Comparison Of Results Of The Third Quarter Ended September 30, 2002 With The Third Quarter Ended September 30, 2001.

Sales

Sales decreased by $2.0 million or 3.7% from 2001. Exchange rate devaluation resulted in net decreased revenues of approximately $6.5 million, resulting from devaluation decreases of $5.3 million attributable to Brazil and $2.4 million to Argentina, which were partly offset by appreciation increases of $1.0 million in Australia and $0.2 million in France. After giving effect to the above net devaluation, sales increased by $4.6 million in constant dollars as a result of higher sales in Brazil of $2.5 million, Argentina of $1.2 million, Australia of $1.2 million and the United States of $0.3 million, partly offset by lower sales in France of $0.6 million. The net increase in sales in constant Dollars is discussed in detail by subsidiary below.

The increase of $0.3 million in sales in the United States was due to $1.8 million in increased sales from food coupons (including distribution) primarily related to the timing of orders placed within each year based on the requirements of the USDA and $0.1 million in higher revenue generated primarily from ABN’s distribution and fulfillment program with the USPS. These increases were partly offset by $1.0 million in lower stock and bond sales, $0.4 million in decreased sales of secure government print, which resulted primarily from a one-time sales return of $0.5 million related to a misprint on a foreign passport order, and $0.2 million in lower secure commercial sales. The continued trend toward next day settlement of securities, the decreasing overall demand for secure paper-based documents of value that are used in the public and private sector and the recent oral notification by the USDA that it did not anticipate the need to place any future orders for food coupons during the remaining term of the agreement, are expected to have a negative effect on the future mix of sales and gross margins at ABN. For further information regarding USDA food coupon sales see "Liquidity and Capital Resources."

Sales in Australia at LM in constant Dollar terms were $1.2 million higher when compared to the prior year. The increase was primarily due to $2.8 million in new revenues generated in the third quarter from LM’s introduction of its mail aggregation business. This increase was partially offset by a decline of $0.8 million in SPS sales mainly resulting from $0.6 million in lower sales due to decreases in check usage and check prices received from banks, and a decline of $0.2 million in passport sales resulting from the government’s decision not to renew the passport contract with LM. It is anticipated that the downward trend on checks and passports will continue throughout the balance of the year. LM also experienced a decline in sales of TCS products of approximately $0.8 million resulting from the loss of a phone card contract to a competitor and a reduction in export sales to China as a result of a change in Chinese banking regulations which curtailed the importation of cards. In addition, higher card sales were generated last year as a result of the merger of certain banks and the issuance of certain loyalty card programs which did not occur this year.

At Transtex, TCS sales in constant Dollar terms increased by $1.2 million despite the severe and ongoing economic recession, which continues to negatively impact Argentina. The increase was primarily due to an increase in orders placed on prepaid telephone cards, an increase in card personalization volumes and higher pricing received on bank debit and credit cards. In addition, the favorable exchange rate has allowed Transtex to be more competitive with foreign suppliers. Despite this temporary improvement in sales in the third quarter, there is no guarantee that this trend will continue as credit markets in Argentina continue to remain highly volatile such that the overall trend in card usage remains uncertain.

In France, the decrease of $0.6 million in TCS sales at CPS in constant Dollar terms was principally due to $1.0 million in lower phone card sales resulting from an overall weakness in the telecommunications market partly offset by an increase of $0.4 million due to stronger demand for bank and other financial cards.

Sales at ABNB in Brazil in constant Dollar terms were $2.5 million higher than in 2001. The net increase is attributable to higher SPS and PSDM sales of $2.2 million and $0.3 million, respectively. The $2.2 million increase in SPS sales results primarily from an increase in driver’s license revenues of $1.6 million due to higher volumes and incremental revenue generated from adding fingerprint identification on driver’s licenses. In addition, an increase in sales of checks and electronic print of $0.6 million resulted from new business received from telephone and banking customers. The increase in PSDM sales of $0.3 million primarily relates to the timing of orders placed by ABN’s minority interest holder Bradesco Bank. TCS sales remained unchanged for the third quarter as higher volumes on credit and debit card issuances were completely offset by lower prices on phone card sales.

Cost of Goods Sold

Cost of goods sold decreased $2.5 million or 6.6% as compared to 2001, with a corresponding increase in gross margins of $0.6 million. The impact of exchange rate devaluation resulted in decreased cost of goods sold and gross margins of approximately $3.7 million and $2.8 million, respectively. The net effect of devaluation by country on cost of goods sold and gross margins respectively was as follows: Brazil - $3.5 million and $1.8 million and Argentina - $1.2 million and $1.2 million. The devaluation in these countries was partly offset by an appreciation with regard to Australia’s currency which resulted in an increase in costs of goods sold and gross margins of $0.8 million and $0.2 million, respectively and with regard to France, the appreciation in the Euro which resulted in an increase in cost of goods sold and gross margins of $0.1 million and nil respectively.

After giving effect to the above net devaluation, cost of goods sold in constant Dollars increased by $1.2 million, which resulted primarily from the increase in sales discussed above, partly offset by a reduction in costs and a favorable change in product mix. As a result, gross margins in constant Dollars increased by approximately $3.4 million when compared to the prior year. The net decrease in cost of goods sold in constant Dollars is discussed in detail by subsidiary below.

As a percentage of sales, cost of goods sold decreased to 70.3% in 2002 as compared to 72.5% in 2001. A comparison of the percentage of cost of goods sold by each of the Company's geographic locations to the prior year is as follows:

                                    Third Quarter Ended September 30,
                                    ---------------------------------
                                     2002               2001
                                     ----               ----

           Brazil                    65.8%              75.0%
           Australia                 79.2%              75.3%
           United States             65.8%              59.5%
           Argentina                 48.6%              66.9%
           France                    78.9%              77.6%

Cost of goods sold at ABNB in Brazil decreased by $0.8 million from 2001, with a corresponding increase in gross margins of $3.3 million. Cost of goods sold as a percentage of sales decreased by 9.2% when compared to 2001. The decrease in cost of goods sold in constant Dollar terms was directly attributable to a reduction in costs of $0.3 million resulting from a change in the phone card production process, a $0.3 million reduction attributable to higher credit and debit card volumes and a one-time value added tax credit in the third quarter of 2002 received on PSDM and SPS electronic print material costs totaling approximately $3.5 million. These decreases were partly offset by $1.8 million in higher costs due to the increase in sales discussed above and $1.5 million in higher costs due to changes in product mix resulting primarily from higher cost, lower margin SPS electronic print and PSDM sales.

Costs of goods sold at LM in Australia increased by $1.5 million and resulted in a decrease in gross margins of $0.3 million when compared to the prior year. As a percentage of sales, cost of goods sold increased by 3.9% when compared to the prior year. The increase in cost of goods sold in constant Dollar terms was due to higher variable costs of approximately $1.1 million resulting from a change in product mix with lower costs and higher margin TCS and SPS business being replaced with the introduction of the higher cost and lower margin mail aggregation business and $0.6 million resulting from higher variable costs due to increased sales. These increases were partly offset by reductions in fixed overhead of $0.2 million resulting from the cost savings and profit improvement programs initiated both this year and last year.

Cost of goods sold at ABN in the United States increased by $0.7 million and resulted in a decrease in gross margins of $0.4 million when compared to the prior year. As a percentage of sales, cost of goods sold increased by approximately 6.3% when compared to the prior year. The increase in costs was primarily due to a change in product mix as higher cost, lower margin USPS and USDA sales replaced lower cost higher margin stock and bond sales. In addition gross margins were further reduced by a one-time sales credit of $0.5 million related to a misprint on a foreign passport order.

In Argentina, cost of goods sold at Transtex in constant Dollar terms was approximately $0.2 million higher than in 2001, which resulted in an increase in gross margins of $1.0 million. As a result, cost of goods sold as a percentage of sales decreased by 18.3% over the prior year. This improvement was primarily the result of higher margins generated as a result of higher prices received from customers on bank and debit cards and reductions in material and personnel costs. In light of the severe ongoing economic crisis in Argentina, there is no guarantee that this improved trend will continue.

At CPS in France, cost of goods sold in constant Dollar terms was $0.5 million lower when compared to 2001 resulting in a decrease in gross margins of $0.1 million. As a percentage of sales, cost of goods sold increased by approximately 1.3% from 2001 primarily due to higher fixed overhead in the areas of facility and insurance premium costs.

Selling and Administrative Expenses

Selling and administrative expenses decreased by $0.9 million when compared to 2001. The impact of exchange rate devaluation accounts for an approximate $0.7 million decrease in expense, resulting from a devaluation of $0.4 million and $0.5 million in Brazil and Argentina, respectively, offset by an appreciation in Australia of $0.2 million. As a result, the net decrease in selling and administrative expense from the prior year in constant Dollars is $0.2 million. The net decrease primarily resulted from reduced selling expenses at ABN of $0.2 million due to lower commissionable sales, a reduction at LM of $0.4 million due to a decrease in salaries and lower professional fees of approximately $0.3 million at the Parent. These decreases were partially offset by a $0.3 million increase at Transtex primarily related to severance costs associated with downsizing Argentina, an increase of $0.3 million at ABNB due to a one-time value added tax credit received in 2001 and a $0.1 million increase in France due to higher personnel costs. As a result of the above, selling and administrative expenses as a percentage of sales were lower at 14.2 % in 2002 as compared to 15.5% in 2001.

Restructuring

The restructuring charge of $0.1 million for the third quarter of 2002 represents termination payments to employees in connection with the LM Restructuring for the purpose of consolidating its manufacturing operations (See Note F to the Company’s Consolidated Financial Statements provided herein for further information).

Goodwill and asset impairment

Goodwill and asset impairment in 2002 represents the write-down of $25.4 million consisting of a $25.2 million write-down of LM’s entire goodwill balance as of September 30, 2002 and a $.02 million reserve with respect to the carrying value of certain equipment at ABN dedicated to the production of food coupons. The impairment of goodwill at LM in accordance with SFAS No. 142 is due to the Parent’s concerns surrounding the potential uncertainty of restructuring LM’s high level of indebtedness and the availability of sufficient capital to significantly grow and/or restructure its business. The equipment impairment at ABN results from the oral notification received from the USDA that it did not anticipate that further printing orders would be placed for food coupons. (See Note G to the Company’s Consolidated Financial Statements and Item 2 "Liquidity and Capital Resources" provided herein for further information).

Goodwill and asset impairment in 2001 represents a $0.6 million write down at ABN in the third quarter of 2001 on the carrying value of certain equipment and leases resulting from its exit of the currency business. (See Note G to the Company’s Consolidated Financial Statements provided herein for further information).

Depreciation Expense

Depreciation and amortization expense was $0.7 million lower when compared to 2001. Exchange rate devaluation accounts for approximately $0.3 million of this decrease, resulting in a net decrease of $0.4 million in constant Dollars. This decrease was primarily the result of the elimination of goodwill amortization in accordance with SFAS 142, "Goodwill and Other Intangible Assets", of approximately $0.4 million partly offset by an increase in depreciation expense of $0.2 million primarily attributable to capital expenditures in Brazil.

Interest Expense

Interest expense was approximately $0.5 million higher when compared to 2001. Exchange rate devaluation accounts for a decrease of approximately $0.1 million resulting in a net increase of $0.6 million in constant Dollars. This increase resulted primarily from $0.3 million in additional accrued interest payable in kind on the Parent’s U.S. Dollar denominated public debt to be restructured upon consummation of the Parent’s plan of reorganization, and the reversal in 2001 of $0.6 million in accrued interest in connection with a state and local tax reserve no longer required. This increase was partly offset by a reduction of $0.2 million in interest expense as a result of the amendment to LM’s debt agreement and a reduction of $0.1 million at ABNB due to lower borrowings.

Other, Net

Other net for the third quarter of 2002 was approximately $0.3 lower when compared to 2001. Exchange rate devaluation accounts for an increase of approximately $0.2 million resulting in a net decrease of $0.5 million in constant Dollars. The decrease in net expense is primarily due to higher interest income resulting from the Company’s higher overall cash position.

Bankruptcy Costs

Bankruptcy costs increased by $0.5 million when compared to 2001 principally due to additional administrative costs associated with work done related to the Fourth Plan. Additional administrative expenses will be required to complete the Consummation of the Parent’s plan of reorganization, which are anticipated to be reasonable and customary to complete the reorganization process.

Taxes on Income

Taxes on income are calculated using the effective tax rate for each tax jurisdiction and various assumptions such as state and local taxes and the utilization of foreign taxes in the U.S. The effective tax rate is further adjusted for any permanent differences between the book basis and tax basis of assets and liabilities. In addition, the Company has provided a valuation allowance against its U.S. net operating losses and other U.S. deferred tax assets due to the uncertainty as to the realization of U.S. taxable income in the future.

Minority Interest

Minority interest represents the 22.5% minority interest in ABNB held by Banco Bradesco.

Liquidity and Capital Resources

Summary of Cash Flows. Cash flow increased by $2.4 million in the first nine months of 2002 compared to a decrease of $1.3 million in the comparable period of 2001. This $3.7 million positive variance resulted principally from the following:

Short-Term Borrowings. At September 30, 2002, the Company’s subsidiaries had approximately $1.8 million outstanding under their respective short-term credit facilities. The Company’s domestic subsidiary, ABN, has a one-year $2 million asset based working capital facility, pursuant to an agreement executed in March 2002 with a local bank in Tennessee, that became effective on July 8, 2002 and replaced its prior facility. Under the terms of the agreement, ABN has the right to renew the facility for two additional years. At September 30, 2002, ABN had approximately $2 million of borrowing base availability under its credit facility of which $0.3 million was used for outstanding letters of credit leaving approximately $1.7 million unused and available for borrowing. The Company’s Brazilian subsidiary, ABNB, had $0.4 million of short-term borrowings at September 30, 2002 in connection with various equipment purchases. The Company’s French subsidiary, CPS, had approximately $1.1 million available and unused under its working capital revolving credit facility at September 30, 2002, with no borrowings against the facility since that date. The Company’s Australian subsidiary, LM, has a working capital and letter of credit facility of approximately $3.1 million with a local bank collateralized by LM’s banking syndicate. At September 30, 2002, LM had used approximately $1.4 million for general working capital purposes and $0.3 million for outstanding letters of credit under the line, leaving approximately $1.4 million available under the line. Availability under the LM line fluctuates within any particular month based on the timing of receipts and payments. Management believes that LM should generate sufficient cash flows from operations to meet its operating needs. Only if actual operating results fall significantly short of projections will LM experience severe liquidity problems. The Company’s Argentine subsidiary, Transtex, had no borrowings outstanding at September 30, 2002 and as a result of overall credit tightening by the banks in Argentina, no further credit terms are believed to be available at this time. Although Transtex is currently generating sufficient cash flows from operations to meet its costs, due to the ongoing severe recession in Argentina, management cannot predict whether or not Transtex will experience liquidity problems in the near future. However, due to its relatively small contributions to the Company’s consolidated revenues, any liquidity problems at Transtex would not likely have a material adverse impact on the Company.

Long-Term Debt. The Parent’s long-term debt subject to compromise (excluding accrued interest) consists of $56.5 million on its 10 3/8% Senior Secured Notes due June 1, 2002 ("the 10 3/8% Senior Secured Notes"), $95.0 million on its 11 ¼% Senior Subordinated Notes due December 1, 2007 (the "11 ¼% Senior Subordinated Notes"), $8.0 million on its 11 5/8% Senior Unsecured Notes due August 1, 2002 ("the 11/5/8% Senior Unsecured Notes"), and $3.7 million on its Zero Coupon Convertible Subordinated Notes due August 2, 2002 and November 25, 2002. Accrued and default interest accumulated through July 31, 2002 of $21.4 million on the 10 3/8% Senior Secured Notes and $3.9 million on the 11 5/8% Senior Unsecured Notes along with additional consent and conversion fees which will be paid in kind in the form of additional 10 3/8% Senior Secured Notes upon Consummation of the Fourth Plan. See Part II, Item 2, "Changes in Securities" for further information relating to changes to the Parent’s long-term debt occurring October 1, 2002 pursuant to the Fourth Plan.

Long-term debt of subsidiaries includes $43.4 million of LM’s senior and subordinated non-recourse debt (the "LM debt"), $1.1 million of which is considered short-term and payable on June 26, 2003 in accordance with the amended agreement, and $0.7 million of mortgage and other indebtedness.

On June 26, 2001, the LM debt was amended, extending the maturity date of the loan for three years, along with an interest rate reduction equal to approximately 50% of its original interest rate on the borrowings. The amended agreement requires LM to make a $1.1 million principal repayment on the second anniversary of the amendment with the balance of the loan maturing on June 24, 2004. In exchange for these amendments and the return of a 5% equity interest granted to the banking syndicate in 2000, the banking syndicate will receive approximately ten percent (10%) of LM’s equity which will vest over a period of time. As of September 30, 2002, approximately 8.7% of this equity vested to the banking syndicate. As a condition to the amendment, the Parent made a capital contribution of $1.2 million to LM in June 2001. LM is presently in compliance with its covenants under the LM debt agreement. However, the Parent has grown concerned about LM’s present capital structure, and its ability to repay the loan upon its maturity. Therefore, the Parent, LM and LM’s banking syndicate have informally held discussions concerning a further restructuring, refinancing and or re-capitalization of the LM bank debt in advance of the loan maturity date. These discussions continue to be ongoing and while previous negotiations among the parties have resulted in satisfactory refinancing amendments in the past, there is no certainty that these discussions will be satisfactorily concluded. In the event that these discussions are not satisfactorily concluded, LM may not be able to continue as a going concern.

Notification by the USDA

In the third quarter of 2002, ABN was notified orally by the USDA, that it did not anticipate the need to place any further purchase orders for the production of food coupons for the remainder of the term of its requirements contract with ABN, which is scheduled to expire on September 30, 2003. As a result, ABN has taken a third quarter restructuring charge of $0.2 million which represents the write-down of the carrying value of certain equipment specifically dedicated to this contract. In light of the above food coupon volume reductions, ABN is presently evaluating its current facility and capacity needs in order to assess if any further plant restructurings will be required in the future. Food coupon sales to the USDA (including distribution) represent a significant part of ABN’s total sales and gross margins which were $6.8 million and $3.7 million, respectively, for the nine months ended September 30, 2002 (approximately 27% and 36%, respectively). The reduction in operating margins from food coupon sales will have a direct and significant effect on the cash flow of ABN as well as the level of dividends that will be available to the Parent. Although, based on current estimates, it is anticipated that dividends from ABN along with those of ABNB will be sufficient to fund the Parent’s operating expense in the future, no assurance can be made that further devaluation of the Real or other business developments will not lead to a contrary result.

Chicago Lease

In November 2002, ABN was notified by a subtenant which subleases an ABN leased facility in Chicago that it will exercise its rights under the early termination clause of its sublease agreement with ABN.  Under the terms of its sublease, the subtenant has the right to terminate early in exchange for continued monthly rental payments through December 31, 2003 totaling $0.6 million and a one-time early termination fee of $0.3 million to be paid on December 31, 2003.  ABN’s prime lease with its landlord with respect to the Chicago facility is scheduled to expire on December 31, 2009 with annual lease payments during the period of approximately $0.6 million per year.  While ABN will begin to explore the possibility of leasing the facility to a new tenant, there is no assurance that ABN will be able to sublease this facility or, if it is able to lease the facility, that the sublease rate will be equal to the rate it is presently obligated to pay under the terms of its prime lease with the landlord. 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-Q, under the caption, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and in certain documents incorporated by reference herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve unknown and uncertain risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Forward-looking statements are identified by the use of forward looking words or phrases such as "anticipates," "intends," "expects," " "believes," "estimates," or words or phrases of similar import. These forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and the statements looking forward beyond 2002 are subject to greater uncertainty because of the increased likelihood of changes in underlying factors and assumptions. Actual results could differ materially from those anticipated by the forward-looking statements. Such factors are more fully described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, which should be considered in connection with a review of this report.