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Other 143 416 331
Anacomp




Working capital provided by operations 8,316 16,673 7,986
Working capital provided by extraordinary credit 742 ” ”
Dispositions of property and equipment 702 218 2,001
Decrease in investment in Computer
Micrographics, Inc. ” ” 1,733
Long-term debt incurred 55,680 43,636 7,158
Issuances of common stock 2,236 4,813 28,371
Other 3,224 1,024 (84)
70,900 66,364 47,165

Working capital was applied to:
Additions to property and equipment 11,172 3,533 5,171
Excess of purchase price over net assets of businesses
acquired 19,791 4,172 18,900
Noncurrent assets of companies acquired in
purchase transactions 5,315 1,088 4,593
Noncurrent liabilities of businesses acquired in
purchase transactions (2,892) (1,040) (2,199)
Purchase of computer software systems 20,014 1,734 ”
Increase in investments 6,099 4,806 2,027
Increase in other assets 4,441 1,977 4,443
Reduction of long-term debt 3,900 4,693 6,911
Cash dividends declared 1,111 956 693
68,951 21,919 40,539
$ 1,949 $44,445 $ 6,626
(continued)
747
Case: Anacomp, Inc.




17
Part 4 Additional Cases




Year Ended June 30
.....................................................

(dollars in thousands) 1982 1981 1980
......................................................................................................................................

Increase in working capital represented by:
Increase (decrease) in current assets:
Cash (including temporary investments) $5,127 $24,649 $1,484
Accounts and notes receivable 2,068 6,841 8,333
Unbilled revenues 2,671 7,283 5,605
Inventories 1,455 513 1,383
Deferred CIBS development costs 5,647 ” ”
Prepaid expenses 6,623 2,714 448
Decrease (increase) in current liabilities:
Notes payable (14,000) 4,000 (3,250)
Current portion of long-term debt (548) 791 (315)




Anacomp
Accounts payable 636 (1,022) (4,716)
Accrued salaries, wages and bonuses (741) (1,185) (683)
Accrued interest payable (3,382) (1,639) (48)
Income taxes 419 1,162 286
Other accrued liabilities (4,026) 338 (1,901)
Increase in working capital $ 1,949 $44,445 $6,626
......................................................................................................................................
The accompanying notes are an integral part of the consolidated financial statements.
748 Case: Anacomp, Inc.




18 Part 4 Additional Cases




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Anacomp, Inc. and Subsidiaries
(dollars in thousands, except per share amounts)


Note 1. Summary of Signi¬cant Accounting Policies

Consolidation
The consolidated ¬nancial statements include the accounts of Anacomp, Inc. (“Ana-
comp”) and its majority-owned subsidiaries except Anacomp Leasing Company, Inc., an
immaterial wholly-owned subsidiary, which is re¬‚ected in the equity method in the accom-
panying ¬nancial statements. Intercompany transactions have been eliminated. Certain
amounts in the 1981 and 1980 ¬nancial statements have been reclassi¬ed to conform to
the 1982 presentation.
Anacomp




Revenue Recognition

Revenues are generally recognized as follows:
(1) Data preparation, data processing, facility management and computer output
micro¬lm (“COM”) services and sales are recognized as the services are per-
formed or products are shipped.
(2) Revenues from granting perpetual licenses of existing software systems which do
not require substantial modi¬cation are recognized at the time the license
agreement is executed, if collectibility is reasonably assured and the software
system is delivered to the customer.
(3) Revenues from contracts for development and/or modi¬cations to existing soft-
ware systems are recognized under methods which approximate the percent-
age-of-completion method, except for revenues from development contracts
with certain limited partnerships which are reported on the completed contract
method, other than immaterial amounts reported for 1980 (see Note 3). Losses
on such contracts are recognized when identi¬ed.
Revenue recognized under items (2) and (3) may precede the date at which the cus-
tomer may be billed pursuant to the contract terms. Substantially all unbilled revenue is
collected in the year subsequent to the year revenue is recognized.
The subject of revenue recognition for development contracts with limited partner-
ships including certain arrangements described in (3) above is presently under review by
the Financial Accounting Standards Board (FASB). Anacomp will comply with any State-
ment of Financial Standards issued by the FASB. In April, 1982, the FASB issued an expo-
sure draft entitled “Research and Development Arrangements.” Anacomp believes that it
is in substantial compliance with the exposure draft, and that approval of the draft by the
FASB would not result in an adjustment to the amounts presented in the ¬nancial state-
ments.
749
Case: Anacomp, Inc.




19
Part 4 Additional Cases




Inventories

Inventories are stated at the lower of cost or market, cost being determined primarily
on the speci¬c identi¬cation basis. The cost of the inventories is distributed as follows:

June 30
................................................
1982 1981 1980
.........................................................................................................................

Equipment held for resale $3,084 $1,899 $1,315
Operating supplies 1,385 1,115 1,186
$4,469 $3,014 $2,501
.........................................................................................................................


Purchased Computer Software Systems




Anacomp
Purchased computer software systems held for licensing to others are earned at cost
less accumulated depreciation. Depreciation is recorded over the estimated marketing
lives of the software, and is computed based on the greater of the amount calculated
using either a percent-of-revenue or the straight-line method. The percent-of-revenue
method is based on the total estimated future revenues expected to be derived from sales
of the software, while straight-line depreciation is provided using estimated marketing
lives of ¬ve to ten years.

Amortization of Excess Purchase Price over Net Assets

Excess of purchase price over net assets of business acquired is amortized on the
straight-line method over the estimated useful life, currently ranging from ¬ve to twenty
years, if determined, and over 40 years if life is indeterminate.

Earnings per Share

The computation of earnings per common and common equivalent share is based
upon the weighted average number of common shares outstanding during the year plus
(in years in which they have a dilutive effect) the effect of common shares contingently
issuable, primarily from stock options, conversion of subordinated debentures issued dur-
ing ¬scal 1981 and, for 1980, common shares purchased in July 1980, in connection
with an employment agreement (see Note 13). Interest expense, net of taxes, on the sub-
ordinated debentures is added to net income in the computation of earnings per common
and common equivalent share.
The fully diluted per share computation re¬‚ects the effect of common shares contin-
gently issuable upon conversion of each convertible subordinated debenture outstanding
in years in which such conversions would cause dilution. Interest expense, net of income
taxes, on the debentures assumed to be converted is added to net income in the compu-
tation of fully diluted earnings per share. Fully diluted earnings per share also re¬‚ects
additional dilution related to stock options due to the use of the year-end market price,
when higher than the average price for the year.
750 Case: Anacomp, Inc.




20 Part 4 Additional Cases




The weighted average number of common and common equivalent shares used to
compute earnings per share is 9,281,640, 9,425,788 and 6,624,955 for 1982, 1981
and 1980, respectively. The average number of shares used to compute earnings per
common share assuming full dilution is 9,667,794, 11,457,335 and 7,149,132 for the
respective years. The numbers of shares for all years are adjusted for all stock splits and
stock dividends declared.

Vacation Pay

In November 1980, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 43 (SFAS No. 43), “Accounting for Compensated
Absences,” which requires the accrual of vacation pay earned but not taken. The provi-
sions of SFAS No. 43 require the restatement of prior periods and therefore the cumula-
tive effect as of July 1, 1979, is shown as an adjustment to retained earnings at that date.
The effect of this change was to reduce net income by $97 ($.01 per share) in 1982, $72
($.01 per share) in 1981 and $273 ($.03 per share) in 1980.
Anacomp




Note 3. Major Software Products and Related Party Transactions

CIS

In June 1982, Anacomp purchased for $16,000 a major new computer software sys-
tem called CIS (Continuous Integrated System) developed by Anacomp for RTS Associates
(“RTS”), a limited partnership formed in 1979. Several of¬cers and directors of Anacomp
who are af¬liated with RTS™s general partner are also investors in RTS, aggregating
approximately 39% of the combined general and limited partnership units. The remain-
ing partnership interests are owned by persons not af¬liated with Anacomp. Anacomp
contracted to develop the system on a best-efforts basis, and RTS agreed to pay a devel-
opment fee of $6,000, of which $4,750 was paid through 1981, and an additional
$1,250 during 1982. RTS paid Anacomp an additional $1,500 after actual costs to Ana-
comp exceeded $6,000. Anacomp had previously loaned $2,200 to RTS, personally
guaranteed by the limited partners, and loaned the additional $1,500 as provided for in
the development agreement. RTS paid all such loans in full out of the proceeds of the sale
of the CIS system.
Concurrent with the development of CIS for the RTS partnership, a complimentary
project was being developed for four CIS Primary Development Banks. Each bank com-
mitted $1,500 to fund modi¬cations of the CIS project to conform to their speci¬c
requirements and thereby obtained a nonexclusive license to CIS as so modi¬ed. Under
the terms of the Primary Development Bank agreements, 10% of any revenue from licens-
ing CIS to others will accrue to each of the banks until such time as their entire $1,500
development fee has been recovered. At June 30, 1982, seven other banks had entered
into, or committed to enter into, license agreements for CIS.
During 1981 and 1982, twenty major banks contracted with Anacomp to participate
as Advisory Development Banks on the CIS project for a nonrefundable fee of $150. The
fee permits each bank to review the project during development and provide input, which
is not binding to Anacomp, regarding changes which would enhance the marketability of
CIS. Anacomp defers a portion of this fee which will be recognized as services are pro-
vided to the participating banks throughout the terms of their contracts.
751
Case: Anacomp, Inc.




21
Part 4 Additional Cases




EFT

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