-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T22bmi1Vi0MN0AvJHvpuDDH6RMrQQhlV0DlFV6ps1uH9rEU0iteHs1SZbwp5QlwH SWdHJxNMAzPgzlhFNPPguw== 0000950133-97-003833.txt : 19971114 0000950133-97-003833.hdr.sgml : 19971114 ACCESSION NUMBER: 0000950133-97-003833 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970928 FILED AS OF DATE: 19971112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENICOM CORP CENTRAL INDEX KEY: 0000766738 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 510271821 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14685 FILM NUMBER: 97713041 BUSINESS ADDRESS: STREET 1: 14800 CONFERENCE CNTR DR STREET 2: STE 400 WESTFIELDS CITY: CHANTILLY STATE: VA ZIP: 22021-3806 BUSINESS PHONE: 7038029200 10-Q 1 GENICOM CORPORATION FORM 10-Q 1 ================================================================================ FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 28, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______to_______ Commission File No.: 0-14685 GENICOM CORPORATION (Exact name of registrant as specified in it charter) DELAWARE 51-0271821 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 14800 CONFERENCE CENTER DRIVE SUITE 400, WESTFIELDS CHANTILLY, VIRGINIA 20151 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 802-9200 Indicate by a 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_ As of November 3, 1997, there were 11,119,404 shares of Common Stock of the Registrant outstanding. ================================================================================ 2 FORM 10-Q INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - September 28, 1997 and December 29, 1996 3 Consolidated Statements of Income - Three Months and Nine Months Ended September 28, 1997 and September 29, 1996 4 Consolidated Statements of Cash Flows - Three Months and Nine Months Ended September 28, 1997 and September 29, 1996 5 Notes to Consolidated Financial Statements 6 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 - 16 Signatures 17 Index to Exhibits E-1
3 PART I. - FINANCIAL INFORMATION Item 1. Financial Statements GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, DECEMBER 29, (In thousands, except share data) 1997 1996 ==================== ================= (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,414 $ 5,866 Accounts receivable, less allowance for doubtful accounts of $3,576 and $3,270 77,672 65,404 Other receivables 2,860 1,835 Inventories 62,755 46,947 Prepaid expenses and other assets 8,861 5,395 -------------------- ----------------- TOTAL CURRENT ASSETS 153,562 125,447 Property, plant and equipment 29,564 26,562 Goodwill 25,035 27,555 Other assets, principally intangibles 10,107 6,515 -------------------- ----------------- $ 218,268 $ 186,079 ==================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long term debt $ 5,062 $ 4,222 Accounts payable and accrued expenses 75,087 72,040 Deferred income 12,360 13,094 -------------------- ----------------- TOTAL CURRENT LIABILITIES 92,509 89,356 Long-term debt, less current portion 70,400 50,331 Other non-current liabilities 10,373 8,801 -------------------- ----------------- TOTAL LIABILITIES 173,282 148,488 -------------------- ----------------- STOCKHOLDERS' EQUITY: Common stock, $0.01 par value; 18,000,000 shares authorized, 11,089,447 and 10,983,439 shares issued 111 110 Additional paid-in capital 26,585 26,440 Retained earnings 19,811 12,162 Foreign currency translation adjustment (1,521) (1,121) -------------------- ----------------- TOTAL STOCKHOLDERS' EQUITY 44,986 37,591 -------------------- ----------------- $ 218,268 $ 186,079 ==================== =================
The accompanying notes are an integral part of these financial statements. 3 4 GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED, SEPTEMBER 28, SEPTEMBER 29, (In thousands, except per share data) 1997 1996 ================= =================== REVENUES, NET: Products $ 72,750 $ 38,888 Services 29,939 29,923 ------------------ ------------------- 102,689 68,811 ------------------ ------------------- OPERATING COSTS AND EXPENSES: Cost of revenues: Products 50,663 26,089 Services 28,252 26,201 Selling, general and administration 15,251 14,534 Engineering, research and product development 3,816 1,937 Gain on sale of investment in subsidiary Environmental costs 1,479 Restructuring costs 4,183 ------------------ ------------------- 97,982 74,423 ------------------ ------------------- OPERATING INCOME (LOSS) 4,707 (5,612) Interest expense, net 1,868 1,147 Other income (63) ------------------ ------------------- INCOME (LOSS) BEFORE INCOME TAXES 2,839 (6,696) Income tax expense (benefit) 553 (4,467) ------------------ ------------------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 2,286 (2,229) EXTRAORDINARY ITEM - LOSS ON EXTINGUISHMENT OF DEBT, NET OF $258 TAX ================== =================== NET INCOME (LOSS) $ 2,286 $ (2,229) ================== =================== Earnings (loss) per common share and common share equivalent Primary $ 0.18 $ (0.20) ================== =================== Fully diluted $ 0.18 $ (0.20) ================== =================== Weighted average number of common shares and common share equivalents outstanding Primary 12,660 10,968 ------------------ ------------------- Fully diluted 12,694 10,968 ================== ===================
NINE MONTHS ENDED, SEPTEMBER 28, SEPTEMBER 29, (In thousands, except per share data) 1997 1996 ====================== ====================== REVENUES, NET: Products $ 207,952 $ 122,190 Services 89,729 89,313 ---------------------- ---------------------- 297,681 211,503 ---------------------- ---------------------- OPERATING COSTS AND EXPENSES: Cost of revenues: Products 142,578 84,727 Services 83,505 77,789 Selling, general and administration 48,036 39,821 Engineering, research and product development 9,277 5,834 Gain on sale of investment in subsidiary (1,481) Environmental costs 1,479 Restructuring costs 4,183 ---------------------- ---------------------- 283,396 212,352 ---------------------- ---------------------- OPERATING INCOME (LOSS) 14,285 (849) Interest expense, net 4,900 3,299 Other income (153) ---------------------- ---------------------- INCOME (LOSS) BEFORE INCOME TAXES 9,385 (3,995) Income tax expense (benefit) 1,739 (3,876) ---------------------- ---------------------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 7,646 (119) EXTRAORDINARY ITEM - LOSS ON EXTINGUISHMENT OF DEBT, NET OF $258 TAX (422) ---------------------- ---------------------- NET INCOME (LOSS) $ 7,646 $ (541) ====================== ====================== Earnings (loss) per common share and common share equivalent Primary $ 0.61 $ (0.05) ====================== ====================== Fully diluted $ 0.60 $ (0.05) ====================== ====================== Weighted average number of common shares and common share equivalents outstanding Primary 12,472 10,918 ====================== ====================== Fully diluted 12,683 10,918 ====================== ======================
The accompanying notes are an integral part of these financial statements. 4 5 GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED, SEPTEMBER 28, SEPTEMBER 29, (In thousands) 1997 1996 ----------------- ---------------- Cash flows from operating activities: Net income (loss) $ 7,646 $ (541) Adjustments to reconcile net income to cash provided by operating activities: Depreciation 10,063 10,856 Amortization 3,812 2,505 Environmental accrual 1,479 Restructuring charge 4,183 Gain on sale of Genicom de Mexico (1,481) Changes in assets and liabilities net of effects from acquisitions: Accounts receivable (13,293) 4,391 Inventories (15,008) 14,310 Accounts payable and accrued expenses 1,546 (13,290) Deferred income (734) 714 Other 306 (6,691) ------------------ ---------------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (5,662) 16,435 ------------------ ---------------- Cash flows from investing activities: Sale of Genicom de Mexico 3,950 Sale of equipment 350 Agreements with Digital Equipment Corporation (see Note 6) (4,276) Additions to property, plant and equipment (13,618) (8,811) Other (397) (259) ------------------ ---------------- NET CASH USED IN INVESTING ACTIVITIES (17,941) (5,120) ------------------ ---------------- Cash flows from financing activities: Borrowings from long-term debt 56,905 63,806 Payments on long-term debt (35,996) (63,934) Financing costs and transactions (1,468) (1,509) ------------------ ---------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 19,441 (1,637) ------------------ ---------------- Effect of exchange rate changes on cash and cash equivalents (290) 20 ------------------ ---------------- Net (decrease) increase in cash and cash equivalents (4,452) 9,698 Cash and cash equivalents at beginning of period 5,866 4,271 ------------------ ---------------- Cash and cash equivalents at end of period $ 1,414 $ 13,969 ================== ================
The accompanying notes are an integral part of these financial statements 5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. In the opinion of management, the accompanying unaudited consolidated financial statements of GENICOM Corporation and subsidiaries (the "Company" or "GENICOM") contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company's consolidated financial position as of September 28, 1997, and the results of operations and cash flows for the periods indicated. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 29, 1996 Annual Report. The results of operations for the nine months ended September 28, 1997, are not necessarily indicative of the operating results for the full year. 2. Inventories are stated at the lower of cost, determined on the first-in, first-out method, or market. Inventories consist of, in thousands:
SEPTEMBER 28, DECEMBER 29, 1997 1996 --------------- --------------- Raw materials $ 12,274 $ 9,105 Work in process 3,108 3,383 Finished goods 47,373 34,459 --------------- --------------- $ 62,755 $ 46,947 --------------- ---------------
3. Earnings per share are based upon the weighted average number of common shares and dilutive common share equivalents (using the treasury stock method) outstanding during the period.
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------------ ----------------------------------------- SEPT. 28, SEPT. 29, SEPT. 28, SEPT. 29, 1997 1996 1997 1996 -------------------- ------------------- ------------------ ------------------- Weighted average common share outstanding 11,056 10,968 11,023 10,918 -------------------- ------------------- ------------------ ------------------- Dilutive common stock equivalents: Options- Primary 1,604 1,449 -------------------- ------------------- ------------------ ------------------- Shares outstanding - Primary 12,660 10,968 12,472 10,918 -------------------- ------------------- ------------------ ------------------- Dilutive common stock equivalents: Options - Fully diluted 1,638 1,660 -------------------- ------------------- ------------------ ------------------- Shares outstanding - Fully diluted 12,694 10,968 12,683 10,918 -------------------- ------------------- ------------------ -------------------
4. For reporting periods ending after December 15, 1997, the Company will be required to report earnings per share in accordance with SFAS No. 128 "Earnings per Share". Basic earnings per share would have been $0.21 and $(0.20) for the third quarter of 1997 and 1996, respectively, and $0.69 and $(0.05) for the nine months ended September 28, 1997 and September 29, 1996, respectively, if calculated pursuant to SFAS No. 128. 6 7 5. Texas Instruments Worldwide Printer Business On September 30, 1996, the Company acquired certain assets of Texas Instruments worldwide printer and related supplies business for the purchase price of approximately $29.5 million. The acquisition was financed primarily through the Company's credit facility with NationsBank and a note of $9 million to Texas Instruments with interest of approximately 8.5% payable over two years. The goodwill of approximately $10 million associated with the purchase is being amortized over seven years. The note to Texas Instruments was paid in full in September 1997. Pro Forma Financial Information Presented below are the unaudited pro forma 1996 statements of operations as if the acquired operations had been integrated into the Company effective January 1, 1996. Accounting adjustments have been made in the pro forma financial information to include estimated costs of the combinations and to reflect the integration and consolidation of facilities and personnel. Included in such integration costs are relocation costs associated with facilities and employee expenses. This pro forma information has been prepared for comparative purposes only and does not purport to be indicative of the results that actually would have been obtained if the acquired operations had been conducted by the Company during the periods presented, and is not intended to be a projection of future results. Presentation is in thousands except for earnings per share amounts.
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------- ------------------------------------ SEPT. 28 SEPT. 29, SEPT. 28, SEPT. 29, 1997 1996 1997 1996 ----------------- ---------------- ---------------- ---------------- Revenue $ 102,689 $ 91,914 $ 297,681 $ 288,921 Pre-Tax Income 2,839 (5,073) 9,385 1,445 ----------------- ---------------- ---------------- ---------------- Net Income 2,286 (1,158) 7,646 3,049 ----------------- ---------------- ---------------- ---------------- Earnings per share - Primary $ 0.18 $ (0.11) $ 0.60 $ 0.28 ----------------- ---------------- ---------------- ---------------- Weighted average shares outstanding 12,660 10,968 12,472 10,918 ----------------- ---------------- ---------------- ----------------
6. Commitments and Contingencies Environmental matters: The Company and the former owner of its Waynesboro, Virginia facility, General Electric Company ("G.E."), have generated and managed hazardous wastes at the facility for many years as a result of their use of certain materials in manufacturing processes. The Company and the United States Environmental Protection Agency ("EPA") have agreed to a corrective action consent order (the "Order"), which became effective on September 14, 1990. The Order requires the Company to undertake an investigation of solid waste management units at its Waynesboro, Virginia facility and to conduct a study of any necessary corrective measures that may be required. The investigative work under the Order is expected to be completed by December 1997. Although not required by the Order, the Company has agreed to install and operate an interim ground water stabilization system, subject to EPA approval of the system design. In 1996, the Company recorded a reserve for $0.6 million for pond closure and monitoring for ten years related to the Waynesboro facility. The interim groundwater stabilization program may be chosen as the final remedy for the site, or additional corrective measures may eventually be required. It is not possible to reliably estimate the costs that any such possible additional corrective measures would entail. However, if additional corrective 7 8 measures are required, the Company expects that it will enter into discussion with EPA concerning their scope and a further order for that purpose. The Company has been notified by the EPA that it is one of 700 potentially responsible parties ("PRPs") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, for necessary corrective action at a hazardous waste disposal site in Greer, South Carolina. In prior years, the Company arranged for the transportation of wastes to the site for treatment or disposal. During 1995, the PRPs entered into an administrative consent order with EPA under which they will undertake a remedial investigation and feasibility study which is currently underway. The Company was named as a defendant in an Original Petition and Petition for Injunctive Relief filed in August 1995 which alleged that the Company and certain other defendants were strictly liable for damages allegedly suffered by the plaintiffs as a result of contamination of groundwater at the Linn-Faysville Aquifer, in Texas, due to the disposal of dangerous products and materials at a landfill which was alleged to be the source of the contamination. This matter was settled in May 1997 without the Company admitting liability, curtailing additional legal expenses. The Company was fully reserved for the amount of the settlement and related legal expenses. Atlantic Design: In December 1995, the Company entered into a five year agreement later extended one year with Atlantic Design Company, a subsidiary of Ogden Services Corporation, ("ADC") in which ADC took over the Company's manufacturing operations and employees in McAllen, Texas and Reynosa, Mexico. The agreement is automatically renewed unless notice is given. ADC is committed to manufacturing all of the Company's impact printer products, printed circuit boards, related supplies and spare parts. The Company will retain design, intellectual property and distribution rights. As part of this agreement, the Company is to be a preferred provider of impact and page printers and multivendor information technology services to Ogden Services Corporation. Ogden Services Corporation is attempting to divest ADC. The Company's contract with ADC contains a clause requiring GENICOM's consent to the sale, which consent cannot be unreasonably withheld. The Company is currently evaluating preliminary information received from ADC concerning a potential purchaser. In early August 1997, the Company received notification that ADC filed a Demand for Arbitration with the American Arbitration Association seeking a legal interpretation of the pricing provisions in the agreement between ADC and the Company and the recovery of an amount in dispute said to be approximately $2 million. The Company filed a counterclaim against ADC for approximately $10 million alleging various defaults under the agreement. Ogden Services Corporation filed a counterclaim against the Company seeking unspecified damages in excess of $10 million alleging the Company was improperly interfering with the sale of ADC. No arbitrator has yet been appointed or hearing dates set. The Company cannot presently predict the outcome of this matter or how the respective claims will be resolved. Neither the arbitration proceeding nor the resolution of the open issues between the Company and ADC is expected to impact the continued supply of the products ADC is manufacturing for the Company. 8 9 Digital Equipment Corporation: On August 10, 1997, GENICOM Corporation and Digital Equipment Corporation ("DEC") entered into several agreements including an Asset Purchase Agreement, a Trademark License Agreement and a Cooperative Marketing and Sales Agreement (the "Agreements"). Under the Agreements, the Company became DEC's exclusive supplier of Digital-branded printer products with the Company assuming responsibility for DEC's printer business through an in-sourcing program that aligns the Company's operations as close to the inside of DEC as practical. The Company is providing a broad line of products, business planning, technical support and distribution services to DEC's marketing channels. As part of the transaction, the Company hired selected employees, acquired certain assets, received assignment and license rights for certain intellectual properties, and has access to DEC's customer base. The Company will pay DEC a royalty on all printer sales related to the Agreements. Other matters: In July 1996, the Company reached an agreement with Electronic Data Systems ("EDS") to outsource its information systems and data processing activities. Under the agreement, EDS will operate and service the Company's systems as well as design, install and service new business systems and global networks. The agreement covers ten years with an average base cost of $4.3 million per year. In the ordinary course of business, the Company is party to various environmental, administrative and legal proceedings. In the opinion of management, the Company's liability, if any, in all pending litigation or other legal proceedings, other than those discussed above, will not have a material effect upon the financial condition, results of operations or liquidity of the Company. 7. On July 3, 1997, the Company amended its credit agreement with NationsBank of Texas, N.A., as agent for a group of banks, which increased the Company's revolving credit line from $35 million to $40 million. Other terms and conditions of the credit agreement generally remained unchanged On September 5, 1997, the Company further amended and restated its credit agreement with NationsBank, increasing its total credit facilities to $110 million from $80 million. The Company used part of the proceeds from the credit facilities to repay the $9 million note to Texas Instruments. The term notes totaled $55 million with maturities of 5 and 7 years and the revolving credit line was increased from $40 million to $55 million. The financial covenants for the facility were redefined. The Company entered into a new interest rate swap which fixes the interest rate on $37.5 million of debt for a term of three years. The fixed rate at the time the amendment was executed was approximately 8.5%. The revolving credit line was increased to $70 million in October 1997 when commitments from additional lenders were received increasing the total credit facilities to $125 million. 9 10 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition: RESULTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------------ ----------------------------------------- 3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR. (in millions) 1997 CHANGE 1996 1997 CHANGE 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Revenues - Enterprising Service Solutions $ 29.9 $ 0 $ 29.9 $ 89.7 $ 0.4 $ 89.3 Revenues - Document Solutions 72.8 33.9 38.9 208.0 85.8 122.2 ----------- ----------- ---------- ---------- ---------- --------- Total Revenue $ 102.7 $ 33.9 $ 68.8 $ 297.7 $ 86.2 $ 211.5 ----------- ----------- ---------- ---------- ---------- --------- Percentage change 49.2% 40.7% - ----------------------------------------------------------------------------------------------------------------------------------
Revenue in the third quarter of 1997 increased 49.2% from the third quarter of 1996 primarily due to the revenue growth in Document Solutions ("DSC") as a result of the acquisition of Texas Instruments' printer business and the Digital Equipment Corporation Agreements. DSC revenue, excluding Relays, was 95.7% higher than the third quarter of 1996 as a result of the acquisition of the Texas Instruments' printer and related supplies business and the Digital Agreements. Enterprising Service Solutions ("ESSC") revenue was flat quarter to quarter. Integrated Network Service ("INS") revenue, which represents approximately of 20% ESSC revenue, increased 81.2% on strong performance of the Canadian subsidiary and a new project in the U.S. with the NASDAQ Stock Market. Revenue from Multivendor Services ("MVS"), also part of ESSC, decreased 9.9% in the third quarter of 1997 compared to the year ago quarter. MVS is in the final stages of transitioning its depot operations from Bedford, Massachusetts and Waynesboro, Virginia to a single depot in Louisville, Kentucky. The loss of revenue from the Bedford depot, which closed early in the second quarter, has not yet been fully recovered by the Louisville depot. Some of the legacy revenue from Bedford was not transferred to the Louisville depot. In addition, the Louisville depot transition is behind schedule, is still housed in temporary facilities and is experiencing startup inefficiencies which are being addressed through management and operational process changes. For 1997 year to date, revenue increased $86.2 million from 1996. DSC's revenue, excluding Relays, increased $83.8 million or 74.9% primarily due to the Texas Instruments acquisition and the Digital Agreements. ESSC's revenue for 1997 increased $0.4 million compared to 1996 principally from strong performance by INS which was partially offset by lower revenue from MVS. The decline in revenue by MVS was primarily a result of the decline of legacy revenue in the Bedford depot and the consolidation of the depots mentioned above. Relay revenues, which are included as part of Document Solutions in the above table, were flat in the third quarter of 1997 as compared to the prior year quarter. For 1997 year to date, relay revenues have increased $1.9 million from 1996.
- ----------------------------------------------------------------------------------------------------- 3RD QUARTER 4TH QUARTER 3RD QUARTER (in millions) 1997 1996 1996 - ----------------------------------------------------------------------------------------------------- Order Backlog $ 60.5 $ 56.7 $ 39.5 Change: 3rd Quarter of 1997 compared to Amount 3.8 21.0 Percentage 6.7% 53.2% - -----------------------------------------------------------------------------------------------------
The increase in order backlog from the third quarter of 1996 primarily reflects the effect of the Texas Instruments acquisition and the Digital Agreements. The increase in the backlog from the fourth quarter of 1996 is principally the result of the Digital Agreements partially offset by a decline in relays backlog. The 10 11 Company's backlog as of any particular date should not be the sole measurement used in determining sales for any future period.
- ------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED NINE MONTHS ENDED --------------------------------------- ----------------------------------- 3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR. (IN MILLIONS) 1997 CHANGE 1996 1997 CHANGE 1996 - ------------------------------------------------------------------------------------------------------------------------------ Gross margin - Enterprising Service Solutions $ 1.7 $ (2.0) $ 3.7 $ 6.2 $ (5.3) $ 11.5 Gross margin - Document Solutions 22.1 9.3 12.8 65.4 27.9 37.5 - --------- --------- ---------- --------- -------- -------- Total gross margin $ 23.8 $ 7.3 $ 16.5 $ 71.6 $ 22.6 $ 49.0 - --------- --------- ---------- --------- -------- -------- As a % of revenue 23.2% 24.0% 24.1% 23.2% - ------------------------------------------------------------------------------------------------------------------------------
Gross margin, as a percent of revenue, decreased from 24.0% in the third quarter of 1996 to 23.2% in the third quarter of 1997. As a percent of revenue, gross margin for DSC excluding Relays decreased to 31.2% for the quarter ended September 28, 1997 from 37.9% for the quarter ended September 29, 1996. This decrease is primarily the result of a higher percentage of supply sales from Texas Instruments and the Digital branded products which carry lower gross margins than GENICOM designed supplies. For ESSC, gross margin decreased from 12.4% for the third quarter of 1996 to 5.7% for 1997 reflecting the costs associated with consolidation of the depots and redundant costs between depots. Relays gross margin increased from (18.0)% to 13.4% reflecting more efficient operation of this small business unit. As a percent of revenue, gross margin for the nine months ended September 28, 1997 was 24.1% as compared to 23.2% for the nine months ended September 29, 1996. The gross margin percentage for DSC for the first nine months of 1997 decreased to 32.1% from 33.3% in 1996 due to the larger volume of lower margin supplies sales mentioned above. ESSC's gross margin percentage declined to 6.9% for year to date 1997 from 12.9% for the same period in 1996 for the reasons described above. Relay's gross margin increased from 1.8% to 20.9%.
- --------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------------ -------------------------------------- 3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR. (in millions) 1997 CHANGE 1996 1997 CHANGE 1996 - --------------------------------------------------------------------------------------------------------------------------- Operating expenses: Selling, general and administrative $ 15.3 $ 0.8 $ 14.5 $ 48.0 $ 8.2 $ 39.8 Engineering, research and product development 3.8 1.8 2.0 9.3 3.5 5.8 ------ --------- --------- ------------ -------- -------- Total $ 19.1 $ 2.6 $ 16.5 $ 57.3 $ 11.7 $ 45.6 ------ --------- --------- ------------ -------- -------- As a % of revenue 18.6% 24.0% 19.2% 21.6% - ---------------------------------------------------------------------------------------------------------------------------
The increase of $2.6 million in operating expenses from the third quarter of 1996 was primarily a result of elevated levels of spending needed to support the higher revenue in 1997 including the new products acquired from Texas Instruments and Digital, transition costs to the new Louisville depot and increased compensation and benefit costs. Engineering increased $1.8 million due to development costs related to the new travel printer business acquired from Texas Instruments and product development undertaken as part of the Digital Agreements. Operating expenses declined as a percentage of revenue in the second quarter of 1997 to 18.6% as compared to 24.0% in 1996. For the first nine months of 1997, operating expenses increased $11.7 million compared to 1996 primarily for the reasons mentioned above. 11 12
- ------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------------------ --------------------------------------------- 3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR. (in millions) 1997 CHANGE 1996 1997 CHANGE 1996 - ------------------------------------------------------------------------------------------------------------------------- Interest expense, net $ 1.9 $ 0.8 $ 1.1 $ 4.9 $ 1.6 $ 3.3 Percentage change 72.7% 48.5% - -------------------------------------------------------------------------------------------------------------------------
Interest expense increased $0.8 million in the third quarter of 1997 as compared to the year-ago quarter primarily as a result of higher borrowings in 1997 due to the debt associated with the acquisition of the Texas Instruments' printer business, increased working capital needs to support the business expansion being experienced by the Company, the consolidation of the Massachusetts and Virginia depots and increased capital expenditures for the Company's new business system. Interest expense for the nine months ended September 28, 1997 increased $1.6 million compared to the same period in 1996 for the above reasons.
- ---------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED ---------------------------------------------- -------------------------------------------- 3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR. (in millions) 1997 CHANGE 1996 1997 CHANGE 1996 - ---------------------------------------------------------------------------------------------------------------------- Income tax expense $ 0.6 $ 5.1 $ (4.5) $ 1.7 $ 5.6 $ (3.9) Effective tax rate 19.5% -66.7% 18.5% -97.0% - ----------------------------------------------------------------------------------------------------------------------
The effective tax rate for the third quarter of 1997 was 19.5%. This rate reflects the Company's current estimate of its annual tax rate of approximately 19.0%. The below normal tax rate is associated with the reversal of approximately $1.5 million of consolidated valuation allowance on deferred tax assets. In the third quarter of 1996, the Company took a tax benefit of $2.8 million associated with reversal of U.S. deferred tax asset valuation allowances. LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED ------------------------------------------------------ 3RD QUARTER 3RD QUARTER (in millions) 1997 1996 - ----------------------------------------------------------------------------------------------------------- Cash (used in) provided by operations $ (5.7) $ 16.4 Cash used in investing activities (17.9) (5.1) Cash provided by (used in) financing activities 19.4 (1.6) - -----------------------------------------------------------------------------------------------------------
12 13
- --------------------------------------------------------------------------------- 3RD QUARTER 4TH QUARTER (in millions) 1997 1996 - --------------------------------------------------------------------------------- Working capital $ 61.1 $ 36.0 Inventories 62.8 46.9 Debt obligations 75.5 54.5 Debt to equity ratio 1.7 to 1 1.5 to 1 - ---------------------------------------------------------------------------------
Cash used by operations changed $22.1 million from the first nine months of 1996 principally as a result of higher inventory and accounts receivable balances necessary to support the increased levels of revenue. The Company's working capital increased $25.1 million as of September 28, 1997 as compared to December 29, 1996 due primarily to a $15.9 million increase in inventory and a $12.3 million increase in accounts receivable necessary to support the higher level of sales. Debt increased significantly with the proceeds used to support the working capital needs of the business, the closing of the depots and the increased capital expenditures of the new business systems. The debt to equity ratio increased slightly due to the increased debt needed to support operations which has yet to be reflected in earnings. On July 3, 1997, the Company amended its credit agreement with NationsBank of Texas, N.A., as agent for a group of banks, which increased the Company's revolving credit line from $35 million to $40 million. Other terms and conditions of the credit agreement generally remained unchanged. On September 5, 1997, the Company further amended and restated its credit agreement with NationsBank, increasing its total credit facilities to $110 million from $80 million. The Company used part of the proceeds from the credit facilities to repay the $9 million note to Texas Instruments. The term notes totaled $55 million with maturities of 5 and 7 years and the revolving credit line was increased from $40 million to $55 million. The financial covenants for the facility were redefined. The Company entered into a new interest rate swap which fixes the interest rate on $37.5 million of the debt for a term of three years. The fixed rate at the time the amendment was executed was approximately 8.5%. The revolving credit line was increased to $70 million in October 1997 when commitments from additional lenders were received increasing the total credit facilities to $125 million. As of September 28, 1997, the Company had $35.0 million available for borrowing under its revolving credit agreement. In early August 1997, the Company received notification that ADC filed a Demand for Arbitration with the American Arbitration Association seeking a legal interpretation of the pricing provisions in the agreement between ADC and the Company and the recovery of an amount in dispute said to be approximately $2 million. The Company filed a counterclaim against ADC for approximately $10 million alleging various defaults under the agreement. Ogden Services Corporation filed a counterclaim against the Company seeking unspecified damages in excess of $10 million alleging the Company was improperly interfering with the sale of ADC. No arbitrator has yet been appointed or hearing dates set. The Company cannot presently predict the outcome of this matter or how the respective claims will be resolved. Neither the arbitration proceeding nor the resolution of the open issues between the Company and ADC is expected to impact the continued supply of the products ADC is manufacturing for the Company. 13 14 GENICOM provides an array of services and products addressing different niches of the information processing industry, competing against a wide range of companies from large multinationals to small domestic entrepreneurs. Except for the historical information contained herein, the matters discussed in this 10Q include forward-looking statements that involve a number of risks and uncertainties. Terms such as "believes", "expects", "plans", "intends", "estimates", or "anticipates", and variations of such words and similar expressions are intended to identify such forward looking statements. There are certain important factors and risks, including the change in hardware and software technology, economic conditions in the North American and Western European markets, the anticipation of growth of certain market segments and the positioning of the Company's products and services in those segments, selective service customers whose business is declining, seasonality in the buying cycles of certain of the Company's customers, the timing of product announcements, the release of new or enhanced products and services, the introduction of competitive products and services by existing or new competitors, access to and development of product rights and technologies, the management of growth, disruption in the ability of Atlantic Design Corporation to maintain its production commitments to the Company, changes in the costs of production of the Company's products and service including any that may arise as a result of the resolution of claims raised by Atlantic Design Company, Inc. under its December 18, 1995 Services Agreement with the Company, the integration of acquisitions, including but not limited to the Company's acquisition of Texas Instruments printer business as of September 30, 1996, the Company's ability to perform under the Digital Agreements, the transitioning of the Bedford and Waynesboro depots to Louisville, Kentucky and resolution of start up inefficiencies, GENICOM's ability to retain highly skilled technical, managerial and sales and marketing personnel, possible litigation related to the Company's operations, including litigation arising under various environmental laws, and the other risks detailed from time to time in the Company's SEC reports, including reports on Form 10K, that could cause results to differ materially from those anticipated by the statements contained herein. 14 15 PART II. - OTHER INFORMATION Item 1. Legal Proceedings: In early August 1997, the Company received notification that ADC filed a Demand for Arbitration with the American Arbitration Association seeking a legal interpretation of the pricing provisions in the agreement between ADC and the Company and the recovery of an amount in dispute said to be approximately $2 million. The Company filed a counterclaim against ADC for approximately $10 million alleging various defaults under the agreement. Ogden Services Corporation filed a counterclaim against the Company seeking unspecified damages in excess of $10 million alleging the Company was improperly interfering with the sale of ADC. No arbitrator has yet been appointed or hearing dates set. The Company cannot presently predict the outcome of this matter or how the respective claims will be resolved. Neither the arbitration proceeding nor the resolution of the open issues between the Company and ADC is expected to impact the continued supply of the products ADC is manufacturing for the Company. Item 2. Changes in Securities: Not applicable. Item. 3 Defaults Upon Senior Securities: Not applicable. Item 4. Submission of Matters to a Vote of Security Holders: Not applicable Item 5. Other Information: Not applicable Item 6. Exhibits and Reports on Form 8-K: a) Exhibits NUMBER DESCRIPTION --------------- ------------------------------------ 27.1 Financial Data Schedule b) Reports on Form 8-K: The Company filed a report on Form 8-K on August 25, 1997, later amended on October 22, 1997, which reported that it had executed agreements with Digital Equipment Corporation to be Digital's exclusive supplier of printer products. Copies of the agreements were included as Exhibits 2.1 through 2.3. 15 16 In addition, the Company filed a report on Form 8-K on September 22, 1997 which reported that it had executed an amended and restated credit agreement with NationsBank of Texas, N.A., as agent for a group of banks, increasing the Company's credit facilities from $80 million to $110 million. A copy of the agreement was included as Exhibit 10.1. 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENICOM Corporation ----------------------------------- Registrant Date: November 12, 1997 /s/James C. Gale ----------------------------------- Signature James C. Gale Senior Vice President Finance and Chief Financial Officer (Mr. Gale is Chief Financial Officer and has been duly authorized to sign on behalf of the Registrant) 17 18 GENICOM CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS TO FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 1997
EXHIBIT NUMBER DESCRIPTION PAGE - ------------- ------------------------------------------------------------------ ------------------------ 27.1 Financial Data Schedule Filed only with EDGAR version
E - 1 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-28-1997 DEC-30-1996 SEP-28-1997 1,414 0 77,672 (3,576) 62,755 153,562 98,284 (68,720) 218,268 92,509 0 0 0 111 44,875 218,268 207,952 297,681 142,578 226,083 57,313 0 4,900 9,385 1,739 7,646 0 0 0 7,646 0.61 0.60
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