | 193 |   |
| Interest cost                  |   | 1,735                   |   | 1,183                                       |   | 394 |   |
| Expected return on plan assets |   | (1,249                  | )      | (956                                        | )      | (318 | ) |
| Recognized actuarial loss      |   | 305                     |   | 70                                          |   | 30 |   |
| Net periodic benefit cost      |   | $                       | 1,673  |                                        | $      | 878 |   | $ | 299 |   |

 

**NOTE 14.CAPITAL STOCK:**

 

**Bankruptcy Reorganization**

 

**Class Aand Class B Common Shares**

 

We are authorizedto issue up to 40,000,000 shares of Class A Common Stock and 787,711 shares ofClass B Common Stock.  Each share ofClass A and Class B Common Stock is identical, including voting rights,dividends, when and if declared, and liquidation rights, subject to anypreference of preferred stock as may be issued in the future.

 

**Preferred Stock**

 

Our Board of Directorshas the ability, at its discretion, to create one or more series of PreferredStock and to determine each such series’ preferences, limitations, and relativevoting and other rights.  We areauthorized to issue up to 1,000,000 shares of preferred stock, as establishedduring our financial restructuring and reorganization (see Note 1).  As of September 30, 2003, we have notissued any preferred stock.

 

**Warrants**

 

As of September 30,2003, we had 783,077 warrants outstanding to purchase common stock at anexercise price of $61.54 per share. These warrants were authorized and issued in connection with ourfinancial restructuring and reorganization (see Note 1).

 

**NOTE 15.STOCK PLANS:**

 

Underthe Plan of Reorganization all prior stock option plans were canceled.

 

Underthe Reorganization Plan effective December 31, 2001, the board ofdirectors reserved 403,403 Class A Anacomp shares for issuance to employees ofAnacomp or its subsidiaries as incentive compensation.  We currently maintain two such compensationplans, consisting of the 2001 Stock Option Plan, which was approved in thebankruptcy proceedings by the parties that became our shareholders, and the2003 Outside Director Compensation Plan (the “2003 Plan”), which has not beenapproved by our shareholders.

 

Asof September 30, 2003, we had reserved 50,000 shares of Class A Common Stockfor issuance under the 2003 Plan.  The2003 Plan provides for a one time grant of 1,800 shares of Class A Common Stockto outside directors, the consideration of which shall be services actuallyrendered to Anacomp for its benefit. Under the terms of this Plan, outside directors can defer receipt ofthese shares (as well as cash directors fees). All deferred fees are paid immediately prior to the effective date of achange in control of Anacomp.

 

Infiscal year 2002, we awarded 210,000 options to employees to purchase shares ata price of $26.00 per share, all of which remain outstanding as ofSeptember 30, 2003.  No optionswere awarded in fiscal year 2003.

 

We account for ourcompensation plans that provide for the issuance of stock to officers and otheremployees, directors and consultants in accordance with APB Opinion No. 25,under which compensation expense is recognized only to the extent the exerciseprice of the option is less than the fair market value of a share of stock atthe date of grant.  Accordingly, we haveadopted the disclosure only requirements of SFAS No. 123, “Accounting for StockBased Compensation” (see Note 1).  Thefair value of each option grant is estimated on the date of grant using theBlack Scholes option pricing model. The weighted average fair value of optionsgranted during 2002 (no options were

 

A-24

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granted in 2001 or2003), as well as the weighted average assumptions used to determine the fairvalues, are summarized below:

 
|                           |   | **2002** |   |
|--------------------------------|--------|----------|--------|
| Fair  Value of Options Granted |   | $        | 9.05   |   |
| Risk-Free  Interest Rate       |   | 3.32     | %      |
| Expected  Dividend Yield       |   | 0        | %      |
| Expected  Volatility           |   | 0.33     | %      |
| Expected  Life                 |   | 5 Years  |   |
|                                |        |          |        |  |

 

**NOTE 16.INCOME TAXES**:

 

The components of income(loss) from continuing operations before gain on extinguishment of debt,reorganization items and income taxes were:

 
|                             |   | **Reorganized Company**                            |   | **Predecessor Company**                          |   |
|----------------------------------|--------|----------------------------------------------------|--------|--------------------------------------------------|--------|
| **(dollars in  thousands)** |   | **Twelve Months  Ended  September 30,  2003** |   | **Nine Months  Ended  September 30,  2002** |   | **Three Months  Ended  December 31,  2001** |   | **Twelve Months  Ended  September 30,  2001** |   |
| United  States                   |   | $                                                  | (1,396 | )                                                | $      | (1,947 | ) | $ | 11,363 |   | $ | (44,041 | ) |
| Foreign                          |   | 2,467                                              |   | 2,746                                            |   | 1,118 |   | (233 | ) |
|                             |   | $                                                  | 1,071  |                                             | $      | 799 |   | $ | 12,481 |   | $ | (44,274 | ) |

 

The components ofthe consolidated tax provision are summarized below:

 
|                       |   | **Reorganized Company**                            |   | **Predecessor Company**                          |   |
|----------------------------|--------|----------------------------------------------------|--------|--------------------------------------------------|--------|
| **(dollars in thousands)** |   | **Twelve Months  Ended  September 30,  2003** |   | **Nine Months  Ended  September 30,  2002** |   | **Three Months  Ended  December 31,  2001** |   | **Twelve Months  Ended  September 30,  2001** |   |
| Current:                   |   |                                               |   |                                             |   |   |   |   |   |
| Federal                    |   | $                                                  | — |                                             | $      | 636 |   | $ | — |   | $ | — |   |
| Foreign                    |   | 1,556                                              |   | 1,543                                            |   | 440 |   | 3,177 |   |
| State                      |   | 60                                                 |   | 150                                              |   | 10 |   | 40 |   |
|                       |   | 1,616                                              |   | 2,329                                            |   | 450 |   | 3,217 |   |
| Deferred:                  |   |                                               |   |                                             |   |   |   |   |   |
| Federal                    |   | 333                                                |   | 1,994                                            |   | — |   | — |   |
|                       |   | $                                                  | 1,949  |                                             | $      | 4,323 |   | $ | 450 |   | $ | 3,217 |   |

 

The income taxprovision is included in the Consolidated Statements of Operations as follows:

 
|                                                       |   | **Reorganized Company**                            |   | **Predecessor Company**                          |   |
|------------------------------------------------------------|--------|----------------------------------------------------|--------|--------------------------------------------------|--------|
| **(dollars in thousands)**                                 |   | **Twelve Months  Ended  September 30,  2003** |   | **Nine Months  Ended  September 30,  2002** |   | **Three Months  Ended  December 31,  2001** |   | **Twelve Months  Ended  September 30,  2001** |   |
| Provision  for income taxes before discontinued operations |   | $                                                  | 1,760  |                                             | $      | 4,024 |   | $ | 450 |   | $ | 3,217 |   |
| Discontinued  operations                                   |   | 189                                                |   | 299                                              |   | — |   | — |   |
|                                                       |   | $                                                  | 1,949  |                                             | $      | 4,323 |   | $ | 450 |   | $ | 3,217 |   |

 

The following is areconciliation of income taxes from continuing operations calculated at the UnitedStates federal statutory rate to the provision for income taxes:

 

A-25

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|                                                |   | **Reorganized Company**                            |   | **Predecessor Company**                          |   |
|-----------------------------------------------------|--------|----------------------------------------------------|--------|--------------------------------------------------|--------|
| **(dollars in thousands)**                          |   | **Twelve Months  Ended  September 30,  2003** |   | **Nine Months  Ended  September 30,  2002** |   | **Three Months  Ended  December 31,  2001** |   | **Twelve Months  Ended  September 30,  2001** |   |
| Benefit  for income taxes at U.S. statutory rate    |   | $                                                  | 375    |                                             | $      | 280 |   | $ | 4,368 |   | $ | (15,496 | ) |
| Reorganization  items                               |   | —                                             |   | —                                           |   | (4,665 | ) | — |   |
| Life  insurance                                     |   | —                                             |   | 2,590                                            |   | — |   | — |   |
| U.S.  tax on dividends from foreign subsidiaries    |   | —                                             |   | 3,157                                            |   | — |   | — |   |
| Foreign  tax credits generated                      |   | —                                             |   | (4,940                                           | )      | — |   | — |   |
| State  and foreign income taxes                     |   | 1,307                                              |   | 1,113                                            |   | 450 |   | (813 | ) |
| Increase  in deferred tax asset valuation allowance |   | —                                             |   | 1,771                                            |   | 297 |   | 18,600 |   |
| Other                                               |   | 78                                                 |   | 53                                               |   | — |   | 926 |   |
|                                                |   | $                                                  | 1,760  |                                             | $      | 4,024 |   | $ | 450 |   | $ | 3,217 |   |

 

The components ofdeferred tax assets and liabilities are as follows:

 
|                                                                 |   | **Reorganized Company**      |   |
|----------------------------------------------------------------------|--------|------------------------------|--------|
| **(dollars in thousands)**                                           |   | **September 30,  2003** |   | **September 30,  2002** |   |
| Tax  effects of future temporary differences related to:             |   |                         |   |   |   |
| Accrued expenses and reserves                                        |   | $                            | 10,903 |   | $ | 9,023 |   |
| Depreciation  and amortization                                       |   | 26,110                       |   | 32,104 |   |
| Other                                                                |   | (723                         | )      | — |   |
| Net  tax effects of future differences                               |   | 36,290                       |   | 41,127 |   |
| Tax  effects of carryforward benefits:                               |   |                         |   |   |   |
| Federal  net operating loss carryforwards                            |   | 3,551                        |   | — |   |
| Foreign  tax credits                                                 |   | —                       |   | 2,139 |   |
| Tax  effects of carryforwards                                        |   | 3,551                        |   | 2,139 |   |
| Tax  effects of future taxable differences and carryforward benefits |   | 39,841                       |   | 43,266 |   |
| Less  valuation allowance                                            |   | (39,841                      | )      | (43,266 | ) |
| Net  deferred tax asset                                              |   | $                            | — |   | $ | — |   |

 

As of September 30,2003, we had deferred tax assets totaling approximately $39.8 million, whichwere fully offset by a valuation allowance. The valuation allowance is based on our estimates of taxable income byjurisdiction in which we operate and the period over which our deferred taxassets will be recoverable.  A valuationallowance has been established due to uncertainties related to our ability toutilize our net deferred tax assets before they expire.

 

The tax benefits ofpre-reorganization deferred tax assets will be reported first as a reduction ofthe Reorganization Asset and then as a credit to equity.  These tax benefits will not reduce incometax expense for financial reporting purposes, although such assets whenrecognized or amortized as an expense for tax return purposes may reduce U.S.federal and certain state taxable income if any, and therefore reduce theincome tax payable.  As ofSeptember 30, 2003, the balance of the pre-reorganization deferred taxasset was $38.5 million.  During theperiod ended September 30, 2003, approximately $0.3 million ofpre-reorganization net deferred tax assets were utilized as deductions for taxreturn purposes and, therefore, were reported as a reduction of theReorganization Asset.

 

On October 19, 2001,the Company filed a voluntary petition under Chapter 11 of the United StatesBankruptcy Code.  Under the terms of theplan of reorganization, the Company has cancellation of debt (“COD”).  As a result, the Company is required toreduce, for federal income tax purposes, certain tax attributes, including netoperating loss carryforwards, tax credit carryforwards, and property basis, bythe amount of the COD.  In general, theamount of attribute reduction is equal to the excess of the debt discharged inbankruptcy over the fair market value of the stock issued in thereorganization.

 

A-26

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Additionally, the Companyexperienced an ownership change under Internal Revenue Code section 382,which will limit the Company’s ability to utilize certain tax attributes andpossibly certain built-in losses recognized within a five-year period.

 

Undistributed earnings ofthe Company’s foreign subsidiaries amounted to approximately $13.9 million atSeptember 30, 2003.  Those earningsare considered to be indefinitely reinvested and, accordingly, no provision forU.S. federal and state income taxes has been provided thereon.  Upon distribution of those earnings in theform of dividends or otherwise, we would be subject to both U.S. income taxes(subject to an adjustment for foreign tax credits) and withholding taxespayable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income taxliability is not practicable because of the amount of the complexitiesassociated with its hypothetical calculation; however, unrecognized foreign taxcredit carryforwards may be available to reduce some portion of the U.S.liability.

 

**NOTE17.COMMITMENTS AND CONTINGENCIES:**

 

**Lease Commitments**

 

Anacomp hascommitments under long-term operating leases, principally for building spaceand data service center equipment expiring at various dates throughMay 2011.  The following summarizesthe future minimum lease payments under all noncancelable operating leaseobligations that extend beyond one year:

 
| **(dollars in thousands)**     |   | **Lease  Payments** |   | **Sublease  Income** |   |
|--------------------------------|--------|---------------------|--------|----------------------|--------|
| Year  Ended September 30, |   |                |   |                 |   |
| 2004                           |   | $                   | 10,716 |                 | $      | 782 |   |
| 2005                           |   | 9,042               |   | 807                  |   |
| 2006                           |   | 7,982               |   | 770                  |   |
| 2007                           |   | 6,817               |   | 777                  |   |
| 2008                           |   | 6,223               |   | 774                  |   |
| Thereafter                     |   | 14,388              |   | 1,310                |   |
|                           |   | $                   | 55,168 |                 | $      | 5,220 |   |

 

The Company’s rent andlease expense was $12.5 million, $9.8 million, $3.3 million and $13.9 millionfor the year ended September 30, 2003, the nine months endedSeptember 30, 2002, the three months ended December 31, 2001, and theyear ended September 30, 2001, respectively.

 

**Environmental Liability**

 

Xidex Corporation, apredecessor company of Anacomp, was designated by the United States EnvironmentalProtection Agency (“EPA”) as a potentially responsible party for investigatoryand cleanup costs incurred by state and federal authorities involving locationsincluded on a list of EPA’s priority sites for investigation and remedialaction under the federal Comprehensive Environmental Response, Compensation,and Liability Act.  AtSeptember 30, 2003, we have an estimated EPA liability for cleanup costsfor the aforementioned locations and other sites totaling $1.2 million.   During fiscal 2001, we recorded a $1.0million reduction to our EPA liability previously estimated and accrued uponrelease from certain further clean-up activity.  In the opinion of management, no material losses are expected inexcess of the liability recorded.  Wehave classified the liability as long term in the current balance sheetpresentation.

 

**Legal Matters**

 

On August 29, 1997,Access Solutions International, Inc. (“ASI”) filed a complaint for patentinfringement in the U.S. District Court, District of Rhode Island against Data/Ware,of which Anacomp is the successor by merger, and the Eastman KodakCompany.  On April 20, 2001,management settled this matter through the execution of an agreement, the termsof which are confidential, among Anacomp, ASI and other parties.  The Company recorded a $5.4 million chargerelated to this matter in the second quarter of fiscal 2001 that is included inselling, general and administrative expense for the year endedSeptember 30, 2001.

 

A-27

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Anacomp is also involvedin various claims and lawsuits incidental to its business and managementbelieves that the outcome of those matters individually, and in the aggregate,will not have a material adverse effect on its consolidated financial positionor results of operations.

 

A-28

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**NOTE 18.INTERNATIONAL OPERATIONS:**

** **

Anacomp’s internationaloperations are conducted principally through subsidiaries, a substantialportion of whose operations are located in Western Europe.  Total international sales include sales bysubsidiaries and through distributors. Information as to U.S. and international operations for the year ended September 30,2003, the nine months ended September 30, 2002, the three months endedDecember 31, 2001, and the year ended September 30, 2001 is asfollows (dollars in thousands):

 

**Year Ended September 30, 2003 (Reorganized company)**

 
|                                         |   | **U.S.** |    | **International** |   | **Elimination** |   | **Consolidated** |   |
|----------------------------------------------|--------|----------|---------|-------------------|--------|-----------------|--------|------------------|--------|
| Customer  sales                              |   | $        | 140,502 |              | $      | 63,521          |   | $                | — |   | $ | 204,023 |   |
| Inter-geographic                             |   | 1,075    |    | —            |   | (1,075          | )      | —           |   |
| Total  sales                                 |   | $        | 141,577 |              | $      | 63,521          |   | $                | (1,075 | ) | $ | 204,023 |   |
| Operating  income from continuing operations |   | $        | (715    | )                 | $      | 2,799           |   | $                | — |   | $ | 2,084 |   |
| Long-lived  assets                           |   | $        | 96,110  |              | $      | 11,360          |   | $                | — |   | $ | 107,470 |   |

 

**Nine Months Ended September 30, 2002 (Reorganizedcompany)**

** **
|                                         |   | **U.S.** |    | **International** |   | **Elimination** |   | **Consolidated** |   |
|----------------------------------------------|--------|----------|---------|-------------------|--------|-----------------|--------|------------------|--------|
| Customer  sales                              |   | $        | 128,008 |              | $      | 45,799          |   | $                | — |   | $ | 173,807 |   |
| Inter-geographic                             |   | 1,215    |    | —            |   | (1,215          | )      | —           |   |
| Total  sales                                 |   | $        | 129,223 |              | $      | 45,799          |   | $                | (1,215 | ) | $ | 173,807 |   |
| Operating  income from continuing operations |   | $        | 839     |              | $      | 2,380           |   | $                | — |   | $ | 3,219 |   |
| Long-lived  assets                           |   | $        | 104,899 |              | $      | 8,597           |   | $                | — |   | $ | 113,496 |   |

 

**Three Months Ended December 31, 2001 (Predecessorcompany)**

** **
|                                         |   | **U.S.** |    | **International** |   | **Elimination** |   | **Consolidated** |   |
|----------------------------------------------|--------|----------|---------|-------------------|--------|-----------------|--------|------------------|--------|
| Customer  sales                              |   | $        | 45,807  |              | $      | 22,217          |   | $                | — |   | $ | 68,024 |   |
| Inter-geographic                             |   | 763      |    | —            |   | (763            | )      | —           |   |
| Total  sales                                 |   | $        | 46,570  |              | $      | 22,217          |   | $                | (763   | ) | $ | 68,024 |   |
| Operating  income from continuing operations |   | $        | 990     |              | $      | 1,343           |   | $                | — |   | $ | 2,333 |   |
| Long-lived  assets                           |   | $        | 113,787 |              | $      | 10,390          |   | $                | — |   | $ | 124,177 |   |

** **

**Year Ended September 30, 2001 (Predecessor company)**

** **
|                                       |   | **U.S.** |    | **International** |   | **Elimination** |   | **Consolidated** |   |
|--------------------------------------------|--------|----------|---------|-------------------|--------|-----------------|--------|------------------|--------|
| Customer  sales                            |   | $        | 214,668 |              | $      | 91,680          |   | $                | — |   | $ | 306,348 |   |
| Inter-geographic                           |   | 3,903    |    | —            |   | (3,903          | )      | —           |   |
| Total  sales                               |   | $        | 218,571 |              | $      | 91,680          |   | $                | (3,903 | ) | $ | 306,348 |   |
| Operating  loss from continuing operations |   | $        | (1,194  | )                 | $      | (427            | )      | $                | — |   | $ | (1,621 | ) |
| Long-lived  assets                         |   | $        | 117,416 |              | $      | 9,087           |   | $                | — |   | $ | 126,503 |   |

 

A-29

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**NOTE 19.QUARTERLY FINANCIAL DATA (UNAUDITED):**

 

**Summary Results of Operations:**

 
| **(dollars in thousands, except per  share amounts)** |   | **First  Quarter** |       | **Second  Quarter** |       | **Third  Quarter** |       | **Fourth  Quarter** |       |
|-------------------------------------------------------|--------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
|                                                  |   |               |       |                |       |               |       |                |       |
| **Fiscal 2003 (Reorganized company)**                 |   |               | ** ** |                | ** ** |               | ** ** |                | ** ** |
| Revenues                                              |   | $                  | 52,971     |                | $          | 52,781             |       | $                   | 49,806     |   | $ | 48,465 |   |
| Gross margin                                          |   | 17,386             |       | 17,178              |       | 15,370             |       | 14,947              |       |
| Income (loss) from continuing operations              |   | (272               | )          | 457                 |       | (630               | )          | (244                | )          |
| Gain (loss) on sale of discontinued operations        |   | 8,384              |       | (200                | )          | —             |       | (189                | )          |
| Net income (loss)                                     |   | $                  | 8,112      |                | $          | 257                |       | $                   | (630       | ) | $ | (433 | ) |
| Basic and diluted per share data:                     |   |               |       |                |       |               |       |                |       |
| Net income (loss)                                     |   | $                  | 2.01       |                | $          | 0.06               |       | $                   | (0.15      | ) | $ | (0.11 | ) |

 
|                                                                                    |   | **Predecessor****Company** |    | **Reorganized Company** |   |
|-----------------------------------------------------------------------------------------|--------|----------------------------|---------|-------------------------|--------|
| **Fiscal 2002**                                                                         |   |                       |    |                    |   |   |   |   |   |
| Revenues                                                                                |   | $                          | 68,024  |                    | $      | 60,607 |   | $ | 56,534 |   | $ | 56,666 |   |
| Gross margin                                                                            |   | 21,520                     |    | 20,152                  |   | 17,517 |   | 18,045 |   |
| Gain on extinguishment of debt                                                          |   | 265,329                    |    | —                  |   | — |   | — |   |
| Income (loss) from continuing operations before  reorganization items, and income taxes |   | 264,482                    |    | 285                     |   | (481 | ) | (3,029 | ) |
| Reorganization items                                                                    |   | 13,328                     |    | —                  |   | — |   | — |   |
| Net income (loss)                                                                       |   | $                          | 277,360 |                    | $      | 903 |   | $ | 7 |   | $ | (3,222 | ) |
| Basic and diluted per share data:                                                       |   |                       |    |                    |   |   |   |   |   |
| Net income (loss)                                                                       |   |                       |    | $                       | 0.23   |   | $ | 0.00 |   | $ | (0.80 | ) |

 

**Summary of Significant Charges:**

 
| **Fiscal  2003**              |   |   |       |   |       |   |       |   |       |
|-------------------------------|--------|--------|------------|--------|------------|--------|------------|--------|------------|
| Restructuring charge          |   | $      | —     |   | $          | — |       | $      | 1,152      |   | $ | 1,545 |   |
|                          |   |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **Fiscal  2002**              |   |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Restructuring (credit) charge |   | $      | (1,032     | )      | $          | — |       | $      | 2,081      |   | $ | — |   |

 

A-30

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**NOTE 20.VALUATION AND QUALIFYING ACCOUNTS AND RESERVES:**

 

The following is asummary of activity in the Company’s valuation and qualifying accounts andreserves for the periods ended September 30, 2003, 2002, 2001, andDecember 31, 2001:

 
| **(dollars in thousands)**                                           |   | **Balance at  beginning of  period** |   | **Charges  (credits) to  costs and  expenses** |   | **Deductions  (1)** |   | **Balance at  end of period** |   |
|----------------------------------------------------------------------|--------|--------------------------------------|--------|------------------------------------------------|--------|---------------------|--------|-------------------------------|--------|
|                                                                 |   |                                 |   |                                           |   |                |   |                          |   |
| **Year  ended September 30, 2003 (Reorganized Company)**        |   |                                 |   |                                           |   |                |   |                          |   |
| Allowance for doubtful accounts                                      |   | $                                    | 2,693  |                                           | (159   | )                   | (1,002 | )                             | $      | 1,532 |   |
|                                                                 |   |                                 |   |                                           |   |                |   |                          |   |
| **Nine  months ended September 30, 2002 (Reorganized Company)** |   |                                 |   |                                           |   |                |   |                          |   |
| Allowance for doubtful accounts                                      |   | $                                    | 3,586  |                                           | (16    | )                   | (877   | )                             | $      | 2,693 |   |
|                                                                 |   |                                 |   |                                           |   |                |   |                          |   |
| **Three  months ended December 31, 2001 (Predecessor Company)** |   |                                 |   |                                           |   |                |   |                          |   |
| Allowance for doubtful accounts                                      |   | $                                    | 4,538  |                                           | 123    |                | (33    | )                             | $      | 4,628 |   |
|                                                                 |   |                                 |   |                                           |   |                |   |                          |   |
| **Year  ended September 30, 2001 (Predecessor Company)**        |   |                                 |   |                                           |   |                |   |                          |   |
| Allowance for doubtful accounts                                      |   | $                                    | 4,922  |                                           | 163    |                | (547   | )                             | $      | 4,538 |   |

 

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**(1)**  Amount consists primarily of receivablebalances reserved for that have been determined to be uncollectible.

 

A-31

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**EXHIBIT INDEX**

 

**EXHIBIT NUMBER**

 

**(2)   PLAN OFREORGANIZATION.**

**(3)   ARTICLES OFINCORPORATION AND BYLAWS.**

**(4)   SHAREHOLDERINFORMATION.**

**(10) MATERIAL CONTRACTS.**

**(21) SUBSIDIARIES OF THE REGISTRANT.**

**(31) CERTIFICATIONS OF CEO AND CFO.**

 

(a)   1.                The following financial statements andother information appear in Appendix A to this Annual

 

Report on Form 10-K andare filed as a part hereof:

 

Report of IndependentPublic Accountants.

 

Consolidated BalanceSheets - September 30, 2003 and 2002.

 

Consolidated Statementsof Operations - Years Ended September 30, 2003, 2002 and 2001.

 

ConsolidatedStatements of Stockholders’ Equity (Deficit) - Years Ended September 30,2003, 2002 and 2001.

 

Consolidated Statementsof Cash Flows - Years Ended September 30, 2003, 2002 and 2001.

 

Notes to the ConsolidatedFinancial Statements.

 

2.                   FinancialStatement Schedules are not filed with this Annual Report on Form 10-K becausethe Schedules are either inapplicable or the required information is presentedin the financial statements listed immediately above or in the notes thereto.

 

(b)           Reports on Form 8-K:

 

Duringthe fourth quarter of the fiscal year covered by this report, Anacomp filed thefollowing report on Form 8-K:

 

1.                   August 15,2003 (quarterly earnings release) Reports that are “furnished” rather than“filed” are not incorporated by reference into our filings under the SecuritiesAct nor Securities Exchange Act.

 

(c)                                  Thefollowing exhibits are filed with this Annual Report on Form 10-K orincorporated herein by reference to the listed document previously filed withthe Securities and Exchange Commission (the”SEC”).  Previously unfiled documents are noted with an asterisk (*):

 

2.                                       Planof Reorganization dated August 29, 2001. (1)

 

3.1                                 Amendedand Restated Articles of Incorporation of the Company as of December 31,2001. (2)

 

3.2                                 Amendedand Restated Bylaws of the Company as of April 25, 2002. (3)

 

4.1                                 ShareholdersRights Plan. (4)

 

4.2                                 Amendmentsto the Shareholders Rights Plan (5).

 

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4.3                                 WarrantAgreement by and between the Company and Mellon Investor Services LLC datedDecember 31, 2002. (2)

 

10.1                           Retirement/ Part-Time Employment Agreement dated October 27, 1999, between theCompany and William C. Ater. (6) (8)

 

10.2                           EmploymentAgreement, effective August 21, 2000, between the Company and Jeffrey R.Cramer. (7) (8)

 

10.3                           RevolvingCredit Agreement, dated as of June 15, 1998, among Anacomp, Inc., thevarious lending institutions named therein and BankBoston, N.A. as agent. (9)

 

10.4                           Forbearanceand Standstill Agreement, dated as of November 15, 2000, among Anacomp,Inc., the various banks named therein, and Fleet National Bank as agent for thebanks. (6)

 

10.5                           Amendmentto the Forbearance and Standstill Agreement, dated as of December 15,2000, between Anacomp, Inc. and Fleet National Bank. (6)

 

10.6                           Amendedand Restated Master Supply Agreement, dated October 8, 1993, by and amongthe Company, SKC America, Inc. and SKC Limited. (10)

 

10.7                           FirstCumulative Amendment to the Amended and Restated Master Supply Agreement, datedMay 17, 1996, by and among the Company, SKC America, Inc. and SKC Limited.(11)

 

10.8                           SecondAmended and Restated Master Supply Agreement, dated as of July 1, 1997, byand among the Company, SKC America, Inc. and SKC Limited. (12)

 

10.9                           SecondAmendment to Amended and Restated Revolving Credit Agreement and Restructure ofObligations dated as of December 19, 2002, by and among the Company, thevarious banks named therein, and Fleet National Bank as agent for the banks.(5)

 

10.10                     LeaseAgreement by and between the Company and Kilroy Realty, LP., a Delaware limitedpartnership dated   June 14, 2002.(13)

 

10.11                     ConsultingAgreement by and between the Company and Steven G. Singer dated May 7,2002. (13)

 

10.12                     EmploymentAgreement and Amended Employment Agreement between the Company and Edward P.Smoot dated November 12, 2002 and April 28, 2003, respectively.

 

10.13                     RevolvingCredit Agreement, dated as of November 21, 2003, by and among, Anacomp, Inc.,Fleet National Bank and Union Bank of California. (14)

 

16.                                 Letterby Arthur Anderson to the SEC dated May 28, 2002 regarding change incertifying accountant. (15)

 

21.1                           Subsidiaries.

 

23.1                           Consentof Ernst and Young LLP, Independent Auditors.

 

23.2                           Solelydue to the closure of Arthur Andersen LLP’s San Diego, California office, afterreasonable efforts, the Registrant was unable to obtain the written consent ofArthur Andersen LLP to incorporate by reference its report dated November 21,2001.

 

31                                    Rule13a – 14(a)/15(d) – 14(a) Certifications

 

32            Section 1350Certifications

 

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(1)                                  Incorporatedby reference to the Company’s Form 8-K filed on September 20, 2001 andOctober 29, 2001.

 

(2)                                  Incorporatedby reference to the exhibits to the registration statement of Form 8-A filed bythe Company on January 9, 2002.

 

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(3)                                  Incorporatedby reference to the Company’s Form 10-Q/A for the quarterly period endedJune 30, 2002.

 

(4)                                  Incorporatedby reference to an exhibit to the Company’s Form 8-K filed onSeptember 21, 2002.

 

(5)                                  Incorporatedby reference to the Company’s Form 10-K for the year ended September 30,2002.

 

(6)                                  Incorporatedby reference to the Company’s Form 10-K for the year ended September 30,2000.

 

(7)                                  Incorporatedby reference to the Company’s Form 10-K for the year ended September 30,2001.

 

(8)                                  Managementcontract or compensation plan.

 

(9)                                  Incorporatedby reference to the Company’s Form 8-K filed with the SEC on June 24, 1998(File No. 1-8328).

 

(10)                            Incorporatedby reference to the Company’s Form 10-K for the year ended September 30,1993.

 

(11)                            Incorporatedby reference to the Company’s Pre-Effective Amendment No. 1 to Form S-1Registration Statement filed with the SEC on September 19, 1996 (File No.333-9395).

 

(12)                            Incorporatedby reference to the Company’s Form 10-K for the year ended September 30,1999.

 

(13)                            Incorporated by reference to the Company’s Form10-Q for the quarterly period ended June 30, 2002.

 

(14)                            Incorporatedby reference to the Company's Form 8-K filed on November 25, 2003.

 

(15)                            Incorporatedby reference to an exhibit to the Company’s Form 8-K filed with the SEC onMay 29, 2002.

 

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