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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

     For                          fiscal   year   ended   September   30,   1996
                                  Commission File Number 1-8328 ANACOMP, INC.
             (Exact name of registrant as specified in its charter)

Indiana                                                          35-1144230
(State of incorporation)                       (IRS Employer Identification No.)

11550 North Meridian Street, P.O. Box 40888
Indianapolis,Indiana                                            46240
(Address of principal executive offices)                       (ZipCode)

Registrant's telephone number, including area code:           317-844-9666

Securities registered pursuant to Section 12(b) of the Act:       None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class
Common Stock, $.01 par value
Common Stock Warrants

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months,  and (2) has been subject to such filing  requirements
for the past 90 days. Yes X No

Indicate by check mark whether the registrant has filed all reports  required to
be filed by Section 12, 13 or 15(d) of the  Securities  and Exchange Act of 1934
subsequent to the  distribution of Securities under a plan confirmed by a court.
Yes X No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by  reference in Part III of this Form 10-K,  or any  amendment to
this form 10-K. [X]

The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
registrant  as of  December  16,  1996:  Common  stock par value $.01 per share,
$111,318,708.  Common Stock  outstanding  as of December 16, 1996 was 13,700,764
shares.
                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive  Proxy Statement  relating to the  registrant's  1997
Annual  Meeting  of  Shareholders  to be held on  February  3,  1997,  have been
incorporated by reference in Part III of this Annual Report on Form 10-K.


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PART I
ITEM 1. BUSINESS

 Overview

     Anacomp,  Inc.  ("Anacomp" or the "Company") is one of the world's  leading
providers  of  products  and  services  used  to  manage  corporate  information
throughout its life cycle.  The Company serves more than 15,000  customers in 65
countries,  maintaining  significant market positions in micrographics  products
and services, magnetic media manufacturing, digital output services, and related
information delivery technologies.

     One of  Anacomp's  largest  businesses  is output  services.  In the United
States,  the  Company is the  second  largest  provider  of  Computer  Output to
Microfilm  ("COM")  output  services,   the  high-speed  conversion  of  digital
information to microfilm or microfiche.  Micrographics is widely used throughout
the  world  as a  long-term,  low-cost  medium  for  storing  large  amounts  of
information.

     Although still a small  percentage of Anacomp's  revenues,  the Company has
quickly become a significant  provider of digital output services since entering
this  market in fiscal  1995,  ranking as the third  largest  U.S.  provider  of
Compact  Disc-Recordable  ("CD-R")  output  services.  Available  throughout the
United  States  and  at an  increasing  number  of the  Company's  international
locations,  CD services provide Anacomp's customers with a high-capacity storage
and  delivery  solution  for  applications  requiring  frequent  and  high-speed
information retrieval.

     Anacomp recently introduced archival services and print/mail services, both
of which it views as highly  complementary to its existing output services.  The
Company offers archival services,  the physical storage of microfilmed  records,
at selected  service  centers in the United States and plans to open several new
archival  vaults in fiscal 1997. The Company  intends to expand this business to
include the  off-site  storage of  multiple-media  formats and,  ultimately,  to
develop an electronic  storage and distribution  service.  Anacomp believes that
print/mail services, which involve the output and mailing of printed information
for  clients,  represent  a promising  opportunity  for both the Company and its
customers.  The Company  intends to roll-out  this service to a broad portion of
its U.S. customer base in fiscal 1997.

     Complementing  Anacomp's  output  services are the  development and sale of
micrographic  and digital systems for customers who desire in-house  information
management solutions. The Company and its subsidiaries have introduced virtually
every major  advance in the COM industry,  including  the XFP 2000,  the world's
leading COM system,  and Advanced Function Indexing,  a sophisticated  method to
index  and  retrieve  large  volume  COM  applications.  Recently,  Anacomp  has
increasingly  invested in electronic  management  products to provide  customers
with COLD  (Computer  Output to  Laserdisk),  imaging,  workflow,  and  document
management solutions.

     The Company Also  Provides  Maintenance  And  Professional  Services To Its
Customers Worldwide To Facilitate The Installation, Management, Maintenance, And
Competitive  Use Of  Information  Delivery  Solutions.  Services  Include System
Integration,  Technical Support, Document Conversion,  And Software And Hardware
Maintenance.

     Anacomp derives a significant  portion of its revenues and profits from the
sale of micrographics  supplies, as well as magnetic media products. The Company
has the world's  largest  installed  base of COM systems  (approximately  55% of
those in use),  which  enables it to  generate  recurring  revenue by  providing
related  consumable  supplies,  a significant  portion of which are proprietary.
Anacomp also is a major  manufacturer  and distributor of computer tape products
used by data processing operations,  including 3480/ 3490E tape cartridges, open
reel tape, and back-up tape cartridges such as quarter-inch, 4mm, and 8mm.

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     In general,  the Company's  customers are mid-sized and large organizations
whose businesses rely on efficient,  reliable, and ongoing access to significant
amounts of  information.  The Company's  clients include leaders in the finance,
insurance,  and retail industries,  businesses that tend to process and maintain
relatively large amounts of customer and legal documentation.  In addition,  the
Company's 44 output service facilities in the United States, along with multiple
locations  abroad,  have made  Anacomp  an  attractive  supplier  for  customers
requiring products and services at multiple locations.

     The  Company  believes it has a loyal  following  among  businesses  in the
United  States  and  abroad,  and  provides  a solid  foundation  for  continued
technological and market innovation.


Recent Developments

     On June 4, 1996, the Company emerged from bankruptcy  proceedings under its
Third Amended Joint Plan of Reorganization (the "Reorganization"). On such date,
the Company canceled its existing secured debt and subordinated debt,  including
15% Senior Subordinated Notes, 13.875% Convertible  Subordinated  Debentures and
9% Convertible  Subordinated  Debentures,  and its equity securities,  including
common stock,  common stock purchase rights,  preferred stock and warrants,  and
distributed to its creditors  approximately  $22 million in cash, $112.2 million
principal  amount of its  11-5/8%  Senior  Secured  Notes due 1999 (the  "Senior
Secured Notes"),  $160 million  principal amount of its 13% Senior  Subordinated
Notes due 2002 (the  "Senior  Subordinated  Notes"),  10  million  shares of new
common stock, par value $.01 per share (the "New Common Stock"), and warrants to
purchase 362,694 shares of New Common Stock at a price of $12.23 per share for a
period of five years from June 4, 1996. The Plan of Reorganization resulted in a
reduction of approximately $173 million in principal and accrued interest on the
Company's debt  obligations and in liquidation  amount and accrued  dividends on
its preferred  stock.  The  resulting  capital  structure  reduced the Company's
interest expense by approximately $30 million per year.

     The process began January 5, 1996, when Anacomp filed a Prenegotiated  Plan
of Reorganization with the U.S. Bankruptcy Court in Delaware under Chapter 11 of
the U.S.  Bankruptcy Code. The Company was in default under substantially all of
its  debt  agreements  as a result  of its  failure  to make  $89.7  million  of
principal  payments  scheduled  for April 26,  1995 and  October 26, 1995 on the
senior  secured  credit  facilities  (including  $60  million  relating  to  the
revolving  loan agreement  which expired on October 26, 1995),  $11.4 million of
principal and interest  payments on the 9% Convertible  Subordinated  Debentures
which were due January 15, 1996,  $34.1 million of interest  payments  scheduled
for May 1, 1995 and November 1, 1995 on its Senior  Subordinated Notes, and $3.2
million of interest payments scheduled for July 15, 1995 and January 15, 1996 on
the  13.875%  Subordinated  Debentures,  as well as certain  financial  covenant
violations, and the cross-default provisions of the other debt agreements.


Organization and Operations

     Anacomp  currently  employs  over 2,600 people at multiple  facilities  and
offices in the United States,  Canada,  Brazil, Japan, and Europe,  including 44
output service centers in the United States.

     Domestically,  Anacomp  markets  its  products  and  services  through  two
separate sales forces based in offices located throughout the country.  The U.S.
Group, which employs approximately 120 salespeople,  is comprised of ten regions
responsible  for sales of  micrographics  and CD-R  services;  COM  systems  and
related  maintenance  services,  supplies,  and equipment;  digital hardware and
software solutions;  and sales of magnetics products to end-users. The Magnetics
Group sales organization  employs 21 salespeople and is responsible for sales of
magnetics products, primarily to dealers and distributors.

     Outside of the United States,  the Company maintains direct sales forces in
most of those countries where it has subsidiaries,  and a network of dealers and
distributors  is used to reach the market in other  countries.  In  addition  to
relationships  with end-users and with dealers and distributors  worldwide,  the
Company also manufactures products as an Original Equipment Manufacturer ("OEM")
to companies who re-label and sell  Anacomp's  products  under their  respective
brand names.



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     The Company provides round-the-clock  maintenance and professional services
through over 600 highly trained service employees operating in various countries
worldwide.  In the United States,  over 400 field service engineers and managers
provide geographic coverage through ten districts. Internationally,  maintenance
services are provided  either by Anacomp  employees  operating in the  Company's
foreign subsidiaries or by employees of dealers and distributors.

     Anacomp maintains its corporate  headquarters in Carmel,  Indiana,  and has
corporate and administrative offices in Atlanta,  Georgia and Poway (San Diego),
California.  The Company operates three manufacturing  facilities,  all of which
have  received  international  recognition  for  quality  standards  by  earning
International   Standards  Organization  ("ISO")  9002  certification.   All  of
Anacomp's  micrographics  manufacturing and software development is conducted at
the Company's Poway facility. The Company's magnetics  manufacturing  facilities
are located in Graham, Texas and Brynmawr, Wales.

Engineering, Research and Development

     Anacomp's  engineering  costs,  including  research and  development,  were
significantly  reduced in fiscal 1996,  primarily as a result of the substantial
completion  of the IBM and  Xerox  print stream  projects  for the XFP  2000 COM
system.  However,  the Company  continues to make  investments  in projects that
enhance  the XFP  2000 and the  overall  value of COM,  including  a  high-speed
bitmapping initiative and the continuing  development of DragonCOM, a version of
the XFP 2000 for the Asian  market  that is  capable of  processing  double-byte
ideographic languages.

     The Company also launched an engineering initiative in fiscal 1996 known as
"Pegasys" to automate  Anacomp's 44 output service  centers in the United States
and to  develop  a  state-of-the-art  data  transmission  capability  for  these
centers.  Anacomp  believes that better  automation of the service  centers will
maximize processing capacity, increase productivity, and reduce operating costs.
An improved  transmission  capability will enable many more of Anacomp's service
customers to send their data to the Company electronically, eliminating the need
for tape  handling (on the part of both the customer and the  Company's  service
center staff) as well as  eliminating  tape pick-up and  delivery.  In addition,
data  transmission  will  facilitate the Company's plan to consolidate  selected
service centers in order to increase efficiencies and reduce operating costs.

     Anacomp  expects its current limited  research and development  relating to
advanced  digital  technologies to grow going forward as the Company  introduces
new digital products and services. These costs will be tempered, however, by the
Company's  plan to acquire the rights to core  technologies  whenever  possible.
Anacomp's  focus in the  digital  area will be on the  development  of  customer
applications, where the Company believes it can add value.

     The Company also owns various patents and licenses  covering aspects of its
product line and its production  processes,  as well as proprietary trade secret
information  relating to its products and services.  While Anacomp believes that
the protection provided by these patents,  licenses, and proprietary information
is  important,  the  Company  also  believes  that  equally  significant  is the
knowledge and  experience of its employees,  and their  abilities to develop and
market the Company's products and services and to provide a value-added  benefit
to customers.

 Raw Materials and Suppliers

     Polyester  is  the  principal  raw  material  used  in the  manufacture  of
microfilm and magnetic media products,  two of Anacomp's primary  businesses.  A
worldwide  shortage of polyester has abated recently,  and supply and demand are
more in balance  now. As a result,  Anacomp has seen its cost of  polyester  for
magnetic  media  products  decrease  recently --  reversing a previous  trend of
increasing costs.

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     SKC America,  Inc. and SKC Limited  (collectively  "SKC") is Anacomp's sole
supplier  of  duplicate  microfilm,  the result of a ten-year  supply  agreement
between  the  companies  entered  into in 1993 as  part  of  SKC's  purchase  of
Anacomp's Sunnyvale,  California duplicate microfilm facilities. SKC's duplicate
film  production  is dedicated  exclusively  to Anacomp,  and SKC also  provides
Anacomp with polyester for a large percentage of its magnetic media products. In
connection  with the supply  agreement,  SKC also  provided  Anacomp  with a $25
million trade credit facility,  secured by up to $10 million of products sold to
Anacomp by SKC. In addition, under an amendment to the supply agreement executed
in 1996,  Anacomp  agreed to certain price  increases,  retroactive to 1994, and
agreed to make the following deferred payments to SKC related to the retroactive
price increases:  $400,000 in 1997; $600,000 in 1998; $800,000 in 1999; $800,000
in 2000; and $1,000,000 in 2001.

     Anacomp's XFP 2000 COM system  utilizes a  proprietary,  patented  original
film  canister,  and  the  original  film  used  in that  canister  is  supplied
exclusively by the Eastman Kodak Company ("Kodak").  Anacomp also purchases from
Kodak   substantially  all  of  its  requirements  for  original  microfilm  for
earlier-generation  COM recorders  manufactured by Anacomp and others,  although
Anacomp  has from time to time  purchased  orginal  microfilm  utilized in those
older COM recorders from other suppliers.

Market Strategy

     The  Company's   market  strategy  adheres  to  a  paradigm  known  as  the
Information  Delivery Life Cycle,  which describes the relationship  between the
age of  information,  the frequency  and speed of access,  and the type of media
upon which the  information  is stored.  In general,  as  information  ages, the
frequency with which  retrieval is required and the speed with which it needs to
be delivered declines. To achieve the greatest degree of cost-effectiveness  and
efficiency,  organizations  migrate this  information  across several  different
delivery systems over the life of the information.

[GRAPHIC OMITTED]

     Newly  created  information  is  generally  the most  frequently  accessed,
requiring a high-speed  storage  media such as magnetic  disk  ("DASD").  As the
information  begins to age, it is often migrated to optical disk ("OD") or CD-R,
which offers quick access to information at a lower cost than DASD and which has
high  storage  capacity.   As  the  need  to  access  information  becomes  more
infrequent, it often is migrated to magnetic tape, an even lower cost media that
provides somewhat slower, yet readily  accessible,  information  delivery.  Once
information  moves to an archival stage in its life cycle,  it is often moved to
microfilm and microfiche,  which offers very low storage costs for both archival
and non-archival applications.

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     Anacomp's array of products and services are designed to help organizations
best manage how they store,  deliver,  and migrate their information across this
entire life cycle.  The Company  believes that vendor  consolidation,  a gradual
blending  of product and market  components  of  document  imaging,  and similar
trends will favor  suppliers  that can provide a broad,  technologically  robust
suite of  products  and  services  across the entire  cycle.  The  Company  also
believes that this market will continue to favor vendors with a fully  developed
domestic and international infrastructure allowing them to serve large customers
and reap the benefits of economies of scale.

     Additionally,  competitive  pressures on companies in industries  served by
Anacomp have steadily  increased the demand for output  services.  Concerns over
technology  obsolescence,   the  sometimes  high  capital  cost  of  information
management  systems,  and a  general  recognition  of the  benefits  of  outside
expertise have induced many companies to reduce in-house expenditures on certain
operations  in favor of  third-party  service  providers.  Through  outsourcing,
companies  are  able to avoid  the  capital  requirements  of  proprietary  data
management  and storage  systems,  and  maintain  flexibility  to migrate  their
information as new products and technologies become available.

     Anacomp  believes  this trend should have a positive  impact on many of the
output services  offered by the Company.  Value-added  product features (such as
customized   indexes,   retrieval   software,   and  other   user   productivity
enhancements),  as well as strong client  relationships and unsurpassed customer
service enable Anacomp to differentiate itself from other service providers.

     Anacomp  recognizes  that certain  products and services in the information
delivery industry are declining relative to others. Traditionally, micrographics
has provided one of the most cost-effective  means of data storage and retrieval
for  information-intensive  organizations  such as banks,  insurance  companies,
financial service companies,  retailers,  healthcare  providers,  and government
agencies.  However, the ongoing growth of local area and client/server  networks
and  similar  systems  based on digital  technologies  has and will  continue to
result in alternative data storage and retrieval technologies for active records
management.  Over the next few years,  the Company  believes that  micrographics
technology  will continue to retain certain cost and functional  advantages over
alternative data storage media, which will keep  micrographics  competitive in a
wide  range  of   applications.   Over  a  longer  term,  the  Company  believes
micrographics technology will be viewed predominately as a cost-effective method
for long-term data storage.

     The  Company  also   believes  that  its   leadership   in   micrographics,
particularly  COM  services,  affords it a  substantial  marketing  and business
platform  from  which  to  advance  its  product  and  service  plans.  New  and
complementary  offerings such as CD-R output  services  provide a migration path
for  customer  transitions  to digital  technologies  for certain  applications.
Further,  by maximizing its share of existing markets such as micrographics  and
magnetic  media,  the  Company  creates  additional  opportunities  to work with
organizations to better manage their information throughout its life cycle.

     The Company  believes that  strategic  acquisitions  are integral to future
success in the fragmented  information  delivery  industry.  To that end, a core
component of the Company's strategy is to acquire a select number of outsourcing
and other businesses that provide services  complementary to Anacomp's  existing
data output services.  Recent and potential  acquisitions  include  companies in
either COM or CD-R outsourcing, as well as organizations providing complementary
archival and print/mail services.

     Likewise,  the Company is actively  pursuing  partnerships  with  companies
which it believes  possess  products,  technology,  or other  resources that add
value  to  Anacomp's  own   capabilities.   Currently,   the  Company  maintains
partnerships  with major  technology  companies for the development of print and
data stream technologies,  the development of digital software applications, the
distribution of COM systems in Asia, and in other information management areas.

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Products and Services

     Anacomp's  information  management  solutions  address its customers' needs
along the entire  life cycle of  documents.  The  Company's  product and service
offerings are grouped into several areas: Output Services,  Technology Services,
Output Systems, Micrographics Supplies and Magnetic Media.

     The table below shows  Anacomp's  revenues by product and service  line for
the last three fiscal years. The table is presented on a traditional comparative
basis for the twelve months ended September 30, 1996, to facilitate a meaningful
comparison  to  fiscal  years  1995 and  1994.  Consequently,  the  fiscal  1996
information  presented  below does not comply with accounting  requirements  for
companies upon emergence from bankruptcy which calls for separate  reporting for
the newly reorganized company and the predecessor company.
<TABLE>
<CAPTION>

                                                            Year Ended September 30,
                                           1996                      1995                       1994
                                                                (Dollars in Thousands)
                                ---------------------------------------------------------------------------------
<S>                               <C>               <C>        <C>            <C>        <C>               <C>
Output Services                   $103,733          21%        $132,144       22%        $131,238          22%
Technology Services                 82,105          17           86,175       15           91,339          15
Output Systems                      32,794           7           51,276        9           57,627          10
Micrographics Supplies             150,449          31          190,621       32          204,346          35
Magnetic Media                     112,187          23          128,353       22           97,545          17
Other                                4,872           1            2,620        0           10,504           1
                                  $486,140         100%        $591,189      100%        $592,599         100%
</TABLE>

Output Services

COM Services

     COM services,  the delivery of microfilm outsourcing  services,  represents
the largest  component of Anacomp's  output  services.  The Company  operates 44
output service  centers in the United States,  ranking second in domestic market
share, and plans to begin offering COM services in fiscal 1997 at startup output
service centers in Canada and Europe.

     On a daily basis,  Anacomp's  output service centers  receive  thousands of
electronic  downloads and computer tapes from customers.  This information (both
text and graphics) is converted to 16mm microfilm or to  microfiche,  which is a
four-inch  by  six-inch  film  medium  capable of  storing up to 1,000  pages of
computer output. Turnaround for a typical COM services job ranges from two hours
to 36 hours,  depending  on specific  circumstances  and  requirements,  and the
centers generally operate 24 hours a day every day of the year.

     In response to a gradual decline in the market for  micrographics  services
and a more competitive market, in fiscal 1995 Anacomp completed  installation of
XFP 2000 COM  systems  in all of its  output  service  centers,  increasing  the
efficiency  of COM  production.  Additionally,  the Company has upgraded many of
these systems with Anacomp-developed  emulation software for IBM and Xerox laser
print streams,  expanding the potential market for COM services and resulting in
higher average prices than for other COM output.

     As an adjunct to COM services,  Anacomp also provides  External  Facilities
Management  ("XFM")  services to selected  customers.  Under an XFM arrangement,
Anacomp   operates  and  manages  a  customer's   COM  production  at  Anacomp's
facilities.

     The COM services segment of the  micrographics  industry  processed over 45
billion images in 1995,  generating  over $350 million in revenues.  The Company
believes it holds an estimated  25 percent to 30 percent  market  share,  second
only to First Image Management Company, a division of First Data Corporation.

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ALVA CD Services

     Anacomp is the third  largest U.S.  provider of CD-R output  services.  The
Company's  ALVA CD  Services  provide  Anacomp  customers  with a  high-capacity
storage and delivery solution for applications requiring frequent and high-speed
information retrieval.

     ALVA CD services involves storing and indexing customer information such as
invoices and customer statements on CD-R. In addition to indexed CD output, ALVA
also includes sophisticated  Windows-based software for accessing and retrieving
the data.  ALVA is  available at the majority of the  Company's  output  service
centers in the United  States,  as well as through  new Company  output  service
centers in Canada and Europe.

     Anacomp  estimates  the  total  market  for CD  services  to  grow  from an
estimated  $10 - $15  million in revenues in fiscal 1996 to $75 million by 1999.
The Company  believes that its ALVA  solution has  significant  advantages  over
competing  products,  primarily due to the Company's  network of output  service
centers,  its extensive  knowledge of applications and indexing  expertise,  and
ALVA's flexible and easy-to-use user interface.

Archival And Print/Mail Services

     Anacomp provides archival storage services at several of its output service
centers  in the United  States,  providing  the  long-term  storage of  original
microfilmed records for its COM services customers. The microfilm is stored in a
secure vault within the Anacomp facility,  providing customers with a convenient
and safe method of off-site storage of critical business  records.  In addition,
Anacomp  offers  customers the ability to retrieve their records on an as-needed
basis.  Anacomp plans to expand this business in fiscal 1997 by opening  several
new archival vaults.

     The Company also intends to broaden its archival  services  business in the
future by storing  multiple-media  records -- such as paper,  optical disks, and
magnetic  tape in addition to microfiche  and microfilm -- at dedicated  storage
facilities.  Anacomp has taken a first step in this direction in October 1996 by
acquiring Archive Storage,  Inc.  ("ASI"),  a small  Massachusetts  company that
operated an  underground,  climate-controlled  storage vault.  ASI also provided
records  management  and disaster  recovery  consulting  services to businesses,
helping  customers  ensure they are storing  the right  information  on the most
cost-effective media for the appropriate periods of time.

     Anacomp  plans to expand  print/mail  services,  the output and  mailing of
printed  information,  in the United  States in fiscal  1997.  The Company  sees
print/mail services as complementary to the COM and CD output services it offers
to clients today,  and the Company  believes it can leverage its existing client
relationships  and  application  knowledge  to  obtain  significant   print/mail
revenues by providing its customers with distinct cost and service advantages.

Technology Services

     Anacomp's   technology  services  includes  both  traditional   maintenance
services as well as newer professional services offered by the Company.

     Anacomp  maintains  approximately  98% of its  own  installed  base  of COM
systems,  as well as a large  percentage of those built by other  companies.  In
addition,  the Company provides maintenance  services for  micrographics-related
devices and,  increasingly,  non-micrographics  equipment.  Since many customers
tend to use the  maintenance  services of the vendor that  installed the system,
maintenance revenues  traditionally have been a function of new COM system sales
and the size of the installed base.  Anacomp's COM  maintenance  market share is
approximately  65  percent in the United  States,  50 percent in Europe,  and 15
percent in the Americas (excluding the United States) and Asia.

                                       9
<PAGE>

     In fiscal 1996,  Anacomp  identified  professional  services as a potential
growth segment of its maintenance business.  Professional services refers to the
delivery  of  project-specific  expertise  in such  areas as job  set-ups,  user
interfaces,  data  communications,   and  networking.   Tasks  include  software
development,  problem  resolution,  and  consulting.  In the past,  Anacomp  had
provided many of these  services to customers  free of charge.  As an example of
how the Company plans to market  professional  services,  Anacomp now provides a
specified  number of hours of "free"  job set-up  assistance  with each XFP 2000
sold; the customer is charged for work exceeding those hours.

Output Systems

COM Systems

     Anacomp is the world's leading manufacturer and distributor of COM systems,
offering a complete line of COM  recorders,  duplicators,  sorters,  and related
software.  Anacomp's installed base of COM systems,  approximately 55 percent of
those in use worldwide,  is more than twice as large as its nearest  competitor,
and related sales of COM services and supplies to the installed base provide the
Company with a recurring  revenue stream that constitutes a significant  portion
of its annual revenues.

     The XFP 2000,  which is manufactured  by the Company,  is the most advanced
COM  recorder on the market and has enabled the Company to capture an  estimated
57 percent  of all new COM  systems  sold or leased.  The XFP 2000 is faster and
more reliable than previous COM recorders and, through its laser technology, has
the capability to generate precise reproductions of any image.

     In fiscal 1996, Anacomp introduced DragonCOM, a version of the XFP 2000 for
the Asian market,  which is capable of processing  Chinese,  Korean,  Taiwanese,
Japanese,  and other  ideographic  languages  utilizing the popular IBM Advanced
Function Presentation ("AFP") architecture.

     Anacomp also has developed  two new software  products that emulate IBM and
Xerox laser print  streams.  AFP  software  developed  in  conjunction  with IBM
enables the XFP 2000 to process and image AFP formatted data streams used by IBM
high-speed  mainframe  laser  printers.   Xerox  Compatibility  Feature  ("XCF")
software developed in partnership with Xerox enables the XFP 2000 to process the
same data stream used by Xerox high-speed, high-volume laser printers.

     Principal    customers   for   the    Company's    COM   systems    include
information-intensive   organizations  such  as  banks,   insurance   companies,
financial service companies,  retailers,  healthcare  providers,  and government
agencies, as well as non-Anacomp COM output service centers.  While the majority
of COM systems are sold  outright,  the Company does offer  customers  lease and
monthly usage options.

     The  Company's  primary   competitors  in  the  sale  of  COM  systems  are
Agfa-Gevaert AG ("Agfa") and Micrographic Technology Corporation. Competition is
based  principally  on product  features,  as well as on such factors as product
quality,  service and price.  Anacomp sells  approximately 57 percent of all new
COM systems sold worldwide, including those sold through an OEM arrangement.

Electronic Data Management

     The  Company  is  working  actively  to  bring  to  market  a new  suite of
electronic  data and image  management  solutions,  known as  "Concerto".  These
software  solutions  are  expected to support a wide range of  computer  output,
document images, document routing, and management applications. Applications are
expected to include customer  response systems,  healthcare  claims  processing,
litigation  support,  insurance claims  processing,  and many other applications
involving  the  electronic  storage,  retrieval,   routing,  and  management  of
documents and associated information.

                                       10
<PAGE>


     The Company also markets an integrated  system for  information  management
known as XSTAR, or the eXtended STorage And Retrieval system ("XSTAR"). Launched
in 1995, XSTAR is a solution for mainframe  computing  environments  that allows
organizations with significant data access requirements to expedite  information
retrieval regardless of the data's location.

     The  Company  intends to  position  itself as a  comprehensive  provider of
integrated   solutions  for  organizing,   storing,   routing,   and  processing
information of all types. In order to quickly and cost-effectively provide these
solutions to its customers, and to take maximum advantage of the Company's areas
of expertise, Anacomp has embarked on establishing technology alliances with the
foremost  providers  of the key  technologies  available  today for managing and
delivering information.

Micrographics  Supplies

     Anacomp sells the most comprehensive line of micrographics  supplies in the
world,  including  original silver halide film,  duplicate  film,  chemicals for
microfilm processing, paper and toners for reader/printers,  micrographics lamps
and bulbs,  and other  consumables.  The Company also markets a complete line of
microfilm/microfiche readers.

     Anacomp is the world's largest  supplier of duplicate  microfilm,  which is
used  to  create  one or more  additional  copies  of  original  microfiche  and
microfilm  masters.  The Company's share of this estimated $75 million worldwide
market is  approximately  67  percent,  which  includes  sales to its own output
centers.  Anacomp's  primary  competitor  in the duplicate  microfilm  market is
Rexham  Graphics  Ltd.  ("Rexham")  with an  estimated  25 percent  share of the
worldwide duplicate film market.

     The Company  sells  original  microfilm  for  Anacomp's COM systems and for
other  manufacturers'  COM  systems,   with  film  sold  for  Anacomp's  systems
representing the vast majority of original microfilm sales.  Anacomp competes in
sales of  non-proprietary  original  COM  microfilms  with other  manufacturers,
including  Agfa,  Fuji Photo Film  U.S.A.,  Inc.  ("Fuji"),  Kodak,  and Imation
Enterprises  Corporation ("Imation") (formerly part of 3M). For non-OEM sales of
the XFP 2000,  the Company is the  exclusive  supplier  for  original  microfilm
because of the  proprietary  nature of the canister in which the film is placed.
Anacomp sells its  consumable  supplies  directly to more than 90 percent of its
worldwide installed base.

     Ancomp has an estimated 33 percent of the micrographics  supplies market in
Europe  and an  estimated  39  percent of the  supplies  market in the  Americas
(excluding  the United  States)  and Asia.  In  Europe,  the  Company's  primary
competitors  for  micrographics  supplies and equipment are the Kalle  Microfilm
Division of Hoechst AG, A. Messerli AG and Rexham.  Its primary  competitors  in
Japan are Kodak and Fuji.

Magnetic Media

     Anacomp  manufactures,  sells,  and  distributes a broad range of magnetics
products  such  as  open  reel  tape,  3480/3490E  tape  cartridges,   TK  50/52
CompacTape,  and back-up tape  cartridges  such as  quarter-inch,  4mm, and 8mm.
Anacomp is the world's largest  manufacturer of half-inch tape products,  widely
used by many organizations for the near-line storage of business data.

     Anacomp is exploring  new  applications  and markets based on its magnetics
coating  capacity.  In fiscal 1995,  Anacomp  introduced  voice logging tape and
instrumentation  tape. Voice logging tape is used by brokerage companies,  "911"
emergency   service   providers,   and  other   entities  to  record   telephone
conversations.  Instrumentation  tape is used by various government  agencies to
measure and record sensitive data. In fiscal 1996, Anacomp began to use magnetic
coated  media  to  manufacture  transfer  tape,  which  is  found on the back of
transaction media (similar to credit and telephone cards).

     The Company is actively seeking  partnerships  that will enable the Company
to participate  in the next  generation of magnetic  media  products,  including
half-inch metal particle tape (3590 cartridges). This product will be introduced
in fiscal  1997 and is  expected  to enjoy  significant  growth  as this  market
expands over the next several years.

                                       11
<PAGE>

     Anacomp  primarily  sells its  magnetics  products  through  its  worldwide
distributor  and dealer  network and, to a lesser  extent,  through parts of the
Company's direct sales force.  Anacomp markets its magnetics  products under the
"Memorex", "Dysan", "Graham", and "StorageMaster" trademarks.

     Anacomp has no significant  competitors  with respect to the manufacture of
open reel tape, and its worldwide  market share for that product is estimated at
92 percent.  Anacomp competes with Imation and BASF AG in the sale of 3480/3490E
data  cartridges.  Anacomp's  worldwide  market  share for 3480 and  3490E  data
cartridges is estimated to be 38 percent and 35 percent, respectively.

Industry Segment and Foreign Operations

     As discussed in Note 1 to the consolidated  financial  statements,  Anacomp
operates in a single  business  segment --  providing  equipment,  supplies  and
services  for  information   management,   including  storage,   processing  and
retrieval.   Financial  information   concerning  the  Company's  operations  in
different  geographical  areas  is  included  in  Note  22 to  the  consolidated
financial statements.

Summary

     Soon to begin its  fourth  decade of  operation,  Anacomp  has  substantial
market positions for most of its products. Serving more than 15,000 customers in
65  countries,  the  Company is one of the oldest and most  well-known  names in
information management.

     Micrographics, historically its core product line, continues to provide the
Company  access  to a premier  customer  base and the  revenue  to invest in new
products and technologies.  New products and services,  such as ALVA,  Concerto,
archival services, and print/mail services, offer the Company the opportunity to
extend its  history of  leadership  into the next  decade.  After its  financial
reorganization  in fiscal 1996,  Anacomp  believes it has  positioned  itself to
become the world leader in helping  organizations  manage information across its
entire life cycle.

                                       13
<PAGE>

ITEM 2.  PROPERTIES


     Anacomp maintains its corporate  headquarters in Carmel,  Indiana (a suburb
of  Indianapolis)  and has  corporate  and  administrative  offices in  Atlanta,
Georgia  and  Poway  (San  Diego),  California.   Micrographics   manufacturing,
engineering,  customer service, marketing and product maintenance facilities are
all  located  in  Poway,   California  near  San  Diego.   Anacomp's   magnetics
manufacturing  facilities  are  located in Graham,  Texas and  Brynmawr,  Wales.
During 1994,  Anacomp's Graham and Brynmawr  facilities  received  international
recognition for quality standards,  earning International Standards Organization
("ISO")  9002   certification.   Anacomp's   Poway  facility   earned  ISO  9002
certification in September 1995.


         The following table indicates the square footage of Anacomp's
 facilities:
<TABLE>
<CAPTION>

                                                 Operating  Other         Corporate
                                                 Facilities Facilities    Facilities   Total
United States:
<S>                                               <C>         <C>          <C>        <C>
    Leased ..................................     601,700     119,614      49,111     770,425
    Owned ...................................     147,420      15,630           -     163,050

                                                  749,120     135,244      49,111     933,475

International:
    Leased ..................................     105,254      29,410           -     134,664
    Owned ...................................     145,000          --          --     145,000
                                                  250,254      29,410           -     279,664
      Total .................................     999,374     164,654      49,111   1,213,139

</TABLE>

     Other  Facilities  consist  primarily  of  abandoned  facilities,  of which
151,569  square feet is sublet to others.  Anacomp also leases  office space for
its sales and service centers in a variety of locations.  Anacomp  considers its
facilities  adequate  for its present  needs and does not believe  that it would
experience any  difficulty in replacing any of its present  facilities if any of
its current agreements were terminated.

ITEM 3.  LEGAL PROCEEDINGSLegal Proceedings

     The Company and its  subsidiaries  are named defendants in several lawsuits
and claims arising in the ordinary course of business. While the outcome of such
claims,  lawsuits or other  proceedings  against the Company cannot be predicted
with certainty, management expects that any liability arising thereunder, to the
extent not provided for through insurance or otherwise, will not have a material
adverse effect on the financial statements of the Company.



ITEM 4.  SUBMISSION OF MATTERS TO A  VOTE OF SECURITY HOLDERS

         No matters were submitted  during the three months ended  September 30,
1996,  to a vote of  Anacomp's  security  holders  through the  solicitation  of
proxies or otherwise.



                                       14
<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT

     The current executive  officers of the Company,  their ages (as of December
16, 1996) and positions are listed below:

      Name               Age                   Position
P. Lang Lowrey, III      43      President, Chief Executive Officer and
                                   Chairman of the Board
Ralph W. Koehrer         51      President and Chief Operating Officer
                                    (effective January 6, 1997)
Donald L. Viles          50      Executive Vice President and
                                   Chief Financial Officer
Ray L. Dicasali          48      Senior Vice President and
                                   Chief Technology Officer
Barry L. Kasarda         53      Senior Vice President-Operations
Kevin M. O'Neill         42      Senior Vice President-Global Marketing
William C. Ater          56      Vice President, Chief Administrative Officer
                                    and Secretary
Jeffrey S. Withem        37      Vice President-Planning and Communications
                                   and Chief of Staff
Thomas L. Brown          40      Vice President and Treasurer
K. Gordon Fife           51      Vice President-Tax
George C. Gaskin         37      Vice President-Legal, Corporate Counsel and
                                    Assistant Secretary
Hasso Jenss              53      President-European Group
Gary M. Roth             54      President-International Group
T. Randy Simmons         49      President-U.S. Group
Peter Williams           44      President-Magnetics Group


     The business  experience  of the above  officers and directors for the past
five years is described below.  Each executive  officer is elected for a term of
one year and holds office until his  successor is chosen and  qualified or until
his death, resignation or removal.

     P. Lang Lowrey,  III was elected Chairman of the Board on June 4, 1996. Mr.
Lowrey  was  elected  President  and  Chief  Operating  Officer  in May 1995 and
subsequently assumed the duties of Chief Executive Officer, effective October 1,
1995. Prior to that, he served as President - Magnetics Group from November 1992
to May 1995.  He served  from  October  1990 to October  1992 as Vice  President
Worldwide Marketing Division.

     Ralph  W.  Koehrer  was  elected  President  and  Chief  Operating  Officer
(effective  January 6, 1997) on December 10, 1996. Koehrer will join the Company
from Automatic Data Processing, Inc. ("ADP"), where, most recently, he served as
a  corporate  officer  and as  president  of ADP's  Information  and  Processing
Services division.

     Donald L. Viles was elected  Executive Vice  President and Chief  Financial
Officer on February 15, 1996.  From October 1985 to February  1996, he served as
Vice President and Controller.

     Ray L.  Dicasali was elected  Senior Vice  President  and Chief  Technology
Officer on June 3,1996.  From 1993 to 1996, Mr.  Dicasali  served as Senior Vice
President of Technology and CIO of Flexel.  From 1989 to 1993, Mr.  Dicasali was
Senior Vice President and CIO of Dun and Bradstreet Software.

     Barry L. Kasarda was elected Senior Vice President - Operations on December
10, 1996, after assuming  responsibility  for the Technology  Services Group. He
had been elected Senior Vice President of Manufacturing and Materials on June 3,
1996 and continues to oversee those  functions.  From 1993 to 1996, he served as
Vice President of Materials. Prior to joining the Company, Mr. Kasarda served as
Vice  President  and  General  Manager  of  ABEX  Division  of  Parker  Hannifin
Corporation from 1989 to 1993.


                                       15
<PAGE>

     Kevin M. O'Neill was elected  Senior Vice  President - Global  Marketing on
June 3, 1996.  Mr.  O'Neill had  previously  served as Vice  President of Global
Marketing  from 1995 until June 1996.  From 1994 to 1995,  Mr. O'Neill served as
Vice President of Marketing,  Strategic  Resellers  Group.  Prior to joining the
Company, Mr. O'Neill served as Senior Director,  Marketing & Product Development
for Fujitsu-ICL Systems, Inc. from 1982 to 1994.

     William C. Ater was elected Vice President and Chief Administrative Officer
in February 1988. He has served as Secretary since March 1985.

     Jeffrey S. Withem was elected Vice President - Planning and  Communications
and Chief of Staff on June 3, 1996.  Mr.  Withem was Vice  President,  Strategic
Planning and  Corporation  Communications  from October 1995 to June 1996.  From
1993 to 1995, Mr. Withem served as Vice President,  Marketing, for the Company's
Magnetics  Group.  Prior to that,  he was Marketing  Communications  Manager for
Worldwide Marketing for the Company from 1990 to 1992.

     Thomas L. Brown was elected Vice  President  and Treasurer on May 19, 1996.
From January 1995 to April 1996,  Mr.  Brown served as Corporate  Controller  of
Hurco  Companies,  Inc.  Mr.  Brown  had  previously  served as  Assistant  Vice
President of Financial Reporting and Analysis for the Company from March 1991 to
1995.

         K. Gordon Fife was elected Vice President  - Tax in October 1985.

     George C. Gaskin was elected Vice President - Legal,  Corporate Counsel and
Assistant  Secretary on June 3, 1996.  From June 1990 to June 1996,  Mr.  Gaskin
served as Corporate Counsel and Assistant Secretary.

     Hasso Jenss was elected  President of the European Group effective  October
1,1995.  Mr.  Jenss  served as Vice  President  -  European  Micrographics  from
November 1993 to September  1995.  Prior to that, he served from October 1989 to
October 1993 as Managing Director of Anacomp's German subsidiary.

     Gary M. Roth was elected  President of the International  Group,  effective
October 1, 1995.  Previously,  Mr. Roth served as Vice President,  Americas/Asia
Division  from  November  1992 to September  1995.  From October 1991 to October
1992, he served as Manager, LAAP/Canada Operations. From October 1988 to October
1991, he served as Vice President - Data Systems Division.

     T. Randy Simmons was elected President of the U.S. Group, effective October
1, 1995. Previously, Mr. Simmons served as Vice President, Direct Sales Division
- East from  November 1994 to September  1995.  Prior to that, he served as Vice
President - Information Systems Division from November 1991 to November 1994. He
served from 1987 to 1991 as Vice President - Micrographics Services Division.

     Peter  Williams was elected  President of the  Magnetics  Group,  effective
October  1, 1995.  Previously,  he served as  General  Manager of the  Magnetics
European Group from 1993 to September  1995.  Prior to that, he served from 1990
to 1993 as Vice President, Wales Operations - Magnetics.

PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
                 STOCKHOLDER MATTERS

     Market,  holder and dividend  information  concerning the Company's  common
stock appears on page A-2 of this Annual Report on Form 10-K.

                                       16
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

     Selected  financial  data appears on page A-2 of this Annual Report on Form
10-K.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS

     Management's  discussion and analysis of financial condition and results of
operations appears on pages A-3 to A-9 of this Annual Report on Form 10-K.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Financial  statements and  supplementary  financial  information  appear on
pages A-10 to A-41 of this Annual Report on Form 10-K.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                 ACCOUNTING AND FINANCIAL DISCLOSURE

     There are no changes in or disagreements with accountants on accounting and
financial disclosures.

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The Company  hereby  incorporates  by reference the  information  contained
under the headings "Election of Directors" and "Compliance with Section 16(a) of
the  Securities and Exchange Act of 1934" from its  definitive  Proxy  Statement
(hereinafter,  the "Proxy Statement") to be delivered to the shareholders of the
Company in connection  with the 1997 Annual Meeting of  Shareholders  to be held
February 3, 1997.  Certain  information  relating to  executive  officers of the
Company appears on pages 13 and 14 hereof.

ITEM 11.  EXECUTIVE COMPENSATIONExecutive Compensation

     The Company  hereby  incorporates  by reference the  information  contained
under the heading "Executive Compensation" in the Proxy Statement.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                    MANAGEMENT

     The Company  hereby  incorporates  by reference the  information  contained
under the heading "Security Ownership of Management and Other Beneficial Owners"
in the Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     There are no relationships or related transactions that require disclosure.

                                       17
<PAGE>

PART IV
ITEM 14.  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:


         Selected Financial Data.
         Market Price and Dividend Information.
         Management's Discussion and Analysis of Financial Condition and
              Results of Operations.
         Report of Independent Public Accountants.
         Consolidated Balance Sheets - September 30, 1996 and 1995.
         Consolidated Statements of Operations -
               Four Months Ended September 30, 1996,
               Eight Months Ended May 31, 1996,
               Twelve Months Ended September 30, 1995 and 1994.
         Consolidated Statements of Cash Flows -
               Four Months Ended September 30, 1996,
               Eight Months Ended May 31, 1996,
               Twelve Months Ended September 30, 1995 and 1994.
         Consolidated Statements of Stockholders' Equity (Deficit) -
               Four Months Ended September 30, 1996,
               Eight Months Ended May 31, 1996,
               Twelve Months Ended September 30, 1995 and 1994.
         Notes to 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 represented in the financial statements or notes thereto.

(b)  Reports on Form 8-K:

     During the quarter ended September 30, 1996, and prior to filing its Annual
Report on Form 10-K, Anacomp filed no reports on Form 8-K.


(c) The  following  exhibits  are filed with this Annual  Report on Form 10-K or
incorporated  herein by  reference to the document set forth next to the exhibit
listed below.

     Previously unfiled documents are noted with an asterisk (*):

(3)      Articles of Incorporation and Bylaws:

     a) The  Amended and  Restated  Articles of  Incorporation  of Anacomp  were
effective June 4, 1996, and are  incorporated by reference to Anacomp's Form 8-K
filed on June 19, 1996 (File No. 1-8328).

     b) The Amended and Restated  Bylaws of Anacomp were effective June 4, 1996,
and are  incorporated  by reference to Anacomp's Form 8-K filed on June 19, 1996
(File No. 1-8328).


                                       18
<PAGE>

     (4)  Instruments  defining  the  rights  of  security  holders,   including
indentures:

     (a) Third Amended Joint Plan of  Reorganization  of the Company and certain
of its  subsidiaries.  Previously  filed and  incorporated  by  reference to the
Company's Form 8-A filed on May 15, 1996 (File No. 0-7641).

     (b) Indenture,  dated as of June 4, 1996,  between the Company and The Bank
of New York, as trustee,  relating to the Company's 11-5/8% Senior Secured Notes
due 1999.  Previously  filed and incorporated by reference to the Company's Form
8-K filed on June 19, 1996 (File No. 1-8328).

     (c)  Application  by the Company for Exemption  from Section  314(d) of the
Trust  Indenture  Act of 1939, as amended,  pursuant to Section  304(d) and Rule
4d-7 thereunder. Previously filed and incorporated by reference to the Company's
Form 8-K filed on June 19, 1996 (File No. 1-8328).

     (d)  Indenture,  dated as of June 4,  1996,  between  the  Company  and IBJ
Schroder Bank & Trust Company, as trustee,  relating to the Company's 13% Senior
Subordinated  Notes due 2002.  Previously filed and incorporated by reference to
the Company's Form 8-K filed on June 19, 1996 (File No. 1-8328).

     (e) Warrant  Agreement,  dated as of June 4, 1996,  between the Company and
ChaseMellon  Shareholder Services,  L.L.C.  Previously filed and incorporated by
reference to the Company's Form 8-K filed on June 19, 1996 (File No. 1-8328).

     (f)  Security  and  Pledge  Agreement,  dated  as of June 4,  1996,  by the
Company,  in  favor  of  the  Senior  Secured  Trustee.   Previously  filed  and
incorporated by reference to the Company's Form 8-K filed on June 19, 1996 (File
No. 1-8328).

     (g) First Leasehold Deed of Trust,  Assignment of Rents, Security Agreement
and Fixture Filing,  dated June 4, 1996, made by Anacomp,  Inc., as grantor,  in
favor of Chicago Title  Insurance  Company,  as trustee,  for the benefit of The
Bank of New York, as beneficiary. Previously filed and incorporated by reference
to the Company's Form 8-K filed on June 19, 1996 (File No. 1-8328).

     (h)  First  Deed of Trust,  Assignment  of Rents,  Security  Agreement  and
Fixture Filing,  dated June 4, 1996 made by Anacomp,  Inc., as grantor, in favor
of Chicago Title Insurance Company,  as trustee,  for the benefit of The Bank of
New York, as beneficiary.  Previously filed and incorporated by reference to the
Company's Form 8-K filed on June 19, 1996 (File No. 1-8328).

(10)     Material Contracts:

     (a) *Amended and Restated Employment Agreement,  effective October 1, 1996,
between Anacomp, Inc. and P. Lang Lowrey, III.

     (b) Employment  Agreement,  effective March 1, 1992, between Anacomp,  Inc.
and Thomas R. Simmons.  Previously  filed and  incorporated  by reference to the
Company's Form 10-K for the year ended September 30, 1993.

     (c) *Employment Agreement, effective October 1, 1992, between Anacomp, Inc.
and William C. Ater.

                                       19
<PAGE>

     (d) *Employment  Agreement,  effective  February 15, 1996, between Anacomp,
Inc. and Donald L. Viles.

     (e) Common Stock Registration Rights Agreement, dated as of June 4, 1996 by
and among the Company and the Holders of Registrable  Shares.  Previously  filed
and  incorporated  by reference to the Company's Form 8-K filed on June 19, 1996
(File No. 1-8328).

     (f) Senior Secured Note Registration Rights Agreement,  dated as of June 4,
1996 by and among the Company and the Holders of Registrable  Notes.  Previously
filed and  incorporated by reference to the Company's Form 8-K filed on June 19,
1996 (File No. 1-8328).

     (g) Senior Subordinated Note Registration Rights Agreement dated as of June
4, 1996, by and among the Company and Holders of Registrable  Notes.  Previously
filed and  incorporated by reference to the Company's Form 8-K filed on June 19,
1996 (File No. 1-8328).

     (h) Amended and Restated  Master Supply  Agreement,  dated October 8, 1993,
among Anacomp,  Inc., SKC America,  Inc. and SKC Limited.  Previously  filed and
incorporated  by  reference  to the  Company's  Form  10-K  for the  year  ended
September 30, 1993.



(11)*Statement re: computation of per share earnings.



(21)*Subsidiaries of the registrant.



(27)*Financial data schedule (Required for electronic filing only).



                                       20
<PAGE>

     SIGNATURES  Pursuant  to the  requirements  of  Section  13 or 15(d) of the
Securities  Exchange Act of 1934,  the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
                                          ANACOMP, INC.
                                          By: /s/ P. Lang Lowrey, III
                                          P. Lang Lowrey, III
                                          President, Chief Executive
                                          Officer, and Chairman of the Board
December 23, 1996

Pursuant to the requirement of the Securities  Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
on the dates indicated.

Dated:  December 23, 1996                  By:  /s/ P. Lang Lowrey, III
                                           P. Lang Lowrey, III
                                           President, Chief Executive
                                           Officer, and Chairman of the Board

Dated:  December 23, 1996                  By: /s/ Donald L. Viles
                                           Donald L. Viles,  Executive Vice
                                           President and Chief Financial Officer

Dated:  December 23, 1996                  By: /s/ Talton R. Embry
                                           Talton R. Embry, Director

Dated:  December 23, 1996                  By: /s/ Darius W.  Gaskins, Jr.
                                           Darius W. Gaskins, Jr., Director

Dated:  December 23, 1996                  By: /s/ Jay P. Gilbertson
                                           Jay P. Gilbertson, Director

Dated:  December 23, 1996                  By: /s/ Richard D. Jackson
                                           Richard D. Jackson, Director

Dated:  December 23, 1996                  By:  /s/ George A. Poole, Jr.
                                           George A. Poole, Jr., Director

Dated:  December 23, 1996                  By:  /s/ Lewis Solomon
                                           Lewis Solomon, Director

                                       21
<PAGE>


                                   APPENDIX A




Annual Report on Form 10-K
Anacomp, Inc.

<TABLE>
<CAPTION>
                                                                                                    Page

<S>                                                                                                  <C>
Selected Financial Data ..........................................................................   A-2

Market Price and Dividend Information ............................................................   A-2

Management's Discussion and Analysis of Financial Condition and Results of Operations ............   A-3

Report of Independent Public Accountants .........................................................   A-10

Consolidated Balance Sheets -- September 30, 1996 and 1995 .......................................   A-11

Consolidated Statements of Operations -Four Months Ended September 30, 1996, Eight
  Months Ended May 31, 1996, Twelve Months Ended September 30, 1995 and 1994 .....................   A-12

Consolidated Statements of Cash Flows -- Four Months Ended September 30, 1996, Eight
  Months Ended May 31, 1996, Twelve Months Ended September 30, 1995 and 1994 .....................   A-13

Consolidated Statements of Stockholders' Equity (Deficit) -- Four Months Ended September 30, 1996,
  Eight Months Ended May 31, 1996, Twelve Months Ended September 30, 1995 and 1994 ...............   A-15

Notes to Consolidated Financial Statements .......................................................   A-16

</TABLE>

ANACOMP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA

The following Selected Financial Data should be read in conjunction with Item 1,
"Business",  of Part I of this Annual Report on Form 10-K, and with the Notes to
Consolidated Financial Statements:

<TABLE>
<CAPTION>
                                                        Reorganized
                                                                
                                                         Company                      Predecessor Company
                                                       Four Months Ended Eight Months      Fiscal Year Ended September 30,
                                                                                 
                                                         September 30,  Ended May 31,
(Dollars in thousands, except per share                       1996          1996        1995         1994        1993       1992
amounts)
                                                                ---

<S>                                                       <C>          <C>           <C>        <C>        <C>        <C>     
Revenues ..............................................   $ 151,542    $ 334,598     $591,189   $592,599   $590,208   $628,940
                                                                                                                         
Income (loss) before extraordinary credit and
 cumulative effect of accounting change ...............     (22,009)     112,528     (238,326)    6,955      11,691     18,221    

Extraordinary credit ..................................          --       52,442           --        --       6,900      8,700 
                                                                          52,442
Cumulative effect on prior years of a change
 in accounting for income taxes .......................          --           --           --     8,000          --
                                                                                                                       
Net income (loss) .....................................     (22,009)(a)  164,970 (b) (238,326)   14,955       18,591    26,921
          
Earnings (loss) per common and common equivalent share:
Net income (loss) .....................................   $   (2.19)         (c)          (c)        (c)         (c)         (c)
Cash dividends per common share .......................          --           --           --        --
                                                                                                            

(a)  The net loss for the four months ended September 30, 1996, includes $25.7 
     million of Reorganization Asset amortization.

(b)  The net income for the eight  months  ended May 31,  1996,  includes  $92.8
     million of Reorganization  items as more fully discussed in Notes 3 and 4 4
     to the accompanying consolidated financial statements.

(c) Due to the implementation of Fresh Start Reporting,  per share data for the
Predecessor Company has been excluded as they are not comparable.
</TABLE>
<TABLE>
<CAPTION>
                                                                               As of September 30,
                                                  ----------------------------------------------------------------
                                                    Reorganized
                                                      Company                   Predecessor Company
                                                                  ------------------------------------------------
                                                       1996            1995          1994       1993      1992
                                                  ----------------------------------------------------------------

<S>                                                  <C>             <C>        <C>        <C>       <C>
Current assets                                       $147,530        $175,193   $214,129   $218,011  $244,434
Current liabilities                                   152,996         578,857    208,313    187,082   198,685
Working capital                                        (5,466)       (403,664)      5,816     30,929    45,749
Total assets                                          435,421         421,029    658,639    643,548   681,561
Long-term debt, net of current                        217,044              --    366,625    404,738   429,140
portion
Redeemable preferred stock                                 --          24,574     24,478     24,383    24,287
Stockholders' equity (deficit)                         58,569       (188,243)     49,756     13,799     8,290

</TABLE>

MARKET PRICE AND DIVIDEND INFORMATION

     Anacomp,  Inc.'s  common  stock  is  traded  on  The  NASDAQ  Stock  Market
("NASDAQ")  under the ticker symbol  "ANCO." The high and low closing prices (as
reported by NASDAQ) for the Company's common stock were as follows:

                                      HIGH             LOW
             Three months ended:
             September 30, 1996      $11.13            $7.63

     The Company's  borrowing  agreements prohibit the payment of cash dividends
on common shares.  The number of  stockholders of record as of December 16, 1996
was 229. The number of beneficial stockholders of record as of December 16, 1996
was approximately 1,200.


                                       22
<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


Recent Developments

     On June 4, 1996, the Company emerged from bankruptcy  proceedings under its
Third Amended Joint Plan of Reorganization (the "Reorganization"). On such date,
the Company canceled its existing secured debt and subordinated debt,  including
15% Senior Subordinated Notes, 13.875% Convertible  Subordinated  Debentures and
9% Convertible  Subordinated  Debentures,  and its equity securities,  including
common stock,  common stock purchase rights,  preferred stock and warrants,  and
distributed to its creditors  approximately  $22 million in cash, $112.2 million
principal  amount of its  11-5/8%  Senior  Secured  Notes due 1999 (the  "Senior
Secured Notes"),  $160 million  principal amount of its 13% Senior  Subordinated
Notes due 2002 (the  "Senior  Subordinated  Notes"),  10  million  shares of new
common stock, par value $.01 per share (the "New Common Stock"), and warrants to
purchase 362,694 shares of New Common Stock at a price of $12.23 per share for a
period of five years from June 4, 1996. The Plan of Reorganization resulted in a
reduction of approximately $173 million in principal and accrued interest on the
Company's debt  obligations and in liquidation  amount and accrued  dividends on
its preferred  stock.  The  resulting  capital  structure  reduced the Company's
interest expense by approximately $30 million per year.

     The process began January 5, 1996, when Anacomp filed a Prenegotiated  Plan
of Reorganization with the U.S. Bankruptcy Court in Delaware under Chapter 11 of
the U.S.  Bankruptcy Code. The Company was in default under substantially all of
its  debt  agreements  as a result  of its  failure  to make  $89.7  million  of
principal  payments  scheduled  for April 26,  1995 and  October 26, 1995 on the
senior  secured  credit  facilities  (including  $60  million  relating  to  the
revolving  loan agreement  which expired on October 26, 1995),  $11.4 million of
principal and interest  payments on the 9% Convertible  Subordinated  Debentures
which were due January 15, 1996,  $34.1 million of interest  payments  scheduled
for May 1, 1995 and November 1, 1995 on its Senior  Subordinated Notes, and $3.2
million of interest payments scheduled for July 15, 1995 and January 15, 1996 on
the  13.875%  Subordinated  Debentures,  as well as certain  financial  covenant
violations, and the cross-default provisions of the other debt agreements.

Results of Operations

     On May 20, 1996 (the "Confirmation Date"), the Company's Plan was confirmed
by the United States Bankruptcy Court and the Company emerged from bankruptcy on
June  4,  1996.  As a  result  of  the  Reorganization,  the  recording  of  the
restructuring  transaction and the implementation of Fresh Start Reporting,  the
Company's  results of  operations  after May 31,  1996 (the cutoff date used for
financial  reporting  purposes) are not comparable to results  reported in prior
periods.  See Note 3 to the accompanying  consolidated  financial statements for
information on consummation of the Plan of Reorganization  and implementation of
Fresh Start Reporting.

     To  facilitate a  meaningful  comparison  of the  Company's  quarterly  and
year-to-date  operating performance in fiscal years 1996 and 1995, the following
discussion of results of operations  on a  consolidated  basis is presented on a
traditional comparative basis for all periods.  Consequently, the current year's
information  presented  below does not comply with accounting  requirements  for
companies upon emergence from bankruptcy,  which  requirements call for separate
reporting for the newly reorganized company and the predecessor company.

                                       23
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED RESULTS OF OPERATIONS
Anacomp, Inc. and Subsidiaries

(Dollars in thousands, except per share amounts)         Year ended September 30,         1996 (a)          1995            1994

Revenues:
<S>                                                                                       <C>             <C>             <C>
    Services provided.................................................................... $189,257        $219,881        $223,511
    Equipment and supply sales...........................................................  296,883         371,308         369,088
                                                                                           486,140         591,189         592,599
Operating costs and expenses:
    Costs of services provided...........................................................  104,499         126,493         122,628
    Costs of equipment and supplies sold.................................................  226,623         290,842         274,575
    Selling, general and administrative expenses.........................................   93,514         132,459         115,819
    Amortization of reorganization asset.................................................   25,663            ----            ----
    Special charges......................................................................     ----         136,889            ----
    Restructuring charges................................................................     ----          32,695            ----
                                                                                           450,299         719,378         513,022
Income (loss)  before interest, other income,  reorganization items, income taxes,
    extraordinary credit and cumulative effect of accounting change......................   35,841        (128,189)         79,577

Interest income..........................................................................    2,573           2,000           3,144
Interest expense and fee amortization....................................................  (39,629)        (70,938)        (67,174)
Financial restructuring costs............................................................     ----          (5,987)           ----
Other income (expense)...................................................................    6,995            (212)           (192)
                                                                                           (30,061)        (75,137)        (64,222)
Income (loss) before reorganization items, income taxes, extraordinary credit,
    and cumulative effect of accounting change...........................................    5,780        (203,326)         15,355
Reorganization items.....................................................................   92,839            ----            ----
Income (loss) before income taxes, extraordinary credit and cumulative effect                                                
   of  accounting change.................................................................   98,619        (203,326)         15,355
 
Provision for income taxes...............................................................    8,100          35,000           8,400
Income (loss) before extraordinary credit and
    cumulative effect of accounting change...............................................   90,519        (238,326)          6,955
Extraordinary credit - gain on discharge of indebtedness, net of taxes...................   52,442            ----            ----
Cumulative effect on prior years of a change in accounting
    for income taxes.....................................................................     ----            ----           8,000
Net income (loss)........................................................................  142,961        (238,326)         14,955
Preferred stock dividends and discount accretion.........................................      540           2,158           2,158
Net income (loss) available to common stockholders....................................... $142,421       $(240,484)        $12,797

(a) This column  reflects the  combination  of historical  results for the eight
months ended May 31, 1996, for the  Predecessor  Company and for the four months
ended September 30, 1996, for the Successor Company.

</TABLE>

                                       24
<PAGE>


Results of Operations-Fiscal 1996, 1995 and 1994

         General

     Anacomp  reported net income of $143  million for the year ended  September
30,  1996 as  compared  to a net loss of $238.3  million  and net  income of $15
million for the years ended September 30, 1995 and 1994, respectively.  Included
in the fiscal 1996 income are reorganization  items of $92.8 million and a $52.4
million  extraordinary  gain  resulting  from  the  discharge  of  indebtedness.
Included  in the  fiscal  1995  loss are  special  charges  of  $136.9  million,
representing  a write-off of goodwill of $108 million and $28.9 million of costs
associated  with software  investments  (See Notes 8 and 18 to the  accompanying
consolidated financial  statements).  Also included in the fiscal 1995 loss is a
$29 million deferred tax provision and $32.7 million of  restructuring  charges.
Earnings before  interest,  other income,  reorganization  items,  extraordinary
credits,   restructuring  charges,  special  charges,  taxes,  depreciation  and
amortization  ("EBITDA") was $84.2 million for the year ended September 30, 1996
as compared to $77.2  million and $114.2  million for the years ended  September
30, 1995 and 1994 respectively.

     Total revenues for fiscal 1996 of $486.1 million represent a $105.1 million
decrease from fiscal 1995. Approximately $60.1 million of the decrease is due to
the  discontinuance  or downsizing  of certain  product  lines  including  Image
Conversion  Services  ("ICS")  ($20  million),  flexible  diskette  media ($20.2
million), reader and reader printer products ($12.7 million) and source document
film ($7.2 million).

     Total revenues for fiscal 1995 decreased $1.4 million from the prior fiscal
year.  Revenues  from  sales  of  magnetics  products  increased  $29.5  million
resulting from the acquisition of Graham Magnetics, Inc. ("Graham Magnetics") in
May 1994. In addition,  the acquisition of the COM services  customer base of 14
data service centers from National Business Systems,  Inc. ("NBS") on January 3,
1994  contributed  incremental  revenues of  approximately  $2.7  million to the
fiscal  1995  results.   Offsetting  these   contributions   were  decreases  in
micrographics supplies, COM systems, maintenance services and other revenues.

     Anacomp's fiscal 1994 revenues totaled $592.6 million. The Graham Magnetics
acquisition   contributed   $22.4  million  to  fiscal  1994  revenues  and  NBS
contributed $9.1 million to fiscal 1994 revenues.

     Selling,  general  and  administrative  expenses  ("S,G&A")  were  19.2% of
revenues in fiscal 1996 compared to 22.4% in fiscal 1995.  The decrease in S,G&A
reflects  the cost  reductions  implemented  in late  fiscal 1995 as part of the
Company's  reorganization.  Selling,  general and  administrative  expenses were
16.4% of revenues in 1994.

     The  Company has  reclassified  certain  operating  costs  within  costs of
services provided, costs of equipment and supplies sold and S,G&A in fiscal 1995
and fiscal 1994 to conform with the fiscal 1996 presentation.

         1995 Special Charges

     As mentioned above,  included in the operating  results for fiscal 1995 are
special charges totaling $136.9 million, including the write-off of a portion of
goodwill  related  to  micrographics  products.   During  fiscal  1995,  Anacomp
announced several significant events which are summarized as follows:

     On April  6,  1995,  the  Company  announced  that it was  withdrawing  its
proposed  offering of $225 million senior secured notes previously  announced on
January 23, 1995.

                                       25
<PAGE>

     On April 27, 1995, the Company announced that it had agreed with its Senior
Secured  Lenders to make its current  interest  payment of $2 million on its Old
Senior Secured Debt while  continuing to negotiate the  rescheduling of all or a
substantial portion of the $20 million scheduled  amortization payment due April
26, 1995, which the Company failed to make, and the waiver of certain  financial
covenant  violations as of March 31, 1995. The Company also announced that until
an  agreement  was reached with its Senior  Secured  Lenders (and Holders of Old
Senior Subordinated Notes) the Company would not make its $16.9 million interest
payment on the Old Senior  Subordinated  Notes scheduled for May, 1995 and would
defer making dividend payments on the Old Preferred Stock.

     On May 15, 1995, in  connection  with  announcing a second  quarter loss of
$8.2 million,  the Company announced plans for a restructuring of its operations
which would include several cost cutting measures and personnel reductions.  The
Company also announced the appointment of a new president.

     These developments  significantly  constrained Anacomp's ability to finance
certain previously projected activities. In addition, in 1995, Anacomp failed to
achieve its original projections of operating results and experienced lower than
expected  sales of major new software  products  which were first  introduced in
January  1995.  In light of Anacomp's  withdrawn  note  offering,  disappointing
financial  performance and default on its  indebtedness,  the Company prepared a
new operating plan.

     Based on the events  discussed  above and in connection  with the change in
accounting  discussed  in  Note 1 to  the  accompanying  consolidated  financial
statements,  Anacomp determined that goodwill had been impaired and measured the
impairment based on the fair value approach  discussed in Note 1. As required by
generally accepted accounting principles, this accounting change, which amounted
to a charge of $108  million,  was  recorded as a change in estimate of goodwill
and was included in the results of operations during fiscal 1995.

     Prior to fiscal 1996,  Anacomp  invested and capitalized over $20.0 million
related to the development of software to provide advanced  capabilities for the
XFP 2000 related to the processing of Xerox and IBM print steams. These software
enhancements are referred to as the Xerox Compatibility  Feature ("XCF") and the
Advanced  Function  Presentation  ("AFP")  feature.  XCF was  introduced  at the
beginning of the second  quarter of fiscal 1995 and AFP at the  beginning of the
fourth  quarter  of  fiscal  1995.   Initial  sales  of  the  XCF  product  were
significantly  below  expectations,  as were  projections  for AFP. As a result,
during  1995  Anacomp  wrote off $20.3  million of deferred  software  costs and
established  a reserve of $8.6 million  (none of which  exists at September  30,
1996) for future payments to IBM Pennant Systems for software royalty and system
support obligations which were not recoverable based on revised projections. See
Note 18 to the accompanying consolidated financial statements.

Results of Operations - Products and Services

         Output  Services

     Output services revenues,  which accounted for 21% of Anacomp's revenues in
fiscal  1996,  were down $8.4  million  compared to fiscal 1995  (excluding  the
effect of the ICS sale),  primarily  due to a 10%  decrease  in  volume.  Output
services  revenues  accounted  for 22% of  Anacomp's  revenues  in fiscal  1995.
Volumes were increased in fiscal 1995 due in part to the  acquisition of the COM
services  customer  base of 14 data service  centers from NBS.  Output  services
revenues increased 5% in fiscal 1994 on volume increases of 10%. The increase in
fiscal  1994  volume is the  result of the NBS  acquisition.  Decreasing  prices
adversely  affected  Anacomp's output services business in fiscal 1996, 1995 and
1994.

     Output  services  gross  margins as a percent of  revenue  decreased  1% in
fiscal 1996, 5% in fiscal 1995 and 2% in fiscal 1994.



                                       26
<PAGE>

     Technology Services

     Technology  services  revenues,  which  accounted  for 17% of the Company's
revenues in fiscal 1996,  are derived  principally  from the  maintenance of COM
recorders  and  duplicators.  Such  revenues  decreased  5% in fiscal  1996 when
compared  to  fiscal  1995  primarily  due  to the  effect  of  replacing  older
generation  COM systems  with the XFP 2000,  which has a capacity  significantly
greater than the previous generation COM systems.  Technology services accounted
for 15% of fiscal 1995  revenues and were down 5% from fiscal  1994.  Technology
services  revenues  increased  $3.5 million in fiscal 1994.  The  improvement in
fiscal 1994 is largely the result of the  addition  of a national  data  service
center company to Anacomp's customer base.

     Gross  margins  increased  nearly  7%  in  fiscal  1996  due  primarily  to
reductions in costs associated with spare parts and personnel costs.

     Output Systems

     Output systems revenues,  which accounted for 7% of the Company's  revenues
in fiscal 1996,  decreased  $18.5 million with the sale or lease of 118 XFP 2000
systems in fiscal  1996  compared  to 153  systems in fiscal  1995.  Included in
output systems revenues in fiscal 1995 is $3.5 million of sales of equipment for
use in Anacomp  data  centers  under  sale and  leaseback  arrangements.  Output
systems  revenues  decreased 9% in fiscal 1995 with the sale or lease of 153 XFP
2000 systems  compared to 165 systems in fiscal 1994.  Output  systems  revenues
decreased  25% in fiscal  1994  because of the decline in sales or leases of XFP
2000 output  systems from 274 systems in fiscal 1993. The decline in fiscal 1994
was  partly  the  result of  reduced  original  equipment  manufacturer  ("OEM")
shipments (25 systems in fiscal 1994 compared to 67 in fiscal 1993).

     Output  systems  gross  margins  improved in fiscal  1996,  fiscal 1995 and
fiscal 1994 despite reduced  revenues as a result of product mix of new and used
systems in fiscal  1996 and higher  average  selling  prices in fiscal  1995 and
1994.

     Micrographics Supplies

     Micrographics  supplies revenues,  which accounted for 31% of the Company's
revenues in fiscal 1996,  decreased 21% compared to fiscal 1995 principally as a
result of the  discontinuance  and  downsizing of product  lines.  Micrographics
supplies revenues were 32% and 35% of the Company's  revenues in fiscal 1995 and
1994, respectively.  Micrographics supplies revenues decreased 7% in fiscal 1995
and 8% in fiscal 1994,  principally  due to reduced  demand for duplicate  film,
readers and reader/printers.

     Micrographics  supplies gross margins as a percent of revenue  increased 5%
in fiscal 1996 as a result of changes in product mix due  primarily  to the sale
and downsizing of product lines.  Micrographics supplies gross margins decreased
4% in fiscal 1995.

         Magnetic Media

     Magnetic media revenues,  which accounted for 23% of the Company's revenues
in fiscal 1996, decreased $16.2 million compared to fiscal 1995. The decrease is
due to the  closure of the Omaha,  Nebraska  factory,  which  produced  flexible
diskette media, as well as reduced unit sales of open reel tape.  Magnetic media
revenues accounted for 22% of the Company's revenues in fiscal 1995. Fiscal 1995
magnetic media revenues  increased  $31.9 million over fiscal 1994. The increase
is due to the contribution from the acquisition of Graham Magnetics in May 1994.
The acquisition of Graham Magnetics in May 1994 was the primary reason for a 36%
increase  in fiscal 1994  magnetic  media  revenues  over  fiscal  1993.  Graham
Magnetics  manufactured  certain  magnetics  products at its facility in Graham,
Texas.  Anacomp has shifted all its U.S.  production of those  products from its
Omaha,  Nebraska plant to the Graham  Magnetics  facility.  The costs associated
with  this  relocation  were not  significant.  The  consolidation  resulted  in
improved manufacturing efficiencies and overall headcount reduction.

     Magnetic  media gross margins have remained  level over the past 3 years at
approximately 16%.

                                       27
<PAGE>
Results of Operations - Other

     Interest

     Interest expense and fee  amortization  amounted to $39.6 million in fiscal
1996  compared to $70.9  million in fiscal  1995.  The  decrease  relates to the
discontinuance of interest accrued on the predecessor Company's old subordinated
debt during the bankruptcy  proceedings,  as well as reduced interest expense on
the new debt instruments.

     Interest  expense  and fee  amortization  was $70.9  million in fiscal 1995
compared to $67.2 million in fiscal 1994 due to $3.3 million of default interest
and interest on unpaid scheduled interest on the Old Senior Secured Debt as well
as the Old Senior  Subordinated  Notes  which was  required  by the terms of the
various debt agreements.

     Income Taxes

     The Company adopted Financial  Accounting Standards No. 109, Accounting for
Income Taxes, in the first quarter of fiscal year 1994. The adoption resulted in
a one-time increase to income of $8 million  reflecting the cumulative effect on
prior years of this  accounting  change.  In  addition,  the Company  recorded a
deferred tax asset of $95 million  representing  the U.S.  federal and state tax
savings from net  operating  loss  carryforwards  ("NOLs") and tax credits.  The
Company  also  recorded a  valuation  allowance  of $60  million,  reducing  the
deferred tax asset to $35 million. In determining the valuation  allowance,  the
Company assumed pre-tax income at levels they were experiencing at that time and
considered the impact of the reversal of temporary  differences  and the periods
in which NOL carryforward benefits expire.

     The provision for income taxes in 1996 includes $6.1 million on earnings of
Anacomp's foreign  subsidiaries and $2 million of domestic income taxes required
primarily related to the alternative  minimum tax and state and local taxes. The
effective  rate  as  a  percentage  of  income  before   reorganization   items,
extraordinary credit, and cumulative effect of accounting change (8.2%) is lower
than the U.S.  statutory  rate  because  of  non-taxable  reorganization  income
partially offset by increases resulting from non-deductible amortization.

     Included in the provision for income taxes in fiscal 1995 is a deferred tax
provision  of $29  million.  The deferred  tax  provision  includes  U.S. tax on
undistributed foreign earnings of $9 million and a write-off of net deferred tax
assets of $20 million. This write-off results from the uncertainty regarding the
financial  restructuring that was in progress and, accordingly,  the uncertainty
regarding  the  ultimate   benefit  to  be  derived  from   Anacomp's  tax  loss
carryforwards.  The  remaining  components  of the provision for income taxes in
1995 were taxes of $4.8  million on earnings of Anacomp's  foreign  subsidiaries
and a tax reserve adjustment of $1.2 million.

     Income taxes as a percentage  of income from  operations  was 55% in fiscal
1994. In fiscal 1994,  income tax expense was reduced $1.2 million,  as a result
of the  favorable  settlement  and  disposition  of previously  established  tax
reserves. The effective tax rate was higher than the U.S. statutory rate because
of  amortization  of goodwill,  which is not  deductible  for tax purposes,  and
generally higher foreign tax rates. See Note 17 to the accompanying consolidated
financial statements.

                                       28
<PAGE>


Liquidity and Capital Resources Liquidity and Capital Resources

     Anacomp's  working  capital at September  30, 1996,  excluding  the current
portion of long-term debt, was $26.4 million compared to a $13.8 million deficit
at September 30, 1995. To facilitate comparison of cash flow activity for fiscal
1996 to fiscal 1995,  cash flows for the eight months ended May 31, 1996 and the
four  months  ended  September  30,  1996,  as  discussed  in  the  accompanying
consolidated  statements  of cash flows,  have been  combined for the  following
discussion. Net cash provided by operating activities increased to $49.8 million
for fiscal  year ended  September  30,  1996  compared  to $19.9  million in the
comparable prior period, due primarily to significant  reductions in receivables
and inventories as well as non-payment of interest on subordinated debt prior to
the Reorganization.  Net cash provided by investing activities increased to $3.9
million in the current period,  compared to $3.1 million in the comparable prior
period.

     Net cash used in financial  activities increased to $35.5 million in fiscal
1996 compared to $23.6 million in fiscal 1995. The current period includes a $13
million repayment of debt with proceeds from the sale of the ICS Division.

     The Company's cash balance (including  restricted cash) as of September 30,
1996 was  $47.8  million  compared  to $19.4  million  at  September  30,  1995.
Subsequent to September 30, 1996,  the Company  successfully  completed a rights
offering for  approximately  3.6 million shares of New Common Stock.  The rights
offering generated approximately $25 million in cash, which will be used for the
acquisition of businesses, assets and technologies.

     Prior to the Chapter 11 filing,  the Company was  experiencing  a liquidity
shortfall caused by continued  declining revenues and a highly leveraged balance
sheet.  Upon emergence from bankruptcy  proceedings  the Company's  pre-petition
liquidity problems were improved.

     The  Company  believes  that  its  cash on hand  and  cash  generated  from
operations will be sufficient to fund its debt service requirements, acquisition
strategies and working capital requirements in the foreseeable future.

     On November 20, 1996, the Company  reached  agreement with Lehman  Brothers
for the  refinancing  of the Company's  11-5/8%  Senior  Secured  Notes.  Lehman
Brothers has agreed to  underwrite  a new $115 million debt  facility to replace
the existing  Senior  Secured  Notes,  which had a balance  outstanding of $97.9
million at September 30, 1996. The new debt facility will consist of $90 million
in term loans and a revolver of up to $25 million.  The refinancing requires the
consent  of  Anacomp's  13%  Senior   Subordinated   Noteholders.   The  consent
solicitation period ends January 17, 1997.

Forward - Looking Statements

     The  statements  contained  in  this  filing  on  Form  10-K  that  are not
historical  facts are  forward-looking  statements  within  the  meaning  of the
Private  Securities  Litigation Reform Act. Actual results may differ materially
from those included in the forward-looking statements.



                                       29
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Anacomp, Inc.:

     We have audited the  accompanying  consolidated  balance sheets of Anacomp,
Inc. (an Indiana  corporation)  and  subsidiaries  as of September  30, 1996 and
1995,  and the related  consolidated  statements  of  operations,  stockholders'
equity  (deficit),  and cash flows for the four months ended September 30, 1996,
the eight months ended May 31, 1996 and the twelve  months ended  September  30,
1995 and 1994. These consolidated financial statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     As more fully described in Note 2 to the consolidated financial statements,
effective June 4, 1996, the Company emerged from protection  under Chapter 11 of
the U.S.  Bankruptcy Code pursuant to a Reorganization  Plan which was confirmed
by the Bankruptcy  Court on May 20, 1996. In accordance  with AICPA Statement of
Position 90-7, the Company adopted "Fresh Start  Reporting"  whereby its assets,
liabilities  and new capital  structure were adjusted to reflect  estimated fair
values as of May 31, 1996. As a result,  the consolidated  financial  statements
for the periods  subsequent to May 31, 1996 reflect the Successor  Company's new
basis  of  accounting  and  are  not  comparable  to the  Predecessor  Company's
pre-reorganization consolidated financial statements.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly,  in all material  respects,  the financial  position of Anacomp,
Inc.  and  subsidiaries  as of September  30, 1996 and 1995,  and the results of
their  operations  and their cash flows for the four months ended  September 30,
1996, the eight months ended May 31, 1996 and the twelve months ended  September
30, 1995 and 1994 in conformity with generally accepted accounting principles.

     As explained in Note 1 to the consolidated financial statements,  effective
June 30, 1995, the Company  changed its method of accounting for the measurement
of goodwill impairment.


Indianapolis, Indiana,                                  Arthur Andersen LLP
November 15, 1996





                                       30
<PAGE>

CONSOLIDATED BALANCE SHEETS
Anacomp, Inc. and Subsidiaries
<TABLE>
<CAPTION>

                                                                                Reorganized     Predecessor
                                                                                  Company         Company
(Dollars in thousands, except per share amounts)     As of September 30,            1996             1995

ASSETS
Current assets:
<S>                                                                               <C>             <C>
    Cash and cash equivalents.................................................    $  38,198       $  19,415
    Restricted cash ..........................................................        9,597            ----
    Accounts and notes receivable, less allowances for doubtful
        accounts of $6,459 and  $7,367,  respectively.........................       58,806          90,091
    Current portion of long-term receivables..................................        4,690           6,386
    Inventories...............................................................       31,856          53,995
    Prepaid expenses and other................................................        4,383           5,306
Total current assets..........................................................      147,530         175,193
Property and equipment, at cost less accumulated depreciation and
    amortization of $3,696 and $96,898,  respectively.........................       27,102          44,983
Long-term receivables, net of current portion.................................       10,632          12,322
Excess of purchase price over net assets of businesses acquired
    and other intangibles, net................................................        2,285         160,315
Reorganization value in excess of identifiable assets (See Note 3)                  240,344            ----
Other assets..................................................................        7,528          28,216
                                                                                 $  435,421      $  421,029
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
    Current portion of long-term debt.........................................    $  31,848      $  389,900
    Accounts payable..........................................................       48,090          57,368
    Accrued compensation, benefits and withholdings...........................       13,728          20,891
    Accrued income taxes......................................................       11,930           9,365
    Accrued interest..........................................................       10,586          40,746
    Other accrued liabilities.................................................       36,814          60,587
Total current liabilities.....................................................      152,996         578,857
Long-term debt, net of current portion........................................      217,044            ----
Other noncurrent liabilities..................................................        6,812           5,841
Total noncurrent liabilities..................................................      223,856           5,841

Commitments and contingencies (See Note 18)

Redeemable preferred stock, $.01 par value, issued and outstanding
500,000 shares (aggregate preference value of $25,000)........................         ----          24,574

Stockholders' equity (deficit):
    Preferred stock, 1,000,000 shares authorized, none issued.................         ----            ----
    Common stock, $.01 par value; 20,000,000 and 100,000,000 shares authorized
        respectively; 10,099,050 and 46,187,625 issued, respectively..........          101             462
    Capital in excess of par value............................................       80,318         182,725
    Cumulative translation adjustment (from May 31, 1996 for Reorganized Company)       159           1,329
    Accumulated deficit (from May 31, 1996 for Reorganized Company)...........      (22,009)       (372,759)
Total stockholders' equity (deficit)..........................................       58,569        (188,243)
                                                                                 $  435,421      $  421,029

        See  notes  to consolidated financial statements.

</TABLE>

                                       31
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF OPERATIONS
Anacomp, Inc. and Subsidiaries


                                                                         Reorganized
                                                                         Company                 Predecessor Company

                                                                          Four Months     Eight Months             Twelve Months
                                                                            Ended          Ended                     Ended
                                                                        September 30,     May 31,                 September 30,

(Dollars in thousands, except per share amount)                            1996             1996            1995            1994

REVENUES:
<S>                                                                       <C>             <C>             <C>             <C>
    Services provided.................................................... $ 59,055        $130,202        $219,881        $223,511
    Equipment and supply sales............................................  92,487         204,396         371,308         369,088
                                                                           151,542         334,598         591,189         592,599
OPERATING COSTS AND EXPENSES:
    Costs of services provided...........................................   31,858          72,641         126,493         122,628
    Costs of equipment and supplies sold.................................   70,097         156,526         290,842         274,575
    Selling, general and administrative expenses.........................   29,688          63,826         132,459         115,819
    Amortization of reorganization asset.................................   25,663            ----            ----            ----
    Special charges (See Note 1).........................................     ----            ----         136,889            ----
    Restructuring charges (See Note 6)...................................     ----            ----          32,695            ----
                                                                           157,306         292,993         719,378         513,022
Income (loss) before interest, other income, reorganization items, income taxes,
    extraordinary credit and cumulative
    effect of accounting change..........................................   (5,764)         41,605        (128,189)         79,577

Interest income..........................................................      997           1,576           2,000           3,144
Interest expense and fee amortization....................................  (12,869)        (26,760)        (70,938)        (67,174)
Financial restructuring costs (See Note 7)...............................     ----            ----          (5,987)           ----
Other income (expense)...................................................       27           6,968            (212)           (192)
                                                                           (11,845)        (18,216)        (75,137)        (64,222)
Income (loss) before reorganization items, income taxes,
    extraordinary credit, and cumulative effect of accounting change.....  (17,609)         23,389        (203,326)         15,355
Reorganization items (See Note 4) .......................................     ----          92,839            ----            ----
Income (loss) before income taxes, extraordinary credit and cumulative effect
    of accounting change.................................................  (17,609)        116,228        (203,326)         15,355
Provision for income taxes...............................................    4,400           3,700          35,000           8,400
Income (loss) before extraordinary credit and
    cumulative effect of accounting change...............................  (22,009)        112,528        (238,326)          6,955

Extraordinary credit - gain on discharge of indebtedness, net of taxes
    (See Note 3) ........................................................     ----          52,442            ----            ----
Cumulative effect on prior years of a change in accounting
    for income taxes.....................................................     ----            ----            ----           8,000
Net income (loss)........................................................  (22,009)        164,970        (238,326)         14,955
Preferred stock dividends and discount accretion.........................     ----             540           2,158           2,158
Net income (loss) available to common stockholders....................... $(22,009)       $164,430       $(240,484)        $12,797

EARNINGS (LOSS) PER COMMON AND
    COMMON EQUIVALENT SHARE                                                 $(2.19)

                                                   See  notes  to   consolidated
financial statements.
</TABLE>
                                     57
<PAGE>


<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Anacomp, Inc. and Subsidiaries                                                 Reorganized


                                                                                 Company                    Predecessor Company

                                                                            Four Months Ended   Eight Months  Twelve Months
                                                                                                   Ended            Ended
                                                                              September 30,       May 31,       September 30,

(Dollars in thousands)                                                            1996        1996        1995            1994

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                             <C>        <C>         <C>              <C>
    Net income (loss)......................................................     $ (22,009) $ 164,970   $ (238,326)      $  14,955
    Adjustments to reconcile net income (loss) to net cash provided by operating
        activities:
      Extraordinary credit.................................................          ----    (52,442)        ----            ----
      Non-cash reorganization items........................................          ----   (107,352)        ----            ----
      Depreciation and amortization........................................        31,610     18,788       43,375          40,649
      Cumulative effect of a change in accounting for income taxes.........          ----       ----         ----          (8,000)
      Provision (benefit) for losses on accounts receivable................           482        110        2,742            (695)
      Provision for inventory valuation....................................          ----       ----       10,956            ----
      Non-cash charge in lieu of taxes.....................................         1,300       ----         ----            ----
      Deferred taxes.......................................................          ----       ----       29,000           6,000
      Special charges (See Note 1).........................................          ----       ----      136,889            ----
      Gain on sale of ICS Division.........................................          ----     (6,202)        ----            ----
      Other................................................................          (175)       997        6,308             776
  Restricted cash requirements.............................................        (2,755)    (6,842)        ----            ----
  Change in assets and liabilities net of effects from acquisitions:
        Decrease in accounts and long-term receivables.....................         5,637     24,624       30,948           3,040
        Decrease (increase) in inventories and prepaid expenses............        10,416     11,174       (1,612)         15,254
        Decrease (increase) in other assets................................             1      1,094       (8,207)        (11,349)
        Increase (decrease) in accounts payable and accrued expenses.......       (17,283)    (5,077)      11,465          (3,623)
        Increase (decrease) in other noncurrent liabilities................         4,671     (5,899)      (3,626)         (4,323)
         Net cash provided by operating activities.........................        11,895     37,943       19,912          52,684
CASH FLOWS FROM INVESTING ACTIVITIES:
    Proceeds from sale of other assets.....................................          ----       ----       18,777           7,805
    Proceeds from sale of ICS Division.....................................          ----     13,554         ----            ----
    Purchases of property, plant and equipment.............................        (2,224)    (3,599)     (14,372)        (18,868)
    Payments to acquire companies and customer rights......................        (3,844)      ----       (1,262)        (14,565)
         Net cash provided by (used in) investing activities...............        (6,068)     9,955        3,143         (25,628)
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of common stock and warrants....................          (139)      ----          743           1,484
    Proceeds from revolving line of credit and long-term borrowing.........          ----      2,656       22,529          39,000
    Principal payments on long-term debt...................................       (22,646)   (15,332)     (45,859)        (71,095)
    Preferred dividends paid...............................................          ----       ----       (1,031)         (2,062)
----------------------------------------------------------------------------
         Net cash used in financing activities.............................       (22,785)   (12,676)      (23,618)       (32,673)
----------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH....................................          (172)       691          107             566
----------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...........................       (17,130)    35,913         (456)         (5,051)
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...........................        55,328     19,415       19,871          24,922
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................     $  38,198 $   55,328   $   19,415      $   19,871
----------------------------------------------------------------------------


</TABLE>

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>

                                                                              Reorganized
                                                                                Company                   Predecessor Company

                                                                              Four Months    Eight Months            Twelve Months
                                                                                 Ended           Ended                   Ended
                                                                             September 30,      May 31,              September 30,

(Dollars in thousands)                                                           1996            1996          1995            1994

Cash paid during the period for:
<S>                                                                             <C>           <C>             <C>          <C>
    Interest...............................................................     $   5,581     $ 11,613        $ 39,426     $ 57,781
    Income taxes...........................................................     $   2,942     $  3,045        $  4,128    $   2,007

</TABLE>

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

     See Note 3 for  discussion  of  non-cash  activity  related to Fresh  Start
Reporting  and the  Reorganization.  During  1996,  1995,  and 1994 the  Company
acquired  companies and rights to provide future  services.  In conjunction with
these acquisitions, the purchase price consisted of the following:
<TABLE>
<CAPTION>

                                                                              Reorganized
                                                                                Company                   Predecessor Company

                                                                              Four Months    Eight Months            Twelve Months
                                                                                 Ended           Ended                   Ended
                                                                             September 30,      May 31,              September 30,

(Dollars in thousands)                                                       
<S>                                                                             <C>          <C>           <C>          <C>
    Cash paid..............................................................     $   3,844    $    ----     $    1,262   $    14,565
    Credit memos issued....................................................          ----         ----           ----         3,085
    Notes payable issued...................................................           500         ----           ----         4,290
    Stock issued...........................................................          ----         ----           ----        17,201
    Total fair value of acquisitions.......................................     $   4,344    $    ----     $    1,262   $    39,141


     See notes to consolidated financial statements.
</TABLE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Anacomp, Inc. and Subsidiaries

                                                                            Capital in     Cumulative
                                                              Common stock   excess of     translation     Accumulated
(Dollars in thousands)                                                       par value     adjustment        Deficit        Total

<S>                                                                  <C>      <C>            <C>          <C>            <C>       
BALANCE AT SEPTEMBER 30, 1993 - Predecessor Company..........        $406     $163,209       $(4,744)     $(145,072)      $13,799
Common stock issued for purchases under the
  Employee Stock Purchase Plan...............................           3          872          ----           ----           875
Exercise of stock options....................................           3          606          ----           ----           609
Preferred stock dividends....................................        ----         ----          ----         (2,062)       (2,062)
Accretion of redeemable preferred stock discount.............        ----         ----          ----            (96)          (96)
Translation adjustments for twelve months....................        ----         ----         4,475           ----         4,475
NBS stock issuance...........................................          20        7,380          ----           ----         7,400
Graham stock issuance.........................................         25        9,776          ----           ----         9,801
Net income for the twelve months..............................       ----         ----          ----         14,955        14,955
BALANCE AT SEPTEMBER 30, 1994 - Predecessor Company                   457      181,843          (269)      (132,275)       49,756
Common stock issued for purchases under the
  Employee Stock Purchase Plan................................          3          689          ----           ----           692
Exercise of stock options.....................................          1           50          ----           ----            51
Preferred stock dividends.....................................       ----         ----          ----         (2,062)       (2,062)
Accretion of redeemable preferred stock discount..............       ----         ----          ----            (96)          (96)
Translation adjustments for twelve months.....................       ----         ----         1,598           ----         1,598
Graham stock issuance.........................................          1          143          ----           ----           144
Net loss for the twelve months................................       ----         ----          ----       (238,326)     (238,326)
BALANCE AT SEPTEMBER 30, 1995 - Predecessor Company...........        462      182,725         1,329       (372,759)     (188,243)
Preferred stock conversion....................................         11        7,893          ----           ----         7,904
Preferred stock dividends.....................................       ----         ----          ----           (516)         (516)
Accretion of redeemable preferred stock discount..............       ----         ----          ----            (24)          (24)
Translation adjustment for eight months.......................       ----         ----        (1,560)          ----        (1,560)
NBS stock issuance............................................         11          (11)         ----           ----          ----
Reorganization................................................       (484)    (190,607)          231        208,329        17,469
New stock issuance............................................        100       79,666          ----           ----        79,766
Net income for eight months...................................       ----         ----          ----        164,970       164,970
BALANCE AT  MAY 31, 1996 - Reorganized Company................        100       79,666          ----           ----        79,766
Common stock issued for restricted stock award................          1          791          ----           ----           792
Fees associated with rights offering..........................       ----         (139)         ----           ----          (139)
Translation adjustment for four months........................       ----         ----           159           ----           159
Net loss for four months......................................       ----         ----          ----        (22,009)      (22,009)
BALANCE AT SEPTEMBER 30, 1996 - Reorganized Company...........       $101      $80,318          $159       $(22,009)      $58,569

                            See notes to consolidated financial statements.
</TABLE>




                                       32
<PAGE>


NOTES TO CONSOLIDATED
 FINANCIAL STATEMENTS
Anacomp, Inc. and Subsidiaries


NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Consolidation

     The consolidated financial statements include the accounts of Anacomp, Inc.
("Anacomp"  or  the  "Company")  and  its  wholly-owned  subsidiaries.  Material
intercompany  transactions  have been  eliminated.  Certain amounts in the prior
year consolidated  financial statements have been reclassified to conform to the
current presentation.

     Due to the Reorganization and implementation of Fresh Start Reporting,  the
consolidated  financial  statements for the Reorganized Company (period starting
May 31,  1996)  are not  comparable  to those of the  Predecessor  Company.  For
financial  reporting  purposes,   the  effective  date  of  the  emergence  from
bankruptcy is considered to be the close of business on May 31, 1996.

     A black  line has been  drawn on the  accompanying  consolidated  financial
statements to distinguish  between the  Reorganized  Company and the Predecessor
Company.

Foreign Currency Translation

     Substantially  all  assets  and  liabilities  of  Anacomp's   international
operations are translated at the year-end  exchange  rates;  income and expenses
are  translated  at the  average  exchange  rates  prevailing  during  the year.
Translation  adjustments are accumulated in a separate  section of stockholders'
equity.  Foreign  currency  transaction  gains and  losses are  included  in net
income.

Segment Reporting

     Anacomp  operates  in  a  single  business  segment:  providing  equipment,
supplies and services for information management,  including storage, processing
and retrieval.

Significant Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from these estimates.

Revenue Recognition

     Revenues  from sales of products  and  services or from lease of  equipment
under  sales-type   leases  are  recorded  based  on  shipment  of  products  or
performance  of services.  Under  sales-type  leases,  the present  value of all
payments due under the lease contracts is recorded as revenue,  cost of sales is
charged with the book value of the equipment plus installation costs, and future
interest  income is deferred and recognized  over the lease term.  Revenues from
maintenance  contracts  are  deferred and  recognized  in earnings on a pro rata
basis over the period of the agreements.

                                       33
<PAGE>

Inventories

     Inventories  are  stated at the lower of cost or  market,  with cost  being
determined by methods approximating the first-in, first-out basis.

The cost of the inventories is distributed as follows:

<TABLE>
<CAPTION>

                                     Reorganized Company    Predecessor Company
(Dollars in thousands)  September 30,         1996                  1995


<S>                                     <C>                   <C>
Finished goods...................       $     22,557          $     38,702
Work in process..................              2,748                 4,955
Raw materials and supplies.......              6,551                10,338
                                        $     31,856          $     53,995
</TABLE>


Restricted Cash


     Restricted  cash  represents  cash  reserved as  collateral  for letters of
credit issued by the Company or cash held in escrow  primarily to secure certain
contingent  obligations of the Company. The contingent obligations are primarily
related to environmental liabilities and certain insurance policies.

Property  and  Equipment 

     Property and equipment are carried at cost.  Depreciation  and amortization
of property and equipment are generally provided under the straight-line  method
for financial  reporting purposes over the shorter of the estimated useful lives
or the lease terms.  Tooling costs are amortized over the total  estimated units
of  production,  not to exceed  three  years.  In  accordance  with Fresh  Start
Reporting, property and equipment were reflected at fair market values as of May
31, 1996 (See Note 3).

Debt Issuance Costs

     The  Company  capitalizes  all costs  related to its  issuance  of debt and
amortizes  those costs using the effective  interest method over the life of the
related debt instruments. Debt issuance costs were $200,000 and $12.7 million at
September 30, 1996 and 1995, respectively, and are included in "Other assets" in
the accompanying  Consolidated Balance Sheets. During the eight months ended May
31, 1996 and fiscal years 1995 and 1994, the Company amortized $1 million,  $5.7
million  and $5.3  million,  respectively,  of debt  issuance  costs  which  are
included  in  "Interest  expense  and  fee  amortization"  in  the  accompanying
Consolidated Statements of Operations.  Also, in accordance with AICPA Statement
of Position 90-7,  "Financial  Reporting by Entities in Reorganization Under the
Bankruptcy Code" (SOP 90-7), the Company wrote-off  deferred debt issuance costs
of $11.1  million  upon the  date of the  bankruptcy  filing.  These  costs  are
included in "Reorganization Items" in the accompanying  Consolidated  Statements
of Operations for the eight months ended May 31, 1996.


                                       34
<PAGE>

Goodwill

     Excess  of  purchase   price  over  net  assets  of   businesses   acquired
("goodwill") is amortized on the straight-line method over the estimated periods
of future demand for the related  products  acquired.  Goodwill at September 30,
1996 is being  amortized  over a three year period.  Effective  with Fresh Start
Reporting, the Company now measures impairment based on future cash flows of the
related products.

     For the Predecessor  Company,  effective June 30, 1995,  Anacomp elected to
modify its method of measuring goodwill impairment to a fair value approach.  If
it was determined  that  impairment had occurred,  the excess of the unamortized
goodwill over the fair value of the goodwill applicable to the business unit was
charged to  operations.  For  purposes of  determining  fair value,  the Company
valued the  goodwill  using a  multiple  of cash flow from  operations  based on
consultation with its investment advisors. Anacomp concluded that fair value was
a better  measurement of goodwill  considering  the Company's  highly  leveraged
financial  condition.  As  discussed in Note 8,  Anacomp  revised its  projected
operating  results in fiscal 1995 which,  along with applying  Anacomp's revised
goodwill accounting policy,  resulted in a write-off of $108 million of goodwill
for the year ended  September 30, 1995.  This write-off is reflected in "Special
charges" in the accompanying Consolidated Statement of Operations.

Reorganization Value in Excess of Amounts Allocated to Identifiable Assets

     As more fully discussed in Note 3, the Company has "reorganization value in
excess of amounts allocated to identifiable assets" of $240,344 at September 30,
1996.  This asset is being  amortized  over a 3.5 year period  beginning May 31,
1996.  The  carrying  value of the  Reorganization  Asset  will be  periodically
reviewed if the facts and  circumstances  suggest that it may be  impaired.  The
Company will measure the impairment  based upon future cash flows of the Company
over the remaining amortization period.

Other Intangibles

     Other  intangibles of $21.3 million,  net of  accumulated  amortization  of
$16.1  million,  at September 30, 1995,  represent the purchase of the rights to
provide  microfilm or maintenance  services to certain  customers and were being
amortized on a straight-line  basis over 10 years.  These unamortized costs were
evaluated for impairment each period by determining  their net realizable value.
As discussed in Note 3, in connection  with Fresh Start  Reporting,  the Company
wrote-off the remaining balance of other intangibles at May 31, 1996.

Research and Development

     The engineering costs associated specifically with research and development
programs  are  expensed as  incurred,  and amounted to $1.3 million for the four
months ended September 30, 1996, $2.4 million for the eight months ended May 31,
1996, $2.2 million in 1995, and $3 million in 1994. The Company supports several
engineering   processes,   including  basic  technological   research,   product
development   and   sustaining   engineering   support  for  existing   customer
installations.  The majority of the operating costs for engineering  programs in
fiscal years 1995 and 1994 related to continued software development for the XFP
2000 COM recorder, which were recorded as deferred software costs.

     Deferred  software costs are the capitalized  costs of software products to
be sold in future periods with COM systems or as stand alone product for current
COM systems  users.  The  unamortized  costs are evaluated for  impairment  each
period by determining  their net realizable value. Such costs are amortized over
the greater of the estimated units of sale or under the straight-line method not
to exceed five years. Due to lower than expected sales of new software  products
introduced in 1995,  Anacomp  revised its  projected  future sales and operating
results of software  products  through  1999.  As a result,  during 1995 Anacomp
wrote off $20.3 million of deferred  software costs and established a reserve of
$8.6 million (none of which exists at September 30, 1996) for future payments to
IBM Pennant Systems for software  royalty and system support  obligations  which
are not  recoverable  based on these revised  projections  (See Note 18).  These
charges are  reflected  in "Special  charges" in the  accompanying  Consolidated
Statement  of  Operations  for  the  fiscal  year  ended   September  30,  1995.
Unamortized  deferred  software  costs  remaining as of September 30, 1996 total
$4.2 million and are included in "Other assets" on the accompanying Consolidated
Balance Sheets.

                                       35
<PAGE>

Sale-Leaseback Transactions

     Anacomp entered into  sale-leaseback  transactions of $19.3 million in 1995
and $11.9  million in 1994  relating to COM systems  installed in the  Company's
data service centers. Part of the proceeds were treated as fixed asset sales and
the remainder as sales of  equipment.  Revenues of $3.5 million and $5.6 million
were recorded for the years ended September 30, 1995 and 1994, respectively. All
profits were deferred and were being  recognized  over the applicable  leaseback
periods.  In connection  with Fresh Start  Reporting as discussed in Note 3, the
deferred  profit  amount  was  reduced  to  zero.   Concurrently,   the  Company
established an unfavorable  lease reserve  related to these leases in the amount
of $8.6  million.  The  unfavorable  lease reserve is being  amortized  over the
applicable lease periods.

Accrued Lease Reserves

     Other noncurrent  liabilities include reserves  established for unfavorable
facility and equipment lease  commitments,  vacant facilities and related future
lease costs. Total obligations  recorded for these unfavorable lease commitments
and future lease and related costs at their estimated amounts were $11.4 million
and $7.5  million at  September  30,  1996 and 1995,  respectively.  The current
portion of these obligations was $6.8 million and $2 million as of September 30,
1996 and 1995, respectively,  and is included in "Other accrued liabilities" and
"Accounts payable" in the accompanying Consolidated Balance Sheets.

Income Taxes

     In general,  Anacomp's  practice  has been to reinvest  the earnings of its
foreign  subsidiaries in those  operations and to repatriate those earnings only
when it was advantageous to do so. In 1995, Anacomp changed its practice whereby
the  Company now  repatriates  these  earnings.  As a result,  Anacomp  recorded
deferred taxes of $8.8 million on all undistributed foreign earnings in 1995.

     In February 1992, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). FAS 109 mandates the liability method for computing deferred income taxes
and requires  that the benefit of certain loss  carryforwards  be estimated  and
recorded as an asset  unless it is "more  likely than not" that the benefit will
not be realized.  Another principal  difference is that changes in tax rates and
laws will be reflected in income from  continuing  operations in the period such
changes are enacted.

     Anacomp adopted FAS 109 in the first quarter of fiscal 1994. Under FAS 109,
the Company  recorded a  significant  deferred  tax asset in 1994 to reflect the
benefit  of  loss  carryforwards  that  could  not  be  recognized  under  prior
accounting  rules.  The recording of this asset  reduced  goodwill and increased
income as  discussed  in more  detail in Note 17.  During  1995,  the  valuation
allowance  was increased to reduce the deferred tax asset to zero as a result of
the Company's deteriorating financial condition.

Consolidated Statements of Cash Flows

     Anacomp considers all highly liquid investments  purchased with an original
maturity  of  three  months  or  less to be cash  equivalents.  These  temporary
investments,  primarily repurchase  agreements and other overnight  investments,
are recorded at cost, which approximates market.



                                       36
<PAGE>

NOTE  2.
FINANCIAL REORGANIZATION:

     On May 20,  1996  (the  "Confirmation  Date"),  the U.S.  Bankruptcy  Court
confirmed  the  Company's  Third  Amended  Joint  Plan  of  Reorganization  (the
"Reorganization"),  and on June 4, 1996,  the Company  emerged from  bankruptcy.
Pursuant to the Reorganization, on such date certain indebtedness of the Company
was  canceled  in  exchange  for  cash,  new  indebtedness,  and /or new  equity
interests, certain indebtedness was reinstated, certain other prepetition claims
were discharged,  certain claims were settled, executory contracts and unexpired
leases were assumed or rejected,  and the members of a new Board of Directors of
the Company were designated. The Company simultaneously distributed to creditors
approximately  $22  million  in cash,  $112.2  million  principal  amount of its
11-5/8%  Senior  Secured  Notes due 1999 (the "Senior  Secured  Notes") and $160
million  principal  amount of its 13%  Senior  Subordinated  Notes due 2002 (the
"Senior Subordinated Notes"),  equity securities consisting of 10 million shares
of new common  stock and 362,694  warrants,  each of which is  convertible  into
1.0566  shares of new common  stock  during the five year period  ending June 3,
2001 at an exercise price of $11.57 per share.

     The process began January 5, 1996, when Anacomp filed a Prenegotiated  Plan
of Reorganization with the U.S. Bankruptcy Court in Delaware under Chapter 11 of
the U.S.  Bankruptcy Code. The Company was in default under substantially all of
its  debt  agreements  as a result  of its  failure  to make  $89.7  million  of
principal  payments  scheduled  for April 26,  1995 and  October 26, 1995 on the
senior  secured  credit  facilities  (including  $60  million  relating  to  the
revolving  loan agreement  which expired on October 26, 1995),  $11.4 million of
principal and interest  payments on the 9% Convertible  Subordinated  Debentures
which were due January 15, 1996,  $34.1 million of interest  payments  scheduled
for May 1, 1995 and November 1, 1995 on its Senior  Subordinated Notes, and $3.2
million of interest payments scheduled for July 15, 1995 and January 15, 1996 on
the  13.875%  Subordinated  Debentures,  as well as certain  financial  covenant
violations, and the cross-default provisions of the other debt agreements.

     As noted above,  upon emerging  from  bankruptcy,  the Company's  Revolving
Loan,  Multi-Currency  Revolving  Loan, Term Loans,  Series B Senior Notes,  15%
Senior Subordinated Notes,  13.875% Convertible  Subordinated  Debentures and 9%
Convertible  Subordinated  Debentures were canceled. In addition,  the Company's
8.25% Cumulative  Convertible  Redeemable  Exchangeable  Preferred Stock, Common
Stock, Warrants and Stock Options were canceled.  In connection  therewith,  the
Company issued new debt and equity  securities as mentioned  above and described
in more detail in Notes 14 and 16.

NOTE 3.
FRESH START REPORTING:

     As of May 31, 1996, the Company adopted Fresh Start Reporting in accordance
with SOP 90-7.  Fresh  Start  Reporting  resulted  in  material  changes  to the
Consolidated  Balance Sheet,  including  valuation of assets,  intangible assets
(including  goodwill)  and  liabilities  at fair market  value and  valuation of
equity based on the appraised reorganization value of the ongoing business.

     The Company's  reorganization  value of $350 million (the  approximate fair
value) was based on the  consideration  of many  factors and  various  valuation
methods,  including  discounted  cash flows,  selected  publicly  traded Company
market  multiples,   selected  acquisition   transaction   multiples  and  other
applicable ratios and valuation  techniques believed by the Company's management
and its financial  advisors to be representative  of the Company's  business and
industry.  The  excess  of the  reorganization  value  over  the  fair  value of
identifiable  assets and  liabilities  is reported as  "Reorganization  value in
excess of identifiable  assets" in the accompanying  Consolidated Balance Sheets
and is being amortized over a three and a half year period. The Company obtained
an independent  appraisal of certain  property and equipment to support the fair
values of such assets.


     The  Reorganization  and the adoption of Fresh Start Reporting  resulted in
the following  adjustments to the Company's  Consolidated  Balance Sheet for the
period ended May 31, 1996:

<TABLE>
<CAPTION>
                                                            Predecessor                                 Reorganized
                                                               Company         Reorganization and          Company
                                                                May 31,     Fresh Start Adjustments        May 31,
(Dollars in thousands)                                             1996         Debit        Credit            1996
----------------------------------------------------------------------------------------------------------------------
ASSETS
<S>                                                            <C>        <C>                <C>           <C>
Total current assets.......................................    $179,457   $      ----        $1,881(a)     $177,576
Property and equipment (net)...............................      35,619          ----         7,754(b)       27,865
Long-term receivables......................................       9,411          ----          ----           9,411
Excess of purchase price over net assets of businesses
  acquired and other intangibles...........................     153,864          ----       124,864(c)         ----
                                                                                             29,000(d)
Reorganization value in excess of identifiable assets......        ----       267,460(e)       ----         267,460
Other assets...............................................      12,862          ----         4,384(f)        7,878
                                                                                                600(g)

                                                               $391,213      $267,460      $168,483        $490,190
</TABLE>
<TABLE>
<CAPTION>


                                                             Predecessor                                 Reorganized
                                                               Company         Reorganization and          Company
                                                                May 31,     Fresh Start Adjustments        May 31,
(Dollars in thousands)                                             1996         Debit        Credit            1996
----------------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
<S>                                                            <C>           <C>            <C>             <C>
  Current portion of long-term debt........................    $380,554      $379,256(h)    $36,076(i)      $37,374
  Accrued interest.........................................      52,696        48,500(h)       ----           4,196
  Accounts payable and other accrued liabilities...........     130,179          ----         3,673(j)      133,852
                                                            ----------------------------------------------------------
Total current liabilities..................................     563,429       427,756        39,749         175,422
                                                            ----------------------------------------------------------
Total noncurrent liabilities...............................       5,130          ----       229,872(i)      235,002
Redeemable preferred stock and accrued dividends...........      18,241        18,241(k)       ----            ----
Stockholders' equity (deficit):
  Common stock.............................................         484           484(l)        100(m)          100
  Capital in excess of par value...........................     190,607       190,607(l)     79,666(m)       79,666
  Cumulative translation adjustment........................        (231)         ----           231(l)         ----
  Retained earnings (deficit)..............................    (386,447)       29,000(d)334,005(l)             ----
                                                                                             81,442(n)
                                                            ==========================================================
                                                               $391,213      $666,088      $765,065        $490,190
                                                            ==========================================================

</TABLE>                                      
<PAGE>

Explanations of the above adjustment columns are as follows:

     a) To adjust current assets to fair market value.

     b) To adjust property and equipment to estimated current fair value.

     c) To reflect the write-off of excess of purchase  price over net assets of
businesses acquired and other intangibles.

     d) To provide  income tax expense for gain on  discharge  of  indebtedness,
reflected as a reduction in the goodwill of the  Predecessor  Company related to
the utilization of pre-acquisition NOLs.

     e) To establish the reorganization  value in excess of identifiable assets.
The  reorganization  value in excess of identifiable  assets is calculated below
(in thousands):


         New debt                                      $270,234
         New equity                                      79,766

               Reorganization Value                      350,000
         Plus:  Fair value of identifiable liabilities   140,190
         Less:  Fair value of identifiable assets       (222,730)

                                                        $267,460




     f) To adjust other long-term assets to fair market value.

     g) To write-off the remaining debt issue costs.

     h) To  reflect  the  cancellation  of the  old  debt  and  related  accrued
interest.

     i) To reflect issuance of new current and long-term debt.

     j) To adjust current liabilities to fair market value.

     k) To reflect the cancellation of the old preferred stock.

     l) To reflect the  elimination of  stockholders'  equity of the Predecessor
Company.

     m) To reflect the  issuance of 10 million  shares of new common  stock (par
value $.01) at estimated fair market value.

     n)  To  reflect  the  extraordinary  credit  resulting  from  discharge  of
indebtedness.  The extraordinary  credit,  net of taxes, is calculated below (in
thousands):


         Historical  carrying value of old debt securities  $379,256  Historical
         carrying value of related accrued interest 48,500  Unamortized  portion
         of deferred  debt  issuance  costs (600) Market value of  consideration
         exchanged for the old debt:
             Plan securities (face value $279,691)                   (265,948)
             New common stock (10 million new shares issued)          (79,766)

                                                                       81,442
                          Tax provision (d)                           (29,000)

                           Extraordinary credit                     $  52,442


                                       38
<PAGE>

     The  following Pro Forma  Condensed  Financial  Information  for the twelve
months ended  September 30, 1996 and 1995,  have been prepared  giving effect to
the sale of the Image  Conversion  Services ("ICS") Division and the adjustments
related to the  consummation  of the  Reorganization  for  interest  expense and
intangible asset amortization.  The Condensed Financial Information was prepared
as if the Pro Forma  adjustments  had occurred on October 1, 1995 and October 1,
1994,  respectively.  This  information does not purport to be indicative of the
results  which  would  have been  obtained  had such  transactions  in fact been
completed  as of the date  hereof and for the periods  presented  or that may be
obtained in the future.

Anacomp, Inc. and Subsidiaries
Pro Forma Condensed Financial Information
<TABLE>
<CAPTION>

                                                               Pro Forma          Pro Forma
                                                             Twelve Months      Twelve Months
                                                                 Ended              Ended
                                                              September 30,    September 30, 1995
(Dollars in thousands)                                            1996

<S>                                                            <C>                <C>
Total Revenues                                                 $484,637           $ 569,668
Operating costs and expenses                                    493,291             763,514
Loss before interest, other income, reorganization items,
   income taxes and extraordinary credit                         (8,654)           (193,846)
Interest expense and fee amortization                           (41,327)            (44,301)
Net loss available to common stockholders                       (53,713)           (277,346)

</TABLE>


NOTE 4.
REORGANIZATION ITEMS:


     In accordance with SOP 90-7,  expenses of the Predecessor Company resulting
from the Chapter 11  Reorganization  are reported  separately as  reorganization
items  in  the  accompanying  Consolidated  Statement  of  Operations,  and  are
summarized below:

<TABLE>
<CAPTION>

                                                                May 31, 1996
(Dollars in thousands)                                       Eight Months Ended

<S>                                                                  <C>
Write-off of deferred debt issue costs and discounts                 $(17,551)
Adjustment of assets and liabilities to fair market value             124,903
Legal and professional fees associated with bankruptcy                (14,944)
Interest earned on accumulated cash                                       431

                                                                    $  92,839
</TABLE>


NOTE 5.
SALE OF ICS DIVISION:

     Effective November 1, 1995, Anacomp sold its ICS Division for approximately
$13.5 million,  which resulted in a net gain to the Company of $6.2 million that
is  reflected  in  other  income  (expense)  in  the  accompanying  Consolidated
Statement of  Operations.  The  proceeds  from this sale were used to reduce the
principal  balance on certain  senior debt.  The ICS Division  performed  source
document  microfilm services at several facilities around the country generating
approximately $20 million of revenues per year.

NOTE 6.
RESTRUCTURING CHARGES:

     Included in the  operating  results for 1995 are  restructuring  charges of
$32.7 million.  These charges were the result of the Company's  reassessment  of
its strategy  for ongoing  financial  improvement  and a decision to downsize or
exit certain areas of its business.  Specifically, the Company closed its Omaha,
Nebraska  magnetic  media  manufacturing  facility,  exited the  manufacture  of
readers and reader/printers at its San Diego, California  manufacturing facility
and reduced headcount  worldwide.  The restructuring  charges included severance
costs of $5.9  million,  which  included  personnel  related to magnetics  media
manufacturing,   reader  and  reader/printer  manufacturing  and  other  various
personnel associated with the worldwide headcount  reduction.  Approximately 400
people were terminated  pursuant to these plans.  Also included in restructuring
charges were inventory write downs of $9.1 million,  excess facility reserves of
$7.7 million and other  reserves of $10  million.  The Company  completed  these
restructuring  activities  during fiscal 1996. The actual costs  associated with
the  restructuring  did not  vary  significantly  from the  previously  reported
amounts.


NOTE 7.
FINANCIAL RESTRUCTURING COSTS:

     On April 6, 1995,  Anacomp  announced  that it had  withdrawn  its proposed
offering of $225 million Senior Secured Notes and a related offer to purchase up
to $50 million of the Company's  outstanding 15% Senior  Subordinated Notes. The
offering would have deferred an aggregate of $153 million in scheduled principal
payments in fiscal  years 1995  through  1998,  thereby  providing  Anacomp with
increased liquidity and additional cash for product development.  Costs directly
related  to  these   activities   of  $6  million  are  included  as  "Financial
restructuring costs" in the accompanying  Consolidated  Statements of Operations
for fiscal year 1995.


NOTE 8.
EXCESS OF PURCHASE PRICE OVER NET ASSETS
OF BUSINESSES ACQUIRED (GOODWILL):

     Goodwill  related  to the  micrographics  business  as of  September  30 is
summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>

                                                  Reorganized     Predecessor
                                                    Company         Company
                                               --------------- ---------------
                                                    1996            1995
             <S>                                   <C>            <C>
             Goodwill                              $2,419         $315,561
             Less goodwill write-off                 ----         (108,000)
             Less accumulated amortization           (134)         (73,988)
                                                   $2,285         $133,573

</TABLE>



     Anacomp failed to achieve its original projections of fiscal 1995 operating
results and experienced lower than expected sales of new software products first
introduced  in January  1995.  In light of Anacomp's  withdrawn  note  offering,
disappointing financial performance and default on its indebtedness, the Company
prepared a revised business plan and operating forecast through 1999.

     Based on these developments and in connection with the change in accounting
discussed  in Note 1, Anacomp  determined  that  goodwill had been  impaired and
measured the impairment based on a fair value approach. As required by generally
accepted  accounting  principles,  this accounting  change,  which amounted to a
charge of $108 million, was recorded as a change in estimate and was included in
the results of operations for the quarter ended June 30, 1995.


NOTE 9.
FAIR VALUES OF FINANCIAL INSTRUMENTS:

     Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial  Instruments,  requires  disclosure of fair value information
for certain  financial  instruments.  The carrying amounts for trade receivables
and payables are  considered to be their fair values.  The carrying  amounts and
fair values of the Company's other financial  instruments at September 30, 1996,
and 1995, are as follows:
<TABLE>
<CAPTION>

                               Reorganized Company               Predecessor Company
                               September 30, 1996                September 30, 1995
(Dollars in thousands)             Carry Amount      Fair Value     Carry Amount      Fair Value
Long-Term Debt:
     <S>                             <C>              <C>          <C>              <C>
     11-5/8% Senior Note             $ 97,902         $ 97,902     $        ----    $       ----
     Revolving Loan                      ----             ----           31,328           31,328
     Multicurrency Revolving Loan        ----             ----           28,813           28,813
     Term Loans                          ----             ----           13,039           13,039
     Series B Senior Notes               ----             ----           58,908           58,908
     13% Senior Subordinated Note     147,058          163,829             ----             ----
     15% Senior Subordinated Notes       ----             ----          220,281          181,224
     13.875% Convertible
        Subordinated Debentures          ----             ----           21,155            4,376
     9% Convertible Subordinated
        Debentures                       ----             ----           10,479            1,880
Redeemable Preferred Stock               ----             ----           24,574             ----
</TABLE>

     The September 30, 1996  estimated fair value of Long-Term Debt was based on
quoted market values or discounted cash flow.

     The  September  30,  1995  estimated  fair  values  of  Long-Term  Debt and
Redeemable Preferred Stock were based on a restructuring  proposal prepared as a
result of discussion and  negotiations  with  representatives  of the lenders at
that time in connection with a "prepackaged" plan of reorganization.

                                       39
<PAGE>

NOTE 10.
ACQUISITIONS:

     During  the  three  years  ended  September  30,  1996,  Anacomp  made  the
acquisitions  set  forth  below,  each of  which  has  been  accounted  for as a
purchase. The consolidated financial statements include the operating results of
each business from the date of acquisition. Pro forma results of operations have
not  been  presented  because  the  effects  of  these   acquisitions  were  not
significant.

Fiscal 1996

     During fiscal 1996,  Anacomp  acquired  certain  assets of a  micrographics
equipment and supplies business. The acquisition was effective July 15, 1996 and
total  consideration was $4.3 million,  of which  approximately $2.4 million was
assigned to excess of purchase price over net assets acquired. The consideration
consisted of $3.8 million in cash and a one-year note payable of $500,000  which
accrues interest at prime plus 2.75%.

Fiscal 1995

During fiscal 1995, Anacomp made no significant acquisitions.

Fiscal 1994

     During fiscal 1994, Anacomp acquired 16 data service centers or the related
customer base (all were incorporated  with existing Anacomp service centers),  a
magnetics media  manufacturing  company and the customer base of a micrographics
supplies business. Total consideration for these acquisitions was $39.1 million,
of which  approximately  $24.2 million was assigned to excess of purchase  price
over  net  assets  of  businesses  acquired  and  other  intangible  assets.  In
connection with these  acquisitions,  Anacomp issued $17.2 million of its common
stock and increased debt and accrued liabilities by $4.3 million.

National Business Systems

     One of the acquisitions included above was the purchase of the COM services
customer base of 14 data service centers operated by National  Business Systems,
Inc.  ("NBS").  The  acquisition  was  effective  on January  3,  1994,  and the
acquisition cost consisted of the following (dollars in thousands):


             Cash paid to NBS shareholders                $   7,400

             Common stock issued to NBS shareholders          7,400

             Acquisition costs incurred                         416

                                                          $  15,216

     Anacomp issued  1,973,000  common shares to the NBS shareholders at a price
of $3.75 per share.  As part of the  acquisition  agreement,  Anacomp  agreed to
provide  stock  price  protection  at the end of two  years on those  shares  so
designated by the NBS shareholders  (1,128,000 of the shares issued were subject
to this  protection).  Related to this price  protection,  on February 15, 1996,
Anacomp issued 1,127,143  additional shares of stock to NBS  shareholders.  As a
result of the  Reorganization,  discussed in Note 2, this price protection is no
longer in effect.

Graham Magnetics

     Another  of the  acquisitions  included  above was the  purchase  of Graham
Acquisition Corporation ("Graham"), a magnetics media manufacturing company. The
acquisition was effective on May 4, 1994, and the acquisition  cost consisted of
the following (dollars in thousands):

<TABLE>
<CAPTION>

<S>                                                                  <C>
             Common stock issued to Graham shareholders..............$   8,515

             Common stock issued for a note payable...................   1,286

             Issuance of note payable to a creditor...................   4,240

             Cash paid to retire bank debt............................   5,540

             Acquisition costs incurred..............................      689

                                                                     $  20,270

</TABLE>                                      
<PAGE>

     Anacomp issued 2,129,000 common shares to the Graham  shareholders based on
an agreed upon per share price.  However, to determine the acquisition cost, the
shares were valued at the market price on the date of closing.

     Contingent  consideration  of $7.6  million was  payable in Anacomp  common
stock and was based upon defined future  earnings  through  September  1997. The
contingent consideration amount was $144,000 for fiscal 1994 and zero for fiscal
1995. As a result of the  Reorganization,  discussed in Note 2, this contingency
is no longer in effect.

     Anacomp also issued 360,000 common shares to a Graham creditor at $3.57 per
share to reduce the note payable to $4.2  million.  The note was  unsecured  and
bore interest at 10%.  Principal payments of $345,000 plus accrued interest were
payable  quarterly  beginning  July 15, 1994.  The note holder could at any time
require  Anacomp to prepay any amount of the note by issuing  common stock.  The
shares of common stock to be issued were equal to the prepayment  amount divided
by $3.57. In connection with the Plan of  Reorganization,  the original note was
canceled and a new promissory note was issued in the amount of $1.2 million. The
note did not bear  interest  and was payable in two  installments;  $800,000 due
within thirty days of the effective date of the bankruptcy,  and $400,000 due on
or before October 30, 1996. The  outstanding  note balance was $400,000 and $2.5
million at  September  30,  1996 and 1995,  respectively.  The note was paid off
subsequent to September 30, 1996.

NOTE 11.
SKC AGREEMENT:

     Anacomp has entered into a supply  agreement (the "Supply  Agreement") with
SKC America,  Inc., a New Jersey corporation ("SKCA"), and SKC Limited ("SKCL"),
an affiliated corporation of SKCA organized pursuant to the laws of the Republic
of  Korea.  SKCA and SKCL are  collectively  referred  to as "SKC".  The  Supply
Agreement expires in December 2003.  Pursuant to the Supply  Agreement,  Anacomp
purchases  substantially all of its requirements for coated duplicate  microfilm
from SKC. Pursuant to the Supply Agreement, SKC also provides the Company with a
substantial  portion  of its  polyester  requirements  for  its  magnetic  media
products.

     In connection with the Supply Agreement, SKC also provided the Company with
a $25 million  trade credit  facility  (secured by up to $10 million of products
sold to the Company by SKC),  all of which is outstanding at September 30, 1996.
The trade credit  arrangement  bears interest at 2.5% over the prime rate of The
First National Bank of Boston (10.75% as of September 30, 1996).

     In connection with an amendment to the Supply Agreement as of the effective
date under the Plan of  Reorganization,  the  Company  agreed to  certain  price
increases,  retroactive  to 1994,  and  agreed  to make the  following  deferred
payments related to the retroactive price increases to SKC (which are accrued in
"Other accrued  liabilities" in the accompanying  Consolidated  Balance Sheets):
(a) $400,000 in 1997:  (b) $600,000 in 1998;  (c) $800,000 in 1999; (d) $800,000
in 2000; and (e) 1,000,000 in 2001.


                                       41
<PAGE>

NOTE 12.
PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:
<TABLE>
<CAPTION>

                                                                                       Reorganized            Predecessor
                                                              Estimated Useful           Company                Company
(Dollars in thousands)                   September 30,         Life in Years              1996                    1995
----------------------------------------------------------- --------------------- ---------------------- -----------------------
<S>                                                               <C>                  <C>                 <C>
Land and buildings....................................            10 - 40              $ 3,148             $    5,283
Office furniture......................................             3 - 12                2,499                 12,141
Manufacturing equipment and tooling...................             2 - 10                4,161                 31,351
Field support spare parts.............................             4 - 7                 5,852                 21,764
Leasehold improvements................................         Term of Lease               852                 10,782
Equipment leased to others............................             2 - 4                   467                  1,838
Processing equipment..................................             3 - 12               13,819                 58,722
                                                                                        30,798                141,881
Less accumulated depreciation and amortization........                                  (3,696)               (96,898)
                                                                                       $27,102             $   44,983
</TABLE>

NOTE 13.
LONG-TERM RECEIVABLES:
<TABLE>
<CAPTION>

Long-term receivables consist of the following:
                                                                                    Reorganized Company   Predecessor Company
(Dollars in thousands)                                          September 30,              1996                   1995
---------------------------------------------------------------------------------- ---------------------- ---------------------
<S>                                                                                   <C>                  <C>
Lease contracts receivable...................................................         $  12,546            $    15,678
Notes receivable from asset sales............................................             2,260                  2,619
Other........................................................................               516                    411
                                                                                         15,322                 18,708
Less current portion.........................................................            (4,690)                (6,386)
                                                                                      $  10,632             $   12,322
</TABLE>
     Lease  contracts  receivable  result from customer leases of products under
agreements which qualify as sales-type  leases.  Annual future lease payments to
be received under sales-type leases are as follows:

<TABLE>
<CAPTION>

             (Dollars In thousands)                   Year ended September 30,
             <S>                                                                       <C>
             1997.............................................................         $  5,540
             1998.............................................................            4,503
             1999.............................................................            2,805
             2000.............................................................            1,370
             2001.............................................................              566
                                                                                         14,784
             Less deferred interest...........................................           (2,238)
                                                                                        $12,546

</TABLE>

                                       42
<PAGE>

NOTE 14.
LONG-TERM DEBT:
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
                                                                                        Reorganized           Predecessor
                                                                                         Company               Company
(Dollars in thousands)                                          September 30,              1996                   1995
---------------------------------------------------------------------------------- ---------------------- ---------------------
<S>                                                                                      <C>                 <C>            
11-5/8% Senior Secured Notes.................................................            $   97,902          $        ----
13% Senior Subordinated Notes (net of unamortized discount of $12,942)                      147,058                   ----
Revolving Loan at 8.63%......................................................                  ----                 31,328
Multicurrency Revolving Loan at 8.44%........................................                  ----                 28,813
Term Loans at 8.56%..........................................................                  ----                 13,039
Series B Senior Notes at 12.25%..............................................                  ----                 58,908
15% Senior Subordinated Notes (net of unamortized discount of
    $4,619)..................................................................                  ----                220,281
13.875% Convertible Subordinated Debentures (net of unamortized discount of
    $2,077)..................................................................                  ----                 21,155
9% Convertible Subordinated Debentures ......................................                  ----                 10,479
Non-interest bearing installment note payable due October 30, 1996...........                   400                  2,513
Other........................................................................                 3,532                  3,384
                                                                                            248,892                389,900
Less current portion.........................................................               (31,848)              (389,900)
                                                                                           $217,044            $      ----
</TABLE>
Senior Secured Notes

     In connection  with the  Reorganization,  the Company issued $112.2 million
aggregate  principal  amount of 11- 5/8% Senior  Secured Notes due September 30,
1999.  Interest is payable on March 31 and  September 30 each year.  The Company
pre-paid the  September 30, 1996,  installment  of $14.3 million on September 3,
1996.  The  Company is  required  to redeem the  remaining  notes at par on each
interest payment date according to the following schedule (in thousands):


March 31, 1997                          $14,286
September 30, 1997                       16,163
March 31, 1998                           16,161
September 30, 1998                       17,100
March 31, 1999                           17,100
September 30, 1999                       17,092

                                       $97,902


     The Senior  Secured Notes are  redeemable at the option of the Company,  in
whole or in part,  at any time, at 100% of the principal  amount  thereof,  plus
accrued and unpaid interest. The Company is required in certain circumstances to
make offers to purchase the Senior Secured Notes then  outstanding at a purchase
price equal to 100% of the  principal  amount  thereof,  plus accrued and unpaid
interest,  with the net cash proceeds of certain sales or other distributions of
assets by the  Company or certain of its  subsidiaries.  Also,  upon a change of
control, the Company is required to make an offer to purchase the Senior Secured
Notes then outstanding at a purchase price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest.

     The Senior Secured Notes are senior secured  obligations of the Company and
will rank pari passu with all other  existing and future senior  obligations  of
the  Company,  and  senior to all  existing  and future  subordinated  or junior
indebtedness  of the Company.  The collateral  securing the Senior Secured Notes
consists  of  substantially  all of the  assets of the  Company  and all  future
acquired  assets of the Company to the extent  such  assets are  acquired by the
Company without secured financing.

                                       43
<PAGE>

     The  indenture  related  to the Senior  Secured  Notes  contains  covenants
limiting among other things,  (i) the incurrence of additional  indebtedness  by
the Company and certain of its  subsidiaries,  (ii) the payment of dividends on,
and  the  redemption  of,  capital  stock  of the  Company  and  certain  of its
subsidiaries,  (iii) the redemption of certain  subordinated  obligations of the
Company and certain of its subsidiaries and the making of certain investments by
the Company and  certain of its  subsidiaries,  (iv) the sale by the Company and
certain  of its  subsidiaries  of  assets  and  certain  subsidiary  stock,  (v)
transactions  between  the  Company  and  its  affiliates,  (vi)  liens  on  the
collateral  securing the Senior Secured Notes, (vii)  consolidations and mergers
and  transfers of all or  substantially  all of the Company's and certain of its
subsidiaries' assets and (viii) capital expenditures. All of the limitations and
prohibitions are subject to a number of qualifications and exceptions.

     The indenture also contains a covenant  requiring the Company to maintain a
minimum  interest  coverage  ratio.  At September  30, 1996,  the Company was in
compliance with all covenants under the Senior Secured Notes indenture.

Senior Subordinated Notes

     In  connection  with the  Reorganization,  the Company  issued $160 million
aggregate  principal amount of 13% Senior Subordinated Notes due June 2002. This
debt was recorded at its estimated fair value of $146.3 million.  The difference
between the  aggregate  principal  amount and the fair value of the debt will be
amortized as a charge to interest expense over the life of the debt. Interest is
payable on June 30 and  December 31 each year,  beginning  on December 31, 1996.
For the interest  payable on December  31, 1996 and June 30,  1997,  the Company
will  provide  Payment-In-Kind  ("PIK")  notes in  satisfaction  of its interest
obligation  rather than a cash  settlement.  The PIK notes will have a principal
amount  corresponding  to the amount of interest due on the notes on the related
interest payment date.

     The  Company is required  to redeem  prior to June 30,  2001 the  principal
amount of the Senior  Subordinated Notes equal to the aggregate principal amount
of PIK notes issued prior to such date,  plus any accrued and unpaid interest on
the PIK  notes,  at a  redemption  price  equal to the price  that would be then
applicable  in  the  case  of  an  optional  redemption.  The  remaining  Senior
Subordinated  Notes are redeemable at the option of the Company,  in whole or in
part, at any time, at various  redemption  prices ranging from 103% to 101.5% of
the principal amount thereof through December 31, 2001.  Thereafter,  the Senior
Subordinated  Notes may be redeemed at the aggregate  principal  amount thereof.
Also,  upon a change in  control,  the  Company is  required to make an offer to
purchase the Senior  Subordinated  Notes then  outstanding  at a purchase  price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest.

     The Senior Subordinated Notes are unsecured senior subordinated obligations
of the  Company  and  rank  pari  passu  with  all  other  existing  and  future
subordinated  obligations of the Company.  The payment of principal and interest
is subordinated and subject to the prior payment in full of the Company's senior
indebtedness.

     The indenture related to the Senior  Subordinated  Notes contains covenants
limiting,  among other things, (i) the incurrence of additional  indebtedness by
the Company and certain of its  subsidiaries,  (ii) the payment of dividends on,
and  the  redemption  of,  capital  stock  of the  Company  and  certain  of its
subsidiaries,  (iii) the redemption of certain  subordinated  obligations of the
Company and certain of its subsidiaries and the making of certain investments of
the Company and  certain of its  subsidiaries,  (iv) the sale by the Company and
certain  of its  subsidiaries  of  assets  and  certain  subsidiary  stock,  (v)
transactions  between  the  Company  and  its  affiliates,  (vi)  sale/leaseback
transactions   by  the   Company  and   certain  of  its   subsidiaries,   (vii)
consolidations  and mergers and  transfers  of all or  substantially  all of the
Company's  and  certain  of  its   subsidiaries'   assets  and  (viii)   capital
expenditures. All of the limitations and prohibitions are subject to a number of
qualifications and exceptions.  The indenture also contains a covenant requiring
the Company to maintain a minimum  interest  coverage  ratio.  At September  30,
1996,  the  Company  was in  compliance  with all  covenants  under  the  Senior
Subordinated Notes indenture.

                                       44
<PAGE>

NOTE 15.
REDEEMABLE PREFERRED STOCK:

     Anacomp issued 500,000 shares of 8.25%  Cumulative  Convertible  Redeemable
Exchangeable  Preferred  Stock  (the  "Preferred  Shares")  in  a  1987  private
placement.  Each  Preferred  Share  had  a  preference  value  of  $50  and  was
convertible  into  Anacomp  common  stock at a  conversion  price of $7.50.  The
Preferred  Shares were recorded at fair value on the date of issuance less issue
costs.  The excess of the preference  value over the carrying value was accreted
by periodic charges to retained earnings over the original life of the issue. At
September 30, 1995,  500,000 shares were issued and  outstanding.  In connection
with  the  Reorganization  discussed  in  Note 2 ,  the  Preferred  Shares  were
canceled.

NOTE 16.
CAPITAL STOCK:

Reorganized Company

Preferred Stock

     The Board of Directors of the Company has the ability,  at its  discretion,
to  create  one or more  series of  Preferred  Stock  and  shall  determine  the
preferences,  limitations,  and relative  voting and other rights of one or more
series of Preferred Stock.

Stock Option Plans

     On July 22,  1996,  the  Company's  Board of  Directors  approved  the 1996
Restructure  Recognition  Incentive Plan. Under this plan,  effective August 22,
1996,  the Company  awarded to employees  947,500  stock  options to acquire new
common stock and 99,050 shares of restricted new common stock.

     With  regard to the stock  options,  the options  were  granted an exercise
price of $4.63 per share of new common stock which will result in  approximately
$3.2  million of  compensation  expense  over the vesting  period of the options
based on the market  value of the stock at August 22,  1996.  75% of the options
vest ratably  during the period from June 30, 1997 to June 30, 1999.  25% of the
options vest on September 30, 1999, provided certain performance goals have been
met;  otherwise  the options vest on June 30, 2003.  During 1996,  approximately
$975,000 was  recognized as  compensation  expense  related to the options.  The
options  expire 10 years after the date of the grant.  As of September 30, 1996,
none of the options were exercisable.

     With regard to the restricted  shares of new common stock,  the shares vest
immediately  and thus the  Company  recognized  approximately  $0.8  million  of
compensation  expense  immediately  upon  granting the award based on the market
value of the Company's  stock on August 22, 1996. The shares are restricted from
sale or transfer by the recipient employees until September 30, 1997.  Effective
December 6, 1996,  34,650 shares of restricted  stock were returned by employees
to the Company.

     In addition,  on August 22, 1996, the Company's Board of Directors approved
the 1996 Long-Term  Incentive  Plan,  which provides for the future  issuance of
various forms of stock related  awards  including  options,  stock  appreciation
rights and restricted  shares.  The Company has reserved 1,400,000 shares of new
common stock for future issuance under this plan.  Future awards,  including the
nature of the awards and related  exercise  prices,  are to be determined at the
discretion of the Compensation Committee of the Board of Directors in accordance
with the plan  provisions.  As of  September  30,  1996,  no awards  were issued
related to this plan.  Subsequent  to September  30, 1996,  438,179 stock option
awards were made to certain Executive  Officers and Non-Employee  Directors.  At
current market value on the date of grant.



                                       45
<PAGE>

Warrants

     In connection with the  Reorganization  discussed in Note 2, Anacomp issued
362,694 new  warrants to certain  creditors  and previous  common and  preferred
stockholders.  Each new  warrant  was  convertible  into one share of new common
stock at an exercise  price of $12.23 per share.  In connection  with the rights
offering  discussed in Note 25, each new warrant is now convertible  into 1.0566
shares of new common  stock at an  exercise  price of $11.57 per share.  The new
warrants expire on June 3, 2001.

Other Items

     At September  30,  1996,  approximately  1.3 million  shares of Anacomp new
common stock were reserved for exercise of stock  options,  exercise of warrants
and other corporate purposes.

Predecessor Company

Stock Option Plans

     Anacomp's  stock  option  plans  provided  that the  exercise  price of the
options be determined by the Board of Directors (the "Board"), and in no case be
less than 100% of fair market value at the time of grant for qualified  options,
or less than the par value of the stock  for  non-qualified  options.  An option
could be exercised  subject to such  restrictions as the Board may impose at the
time the option was granted. In any event, each option terminated not later than
10 years after the date on which it was granted.

     No shares were  available for grant at May 31, 1996.  Shares  available for
grant under the plans were 1,401,328 and 725,827 at September 30, 1995 and 1994,
respectively. Options outstanding, were as follows:

<TABLE>
<CAPTION>

                                                                                                Option      Price
                                                                            Shares              Per Share
--------------------------------------------------------------------------- ------------------- --------------------------
<S>                                                                            <C>                <C>           <C>        
Outstanding at September 30, 1993.....................................          4,414,528         $ 1.000    -  $9.000
Granted...............................................................            205,381           2.750    -   4.000
Canceled..............................................................            (81,908)          1.000    -   7.875
Expired...............................................................            (23,096)          2.000    -   7.875
Excercised............................................................           (306,646)          1.000    -   3.375
                                                                            ------------------- --------------------------
Outstanding at September 30, 1994.....................................          4,208,259           1.000    -   9.000
Granted...............................................................          1,355,736            .563    -   2.500
Canceled..............................................................         (2,010,753)           .563    -   4.750
Expired...............................................................            (20,484)          2.000    -   4.500
Excercised............................................................            (24,863)           .563    -   2.000
                                                                            ------------------- --------------------------
Outstanding at September 30, 1995.....................................          3,507,895            .563    -   9.000
Granted...............................................................            677,181            .313    -    .313
Canceled..............................................................         (4,182,076)           .313    -   9.000
Expired...............................................................             (3,000)          2.000    -   3.500
                                                                            ------------------- --------------------------
Outstanding at May 31, 1996...........................................               ----         $  ----    -  $ ----
                                                                            =================== ==========================
</TABLE>
     All options  existing at May 31, 1996 were canceled in connection  with the
Company's Reorganization discussed in Note 2.

Warrants

     In October 1990,  Anacomp issued  6,825,940  warrants  ("Old  Warrants") to
holders of the 15% Senior  Subordinated  Notes.  Each Old Warrant  entitled  the
holder to  purchase  one common  share at a price of $1.873 and was  exercisable
through  November 11,  2000,  the date of  expiration.  In  connection  with the
Reorganization discussed in Note 2, the Old Warrants were canceled.

                                       46
<PAGE>

NOTE 17.
INCOME TAXES:

     The  components  of income  (loss)  before  income taxes and  extraordinary
credit were:
<TABLE>
<CAPTION>

                                                  Reorganized Company              Predecessor Company
                                                 ---------------------- -------------------------------------------
                                                   Four Months Ended      Eight Months     Twelve Months Ended
                                                                             Ended            September 30,

(Dollars in  thousands)                           September 30, 1996      May 31, 1996       1995          1994
------------------------------------------------ ---------------------- ----------------- ------------- ------------
<S>                                                  <C>                     <C>          <C>              <C>
United States..................................      $(21,602)               $112,100     $(209,151)       $7,143
Foreign........................................         3,993                   4,128         5,825         8,212
                                                     $(17,609)               $116,228     $(203,326)      $15,355
</TABLE>

     The  components  of income tax expense after  utilization  of net operating
loss carryforwards and the adjustment of tax reserves are summarized below:
<TABLE>
<CAPTION>


                                               Reorganized Company              Predecessor Company
                                              ----------------------- -------------------------------------------------
                                                   Four Months         Eight Months          Twelve Months Ended
                                                       Ended               Ended                September 30,
                                                                                       --------------------------------
(Dollars in thousands)                          September 30, 1996     May 31, 1996         1995            1994
--------------------------------------------- ----------------------- ---------------- --------------- ----------------
Current:
<S>                                                <C>                 <C>             <C>             <C>
    Federal.................................       $    600            $    ---        $    ----       $    ----
    Foreign.................................          2,400               3,700            4,800           3,300
    State...................................            100                 ---             ----             300
                                                      3,100               3,700            4,800           3,600
Tax reserve adjustment......................           ----                 ---            1,200          (1,200)
Non-cash charge in lieu of taxes ...........          1,300                ----           29,000           6,000
                                                    $ 4,400              $3,700          $35,000          $8,400
</TABLE>

     In  addition,  for the  eight  months  ended  May 31,  1996,  there  was an
additional  expense of $29 million related to the tax liability  associated with
the  gain on  discharge  of  indebtedness.  This  liability  was  offset  by the
utilization of net operating loss carryforwards ("NOLs"). See Note 3 for further
discussion.


                                       47
<PAGE>
<TABLE>
<CAPTION>

     The following is a reconciliation  of income taxes calculated at the United
States federal statutory rate to the provision for income taxes:

                                                                   Reorganized               Predecessor Company
                                                                      Company
                                                                  ----------------- ----------------------------------------
                                                                        Four        Eight           Twelve Months Ended
                                                                       Months         Months           September 30,
                                                                                                ----------------------------
                                                                  Ended September   Ended May
                                                                        30,            31,
(Dollars in thousands)                                                1996           1996         1995           1994

<S>                                                                 <C>            <C>         <C>           <C>
Provision for income taxes at U.S. statutory rate................. (6,200)         $ 40,700    $(71,200)     $   5,374
Non taxable reorganization income...............................     ----           (43,700)        ---          -----
Increase in deferred tax asset valuation allowance...............    ----              ----      51,400           ----
Nondeductible amortization and write-off of intangible assets.      8,300             2,500      40,500          3,175
State and foreign income taxes..................................... 1,200             2,300       2,800            821
U.S. tax on distributed and undistributed foreign earnings...        ----              ----      12,300           ----
Tax reserve adjustment.............................................  ----              ----       1,200         (1,200)

Tax  effect  of  pre-reorganization  loss not  available  due to
ownership change...................................................  ----             2,100        ----           ----

Alternative minimum tax............................................ 1,000              ----        ----           ----

Other..............................................................   100              (200)     (2,000)           230

                                                                  $ 4,400          $  3,700    $ 35,000      $   8,400
</TABLE>

     The  Company  adopted  FAS 109 in the  first  quarter  of  fiscal  1994 and
recorded a deferred tax asset of $95 million  representing the federal and state
tax savings  from NOLs and tax credits.  The Company  also  recorded a valuation
allowance  of $60 million  reducing the deferred tax asset to a net $35 million.
Recognition  of the  deferred  tax asset  reduced  goodwill  by $27  million and
provided a cumulative effect increase to income of $8 million.  During 1994, the
net deferred tax asset was reduced to $29 million, reflecting usage of the asset
to reduce income taxes payable by $6 million. During 1995, tax effects of future
differences and carryforwards  increased from $86 million to $108.4 million,  an
increase of $22.4 million resulting from the tax effect of the 1995 taxable loss
($5.6  million)  and the tax  effect  of an  increase  in  cumulative  temporary
differences  ($16.8  million)  between income  reported for financial  reporting
purposes and for tax purposes.  The valuation  allowance was increased  from $57
million  to $108.4  million to reduce  the net  deferred  tax asset to zero as a
result of the  uncertainty  associated  with the  utilization of these assets in
future periods due to the Company's  deteriorating  financial condition prior to
the bankruptcy.


     During 1996, tax effects of future differences and carryforwards  decreased
from  $108.4  million to $85.4  million,  a decrease  of $23  million  resulting
primarily from the tax effect of a reduction in the  Reorganized  Company's NOLs
due  to   cancellation   of  indebtedness  in  connection  with  the  bankruptcy
reorganization  ($24.5  million) and the tax effect of the 1996  taxable  income
($8.5  million)  offset by an increase in tax credits,  principally  foreign tax
credits ($9 million).

     The components of deferred tax assets and liabilities at September 30, 1996
and September 30, 1995 are as follows:
<TABLE>
<CAPTION>

                                                                                    Reorganized Company   Predecessor Company
                                                                                       September 30,         September 30,
Net Deferred Tax Asset (Dollars in thousands)                                              1996                   1995
---------------------------------------------------------------------------------- ---------------------- ---------------------
Tax effects of future tax deductible differences related to:
<S>                                                                                     <C>                    <C>
    Inventory reserves.......................................................           $     7,000            $     5,700
    Depreciation.............................................................                 1,600                  1,700
    Building reserves........................................................                   500                  1,800
    EPA reserve..............................................................                 2,500                  2,500
    Sale/leaseback of assets.................................................                   700                  2,800
    Restructuring activities.................................................                 1,200                  8,000
    Asset sale...............................................................                 2,600                  3,200
    Capitalized software.....................................................                  ----                  1,600
    Bad debt reserve.........................................................                 1,800                  2,100
    Other net deductible differences.........................................                 7,800                  5,500
Tax effects of future differences related to:
    Undistributed foreign earnings...........................................                  ----                 (8,800)
    Leases...................................................................                (2,100)                (3,300)
    Capitalized software.....................................................                (2,700)                  ----
Net tax effects of future differences                                                        20,900                 22,800
Tax effects of carryforward benefits:
    Federal net operating loss carryforwards.................................                47,900                 78,600
    Federal general business tax credits.....................................                 3,600                  3,000
    Foreign tax credits......................................................                13,000                  4,000
Tax effects of carryforwards                                                                 64,500                 85,600
Tax effects of future taxable differences and carryforwards..................                85,400                108,400
Less deferred tax asset valuation allowance..................................               (85,400)              (108,400)
Net deferred tax asset.......................................................         $        ----          $        ----


</TABLE>


     At September 30, 1996, the  Reorganized  Company has NOLs of  approximately
$133  million  available  to offset  future  taxable  income.  This  amount will
increase to $191  million as certain  termporary  differences  reverse in future
periods.  Usage  of  these  NOLS  by  the  Reorganized  Company  is  limited  to
approximately  $4  million  annually.   However,  the  Reorganized  Company  may
authorize  the use of other tax planning  techniques to utilize a portion of the
remaining NOLs before they expire. In any event, the Reorganized Company expects
that substantial amounts of the NOLs will expire unused.

     The Reorganized Company has tax credit carryforwards of approximately $16.6
million.  These tax credits  are  principally  foreign tax credit  carryforwards
resulting  from  inclusion  of  the  accumulated  earnings  and  profits  of the
Reorganized  Company's foreign  subsidiaries in U.S. taxable income in 1996. The
Reorganized Company expects that these credits will expire unused.

     The tax  benefits of  pre-reorganization  net  deferred  tax assets will be
reported first as a reduction of "Reorganization value in excess of identifiable
assets"  and then as a credit to  equity.  These tax  benefits  will not  reduce
income tax expense.



                                       49
<PAGE>

NOTE 18.
COMMITMENTS AND CONTINGENCIES:

     Anacomp has commitments under long-term  operating leases,  principally for
building space and data service center  equipment.  Lease terms  generally cover
periods from five to twelve years.  The following  summarizes the future minimum
lease payments under all noncancelable  operating lease  obligations,  including
the unfavorable  lease  commitments and vacant  facilities  discussed in Note 1,
which extend beyond one year:

             (Dollars in thousands)                   Year ended September 30,
             -----------------------------------------------------------------

             1997.......................................         $ 18,307

             1998.......................................           14,350

             1999.......................................            5,561

             2000.......................................            2,087

             2001.......................................            1,097

             2002 and thereafter........................            7,387

                                                                   48,789

             Lessliabilities  recorded  as of  September  30,  1996  related  to
                 unfavorable lease commitments and future lease costs for vacant
                 facilities ($6,831 reflected in current liabilities) (11,439)

                                                                 $ 37,350

     The total of future  minimum  rentals to be  received  under  noncancelable
subleases  related to the above leases is $1.2  million.  No material  losses in
excess of the liabilities recorded are expected in the future.

     In November 1993, Anacomp and Pennant Systems, a division of IBM, announced
a joint  effort to  develop  software  which will  allow  Anacomp's  XFP 2000 to
process and image IBM Advanced  Function  Presentation  ("AFP")  formatted data.
This  program  resulted  in the XFP 2000 being able to output AFP data  streams,
including  those  containing  fonts,  logos,  signatures and other images,  onto
microfiche.

     As  consideration  for the  development  of the AFP,  Anacomp  paid Pennant
Systems a  development  fee of $6.5  million.  Anacomp was also  required to pay
Pennant  Systems  minimum  annual  royalty  payments  for  the  licensed  system
installations  for six years  and for  ongoing  system  support  which  began in
December  1995 and continued  for 10 years.  As of September  30, 1995,  Anacomp
established a reserve of $7.7 million for future payments to Pennant Systems for
software royalty and systems support  obligations  which were not recoverable as
more fully  discussed  in Note 1. In  connection  with the  Company's  financial
restructuring  during 1996,  this  contract was  renegotiated  with Pennant and,
accordingly,   no  reserve   requirements  exist  at  September  30,  1996.  The
renegotiated  contract  requires  Anacomp to make future license fee payments to
Pennant Systems of $625,000 annually through fiscal year 1999.

     The Company sold $10.5 million and $5.9 million of lease receivables in the
twelve months ended September 30, 1995 and 1994,  respectively.  Under the terms
of the sale, the purchasers  have recourse to the Company should the receivables
prove to be uncollectable.  The amount of recourse at September 30, 1996 is $5.3
million.

     Anacomp also is involved in various  claims and lawsuits  incidental to its
business and  management  believes that the outcome of any of those matters will
not have a material  adverse effect on its  consolidated  financial  position or
results of operations.

NOTE 19.
SUPPLEMENTARY INCOME STATEMENT INFORMATION:
<TABLE>
<CAPTION>

                                                              Reorganized
                                                                Company                   Predecessor Company
                                                            ----------------- ---------------------------------------------
                                                              Four Months     Eight Months Ended    Twelve Months Ended
                                                                 Ended                                 September 30,
                                                                                                  -------------------------
                                                             September 30,         May 31,
(Dollars in thousands)                                           1996               1996            1995         1994

<S>                                                            <C>               <C>               <C>          <C>
    Maintenance and repairs...............................     $   3,505         $   7,243         $ 16,609     $ 12,759
    Depreciation and amortization:
       Property and equipment.............................         3,696             8,573           19,406       17,524
       Deferred software costs............................           297             1,883            3,449        3,673
       Intangible assets..................................        25,853             6,841           13,143       13,418
    Rent and lease expense................................         5,936            13,958           23,755       19,371
</TABLE>

NOTE 20.
OTHER ACCRUED LIABILITIES:
<TABLE>
<CAPTION>

Other accrued liabilities consist of the following:
                                                                             Reorganized     Predecessor
                                                                               Company         Company
(Dollars in thousands)                   September 30,                          1996             1995


<S>                                                                        <C>               <C>
Deferred profit on sale/leaseback transactions...........................  $       ----      $ 14,559
Unfavorable lease commitment related to sale/leaseback transactions......         4,550          ----
EPA reserve..............................................................         6,961         7,350
Software license reserve.................................................          ----         7,672
Other....................................................................        25,303        31,006
                                                                                $36,814      $ 60,587
</TABLE>

     Xidex Corporation,  a predecessor company of Anacomp, was designated by the
United  States   Environmental   Protection  Agency  ("EPA")  as  a  potentially
responsible  party for  investigatory  and cleanup  costs  incurred by state and
federal  authorities  involving  locations  included on a list of EPA's priority
sites for  investigation  and remedial  action  under the federal  Comprehensive
Environmental Response,  Compensation,  and Liability Act. The EPA reserve noted
above   relates  to  its   estimated   liability   for  cleanup  costs  for  the
aforementioned  locations  and other sites.  No material  losses are expected in
excess of the liabilities recorded above.


NOTE 21.
EARNINGS (LOSS) PER SHARE:

     The  computation  of earnings  (loss) per share is based upon the  weighted
average number of common shares  outstanding  during the period plus (in periods
in which they have a dilutive  effect) the effect of common shares  contingently
issuable,  primarily from stock options and exercise of warrants.  Fully diluted
earnings  (loss) per share also  reflect  additional  dilution  related to stock
options due to the use of the market price at the end of the period, when higher
than the average price for the period.  For the four months ended  September 30,
1996, only primary  earnings per share is presented due to the loss reported for
the period.

     The weighted  average  number of common shares  outstanding  and net income
(loss)  per  common  share  for  periods  prior  to May 31,  1996  have not been
presented  because,  due to the Reorganization and implementation of Fresh Start
Reporting, they are not comparable to subsequent periods.

                                       50
<PAGE>

     The weighted average number of common and common  equivalent shares used to
compute earnings per share is:

Four Months Ended September 30,                                    1996


Common and common equivalent shares.......................       10,033,576

NOTE 22.
INTERNATIONAL OPERATIONS:

     Anacomp's  international   operations  are  conducted  principally  through
subsidiaries,  a substantial  portion of whose operations are located in Western
Europe.  Information as to U.S. and international operations for the four months
ended  September  30,  1996,  the eight months ended May 31, 1996 and the twelve
months ended September 30, 1995 and 1994 is as follows:

Four Months Ended September 30, 1996 - Reorganized Company
<TABLE>
<CAPTION>

(Dollars in thousands)                                    U.S.           International       Elimination        Consolidated
--------------------------------------------------- ------------------ ------------------ ------------------ -------------------
<S>                                                      <C>                <C>           <C>                     <C>
Customer sales.................................          $102,733           $ 48,809      $         ----          $151,542

Inter-geographic...............................             4,449               ----             (4,449)              ----
Total sales....................................          $107,182           $ 48,809      $      (4,449)          $151,542
Operating income...............................          $(12,401)          $  6,637      $        ----         $   (5,764)
Identifiable assets............................          $390,088           $ 45,333      $        ----           $435,421
</TABLE>


<TABLE>
<CAPTION>
Eight Months Ended May 31, 1996 - Predecessor Company

(Dollars in thousands)                                    U.S.           International       Elimination        Consolidated
--------------------------------------------------- ------------------ ------------------ ------------------ -------------------
<S>                                                      <C>                <C>           <C>                     <C>     
Customer sales.................................          $227,742           $106,856      $         ----          $334,598

Inter-geographic...............................            12,592               ----            (12,592)              ----
Total sales....................................          $240,334           $106,856         $  (12,592)          $334,598
Operating income...............................          $ 34,990           $  6,615      $         ----         $  41,605
</TABLE>


<TABLE>
<CAPTION>
Twelve Months Ended September 30, 1995 - Predecessor Company

(Dollars in thousands)                                    U.S.           International       Elimination        Consolidated
--------------------------------------------------- ------------------ ------------------ ------------------ -------------------
<S>                                                    <C>                 <C>             <C>                  <C>
Customer sales.................................        $  404,239          $ 186,950       $       ----         $  591,189

Inter-geographic...............................            24,973               ----            (24,973)              ----
Total sales....................................        $  429,212          $ 186,950          $ (24,973)        $  591,189
Operating income (loss)........................        $ (135,811)         $   7,622      $        ----         $ (128,189)
Identifiable assets............................        $  350,310          $  70,719      $        ----         $  421,029
</TABLE>

<TABLE>
<CAPTION>

Twelve Months Ended September 30, 1994 - Predecessor Company

(Dollars in thousands)                                    U.S.           International       Elimination        Consolidated
--------------------------------------------------- ------------------ ------------------ ------------------ -------------------
<S>                                                    <C>                 <C>             <C>                  <C>
Customer sales.................................        $  421,339          $ 171,260       $       ----         $  592,599
Inter-geographic...............................            23,726               ----            (23,726)              ----
Total sales....................................        $  445,065          $ 171,260       $    (23,726)        $  592,599
Operating income...............................        $    60,794         $  18,783       $       ----         $   79,577
Identifiable assets............................        $  590,743          $  67,896       $       ----         $  658,639
</TABLE>

                                       51
<PAGE>

NOTE 23.
QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>

                                                                 Predecessor Company                    Reorganized Company
                                                    ---------------------------------------------- ------------------------------
                                                                                      Two Months     One Month
                                                                                        Ended          Ended
(Dollars in thousands, except per share amounts)        First           Second           May         June 30,     Fourth Quarter
                                                       Quarter          Quarter          31,           1996
                                                                                         1996
--------------------------------------------------- --------------- ---------------- ------------- -------------- ---------------
Fiscal 1996
<S>                                                      <C>             <C>             <C>           <C>            <C>
Revenues.......................................          $130,265        $125,911        $ 78,422      $ 36,786       $114,756
Gross profit...................................            40,666          40,411          23,903        11,895         37,692
Income (loss) before extraordinary credit......             1,053         (10,731)        122,206        (4,372)       (17,637)
Extraordinary credit:
Gain on discharge of indebtedness..............              ----            ----          52,442          ----           ----
Net income (loss)..............................             1,053         (10,731)        174,648        (4,372)       (17,637)
Preferred stock dividends and discount
    accretion..................................     --------------  ---------------  ------------  -------------  --------------
                                                              540            ----            ----          ----           ----
Net income (loss) available to common
    stockholders...............................
                                                       $      513        $(10,731)       $174,648      $ (4,372)      $(17,637)
Earnings per common share (primarily and fully diluted):
Net loss available to common
    stockholders...............................
                                                                                                        $ (.44)         $ (1.75)

</TABLE>
<TABLE>
<CAPTION>
                                                            First          Second                          Third         Fourth
                                                          Quarter         Quarter                        Quarter        Quarter
                                                    --------------- ----------------               -------------- ---------------
Fiscal 1995 - Predecessor Company
<S>                                                      <C>             <C>                           <C>            <C>
Revenues.......................................          $151,812        $151,489                      $ 148,933      $ 138,955
Gross profit...................................            49,406          45,945                         45,931         32,482
Net income (loss)..............................               281          (7,664)                      (138,829)       (92,114)
Preferred stock dividends and discount
    accretion..................................               540             539                            540            539

Net loss to common stockholders................        $     (259)      $  (8,203)                     $(139,369)    $  (92,653)

</TABLE>


                                       52
<PAGE>

NOTE 24.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES:

     The  following  is a summary of activity  in the  Company's  valuation  and
qualifying  accounts and reserves for the periods  ended  September 30, 1996 and
May 31, 1996 and for the twelve months ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>

                                                     Balance at      Charged to                    Balance at
                                                    beginning of     costs and                    end of period
Description                                            period         expenses     Deductions
--------------------------------------------------- -------------- --------------- -------------- --------------

(Dollars in thousands)

Four Months Ended September 30, 1996 - Reorganized Company
<S>                                                 <C>            <C>             <C>            <C>

    Allowance for doubtful accounts............     $    7,464     $      388      $   1,393[1]   $    6,459

Eight Months Ended May 31, 1996 - Predecessor Company


    Allowance for doubtful accounts............     $   7,367      $      253      $    156[1]    $   7,464

Twelve months ended September 30, 1995 - Predecessor Company


    Allowance for doubtful accounts............     $    3,550     $    4,670      $     853[1]   $    7,367

Twelve months ended September 30, 1994 - Predecessor Company



    Allowance for doubtful accounts............     $    4,245     $     (268)     $     427[1]   $    3,550

[1]      Uncollectable accounts written off, net of recoveries.

</TABLE>

                                       53
<PAGE>

NOTE 25.
RIGHTS OFFERING:

     On October  30,  1996,  the  Company  completed  a rights  offering  to its
existing  shareholders  resulting in the  issuance of 3.6 million  shares of new
common stock. For each share of Anacomp new common stock held as of the close of
business on September 18, 1996, the Company  distributed 0.36 rights to purchase
additional  shares of new  common  stock at a  subscription  price of $6.875 per
share. The Company will use the proceeds of the rights  offering,  approximately
$25 million, for the acquisition of businesses, assets and technologies.

NOTE 26.
SUBSEQUENT EVENTS (Unaudited):

     On November 20, 1996, the Company  reached  agreement with Lehman  Brothers
for the  refinancing  of the Company's  11-5/8%  Senior  Secured  Notes.  Lehman
Brothers has agreed to  underwrite  a new $115 million debt  facility to replace
the existing  Senior  Secured  Notes,  which had a balance  outstanding of $97.9
million at September 30, 1996. The new debt facility will consist of $90 million
in term loans and a revolver of up to $25 million.  The refinancing requires the
consent  of  Anacomp's  13%  Senior   Subordinated   Noteholders.   The  consent
solicitation period ends January 17, 1997.

     Subsequent to September 30, 1996,  the company  acquired the customer bases
and other specified assets of three businesses:  Archive Storage,  Inc. ("ASI"),
Precision  Data  Services,  Inc.  ("PDS") and Integra  Technologies  Corporation
("ITC").

     ASI is a Massachusetts company that specializes in the long-term storage of
critical business records.  The ASI purchase price consisted of $180,000 cash at
closing,  the  assumption of a $70,000 debt  obligation,  and a contingent  cash
payment  of up to  $500,000  based  on  future  earnings  of  Anacomp's  storage
business.

     PDS is a service  bureau in New York  specializing  in  Computer  Output to
Microfilm ("COM"). The PDS purchase price was $1.7 million cash at closing.

     ITC is a Massachusetts  company that provides maintenance services relating
to ITC equipment  sold for the cleaning,  testing,  certifying and degaussing of
computer tape. The ITC purchase price consisted of $1.5 million cash at closing,
the assumption of a $600,000 deferred revenue  liability,  and a contingent cash
payment of up to $2.7 million based on future revenues of the ITC business.


                                       54
<PAGE>