-----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, GDcE9lsAwdRZagpCOqWwNwIw2M5iK2WhsUCcwAUMwAXeITyNEIODwA+P1H6Yqz8A uXED6MUGl/mVG3OUFUkzzg== 0000950133-98-003781.txt : 19981116 0000950133-98-003781.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950133-98-003781 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980927 FILED AS OF DATE: 19981112 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: 98745650 BUSINESS ADDRESS: STREET 1: 14800 CONFERENCE CNTR DR STREET 2: STE 400 WESTFIELDS CITY: CHANTILLY STATE: VA ZIP: 20151 BUSINESS PHONE: 7038029200 10-Q 1 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 27, 1998 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 2, 1998, there were 11,573,868 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 27, 1998 and December 28, 1997 3 Consolidated Statements of Income - Three Months and Nine Months Ended September 27, 1998 and September 28, 1997 4 Consolidated Statements of Cash Flows - Nine Months Ended September 27, 1998 and September 28, 1997 5 Notes to Consolidated Financial Statements 6 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 Signatures 19 Index to Exhibits E-1 3 PART I. - FINANCIAL INFORMATION Item 1. Financial Statements GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER 27, DECEMBER 28, (In thousands, except share data) 1998 1997 -------------- -------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 6,523 $ 4,622 Accounts receivable, less allowance for doubtful accounts of $6,058 and $4,470 88,704 89,692 Other receivables 1,223 3,252 Inventories 65,863 67,553 Prepaid expenses and other assets 15,862 8,390 -------------- -------------- TOTAL CURRENT ASSETS 178,175 173,509 Property, plant and equipment, net 41,687 36,146 Goodwill 16,218 33,800 Intangibles and other assets 5,228 6,594 -------------- -------------- $ 241,308 $ 250,049 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 5,762 $ 6,391 Accounts payable and accrued expenses 73,593 84,578 Deferred income 14,159 16,350 -------------- -------------- TOTAL CURRENT LIABILITIES 93,514 107,319 Long-term debt, less current portion 105,600 87,072 Other non-current liabilities 10,206 10,262 -------------- -------------- TOTAL LIABILITIES 209,320 204,653 STOCKHOLDERS' EQUITY: Common stock, $0.01 par value; 18,000,000 shares authorized, 11,562,217 and 11,365,750 shares issued and outstanding 116 114 Additional paid-in capital 28,940 26,959 Retained earnings 4,775 20,020 Foreign currency translation adjustment (1,843) (1,697) -------------- -------------- TOTAL STOCKHOLDERS' EQUITY 31,988 45,396 -------------- -------------- $ 241,308 $ 250,049 ============== ==============
The accompanying notes are an integral part of these financial statements. 3 4 GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED, NINE MONTHS ENDED, SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28, (In thousands, except per share data) 1998 1997 1998 1997 ============ ============= ============ ============= REVENUES, NET: Products $ 73,400 $ 72,750 $ 228,415 $ 207,952 Services 35,680 29,939 114,828 89,729 ---------- --------- ---------- --------- 109,080 102,689 343,243 297,681 ---------- --------- ---------- --------- OPERATING COSTS AND EXPENSES: Cost of revenues: Products 52,361 50,663 163,012 142,578 Services 32,016 28,252 104,769 83,505 Selling, general and administration 18,883 15,251 60,936 48,036 Engineering, research and product development 3,767 3,816 12,191 9,277 Write-off of goodwill 15,000 ---------- --------- ---------- --------- 107,027 97,982 355,908 283,396 ---------- --------- ---------- --------- OPERATING INCOME (LOSS) 2,053 4,707 (12,665) 14,285 Interest expense, net 2,887 1,868 8,217 4,900 ---------- --------- ---------- --------- (LOSS) INCOME BEFORE INCOME TAXES (834) 2,839 (20,882) 9,385 Income tax (benefit) expense (225) 553 (5,639) 1,739 ---------- --------- ---------- --------- NET (LOSS) INCOME $ (609) $ 2,286 $ (15,243) $ 7,646 ========== ========= ========== ========= (Loss) earnings per common share (basic) $ (0.05) $ 0.21 $ (1.32) $ 0.69 ========== ========= ========== ========= (Loss) earnings per common share (diluted) $ (0.05) $ 0.18 $ (1.32) $ 0.61 ========== ========= ========== ========= Weighted average number of common shares outstanding (basic) 11,562 11,056 11,527 11,023 ========== ========= ========== ========= Weighted average number of common shares and dilutive shares (diluted) 11,562 12,660 11,527 12,472 ========== ========= ========== =========
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 27, SEPTEMBER 28, (In thousands) 1998 1997 ------------------- ------------------- Cash flows from operating activities: Net (loss) income $ (15,243) $ 7,646 Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities: Depreciation 10,787 10,063 Amortization 5,899 3,812 Write-off of goodwill 15,000 Changes in assets and liabilities: Accounts receivable 3,017 (13,293) Inventories 1,690 (15,008) Accounts payable and accrued expenses (8,414) (4,136) Deferred income (2,191) (734) Other (5,392) 306 ------------------- ------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5,153 (11,344) ------------------- ------------------- Cash flows from investing activities: Additions to property, plant and equipment (16,460) (13,618) Sale of equipment 350 Agreements with Digital Equipment Corporation (4,276) Other investing (2,060) (397) ------------------- ------------------- NET CASH USED IN INVESTING ACTIVITIES (18,520) (17,941) ------------------- ------------------- Cash flows from financing activities: Borrowings on long-term debt 29,904 56,905 Payments on long-term debt (12,005) (35,996) Bank overdraft (2,172) 5,682 Financing costs (468) (1,468) ------------------- ------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 15,259 25,123 ------------------- ------------------- Effect of exchange rate changes on cash and cash equivalents 9 (290) ------------------- ------------------- Net increase (decrease) in cash and cash equivalents 1,901 (4,452) Cash and cash equivalents at beginning of period 4,622 5,866 ------------------- ------------------- Cash and cash equivalents at end of period $ 6,523 $ 1,414 =================== ===================
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 27, 1998, 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 28, 1997 Annual Report. The results of operations for the nine months ended September 27, 1998, are not necessarily indicative of the operating results to be expected 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 27, DECEMBER 28, 1998 1997 ------------ ------------ Raw materials $ 3,274 $ 9,295 Work in process 1,208 1,994 Finished goods 61,381 56,264 ------------ ------------ $ 65,863 $ 67,553 ============ ============
6 7 3. In 1998, the Company adopted SFAS No. 128, "Earnings Per Share". Basic net income per common share has been computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per common share has been computed by dividing net income by the weighted average number of common shares outstanding plus an assumed increase in common shares outstanding for dilutive securities. Dilutive securities consist of options to acquire Common Stock for a specified price. Net income per common share amounts for all periods presented have been restated to conform to SFAS No. 128.
(in thousands) Three Months Ended September 27, 1998 -------------------------------------------------------- Income Shares Per Share ----------- ---------------- ----------------- BASIC EPS Income available to shareholders $ (609) 11,562 $ (0.05) ----------- ---------------- ----------------- Weighted shares from stock options 0 ---------------- DILUTED EPS $ (609) 11,562 $ (0.05) ----------- ---------------- ----------------- Three Months Ended September 28, 1997 -------------------------------------------------------- BASIC EPS Income available to shareholders $ 2,286 11,056 $ 0.21 ----------- ---------------- ----------------- Weighted shares from stock options 1,604 ---------------- DILUTED EPS $ 2,286 12,660 $ 0.18 ----------- ---------------- ----------------- Nine Months Ended September 27, 1998 -------------------------------------------------------- Income Shares Per Share ----------- ---------------- ----------------- BASIC EPS Income available to shareholders $ (15,243) 11,527 $ (1.32) ----------- ---------------- ----------------- Weighted shares from stock options 0 ---------------- DILUTED EPS $ (15,243) 11,527 $ (1.32) ----------- ---------------- ----------------- Nine Months Ended September 28, 1997 -------------------------------------------------------- Income Shares Per Share ----------- ---------------- ----------------- BASIC EPS Income available to shareholders $ 7,646 11,023 $ 0.69 ----------- ---------------- ----------------- Weighted shares from stock options 1,449 ---------------- DILUTED EPS $ 7,646 12,472 $ 0.61 ----------- ---------------- -----------------
4. Segment Information The Company operates in the serial, line and page printer business where it designs, manufactures and markets printers as well as the related supplies and spare parts (Document Solutions company). The Company's operation in services provides professional services, help desk/technical support, logistics management and on-site and off-site maintenance support (Enterprising Service Solutions company). The production and sales of relay products, a product line the Company sold in November 1997, comprised less than 10% of revenue, operating income and identifiable assets. This product line is included in the Document Solutions segment for 1997. Revenue between industry segments is not material. 7 8 \
Nine Months Ended or as of September 27, September 28, (in thousands) 1998 1997 ----------------- ----------------- REVENUE Document Solutions $ 228,415 $ 207,952 Enterprising Service Solutions 114,828 89,729 ----------------- ----------------- $ 343,243 $ 297,681 ----------------- ----------------- OPERATING (LOSS)/INCOME * Document Solutions $ 7,168 $ 24,358 Enterprising Service Solutions (19,833) (10,073) ----------------- ----------------- $ (12,665) $ 14,285 ----------------- ----------------- DEPRECIATION AND AMORTIZATION Document Solutions $ 4,832 $ 4,283 Enterprising Service Solutions 10,578 8,641 Corporate and other 1,276 951 ----------------- ----------------- $ 16,686 $ 13,875 ----------------- ----------------- ASSETS Document Solutions $ 130,352 $ 141,148 Enterprising Service Solutions 83,121 60,061 Corporate and other 27,835 17,059 ----------------- ----------------- $ 241,308 $ 218,268 ----------------- ----------------- CAPITAL EXPENDITURES Document Solutions $ 2,812 $ 2,297 Enterprising Service Solutions 8,655 7,288 Corporate and other 4,993 4,033 ----------------- ----------------- $ 16,460 $ 13,618 ----------------- -----------------
*Includes $6.8 million and $8.2 million goodwill write-off for Document Solutions and Enterprising Service Solutions, respectively. 5. Business Acquisitions Novadyne Computer Systems, Incorporated On November 14, 1997, the Company purchased selected assets of Novadyne Computer Systems, Inc. for approximately $17.3 million including the assumption of certain liabilities. The transaction was financed through the Company's credit facility with NationsBank of Texas, N.A. Pro Forma Financial Information Presented below are the unaudited actual and pro forma statements of operations as if the acquired operations had been integrated into the Company effective December 30, 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 8 9 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 --------------------------------------- --------------------------------------- (proforma) (proforma) Sept. 27, Sept. 28, Sept. 27, Sept. 28, 1998 1997 1998 1997 ----------------- ----------------- ----------------- ---------------- Revenue $ 109,080 $ 111,374 $ 343,243 $ 323,736 Pre-Tax (Loss) Income (834) 3,909 (20,882) 9,756 ----------------- ----------------- ----------------- ---------------- Net (Loss) Income (609) 2,928 (15,243) 9,572 ----------------- ----------------- ----------------- ---------------- (Loss) Earnings per share $ (0.05) $ 0.26 $ (1.32) $ 0.87 ----------------- ----------------- ----------------- ---------------- Weighted average shares outstanding 11,562 11,056 11,527 11,023 ----------------- ----------------- ----------------- ----------------
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 was completed in December 1997 and the Company submitted a report to the EPA. The EPA has not yet formally responded to the report, although the EPA has stated informally that it may require additional investigative work. 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. 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 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. Atlantic Design: In December of 1995, the Company entered into a five year agreement which was extended an additional year in June 1996 (renewable annually after 6 years) with Atlantic Design Company, Inc. ("ADC"), a subsidiary of Ogden Services Corporation, pursuant to which ADC acquired the 9 10 Company's manufacturing operations in McAllen, Texas and Reynosa, Mexico. Under the agreement, ADC is committed to manufacturing a significant part of the Company's impact printer products, printed circuit boards, related supplies and spare parts, while the Company retains design, intellectual and distribution rights with respect thereto. Ogden Services Corporation has divested certain ADC facilities and has attempted to divest the Reynosa operations. The Company's contract with ADC contains a clause requiring GENICOM's consent to the sale, which consent cannot be unreasonably withheld. The Company has evaluated preliminary information received from ADC concerning a potential buyer, but, to the Company's knowledge, the sale of the Reynosa facility is not imminent. In August 1997, ADC filed a Demand for Arbitration with the American Arbitration Association seeking a legal interpretation of the pricing provisions in the agreement. The Company filed a counterclaim against ADC. Ogden Services Corporation and ADC then filed counterclaims against the Company. On July 4, 1998, the Company, ADC and Ogden Services Corporation settled the arbitration. Primary settlement terms included settlement of all claims and counterclaims in the arbitration, a $2.1 million payment to ADC for which the Company was fully reserved, a price increase effective for shipments after August 15, 1998, and a guarantee of orders for one year. ADC is continuing as a supplier for the Company. Other matters: 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. The Company adopted SFAS 130, "Reporting Comprehensive Income", in the first quarter of 1998. The Company's loss, if reported on a comprehensive basis, would be $639,000 for the three months ended September 27, 1998 and $15.4 million for the nine months ended September 27, 1998. The Company had a loss in its foreign currency translation amount of $41,000 from June 28, 1998 and $146,000 from December 28, 1997, with after tax losses of $30,000 and $107,000, respectively. For the third quarter of 1997, the foreign currency translation loss was $219,000, with an after tax loss of $176,000. For the nine months ended September 28, 1997, the foreign currency translation loss was $400,000, with an after tax loss of $326,000. The Company's comprehensive income for the third quarter of 1997 would have been $2.2 million and for the nine months ended September 28, 1997, $7.3 million. 8. On July 2, 1998, the Company and its banks amended the credit agreement with NationsBank of Texas, N.A., as agent for the group of banks. The amendment adjusted the Company's required financial covenants until the end of 1998, limited capital expenditures to a maximum of $27 million for 1998, adjusted the borrowing base percentages until the end of 1998 allowing the Company increased borrowing ability and adjusted the interest rate upwards 1.50% on the incremental increased borrowing against the higher base. On November 12, 1998, the credit agreement was again amended. The amendment extends the increased borrowing base percentages through February 15, 1999 and adjusts the financial covenants for the fourth quarter of 1998. The Company was in compliance with the financial covenants of the 10 11 amended credit agreement as of September 27, 1998 and based on current projections, anticipates it will be in compliance with the adjusted financial covenants for the fourth quarter. In order to be in compliance with certain covenants in the credit agreement in 1999, the Company will likely require additional amendments. Inability of the Company to reach agreement with the banking syndicate on amendments or to arrange alternative financing could have a material adverse effect on the Company. 9. Based upon a second quarter review of certain long-lived assets, the Company determined that the value of goodwill associated with the acquisitions of Centronics, Printer Systems Corporation and Harris Adacom was impaired. In accordance with FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", during the second fiscal quarter of 1998, the Company took a pre-tax charge associated with this impairment of approximately $15 million. By segment, Enterprising Service Solutions' pre-tax charge was $8.2 million and Document Solutions' pre-tax charge was $6.8 million. 10. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company will be required to adopt this new accounting standard by January 1, 2000. Management does not anticipate early adoption. The Company believes that the effect of adoption of SFAS No. 133 will not be material. 11 12 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition: RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------- THREE MONTHS ENDED ------------------------------------------------------- 3RD QTR. 3RD QTR. (in millions) 1998 CHANGE 1997 - --------------------------------------------------------------------------------------------------- Revenues - Enterprising Service Solutions $ 35,680 $ 5,741 $ 29,939 Revenues - Document Solutions 73,400 650 72,750 ---------- --------- ----------- Total Revenue $ 109,080 $ 6,391 $ 102,689 ---------- --------- ----------- Percentage change 6.2% - ---------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------- NINE MONTHS ENDED --------------------------------------------------- 3RD QTR. 3RD QTR. (in millions) 1998 CHANGE 1997 - ----------------------------------------------------------------------------------------------- Revenues - Enterprising Service Solutions $ 114,828 $ 25,099 $ 89,729 Revenues - Document Solutions 228,415 20,463 207,952 ---------- --------- --------- Total Revenue $ 343,243 $ 45,562 $ 297,681 ---------- --------- --------- Percentage change 15.3% - -----------------------------------------------------------------------------------------------
Revenue in the third quarter of 1998 increased 6.2% from the third quarter of 1997 primarily due to the revenue growth in Document Solutions ("DSC") as a result of the agreements with Digital Equipment Corporation ("DEC") and in Enterprising Service Solutions ("ESSC") as a result of the acquisition of certain assets of Novadyne Computer Systems. DSC revenue, excluding Relays, was 0.9% higher than the third quarter of 1997 as a result of the agreements with DEC. ESSC revenue increased 19.2%. This increase was primarily the result of the Novadyne acquisition and to a lesser extent, increased depot revenue as a result of new customers. For 1998 year to date, revenue increased $45.6 million from 1997. DSC's revenue, excluding Relays, increased $32.6 million or 9.8% primarily due to the agreements with DEC. ESSC's revenue for 1998 increased $25.1 million or 28.0% compared to 1997 principally from the acquisition of certain assets of Novadyne Computer Systems which increased revenues in field service, secondarily, a contract with NASDAQ for upgrading their computer network and increased integration business in the Canadian subsidiary. Relay revenues, which are included as part of Document Solutions in the above table for 1997, were $3.4 million for the third quarter of 1997 and $12.2 million for the nine months ended September 28, 1997. This product line was sold in November of 1997.
- ------------------------------------------------------------------------------------------------------ 3RD QUARTER 4TH QUARTER 3RD QUARTER (in millions) 1998 1997 1997 - ------------------------------------------------------------------------------------------------------ Order Backlog $ 35.9 $ 44.8 $ 60.5 Change: 3rd Quarter of 1998 compared to Amount (8.9) (24.6) Percentage -19.9% -40.7% - ------------------------------------------------------------------------------------------------------
The decrease in order backlog from the third quarter of 1997 primarily reflects the effect of a decline in printer backlog and the sale of the relay product line. In August 1997, the Company, with the commencement of the DEC agreements, recorded a significant amount of initial backlog related to those agreements. The relay backlog was $6.8 million as of September 28, 1997. The decrease in the order backlog from the fourth quarter of 1997 is principally due to a decrease in printer and supplies backlog partially offset by the recording of ESSC annual contracts in January. The Company's backlog as of any particular date should not be the sole measurement used in determining sales for any future period. 12 13
- ------------------------------------------------------------------------------------------------- THREE MONTHS ENDED ------------------------------------------------- 3RD QTR. 3RD QTR. (in millions) 1998 CHANGE 1997 - ------------------------------------------------------------------------------------------------- Gross margin - Enterprising Service Solutions $ 3.7 $ 2.0 $ 1.7 Gross margin - Document Solutions 21.0 (1.1) 22.1 ------- --------- -------- Total gross margin $ 24.7 $ 0.9 $ 23.8 ------- --------- -------- As a % of revenue 22.7% 23.2% - -------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------- NINE MONTHS ENDED --------------------------------------------- 3RD QTR. 3RD QTR. (in millions) 1998 CHANGE 1997 - ---------------------------------------------------------------------------------------------- Gross margin - Enterprising Service Solutions $ 10.1 $ 3.9 $ 6.2 Gross margin - Document Solutions 65.4 - 65.4 ------- ------- ---------- Total gross margin $ 75.5 $ 3.9 $ 71.6 ------- ------- ---------- As a % of revenue 22.0% 24.1% - ----------------------------------------------------------------------------------------------
Gross margin, as a percent of revenue, decreased from 23.2% in the third quarter of 1997 to 22.7% in the third quarter of 1998. As a percent of revenue, gross margin for DSC excluding Relays decreased to 28.7% for the quarter ending September 27, 1998 from 31.2% for the quarter ending September 28, 1997. This decrease is primarily the result of the lower volume of supplies sales which carry a larger margin percentage than printers and a change in the sales mix of printers. For ESSC, gross margin increased from 5.6% for the third quarter of 1997 to 10.3% for 1998 reflecting improvement in the operating efficiency of ESSC. As a percent of revenue, gross margin for the nine months ended September 27, 1998 was 22.0% as compared to 24.1% for the nine months ended September 28, 1997. The gross margin percentage for DSC excluding Relays for the first nine months of 1998 decreased to 28.6% from 32.1% in 1997 due to a reduction of supplies sales and the sales mix in printer sales. ESSC's gross margin percentage increased slightly to 8.8% for year to date 1998 from 6.9% for the same period in 1997 reflecting operational efficiency improvements.
- ---------------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED ----------------------------------------- -------------------------------------------- 3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR. (in millions) 1998 CHANGE 1997 1998 CHANGE 1997 - ---------------------------------------------------------------------------------------------------------------------------------- Operating expenses: Selling, general and administrative $ 18.9 $ 3.6 $ 15.3 $ 60.9 $ 12.9 $ 48.0 Engineering, research and product development 3.8 - 3.8 12.2 2.9 9.3 Write-off of goodwill 15.0 15.0 - -------- --------- ------ ------- --------- --------- Total $ 22.7 $ 3.6 $ 19.1 $ 88.1 $ 30.8 $ 57.3 -------- --------- ------ ------- --------- --------- As a % of revenue 20.8% 18.6% 25.7% 19.2% - ----------------------------------------------------------------------------------------------------------------------------------
The increase of $3.6 million in operating expenses from the third quarter of 1997 was primarily the result of increased marketing costs to support new product introductions and higher marketing costs in ESSC. Operating expenses increased as a percentage of revenue in the third quarter of 1998, to 20.8% as compared to 18.6% in 1997. For the first nine months of 1998, operating expenses increased $15.8 million, excluding the goodwill write-off, compared to 1997 primarily for the reasons mentioned above. During the second quarter of 1998, based upon review of long-lived assets, the Company determined that the value of goodwill associated with the acquisitions of Centronics, Printer Systems Corporation and Harris Adacom was impaired. In accordance with FAS 121, during the second fiscal quarter of 1998, the Company took a pre-tax charge associated with this impairment of approximately $15 million. 13 14
- ----------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------------------ --------------------------------------------- 3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR. (in millions) 1998 CHANGE 1997 1998 CHANGE 1997 - ----------------------------------------------------------------------------------------------------------------------------- Interest expense, net $ 2.9 $ 1.0 $ 1.9 $ 8.2 $ 3.3 $ 4.9 Percentage change 52.6% 67.3% - -----------------------------------------------------------------------------------------------------------------------------
Interest expense increased $1.0 million in the third quarter of 1998 as compared to the year-ago quarter primarily as a result of higher borrowings in 1998 due to higher debt need to support the working capital needs of the business and secondarily higher development costs associated with new product introductions. In addition, with the new amendment to the credit agreement in July 1998, Genicom was paying a slightly higher interest rate for its debt than in 1997. Interest expense for the nine months ended September 28, 1998 increased $3.3 million compared to the same period in 1997 for the above reasons.
- -------------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------------------------------- ---------------------------------------------- 3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR. (in millions) 1998 CHANGE 1997 1998 CHANGE 1997 - -------------------------------------------------------------------------------------------------------------------------------- Income tax expense $ (0.2) $ (0.8) $ 0.6 $ (5.6) $ (7.3) $ 1.7 Effective tax rate 27.0% 19.5% 27.0% 18.5% - --------------------------------------------------------------------------------------------------------------------------------
The Company's effective tax rate for the third quarter and the first nine months of 1998 was 27.0%. The tax rate is being affected by the anticipated utilization of foreign operating losses. During the first nine months of 1997, the Company reversed part of its valuation allowance for its foreign deferred tax assets. LIQUIDITY AND CAPITAL RESOURCES
- ------------------------------------------------------------------------------------------------------------ Nine Months Ended -------------------------------------------------------- 3RD QUARTER 3RD QUARTER (in millions) 1998 1997 - ------------------------------------------------------------------------------------------------------------ Cash provided by (used in) operations $ 5.2 $ (11.3) Cash used in investing activities (18.5) (17.9) Cash provided by financing activities 15.3 25.1 - ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------- 3RD QUARTER 4TH QUARTER (in millions) 1998 1997 - ------------------------------------------------------------------------------------------------------------- Working capital $ 84.7 $ 66.2 Inventories 65.9 67.6 Debt obligations 111.4 93.5 Debt to equity ratio 3.5 to 1 2.1 to 1 - -------------------------------------------------------------------------------------------------------------
14 15 Cash provided by operations increased $16.5 million from the first nine months of 1997 principally due to the stabilization of inventory. In 1997, inventory increased to support the higher level of revenue in 1997 compared to 1996. The Company's working capital increased $18.5 million as of September 27, 1998 as compared to December 28, 1997 due primarily to a $7.5 million increase in prepaid and other assets driven by taxes receivable and a $11.0 million decrease in accounts payable and accrued expenses. Debt increased significantly with the proceeds used to support the working capital needs of the business, the acquisition of certain assets of Novadyne Computer Systems, and the operating loss. The Company had approximately $6.1 million available for borrowing under its credit facilities as of September 27, 1998. On July 2, 1998, the Company and its banks amended the credit agreement with NationsBank of Texas, N.A., as agent for the group of banks. The amendment adjusted the Company's required financial covenants, limited capital expenditures to a maximum of $27 million for 1998, adjusted the borrowing base percentages allowing the Company increased borrowing ability and adjusted the interest rate upwards 1.50% on the incremental increased borrowing against the higher base. On November 12, 1998, the credit agreement was again amended. The amendment extends the increased borrowing base percentages through February 15, 1999 and adjusts the financial covenants for the fourth quarter of 1998. The Company was in compliance with the financial covenants of the amended credit agreement as of September 27, 1998 and based on current projections, anticipates it will be in compliance with the adjusted financial covenants for the fourth quarter. In order to be in compliance with certain covenants in the credit agreement in 1999, the Company will likely require additional amendments. Inability of the Company to reach agreement with the banking syndicate on amendments or to arrange alternative financing could have a material adverse effect on the Company. In August 1997, ADC filed a Demand for Arbitration with the American Arbitration Association seeking a legal interpretation of the pricing provisions in the agreement. The Company filed a counterclaim against ADC. Ogden Services Corporation and ADC then filed counterclaims against the Company. On July 4, 1998, the Company, ADC and Ogden Services Corporation settled the arbitration. Primary settlement terms included settlement of all claims and counterclaims in the arbitration, a $2.1 million payment to ADC for which the Company was fully reserved, a price increase effective for shipments after August 15, 1998, and a guarantee of orders for one year. ADC is continuing as a supplier for the Company. Year 2000 GENICOM is taking an active approach to address computer issues associated with the onset of the new millennium - specifically, the impact of possible failure of computer systems and computer driven equipment due to the rollover to the year 2000. The Year 2000 problem is pervasive and complex as virtually every IT and non-IT system could be affected in some way by the rollover of the two-digit year value from 99 to 00. The issue is whether computer systems or embedded technology will properly recognize date sensitive information when the year changes to 2000. IT and non-IT systems that do not properly recognize such information could generate erroneous data or causes failures. If not properly addressed, the Year 2000 problem could result in failures in Company computer systems or items with embedded systems or the computer systems or equipment of third parties with whom the Company deals with worldwide. Any such failures of the Company's and/or third parties IT and non-IT systems could have a material impact on the Company's ability to conduct business. 15 16 Since 1996, the Company has been identifying and seeking to minimize its exposure to the Year 2000 problem. In 1996, the Company began expending significant funds under contracts with EDS to replace the majority of its internal computer system. During this process, the Company has required third party vendors to make representations that the components of the new systems and related software are Year 2000 compliant. The replacement equipment is scheduled to completely installed and tested by the end of the second quarter of 1999. As a result, the Company does not anticipate Year 2000 problems with its internal systems. The approximately $16 million cost of the replacement system is being capitalized by the Company. Management has also considered whether the Year 2000 problem will affect the products or services provided by the Company to its customers. Because the Company's printer products do not contain date sensitive embedded software and do not manipulate, calculate, convert, compare, sequence or present any date data, these products should not present Year 2000 compliance issues. The Company does, though its Enterprising Service Solutions company, resell and install computer software that could be susceptible to Year 2000 problems. The Company's practice is to disclaim responsibility for Year 2000 compliance relating to third party software. At this time GENICOM is actively working to ensure that foreseeable Year 2000 related computer problems related to Company computer systems and products are effectively addressed. The Company does not expect that the commitment of resources to study and correct internally any Year 2000 problems to result in the delay of its projects or product development. The Company is currently developing a plan to review vendor and customer compliance as well as items that may be affected by embedded systems such as manufacturing and telephone equipment. This plan is expected to be completed shortly after year end. The plan will include inquiries of vendors and customers related to their Year 2000 compliance. The cost of implementing the plan or the financial impact of customers, vendors, or embedded systems that are not compliant has yet to be determined. Once the Company has sufficient information available to do so, it intends to analyze its most reasonably likely worst case scenario and develop contingency plans. The Company cannot estimate or predict the potential adverse consequences, if any, that could result from a third party failure to effectively address this issue or failure of certain equipment and is unable to predict if those parties noncompliance or equipment failure will have a material adverse effect on earnings. 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 changes in hardware and software technology, economic conditions in the North American, Western European and Asian markets, the anticipation of growth of certain market segments and the positioning of the Company's products and services in those segments, certain 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, the Company's ability to reach an appropriate level of operating efficiency in the services group, Year 2000 issues, the ability of the Company to amend its credit agreement or obtain alternative financing arrangements in 1999 if necessary, GENICOM's ability to attract and retain highly skilled technical, managerial and sales and marketing personnel, possible litigation related to the 16 17 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. 17 18 PART II. - OTHER INFORMATION Item 1. Legal Proceedings: Not applicable. 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: Not applicable. 18 19 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, 1998 /s/James C. Gale -------------------------- Signature James C. Gale Senior Vice President and Chief Financial Officer (Mr. Gale is a Chief Financial Officer and has been duly authorized to sign on behalf of the Registrant) 19 20 GENICOM CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS TO FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 1998
EXHIBIT NUMBER DESCRIPTION PAGE - ------------------- ------------------------------------ ------------------------------- 10.1 Fifth Amendment to Amended and Restated Credit Agreement dated as of October 30, 1998 27.1 Financial Data Schedule Filed only with EDGAR version
E-1 EX-10.1 2 FIFTH AMENDMENT TO AMENDED & RESTATED CREDIT AGREE 1 FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment"), dated as of October 30, 1998, is by and among Genicom Corporation (the "Borrower"), the subsidiaries of the Borrower identified on the signature pages hereto (the "Guarantors"), the several lenders identified on the signature pages hereto (each a "Lender" and, collectively, the "Lenders") and NationsBank, N.A., as agent for the Lenders (in such capacity, the "Agent"). WITNESSETH WHEREAS, the Borrower, the Guarantors, the Lenders and the Agent entered into that certain Amended and Restated Credit Agreement dated as of September 5, 1997, as amended by that First Amendment to Amended and Restated Credit Agreement dated as of October 31, 1997, as amended by that Second Amendment to Amended and Restated Credit Agreement dated as of March 12, 1998, as amended by that letter agreement dated May 5, 1998 and as amended by that Fourth Amendment to Amended and Restated Credit Agreement and Waiver dated as of July 2, 1998 (as so amended, the "Existing Credit Agreement"). WHEREAS, the parties have agreed to amend the Existing Credit Agreement as set forth herein. NOW, THEREFORE, in consideration of the agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: PART I DEFINITIONS 1. Certain Definitions. Unless otherwise defined herein or the context otherwise requires, the following terms used in this Amendment, including its preamble and recitals, have the following meanings: "Amended Credit Agreement" means the Existing Credit Agreement as amended hereby. "Amendment No. 5 Effective Date" is defined in Part III. 2. Other Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Amendment, including its preamble and recitals, have the meanings provided in the Amended Credit Agreement. 2 PART II AMENDMENTS TO EXISTING CREDIT AGREEMENT Effective on (and subject to the occurrence of) the Amendment No. 5 Effective Date, the Existing Credit Agreement is hereby amended in accordance with this Part II. Except as so amended, the Existing Credit Agreement and all other Credit Documents shall continue in full force and effect. 1. Amendments to Section 1.1. The following definitions appearing in Section 1.1 of the Existing Credit Agreement are amended in their entireties to read as follows: "Applicable Percentage" means, for purposes of calculating the applicable interest rate for any day for any Eurodollar Loan which is a Revolving Loan, Tranche A Term Loan, Tranche B Term Loan or Foreign Currency Loan or for any Base Rate Loan which is a Revolving Loan, Tranche A Term Loan or Tranche B Term Loan, the applicable rate of the Unused Fee for any day for purposes of Section 3.5(a) or the applicable rate of the Standby Letter of Credit Fee for any day for purposes of Section 3.5(b)(i), the appropriate applicable percentage set forth below:
- ----------------------------------------------------------------------------------------------------------------- Applicable Applicable Percentage for Applicable Percentage for Base Rate Loans Percentage Applicable Eurodollar Loans which are for Percentage which are Revolving Eurodollar for Base Applicable Revolving Loans, Loans, Loans which Rate Loans Percentage Applicable Tranche A Term Swingline Loans are Tranche which are for Standby Percentage Loans or Foreign or Tranche A B Term Tranche B Letter of for Unused Currency Loans Term Loans Loans Term Loans Credit Fee Fee - ----------------------------------------------------------------------------------------------------------------- 3.50% 2.25% 3.50% 2.25% 3.00% 0.50% - -----------------------------------------------------------------------------------------------------------------
"Borrowing Base" means (i) as of any day prior to February 15, 1999, the sum of (a) 85% of Eligible Receivables and (b) 55% of Eligible Inventory, in each case as set forth in the most recent Borrowing Base Report delivered to the Agent and the Lenders in accordance with the terms of section 7.1(e); provided, however, that the amount determined pursuant to clause (b) above shall not exceed 50% of the total Borrowing Base, and (ii) as of any day on or after February 15, 1999, the Original Borrowing Base; provided further, however, that for purposes of determining the Borrowing Base on February 15, 1999 and the need for a prepayment under Section 3.3(b)(i), Eligible Receivables and Eligible Inventory will be as they existed on January 3, 1999. "Interest Payment Date" means (i) as to any Base Rate Loan, the last day of each calendar month and the Maturity Date, and (ii) as to any Eurodollar Loan, the last day of each calendar month, the last day of each Interest Period for such Loan and the Maturity Date. If an Interest Payment Date falls on a date which is not a Business Day, such Interest Payment Date shall be deemed to be the next succeeding Business Day, except that in the case where the last day of an Interest Period for a Eurodollar Loan falls on a 2 3 date which is not a Business Day and where the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day. 2. Amendment to Section 3.1. Section 3.1 of the Existing Credit Agreement is hereby amended in its entirety to read as follows: 3.1 Default Rate. Upon the occurrence, and during the continuance, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall bear interest, payable on demand, at a per annum rate 2% greater than the rate which would otherwise be applicable (or if no rate is applicable, whether in respect of interest, fees or other amounts, then 2% greater than the Base Rate). 3. Amendment to Section 3.3(b)(iii). Section 3.3(b)(iii) of the Existing Credit Agreement is hereby amended to add the following sentence at the end of such section: Notwithstanding anything to the contrary contained herein, (x) immediately upon receipt by the Borrower or any of its Subsidiaries of proceeds from the sale of the Borrower's facility located in Waynesboro, Virginia ("Waynesboro Sale"), the Borrower shall prepay the Loans in an amount equal to the Net Proceeds of the Waynesboro Sale to the Lenders (such prepayment to be applied as set forth in clause (vii) below) and (y) immediately upon receipt by the Borrower or any of its Subsidiaries of any United States federal and state income tax refunds, the Borrower shall prepay the Loans in an aggregate amount equal to 100% of such income tax refunds (such prepayment to be applied as set forth in clause (vii) below). 4. Amendment to Section 3.5(a). Section 3.5(a) of the Existing Credit Agreement is hereby amended to add the following sentence to the end of such Section to read as follows:: Notwithstanding anything to the contrary contained herein, beginning November 30, 1998, the Unused Fee shall be due and payable in arrears on the last day of each calendar month (and any date that the Revolving Committed Amount is reduced as provided in Section 3.4(a) and the Maturity Date) for the immediately preceding month (or portion thereof) each such month or portion thereof for which the Unused Fee is payable hereunder being herein referred to as an "Unused Fee Calculation Period"); provided however, the accrued and unpaid Unused Fee for the period beginning October 1, 1998 until November 30, 1998 shall be due and payable on November 30, 1998. 5. Amendment to Section 3.5(b)(i). The last sentence of Section 3.5(b)(i) of the Existing Credit Agreement is hereby amended in its entirety to read as follows:: The Standby Letter of Credit Fee will be payable monthly in arrears on the last day of each calendar month, beginning November 30, 1998, for the immediately preceding month (or a portion thereof); provided however, the accrued and unpaid Standby Letter of Credit Fee 3 4 for the period beginning October 1, 1998 until November 30, 1998 shall be due and payable on November 30, 1998. 6. Amendment to Section 3.5(b)(iii)(A). Section 3.5(b)(iii)(A) of the Existing Credit Agreement is hereby amended in its entirety to read as follows:: (A) a standby Letter of Credit fronting fee of 0.125% on the average daily maximum amount available to be drawn under each standby Letter of Credit computed at a per annum rate for each day from the date of issuance to the date of expiration, such fronting fee to be payable monthly in arrears on the last day of each calendar month, beginning November 30, 1998, for the immediately preceding month (or a portion thereof); provided however, the accrued and unpaid fronting fee payable hereunder for the period beginning October 1, 1998 until November 30, 1998 shall be due and payable on November 30, 1998, 7. Amendment to Section 7.1. A new subsection (m) is added to Section 7.1 of the Existing Credit Agreement to read as follows: (m) Flash Reports. As soon as available, and in any event within 15 days after the close of each fiscal month, a flash report containing (i) a comparison of the Borrower's financial condition and performance with the plan presented by the Borrower at the October 21, 1998 meeting of the Borrower and the Lenders, and (ii) an analysis of the Borrower's accounts payable and the status of the Borrower's vendor relationships, all in reasonable form and detail satisfactory to the Lenders and prepared by the Borrower and independent consultants of recognized national standing reasonably acceptable to the Lenders. 8. Amendment to Section 7.11. Sections 7.11(b) and (c) of the Existing Credit Agreement are hereby amended in their entirety to read as follows: (b) Consolidated Funded Debt Coverage Ratio. The Consolidated Funded Debt Coverage Ratio at each Calculation Date shall be no greater than the following proportions:
Period Ratio ------ ----- As of the last day of 5.25 to 1.00 the third fiscal quarter of fiscal year 1997 of the Borrower and its Subsidiaries As of the last day of the 6.50 to 1.00 fourth fiscal quarter of fiscal year 1997 of the Borrower and its Subsidiaries
4 5 As of the last day of the 6.25 to 1.00 first fiscal quarter of fiscal year 1998 of the Borrower and its Subsidiaries As of the last day of 4.00 to 1.00 the second fiscal quarter of fiscal year 1998 of the Borrower and its Subsidiaries As of the last day of 4.50 to 1.00 the third fiscal quarter of fiscal year 1998 of the Borrower and its Subsidiaries As of the last day of 4.50 to 1.00 the fourth fiscal quarter of fiscal year 1998 of the Borrower and its Subsidiaries As of the last day of 3.50 to 1.00 the first fiscal quarter of fiscal year 1999 of the Borrower and its Subsidiaries As of the last day of 3.25 to 1.00 the second fiscal quarter of fiscal year 1999 of the Borrower and its Subsidiaries As of the last day of 3.00 to 1.00 the third fiscal quarter of fiscal year 1999 of the Borrower and its Subsidiaries and thereafter
5 6 (c) Consolidated Fixed Charge Coverage Ratio. The Consolidated Fixed Charge Coverage Ratio at each Calculation Date shall be no less than the following proportions:
Period Ratio ------ ----- For the period occurring 1.25 to 1.00 from the Closing Date through the last day of the first fiscal quarter of fiscal year 1998 of the Borrower and its Subsidiaries For the period occurring 2.00 to 1.00 from the first day of the second fiscal quarter of fiscal year 1998 through the last day of the second fiscal quarter of fiscal year 1998 of the Borrower and its Subsidiaries For the period occurring 1.75 to 1.00 from the first day of the third fiscal quarter of fiscal year 1998 through the last day of the third fiscal quarter of fiscal year 1998 of the Borrower and its Subsidiaries For the period occurring 1.50 to 1.00 from the first day of the fourth fiscal quarter of fiscal year 1998 through the last day of the fourth fiscal quarter of fiscal year 1998 of the Borrower and its Subsidiaries For the period occurring 1.75 to 1.00 from the first day of the first fiscal quarter of fiscal year 1999 of the Borrower and its Subsidiaries and thereafter
6 7 9. New Sections 7.17 and 7.18. New Sections 7.17 and 7.18 are hereby added to the Existing Credit Agreement immediately following Section 7.16 thereof which shall read as follows: 7.17 Meetings Regarding Flash Reports; Review Plan. Upon delivery of the flash reports required under Section 7.1(m), the Borrower and the consultants involved in the preparation of such flash reports shall immediately meet with the Lenders to discuss such reports. The Borrower shall cause such consultants to conduct any and all due diligence necessary to (i) review the plan presented by the Borrower at the October 21, 1998 meeting of the Borrower and the Lenders and (ii) discuss and recommend any changes to such plan, if necessary,with the Lenders on or before February 15, 1999. 7.18 Collateral Review. Borrower will, and will cause each of its Subsidiaries to, permit representatives of the Agent and the Lenders to conduct reviews of all assets of the Borrower and its Subsidiaries, wherever such assets may be located, which do not constitute Collateral. At the reasonable request of the Agent or any Lender, Borrower will, and will cause each of its Subsidiaries to, execute and deliver any documents, instruments or agreements or take any other actions requested by the Agent or any Lender to cause any or all of its real (whether leased or owned) property or personal property, wherever located, and which the Agent or any such Lender shall reasonably require to be Collateral, to be subject at all times to first priority, perfected and, in the case of real property (whether leased or owned), title insured Liens in favor of the Agent for the benefit of the Lenders. PART III CONDITIONS TO EFFECTIVENESS 1. Amendment No. 5 Effective Date. This Amendment shall be and become effective as of the date hereof (the "Amendment No. 5 Effective Date") when all of the conditions set forth in this Part III shall have been satisfied, and thereafter this Amendment shall be known, and may be referred to, as "Amendment No. 5." 2. Execution of Counterparts of Amendment. The Agent shall have received counterparts (or other evidence of execution, including telephonic message, satisfactory to the Agent) of this Amendment, which collectively shall have been duly executed on behalf of each of the Borrower, the Guarantors and the Required Lenders. 3. Corporate Existence. The Agent shall have received all documents it may reasonably request relating to the existence and good standing of each of the Credit Parties, the corporate or other necessary authority for and the validity of this Amendment, and any other matters relevant thereto, all in form and substance reasonably satisfactory to the Agent. 4. Legal Opinion. The Agent shall have received a legal opinion of McGuire, Woods, Battle & Boothe, counsel for the Credit Parties in form and substance reasonably satisfactory to the Agent. 7 8 5. Officer's Certificate. The Agent shall have received a certificate executed by the chief financial officer of the Borrower as of the Amendment No. 5 Effective Date stating that, immediately after giving effect to this Amendment and the transactions contemplated hereby, (i) each of the Credit Parties is Solvent, (ii) no Default or Event of Default exists and (iii) the representations and warranties set forth in the Existing Credit Agreement are true and correct in all material respects. 6. Material Adverse Change. Except as otherwise previously disclosed in writing to the Lenders, no material adverse change shall have occurred since December 29, 1996 in the condition (financial or otherwise), business or management of the Borrower or of the Borrower and its Subsidiaries taken as a whole. 7. Fees and Expenses. All out-of-pocket fees and expenses of Agent or any Lender in connection with the Credit Documents, including this Amendment, including legal and other professional fees and expenses incurred on or prior to the date of this Amendment, including, without limitation, the fees and expenses of Winstead Sechrest & Minick P.C, shall have been paid. 8. Settlement Agreement. The Agent shall have received a copy, certified by the chief financial officer of the Borrower as true and complete, of the executed settlement agreement by and between the Borrower and Electronic Data Systems Corporation, pertaining to the commercialization of accounts payable, and of each other document or instrument executed in connection therewith. 9. UCC-1 Financing Statements; Landlord's Waivers; Security Agreements. The Agent shall have received (i) duly executed UCC financing statements for each appropriate jurisdiction as is necessary, in the Agent's sole discretion, to perfect the Agent's security agreement in the Collateral; (ii) duly executed patent or trademark filings as requested by the Agent in order to perfect the Agent's security interest in the Collateral; and (iii) updated and complete schedules to the Security Agreement. 10. Other Items. The Agent shall have received such other documents, agreements or information which may be reasonably requested by the Agent. PART IV MISCELLANEOUS 1. Representations and Warranties. Borrower hereby represents and warrants to the Agent and the Lenders that, after giving effect to this Amendment, (a) no Default or Event of Default exists under the Credit Agreement or any of the other Credit Documents which has not been waived and (b) the representations and warranties set forth in Section 6 of the Existing Credit Agreement are, subject to the limitations set forth therein, true and correct in all material respects as of the date hereof (except for those which expressly relate to an earlier date). 8 9 2. Releases. In consideration of Lenders' agreements herein and certain other good and valuable consideration, the Borrower and each Guarantor hereby expressly acknowledge and agree that none of them has any setoffs, counterclaims, adjustments, recoupments, defenses, claims or actions of any character, whether contingent, non-contingent, liquidated, unliquidated, fixed, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, known or unknown, against any Lender or the Agent or any grounds or cause for reduction, modification or subordination of the obligations of Borrower or any Guarantor under the Credit Documents or any liens or security interests of any Lender or the Agent in each case which arose on or prior to the date hereof. To the extent Borrower or any Guarantor may possess any such setoffs, counterclaims, adjustments, recoupments, claims, actions, grounds or causes, each of the Borrower and Guarantors hereby waives, and hereby releases each Lender and Agent from, any and all of such setoffs, counterclaims, adjustments, recoupments, claims, actions, grounds and causes, such waiver and release being with full knowledge and understanding of the circumstances and effects of such waiver and release and after having consulted counsel with respect thereto. 3. Cross-References. References in this Amendment to any Part are, unless otherwise specified, to such Part of this Amendment. 4. Instrument Pursuant to Existing Credit Agreement. This Amendment is a Credit Document executed pursuant to the Existing Credit Agreement and shall (unless otherwise expressly indicated therein) be construed, administered and applied in accordance with the terms and provisions of the Existing Credit Agreement. 5. References in Other Credit Documents. At such time as this Amendment No. 5 shall become effective pursuant to the terms of Part III, all references in the Credit Documents to the "Credit Agreement" shall be deemed to refer to the Credit Agreement as amended by this Amendment No. 5. 6. Counterparts. This Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. 7. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE COMMONWEALTH OF VIRGINIA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. 8. Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 9 10 IN WITNESS WHEREOF the parties hereto have caused this Amendment to be duly executed on the date first above written. BORROWER: -------- GENICOM CORPORATION By /s/James C. Gale Title: Senior Vice President GUARANTORS: ---------- GENICOM INTERNATIONAL HOLDINGS CORPORATION By /s/James C. Gale Title: President GENICOM INTERNATIONAL SALES CORPORATION By /s/James C. Gale Title: President DELMARVA TECHNOLOGIES CORPORATION By Title: President RASTEK CORPORATION By /s/James C. Gale Title: President and Treasurer ENTERPRISING SERVICE SOLUTIONS 11 CORPORATION By /s/James C. Gale Title: Vice President PRINTER SYSTEMS CORPORATION By /s/James C. Gale Title: Vice President THE PRINTER CONNECTION, INC. By /s/James C. Gale Title: Vice President PRINTER SYSTEMS INTERNATIONAL, LTD. By /s/James C. Gale Title: Vice President LENDERS: ------- NATIONSBANK, N.A. (formerly NationsBank of Texas, N.A.), individually as a Leader and in its capacity as Agent By /s/Jay Wampler Title: Vice President 12 CREDITANSTALT CORPORATE FINANCE, INC. By ---------------------------------- Title: By ---------------------------------- Title: DEEPROCK & COMPANY By: Eaton Vance Management, as Investment Advisor By ---------------------------------- Title: CRESTAR BANK By ---------------------------------- Title: THE RIGGS NATIONAL BANK OF WASHINGTON, D.C. By ---------------------------------- Title: FLOATING RATE PORTFOLIO By: Chancellor LGT Senior Secured Management, Inc., as attorney-in-fact By ---------------------------------- Title: 13 KZH HOLDING CORPORATION III By ---------------------------------- Title: TORONTO DOMINION (TEXAS), INC. By ---------------------------------- Title: SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Advisor By ---------------------------------- Title: CERES FINANCE LTD. By ---------------------------------- Title: AERIES FINANCE LTD. By ---------------------------------- Title: BANK OF SCOTLAND By ---------------------------------- Title: 14 NATIONAL CITY BANK OF KENTUCKY By ---------------------------------- Title: EX-27.1 3 FINANCIAL DATA SCHEDULE
5 9-MOS JAN-03-1999 DEC-29-1997 SEP-27-1998 6,523 0 94,762 (6,058) 65,863 178,175 110,227 (68,540) 241,308 93,514 0 0 0 117 31,871 241,308 228,415 343,243 163,012 267,781 88,127 0 8,217 (20,882) (5,639) (15,243) 0 0 0 (15,243) (1.32) (1.32)
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