-----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, KhTOSrKBraYFLgfcexJcFEsuydgMOyf8U5ov4YQGUQlWimHn7chuHab8HzY8+djE 8V9WDVljykHH0zhOabHw/g== 0000950133-99-002859.txt : 19990819 0000950133-99-002859.hdr.sgml : 19990819 ACCESSION NUMBER: 0000950133-99-002859 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990704 FILED AS OF DATE: 19990818 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: 99695016 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 July 4, 1999 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 its 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 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 July 30, 1999, there were 11,683,174 shares of Common Stock of the Registrant outstanding. ================================================================================ 2 FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - July 4, 1999 and January 3, 1999 3 Consolidated Statements of Operations - Three and Six Months Ended July 4, 1999 and June 28, 1998 4 Consolidated Statements of Cash Flows - Three and Six Months Ended July 4, 1999 and June 28, 1998 5 Notes to Consolidated Financial Statements 6 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 15 Item 3. Market Risk 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 - 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18 Index to Exhibits E-1
PAGE 2 3 PART I. - FINANCIAL INFORMATION Item 1. Financial Statements GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JULY 4, JANUARY 3, (In thousands, except share data) 1999 1999 ------------------------ ------------------------ (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 8,228 $ 4,894 Accounts receivable, less allowance for doubtful accounts of $5,141 and $5,716 78,514 83,893 Other receivables 340 2,714 Inventories 49,517 59,617 Prepaid expenses and other assets 13,126 12,664 ------------------------ ------------------------ TOTAL CURRENT ASSETS 149,725 163,782 Property, plant and equipment, net 45,784 45,459 Goodwill 14,218 15,965 Intangibles and other assets 5,891 4,771 ------------------------ ------------------------ 215,618 $ 229,977 ======================== ======================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 5,893 $ 7,936 Accounts payable and accrued expenses 60,920 67,096 Deferred income 13,412 13,344 ------------------------ ------------------------ TOTAL CURRENT LIABILITIES 80,225 88,376 Long-term debt, less current portion 102,727 105,000 Other non-current liabilities 11,863 11,984 ------------------------ ------------------------ TOTAL LIABILITIES 194,815 205,360 ------------------------ ------------------------ STOCKHOLDERS' EQUITY: Common stock, $0.01 par value; 18,000,000 shares authorized, 11,646,040 and 11,581,661 shares issued 116 116 and outstanding Additional paid-in capital 30,465 29,216 Retained earnings (6,857) (2,039) Accumulated other comprehensive loss (2,921) (2,676) ------------------------ ------------------------ TOTAL STOCKHOLDERS' EQUITY 20,803 24,617 ------------------------ ------------------------ $ 215,618 $ 229,977 ======================== ========================
The accompanying notes are an integral part of these financial statements. PAGE 3 4 GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED, JULY 4, JUNE 28, (In thousands, except per share data) 1999 1998 ------------------- ------------------ REVENUES, NET: Products $ 66,671 $ 74,681 Services 35,444 37,369 ------------------- ------------------ 102,115 112,050 ------------------- ------------------ OPERATING COSTS AND EXPENSES: Cost of revenues: Products 49,287 53,691 Services 28,997 35,017 Selling, general and administration 18,695 21,782 Engineering, research and product development 4,315 4,099 Write-off of goodwill 15,000 ------------------- ------------------ 101,294 129,589 ------------------- ------------------ OPERATING INCOME (LOSS) 821 (17,539) Interest expense, net 2,937 2,737 ------------------- ------------------ LOSS BEFORE INCOME TAXES (2,116) (20,276) Income tax (benefit) expense (106) (5,470) ------------------- ------------------ NET LOSS $ (2,010) $ (14,806) =================== ================== Loss per common share (basic) $ (0.17) $ (1.28) =================== ================== Loss per common share (diluted) $ (0.17) $ (1.28) =================== ================== Weighted average number of common shares outstanding (basic) 11,642 11,555 =================== ================== Weighted average number of common shares and dilutive shares (diluted) 11,642 11,555 =================== ================== SIX MONTHS ENDED, JULY 4, JUNE 28, (In thousands, except per share data) 1999 1998 ------------------- ------------------ REVENUES, NET: Products $ 129,833 $ 155,012 Services 72,671 79,148 ------------------- ------------------ 202,504 234,160 ------------------- ------------------ OPERATING COSTS AND EXPENSES: Cost of revenues: Products 94,134 110,651 Services 60,676 72,753 Selling, general and administration 38,502 42,053 Engineering, research and product development 8,382 8,424 Write-off of goodwill 15,000 ------------------- ------------------ 201,694 248,881 ------------------- ------------------ OPERATING INCOME (LOSS) 810 (14,721) Interest expense, net 5,615 5,330 ------------------- ------------------ LOSS BEFORE INCOME TAXES (4,805) (20,051) Income tax (benefit) expense 13 (5,414) ------------------- ------------------ NET LOSS $ (4,818) $ (14,637) =================== ================== Loss per common share (basic) $ (0.41) $ (1.27) =================== ================== Loss per common share (diluted) $ (0.41) $ (1.27) =================== ================== Weighted average number of common shares outstanding (basic) 11,626 11,510 =================== ================== Weighted average number of common shares and dilutive shares (diluted) 11,626 11,510 =================== ==================
The accompanying notes are an integral part of these financial statements. PAGE 4 5 GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED, JULY 4, JUNE 28, (In thousands) 1999 1998 ------------------------ ------------------------ Cash flows from operating activities: Net loss $ (4,818) $ (14,637) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation 6,800 7,116 Amortization 3,542 4,274 Write-off of goodwill 15,000 Changes in assets and liabilities: Accounts receivable 8,503 4,637 Inventories 11,769 (1,330) Accounts payable and accrued expenses (8,801) (4,470) Deferred income 68 (1,534) Other (953) (4,834) ------------------------ ------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 16,110 4,222 ------------------------ ------------------------ Cash flows from investing activities: Additions to property, plant and equipment (8,297) (12,110) Other investing (92) (1,638) ------------------------ ------------------------ NET CASH USED IN INVESTING ACTIVITIES (8,389) (13,748) ------------------------ ------------------------ Cash flows from financing activities: Borrowings on long-term debt 11,409 21,613 Payments on long-term debt (15,725) (7,792) Bank overdraft (2,172) Financing costs (94) (73) ------------------------ ------------------------ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (4,410) 11,576 ------------------------ ------------------------ Effect of exchange rate changes on cash and cash equivalents 23 (123) ------------------------ ------------------------ Net increase in cash and cash equivalents 3,334 1,927 Cash and cash equivalents at beginning of period 4,894 4,622 ------------------------ ------------------------ Cash and cash equivalents at end of period $ 8,228 $ 6,549 ======================== ========================
The accompanying notes are an integral part of these financial statements PAGE 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 July 4, 1999, 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 January 3, 1999 Annual Report on Form 10-K. The results of operations for the six months ended July 4, 1999, 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:
JULY 4, JANUARY 3, 1999 1999 ----------------------- ------------------------ Raw materials $ 4,634 $ 4,086 Work in process 814 930 Finished goods 44,069 54,601 ----------------------- ------------------------ $ 49,517 $ 59,617 ======================= ========================
PAGE 6 7 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 July 4, 1999 ------------------------------------------------------- Loss Shares Per Share ---------------- ---------------- ---------------- BASIC EPS Loss available to shareholders $ (2,010) 11,642 $ (0.17) Weighted shares from stock options ---------------- ---------------- ---------------- DILUTED EPS $ (2,010) 11,642 $ (0.17) ---------------- ---------------- ---------------- Three Months Ended June 28, 1998 ------------------------------------------------------- Loss Shares Per Share ---------------- ---------------- ---------------- BASIC EPS Loss available to shareholders $ (14,806) 11,555 $ (1.28) Weighted shares from stock options ---------------- ---------------- ---------------- DILUTED EPS $ (14,806) 11,555 $ (1.28) ---------------- ---------------- ---------------- Six Months Ended July 4, 1999 ------------------------------------------------------- Loss Shares Per Share ---------------- ---------------- ---------------- BASIC EPS Loss available to shareholders $ (4,818) 11,626 $ (0.41) Weighted shares from stock options ---------------- ---------------- ---------------- DILUTED EPS $ (4,818) 11,626 $ (0.41) ---------------- ---------------- ---------------- Six Months Ended June 28, 1998 ------------------------------------------------------- Loss Shares Per Share ---------------- ---------------- ---------------- BASIC EPS Loss available to shareholders $ (14,637) 11,510 $ (1.27) Weighted shares from stock options ---------------- ---------------- ---------------- DILUTED EPS $ (14,637) 11,510 $ (1.27) ---------------- ---------------- ----------------
For the three months ended July 4, 1999 and June 28, 1998, 273,000 and 1,041,000 shares, respectively, have been omitted due to their antidilutive nature. For the six months ended July 4, 1999 and June 28, 1998, 365,000 and 1,147,000 shares, respectively, have been omitted due to their antidilutive nature. PAGE 7 8 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 customers with a full range of network information technology services with field services, depot repair, parts and logistics and network products (Enterprising Service Solutions company). Revenue between industry segments is not material.
Six Months Ended or As of July 4, June 28, (in thousands) 1999 1998 ---------------------- ---------------------- REVENUE Document Solutions $ 129,833 $ 155,012 Enterprising Service Solutions 72,671 79,148 ---------------------- ---------------------- $ 202,504 $ 234,160 ---------------------- ---------------------- OPERATING (LOSS) INCOME Document Solutions $ 4,086 $ 2,074 Enterprising Service Solutions (3,276) (16,795) ---------------------- ---------------------- $ 810 $ (14,721) ---------------------- ---------------------- DEPRECIATION AND AMORTIZATION Document Solutions $ 2,777 $ 3,416 Enterprising Service Solutions 6,054 7,204 Corporate and other 1,511 770 ---------------------- ---------------------- $ 10,342 $ 11,390 ---------------------- ---------------------- ASSETS Document Solutions $ 98,906 $ 129,387 Enterprising Service Solutions 80,982 81,532 Corporate and other 35,730 32,067 ---------------------- ---------------------- $ 215,618 $ 242,986 ---------------------- ---------------------- CAPITAL EXPENDITURES Document Solutions $ 1,783 $ 2,007 Enterprising Service Solutions 3,999 6,937 Corporate and other 2,515 3,166 ---------------------- ---------------------- $ 8,297 $ 12,110 ---------------------- ----------------------
5. 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 final investigative report to the EPA. During the second quarter of 1999, the EPA requested additional investigative work which the Company anticipates completing during the first quarter of 2000. Although not required by the Order, the Company has installed and is operating an interim groundwater stabilization system. Annual operational expenses for PAGE 8 9 the system are currently approximately $57,000. 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 the 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 would undertake a remedial investigation and feasibility study. That study is currently underway. The Company has not had and does not anticipate any material expenditures in connection with this matter. 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. 6. The Company's loss, if reported on a comprehensive basis, would be as follows:
Three Months Ended Six Months Ended ----------------------------------------- ------------------------------------------ July 4, June 28, July 4, June 28, 1999 1998 1999 1998 ------------------- ------------------- ------------------- ------------------- Reported loss $ (2,010) $ (14,806) $ (4,818) $ (14,637) Foreign currency translation (196) (212) (245) (105) Tax benefit (53) (26) ------------------- ------------------- ------------------- ------------------- Comprehensive loss $ (2,206) $ (14,965) $ (5,063) $ (14,716) ------------------- ------------------- ------------------- -------------------
7. 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, 2001. Management does not anticipate early adoption. The Company believes that the effect of adoption of SFAS No. 133 will not be material. PAGE 9 10 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition: RESULTS OF OPERATIONS
============================================================================================== THREE MONTHS ENDED ------------------------------------------------ 2ND QTR. 2ND QTR. (in millions) 1999 CHANGE 1998 - -------------------------------------------------------------- ----------------------------- Revenues - Enterprising Service Solutions $ 35.4 $ (2.0) $ 37.4 Revenues - Document Solutions 66.7 (8.0) 74.7 ----------- ---------- ---------- Total Revenues $ 102.1 $ (10.0) $ 112.1 ----------- ---------- ---------- Percentage change (8.9) % ============================================================================================== ============================================================================================== SIX MONTHS ENDED ------------------------------------------------ 2ND QTR. 2ND QTR. (in millions) 1999 CHANGE 1998 - -------------------------------------------------------------- ----------------------------- Revenues - Enterprising Service Solutions $ 72.7 $ (6.5) $ 79.2 Revenues - Document Solutions 129.8 (25.2) 155.0 ----------- ----------- ---------- Total Revenues $ 202.5 $ (31.7) $ 234.2 ----------- ----------- ---------- Percentage change (13.5) % ==============================================================================================
Revenue in the second quarter of 1999 decreased 8.9% from the second quarter of 1998 primarily due to lower supply sales related to the Texas Instruments and Digital low-end installed printer base that has significantly declined since the second quarter of 1998, lower off-site repair revenue due to a decision to close the Fort Worth depot and exit the express parts business which were low margin businesses, and the effect of the decline in the value of the EURO and related currencies on prices in Europe. Documents Solutions ("DSC") revenue was 10.7% lower than the second quarter of 1998 principally as a result of the supply sales mentioned above and the decline in the value of the EURO. Enterprising Service Solutions ("ESSC") revenue decreased 5.2% from the prior year quarter. The decrease in ESSC revenue was principally due to the lower off-site revenue partially offset by higher Canadian service revenue. Revenue for the six months ended July 4, 1999 was 13.5% lower than the first six months of 1998. This was due primarily to the reasons mentioned above and in 1998, ESSC had substantial revenues in the first quarter from a contract with NASDAQ. Digital branded printer and supply sales have softened over the past nine months. Although broader product lines have been introduced, Compaq Computer Corporation's acquisition of Digital has required a migration from Digital to Compaq branding, realignment of channels and changes in the business relationship. The Company has been authorized to sell products under the Compaq brand, but is unable to predict the effect the changes in brand name and sales channel could have on sales to Compaq or to Compaq's customers. The Company is currently in discussions with Compaq concerning changes in the terms of the contract governing their relationship.
=========================================================================================================================== (in millions) 2ND QUARTER 4TH QUARTER 2ND QUARTER 1999 1998 1998 - --------------------------------------------------------------------------------------------------------------------------- Order backlog $ 32.3 $ 30.2 $ 40.8 Change: 2nd Quarter of 1999 compared to Amount 2.1 (8.5) Percentage 7.0 % (20.8) % ===========================================================================================================================
The decrease in order backlog from the 1998 second quarter primarily reflects a change in contract mix for ESSC, partially offset by an increase in DSC backlog due to new products. The increase in backlog from the fourth quarter of 1998 is principally due to an increase in ESSC on-site backlog related to a new contracts. This increase was partially offset by a decrease in DSC's product backlog. The Company's backlog as of any particular date should not be the sole measurement used in determining sales for any future period. PAGE 10 11
==================================================================================================================================== THREE MONTHS ENDED SIX MONTHS ENDED ---------------------------------------- ------------------------------------ 2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR. (in millions) 1999 CHANGE 1998 1999 CHANGE 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Gross margin - Enterprising Service Solutions $ 6.4 $ 4.0 $ 2.4 $ 12.0 $ 5.6 $ 6.4 Gross margin - Document Solutions 17.4 (3.6) 21.0 35.7 (8.7) 44.4 ----------- ----------- ---------- ---------- ----------- ---------- Total gross margin $ 23.8 $ 0.4 $ 23.4 $ 47.7 $ (3.1) $ 50.8 ----------- ----------- ---------- ---------- ----------- ---------- As a % of revenue 23.3 % 20.8 % 23.2 % 21.7 % ====================================================================================================================================
Gross margin, as a percent of revenue, increased from 20.8% in the second quarter of 1998 to 23.3% in the second quarter of 1999. As a percent of revenue, gross margin for DSC declined to 26.1% in the second quarter of 1999 from 28.1% in the second quarter of 1998. DSC's gross margin percentage decrease was basically the result of a change in sales mix with a reduction in supply sales, the higher than normal sales of pass though products at very low margin and the weak EURO in Europe. For ESSC, gross margin increased from 6.3% for the second quarter of 1998 to 18.2% for 1999. The gross margin improvement was principally the result of better operating efficiencies in both off-site and on-site service in the U.S. For the first six months of 1999, gross margin as a percent of revenue, increased from 21.7% in 1998 to 23.6% in 1999. DSC's gross margin was lower by 1.6% due to the reasons mentioned above. ESSC's gross margin was higher by 7.5% principally due to the better operating efficiencies in the U.S.
====================================================================================================================== THREE MONTHS ENDED SIX MONTHS ENDED ---------------------------------------- -------------------------------------- 2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR. (in millions) 1999 CHANGE 1998 1999 CHANGE 1998 - ---------------------------------------------------------------------------------------------------------------------- Operating expenses: Selling, general and administrative $ 18.7 $ (3.1) $ 21.8 $ 38.5 $ (3.6) $ 42.1 Engineering, research and product development 4.3 0.2 4.1 8.4 0.0 8.4 Write-off of goodwill (15.0) 15.0 (15.0) 15.0 ----------- ----------- ---------- ---------- ----------- ---------- Total $ 23.0 $ (17.9) $ 40.9 $ 46.9 $ (18.6) $ 65.5 As a % of revenue 22.5 % 36.5 % 23.2 % 28.0 % ======================================================================================================================
The decrease of $17.9 million in operating expenses from the second quarter of 1998 was primarily a result of a write-off of goodwill in 1998 and cost controls implemented in 1999. This decrease was partially offset by higher benefit costs and depreciation related to the Company's new business systems. The decrease in operating expenses for the first six months of 1999 as compared to 1998 was a one-time write-off of goodwill in 1998, lower marketing expenses in ESSC due to adjustments to the sales force in early 1998 after the acquisition of Novadyne Computer Systems in late 1997 and cost controls implemented in 1999. This decrease was partially offset by consulting expenses related to the amending of the Company's credit agreement with NationsBank of Texas, N.A., increased benefit costs, and higher depreciation expenses related to the Company's new business systems. PAGE 11 12
====================================================================================================================== THREE MONTHS ENDED SIX MONTHS ENDED ---------------------------------------- -------------------------------------- 2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR. (in millions) 1999 CHANGE 1998 1999 CHANGE 1998 - ---------------------------------------------------------------------------------------------------------------------- Interest expense, net $ 2.9 $ 0.2 $ 2.7 $ 5.6 $ 0.3 $ 5.3 Percentage change 7.4 % 5.7 % ======================================================================================================================
Interest expense increased $0.2 million in the second quarter of 1999 compared to the same period a year ago due to costs associated with the Company's amendment to its credit agreement. Debt levels did not differ significantly compared to the second quarter of 1998. Interest expense is expected to remain at the second quarter level through the third quarter of 1999 due to amortization of bank fees from the amendment of the Company's credit agreement (see "Banking Arrangements"). Interest expense for the first six months of 1999 was $0.3 million higher than the same period in 1998 due to the bank fees mentioned above.
============================================================================================================================== THREE MONTHS ENDED SIX MONTHS ENDED -------------------------------------------- --------------------------------------------------- 2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR. (in millions) 1999 CHANGE 1998 1999 CHANGE 1998 - ------------------------------------------------------------------------------------------------------------------------------ Income tax benefit $ (0.1) $ 5.4 $ (5.5) $ 0.0 $ 5.4 $ (5.4) Effective tax rate 4.7% 27.0% 0.0% 27.0% ==============================================================================================================================
During the second quarter of 1999, the Company fully reserved the domestic deferred tax assets created as the result of the Company's current operating loss consistent with its review at the end of 1998 of the recoverability of its deferred tax assets. The recorded tax benefit was related to foreign losses, partially offsetting earlier foreign income tax expense. During the second quarter of 1998, the tax rate was affected by the anticipated partial utilization of fully reserved foreign operating losses and the tax benefits associated with the goodwill write-off. For the first six months of 1999, deferred tax assets were fully reserved compared to 1998 when a tax benefit was recorded related to the write-off of goodwill. LIQUIDITY AND CAPITAL RESOURCES
==================================================================================================================================== SIX MONTHS ENDED ------------------------------------------------------------------------- (in millions) 2ND QTR. 2ND QTR. 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Cash provided by operations $ 16.1 $ 4.2 Cash used in investing activities (8.4) (13.7) Cash (used in) provided by financing activities (4.4) 11.6 ====================================================================================================================================
PAGE 12 13
======================================================================================================= (in millions) 2ND QUARTER 4TH QUARTER 1999 1998 - ------------------------------------------------------------------------------------------------------- Working capital $ 69.5 $ 75.4 Inventories 49.5 59.6 Debt obligations 108.6 112.9 Debt to equity ratio 5.2 to 1 4.6 to 1 =======================================================================================================
Cash provided by operations was $16.1 million for the first six months of 1999 compared to $4.2 million in the first half of 1998. The increase in cash from operations was principally due to the decreases in inventory and accounts receivable partially offset by the Company's operating loss. The Company's working capital decreased $5.9 million as of July 4, 1999, as compared to January 3, 1999 due primarily to the following: a $10.1 million decrease in inventory resulting from the Company's inventory reduction program; a $6.2 million decrease in accounts payable; a $7.8 million decrease in trade and other accounts receivable directly related to the Company's lower revenue, and a $3.3 million increase in cash, primarily in Europe. Debt decreased from December 1998. This decrease was required as the Company's borrowing base relating to the revolving credit line declined with the reductions to inventory and accounts receivable. This reduction of borrowing base was partially offset by a liquidity facility available in April 1999. In early April, the Company drew on its new liquidity facility to fund current liabilities (see "Banking Arrangements"). Debt to equity ratio improved slightly over year-end. The Company had $1.6 million available on its revolving credit facility as of July 4, 1999. BANKING ARRANGEMENTS The Company has credit facilities with Bank of America, N.A., as agent for a group of lenders. When put in place in early 1996, maximum availability under the credit facilities was $75 million. The commitments under the facilities were increased to $125 million in late 1997. As of the end of the second quarter of fiscal 1999, the commitments had decreased to $116 million. Loans under this agreement have been used to fund operations, capital expenditures, and acquisitions. These facilities are secured by substantially all of the Company's assets. They are comprised of two term loans aggregating $55 million, with maturity dates in 2002 and 2004, and a revolving credit line of $70 million (now reduced to $61 million) maturing in September, 2002. Connected to the facilities is an interest rate swap which fixes the interest rate on approximately $37.5 million of the facility at approximately 8.5%. The interest rate on the balance of the facility is based on LIBOR plus a certain percentage based on Company performance. In 1998, the Company and the lender group amended the facilities several times . These amendments were necessary because the Company was unable to meet certain of the financial covenants in the agreement and required adjustments to the agreement to allow the Company to increase availability under the existing credit line for working capital purposes. The amendments included adjusting the financial covenants until the end of 1998, limiting capital expenditures to a maximum of $27 million for 1998, adjusting borrowing base percentages through February 15, 1999 (allowing the Company increased borrowing ability) and adjusting the interest rate upwards 1.50% on the incremental increased borrowing against the higher base. In February 1999, a further amendment to the credit agreement took effect. This amendment retained the increased borrowing base percentages through April 5, 1999. The Company also pledged 65% of the shares in the Company's Canadian subsidiary as additional collateral. On April 2, 1999, an additional amendment ("Amendment 7") to the credit agreement was put in place. It extended the increased borrowing base percentages until June 2000 and changed the financial covenants relating to PAGE 13 14 1) minimum earnings before charges for interest, state, federal and municipal income taxes, depreciation, and amortization ("EBITDA"), 2) minimum net worth requirements, and 3) 1999 capital expenditures, which were limited to approximately $19 million. The lenders also made available an additional $10 million for short term liquidity purposes. This amount, to the extent borrowed, is due on September 30, 1999 or the due date can be extended at the Company's option on a quarterly basis for a fee of 0.5% of the liquidity facility outstanding. The interest rate on the revolver and the additional $10 million is 3.5% above LIBOR on Eurodollar loans. The Company drew $10 million on the liquidity facility in April 1999. As consideration for Amendment 7, the Company agreed to pay an amendment fee of $1.2 million upon the earlier of the prepayment in full of the credit facilities or the acceleration of the Company's obligations to repay the loans. This fee has been accrued. The Company has also agreed to pay a continuation fee on the last day of each fiscal quarter beginning with the fourth quarter of fiscal year 1999 until the obligations are paid. The continuation fee is 0.5% of all obligations outstanding on the last day of each such fiscal quarter. As further consideration, the Company pledged 65% of the shares in several foreign subsidiaries as additional collateral. The lenders also received warrants to purchase one million shares of GENICOM common stock at $1.94 per share. The warrants are callable through March 31, 2000 under certain conditions and cannot be exercised before then. Amendment 7 reduced the lenders' revolving credit commitments to $62 million at the end of the first fiscal quarter of 1999, $61 million at the end of the second fiscal quarter of 1999, $58 million at the end of the third fiscal quarter of 1999, and $52 million at the end of fiscal 1999. The amount outstanding under the revolver and liquidity facility at July 4, 1999 was $58.7 million. The Company was in compliance with the financial covenants in the credit facility at the end of the second quarter and has timely paid all interest and principal payments due under the credit facilities through July 1999. Based on its current third quarter projections, the Company is unable to determine that it will be in compliance with its minimum monthly EBITDA requirements for each month of the third quarter. If this noncompliance were to occur, the Company would seek a waiver of the requirement from the lender group. The Company cannot predict whether, or on what terms, the lender group would grant such a waiver. During the second quarter, the Company generated cash from the conversion of accounts receivable and inventory to cash and depreciation and amortization exceeding capital expenditures. This cash was used to fund the Company's continuing losses and pay down outstanding debt. Continued losses and an absence of lender support, could cause liquidity issues for the Company in the future. Inability of the Company to reach agreement with the lender group on a covenant noncompliance waiver, if one is required, or the liquidity issues could have a material adverse effect on 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 the possible failure of computer systems and computer driven equipment due to the digit 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 cause 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 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. 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 be completely installed and tested by early December 1999. The Company is currently on schedule related to the installation. As a result, the Company does not anticipate Year 2000 PAGE 14 15 problems with its internal systems. The approximately $18-$20 million cost of the replacement system is being capitalized by the Company. The Company has incurred approximately $17.2 million through July 4, 1999 associated with this replacement system. 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, through 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 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 has generally completed reviewing vendor and customer compliance as well as items that may be affected by embedded systems such as manufacturing and telephone equipment. The review included inquiries of vendors and customers related to their Year 2000 compliance. As a result of this review, the Company believes no material expenditures will be required at this time related to customer and vendor compliance. 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. EURO CONVERSION On January 1, 1999, the exchange rates of eleven countries (Germany, France, the Netherlands, Austria, Italy, Spain, Finland, Ireland, Belgium, Portugal, and Luxembourg) were fixed among one another and became the currencies of the EURO. The individual currencies of the eleven countries will remain in circulation until mid-2002. The EURO currency will be introduced on January 1, 2002. The Company does not expect future balance sheets and statements of earnings and cash flows to be materially impacted by the EURO conversion. FORWARD LOOKING INFORMATION 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, 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 cash needs, GENICOM's ability to attract and 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. PAGE 15 16 Item 3. Market Risk The Company is exposed to the impact of interest rate and foreign currency risk. In the normal course of business, the Company employs established policies and procedures to manage its exposure to changes in interest rates and fluctuations in the value of foreign currencies using a variety of financial instruments. The Company's objective in managing its exposure to interest rate changes is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowings costs. To achieve its objectives, the Company primarily uses an interest rate swap to manage net exposure to interest rate changes related to its credit facility. International revenues from the Company's foreign subsidiaries were approximately 34% of total revenue. International sales are made mostly from the Company's foreign subsidiaries in their respective countries and are typically denominated in the local currency of each country. These subsidiaries also incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency. The Company's international business is subject to risks typical of an international business including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, the Company's future results could be materially adversely impacted by changes in these or other factors. The Company's exposure to foreign exchange rate fluctuations arises in part from intercompany accounts in which costs incurred in the United States are charged to the Company's foreign subsidiaries. The Company is also exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation. As exchange rates vary, those results, when translated, may vary from expectations and adversely impact overall expected profitability. 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: a) The Company's annual meeting of stockholders was held May 19, 1999. c) At said annual meeting, stockholders elected the Company's four directors, amended the Company's 1997 Stock Option Plan, and approved the appointment of PricewaterhouseCoopers L.L.P. as the Company's independent accountants. PAGE 16 17 Directors
Director Votes for Withheld Broker Non-Votes Don E. Ackerman 8,992,425 50,377 0 John Hill 8,995,039 47,763 0 Abraham Ostrovsky 8,995,039 47,763 0 Paul T. Winn 8,991,000 51,802 0
Stock Option Plan
Abstentions or Votes for Votes against Broker Non-Votes --------- ------------- ---------------- 2,404,072 1,090,325 5,548,405
Accountants
Abstentions or Votes for Votes against Broker Non-Votes --------- ------------- ---------------- 8,742,069 236,793 63,939
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 PAGE 17 18 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: August 18, 1999 /s/James C. Gale --------------------------------------------------- Signature James C. Gale Senior Vice President Finance and Chief Financial Officer (Mr. Gale is the Chief Financial Officer and has been duly authorized to sign on behalf of the Registrant)
PAGE 18 19 GENICOM CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS TO FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JULY 4, 1999
EXHIBIT NUMBER DESCRIPTION PAGE - ------------------- -------------------------------------------- ------------------------------- 27.1 Financial Data Schedule Filed only with EDGAR version
E - 1 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 6-MOS JAN-02-2000 APR-05-1999 JUL-04-1999 8,228 0 83,655 (5,141) 49,517 149,725 102,634 (56,850) 215,618 80,225 0 0 0 116 20,687 215,618 129,833 202,504 94,134 154,810 46,884 0 5,615 (4,805) 13 (4,818) 0 0 0 (4,818) (0.41) (0.41)
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