SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULES 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Month of October 2003
GENESYS, S.A.
(Exact name of registrant as specified in its charter)
L'Acropole, 954-980 avenue Jean Mermoz, 34000 Montpellier, FRANCE
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
--- ---
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.
Yes No X
--- ---
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_______________.
On October 24, 2003, we published our results for the six months ended June 30,
2003, prepared in accordance with French GAAP in the Bulletin des Annonces
Legales Obligatoire (the BALO).
All of the material terms of the French GAAP publication in the BALO are
included in the release concerning our results for the six months ended June 30,
2003, prepared in accordance with U.S. GAAP, which is included in this current
report on Form 6-K.
We omitted the certification of our auditors, included in the BALO publication,
from the U.S. GAAP release.
GENESYS, S.A.
FORM 6-K
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003
U.S. GAAP
1. MD&A
2. Financial Statements
3. Notes
1. Management's Discussion and Analysis of Financial Condition and Results of
Operations
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with:
o the financial statements and footnotes for the three and six months
ended June 30, 2003 contained herein;
o the Form 20-F for the year ended December 31, 2002 filed with the
Securities and Exchange Commission ("SEC") on May 15, 2003; and
o the current reports filed on Form 6-K for June 5, 6, 24, 2003;
August 5, 12, 14, 2003; and September 23, 2003.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
We use EBITDA as an important measure of the performance of our business. We
believe that EBITDA is a meaningful measure of performance, because it presents
our results of operations without the potentially volatile impact (which can be
substantial) of goodwill impairment and the non-cash impacting nature of
depreciation and amortization. We define EBITDA as earnings (loss) before income
taxes, interest, depreciation, amortization charges and impairment of goodwill
and other intangibles. Our depreciation charges are divided among the line items
of cost of revenue, research and development, selling and marketing and general
and administrative expenses, based on the use of the assets being depreciated.
EBITDA is not a measurement of operating performance calculated in accordance
with accounting principles generally accepted in the United States, and should
not be considered a substitute for operating income (loss), net income (loss),
cash flows from operating activities or other statement of operations or cash
flow statement data prepared in accordance with generally accepted accounting
principles, or GAAP. Because all companies do not calculate EBITDA identically,
the presentation of EBITDA contained in this document may not be comparable to
similarly named measures of other companies.
We also measure EBITDA excluding the impact of certain non-recurring
charges. These are charges that we incur as a result of unusual events that are
not likely to be repeated, such as our call center consolidation or the
termination of a contract. We believe it is useful to measure EBITDA excluding
non-recurring charges because it permits us to measure the relative performance
of the recurring aspects of our business from year to year.
We believe that the most directly comparable GAAP measure to EBITDA is
operating income (loss). The following table reconciles EBITDA (both before and
after non-recurring charges) to operating income (loss) for the periods
indicated.
Three months ended Six months ended
June 30, June 30,
-------- --------
2002 2003 2002 2003
---- ---- ---- ----
(In thousand of (euro))
Operating income (loss).............. (6,537) 4,998 (11,802) 9,988
Depreciation......................... 4,466 2,779 9,131 5,733
Amortization of intangibles.......... 3,832 2,611 7,481 5,226
-------- -------- -------- --------
EBITDA............................... 1,761 10,388 4,810 20,947
----- ------ ----- ------
Non-recurring charges................ 4,224 -- 8,856 --
-------- -------- -------- --------
EBITDA before non-recurring charges.. 5,985 10,388 13,666 20,947
----- ------ ------ ------
EBITDA included non-recurring charges of (euro)4.2 million for the three
months ended June 30, 2002, as follows: (euro) 2.5 million for the early
termination of a Rich Media contract, (euro) 0.5 million of duplicate costs and
retention bonus associated with the consolidation of call centers in North
America, (euro) 1.2 million for early termination of a U.S. long distance
contract. Before non-recurring charges of (euro) 4.2 million, EBITDA would
amount to (euro) 6.0 million for the three months ended June 30, 2002.
EBITDA included non-recurring charges of (euro)8.9 million for the six
months ended June 30, 2002, as follows: (euro)3.7 million in restructuring
charges for call center consolidation in North America, (euro) 2.5 million for
the early termination of a Rich Media contract, (euro)0.5 million of duplicate
costs and retention bonus associated with the consolidation of call centers in
North America, (euro)1.2 million for early termination of a U.S. long distance
contract, (euro)1.0 million for separation costs of selling and marketing staff.
Before non-recurring charges of (euro)8.9 million, EBITDA would amount to
(euro)13.7 million for the six months ended June 30, 2002.
Three months ended June 30, 2003 compared with the three months ended June 30,
2002
The decrease of the average rate of the U.S. dollar by 19% (0.88 euros and
1.09 euros for the three months ended June 30, 2003 and 2002, respectively) had
a significant effect on the main components of the statements of operations, due
to the weight of North American activities in the consolidated accounts.
Revenue
Total revenues decreased by 18.6% from (euro)51.9 million for the three
months ended June 30, 2002 to (euro)42.3 million for the three months ended June
30, 2003. The decrease of (euro)9.6 million was mainly due to the following two
reasons:
- The effect of foreign currency difference of (euro)8.1 million,
particularly in North America, which represented 56% of total revenues,
or 58% if Video revenue in the USA is included.
- The shift from operator-attended services to automated services that
increased volume and gross margin percentage but decreased revenue since
the price per minute was lower.
Volume increased again from 282 million minutes for the three months ended
June 30, 2002 to 339 million minutes for the three months ended June 30, 2003,
i.e. an increase of 20.5% during the same quarter.
Segment breakdown
The following table sets forth revenues excluding inter-segments for 2002
and 2003 by segment and expressed as a percentage of total revenues.
Three months ended June 30,
-----------------------------------------------------------------
2002 2003
In thousands % of In thousands % of
of (euro) revenues of (euro) revenues
---------------- ------------ ---------------- ------------
North America....... 32,305 62.2% 23,687 56.0%
Europe.............. 15,572 30.0% 14,471 34.2%
Asia-Pacific........ 1,682 3.2% 2,151 5.1%
Global Video........ 2,387 4.6% 1,961 4.6%
---------- ------- ---------- -------
Total revenues...... 51,946 100.0% 42,270 100.0%
====== ====== ====== ======
As discussed above, the decrease of (euro)9.7 million was mainly due to
the effect of the foreign currency difference with the U.S. dollar, which
resulted in a decrease of (euro)8.6 million in North America.
Category breakdown
The following table sets forth revenues excluding inter-segments for 2002
and 2003 by category and expressed as a percentage of total revenues.
Three months ended June 30,
-----------------------------------------------------------------
2002 2003
In thousands % of In thousands % of
of (euro) revenues of (euro) revenues
---------------- ------------ ---------------- ------------
Genesys Meeting Center..... 28,830 55.5% 27,825 65.8%
Events & Managed Services.. 20,382 39.2% 12,264 29.0%
Video Conferencing......... 2,387 4.6% 2,036 4.8%
Equipment.................. 347 0.7% 145 0.3%
-------- -------- -------- --------
Total revenues............. 51,946 100.0% 42,270 100.0%
====== ====== ====== ======
The breakdown by category highlighted a strong shift from
operator-attended services and web streaming ("Genesys Events & Managed
Services") to automate services ("Genesys Meeting Center").
Automated services, attended services and video conferencing represented
66%, 29% and 5% of total revenues, respectively, for the three months ended June
30, 2003.
Gross Profit
Although gross profit decreased by (euro)0.7 million from (euro)28.7
million, for the three months ended June 30, 2002, to (euro)28.0 million, for
the three months ended June 30, 2003, gross margin expressed as a percentage of
revenue increased significantly, from 55.3%, for the three months ended June 30,
2002, to 66.3%, for the three months ended June 30, 2003.
The permanent shift to automated services, the consolidation of call
centers in 2002 and the new long distance contract had a positive effect on our
gross margin, due to the reduction of cost of services. Additionally, cost of
services for the three months ended June 30, 2002 included (euro)1.7 million of
non-recurring costs.
The following table sets forth our gross profit by segment for 2002 and
2003, both as an absolute amount and as a percentage of segment revenues.
Three months ended June 30,
-----------------------------------------------------------------
2002 2003
In thousands % of In thousands % of
of (euro) revenues of (euro) revenues
---------------- ------------ ---------------- ------------
North America...... 15,975 48.3% 14,516 61.3%
Europe............. 11,516 73.9% 11,686 80.8%
Asia-Pacific....... 895 53.2% 1,328 61.7%
Global Video....... 332 13.9% 478 24.4%
---------- ------- ---------- -------
Gross profit....... 28,718 55.3% 28,008 66.3%
====== ===== ====== =====
Operating Expenses
The following table breaks down our operating costs and expenses that are
not included in cost of revenue for 2002 and 2003 by major category.
Three months ended June 30,
-----------------------------------------------------------------
2002 2003
In thousands % of In thousands % of
of (euro) revenues of (euro) revenues
---------------- ------------ ---------------- ------------
Research and development.... 1,188 2.3% 1,053 2.5%
Selling and marketing....... 13,864 26.7% 10,484 24.8%
General and administrative.. 16,371 31.5% 8,862 21.0%
Amortization of intangibles. 3,832 7.4% 2,611 6.2%
---------- ------- ---------- -------
Total operating expenses.... 35,255 67.9% 23,010 54.4%
====== ===== ====== =====
Research and Development
Research and development expenses remained stable expressed in amount.
Selling and Marketing
Selling and marketing expenses decreased by (euro)3.4 million, or 24.4%,
from (euro)13.9 million for the three months ended June 30, 2002 to (euro)10.5
million for the three months ended June 30, 2003. The decrease is mainly
explained by the decrease of 19% of the average exchange rate of the U.S.
dollar. As a percentage of total revenues, selling and marketing expenses
decreased from 26.7% to 24.8% for the three months ended June 30, 2002 and 2003,
respectively. Selling and marketing efforts are focused on further penetrating
the market and increasing global brand awareness.
General and Administrative
General and administrative expenses decreased by (euro)7.5 million, or
45.9%, from (euro)16.4 million for the three months ended June 30, 2002 to
(euro)8.9 million for the three months ended June 30, 2003. As a percentage of
total revenues, general and administrative expenses decreased from 31.5% to
21.0% for the three months ended June 30, 2002 and 2003, respectively. The
significant decrease in amount and in percentage of total revenues is mainly
explained by the decrease of 19% of the average exchange rate of the U.S.
dollar, the non-recurring charge of (euro)2.5 million associated with the early
termination of a Rich Media contract during the three months ended June 30,
2002, and some cost reduction efforts.
Amortization of Intangibles
Amortization of intangibles decreased by 31.9%, from (euro)3.8 million for
the three months ended June 30, 2002 to (euro)2.6 million for the three months
ended June 30, 2003. As a percentage of total revenues, amortization of
intangibles decreased from 7.4% to 6.2% for the three months ended June 30, 2002
and 2003, respectively. The decrease is due to the impairment of Astound's
technology recorded in 2002.
Operating Income (Loss)
The following table breaks down operating income (loss) by segment for the
same period in 2002 and 2003:
Three months ended June 30,
-----------------------------------
2002 2003
(In thousands of (euro))
North America............ 1,445 3,405
Europe................... 211 5,306
Asia-Pacific............. 111 407
Global Video............. (653) (146)
Corporate................ (7,651) (3,974)
----------- -----------
Total (6,537) 4,998
======= =====
EBITDA
EBITDA increased from (euro)1.8 million to (euro)10.4 million for the
three months ended June 30, 2002 and 2003, respectively. EBITDA margin expressed
as a percentage of total revenues increased by a factor of 7, from 3.4% to 24.6%
for the three months ended June 30, 2002 and 2003, respectively. EBITDA for the
three months ended June 30, 2002 included non-recurring items of (euro)4.2
million.
For a reconciliation of EBITDA to operating income (loss), see paragraph
"Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)".
Financial Expenses, net
Net financial expenses decreased from (euro)3.3 million for the three
months ended June 30, 2002 to (euro)1.0 million for the three months ended June
30, 2003. This reduction is due to interest expenses that decreased from
(euro)2.8 million for the three months ended June 30, 2002 to (euro)1.3 million
for the three months ended June 30, 2003. As a consequence of the currency
exchange rate of the U.S. dollar, a foreign exchange gain of (euro)0.6 million
was generated for the three months ended June 30, 2003.
Income Tax (Expense) Credit
Income tax expenses amounted to (euro)0.3 million for the three months
ended June 30, 2003, compared to a credit of (euro)0.3 million for the three
months ended June 30, 2002.
Net Income (Loss)
For the foregoing reasons, net income amounted to (euro)3.7 million for
the three months ended June 30, 2003, compared to a net loss of (euro)9.6
million for the three months ended June 30, 2002. Excluding the amortization of
intangibles, net income would amount to (euro)6.4 million for the three months
ended June 30, 2003, compared to a net loss of (euro)5.7 million for the three
months ended June 30, 2002.
Six months ended June 30, 2003 compared with the six months ended June 30, 2002
The decrease of the average rate of the U.S. dollar by 18% (0.91 euros and
1.11 euros for the six months ended June 30, 2003 and 2002, respectively) had a
significant effect on the main components of the statements of operations, due
to the weight of North American activities in the consolidated accounts.
Revenue
Total revenues decreased by 18.2% from (euro)107.4 million for the six
months ended June 30, 2002 to (euro)87.9 million for the six months ended June
30, 2003. The decrease of (euro)19.5 million was mainly due to the following two
reasons:
- The effect of foreign currency difference of (euro)15.8 million,
particularly in North America, which represented 58% of total revenues,
or 60% if Video revenue in the USA is included.
- The shift from operator-attended services to automated services that
increased volume and gross margin percentage but decreased revenue,
since the price per minute was lower.
Volume increased again from 548 million minutes for the six months ended
June 30, 2002 to 666 million minutes for the six months ended June 30, 2003,
i.e. an increase of 21.6% during the same period.
Segment breakdown
The following table sets forth revenues excluding inter-segments for 2002
and 2003 by segment and expressed as a percentage of total revenues.
Six months ended June 30,
-------------------------------------------------------------------
2002 2003
In thousands % of In thousands % of
of (euro) revenues of (euro) revenues
---------------- ------------ ---------------- ------------
North America.... 69,845 65.0% 51,110 58.1%
Europe........... 29,569 27.5% 29,129 33.1%
Asia-Pacific..... 3,046 2.8% 3,763 4.3%
Global Video..... 4,938 4.7% 3,922 4.5%
------------ ------- ------------ -------
Total revenues... 107,398 100.0% 87,924 100.0%
======= ====== ====== ======
As discussed above, the decrease of (euro)19.5 million was mainly due to
the effect of the foreign currency difference with the U.S. dollar, which
resulted in a decrease of (euro)18.7 million in North America.
Category breakdown
The following table sets forth revenues excluding inter-segments for 2002
and 2003 by category and expressed as a percentage of total revenues.
Six months ended June 30,
-------------------------------------------------------------------
2002 2003
In thousands % of In thousands % of
of (euro) revenues of (euro) revenues
---------------- ------------ ---------------- ------------
Genesys Meeting Center...... 55,662 51.8% 57,137 65.0%
Events & Managed Services... 45,939 42.8% 26,528 30.2%
Video Conferencing.......... 4,938 4.6% 4,031 4.6%
Equipment................... 859 0.8% 228 0.3%
------------ ------- ------------ -------
Total revenues.............. 107,398 100.0% 87,924 100.0%
======= ====== ====== ======
The breakdown by category highlighted a strong shift from
operator-attended services and web streaming ("Genesys Events & Managed
Services") to automate services ("Genesys Meeting Center").
Automated services, attended services and video conferencing represented
65%, 30% and 5% of total revenues, respectively, for the six months ended June
30, 2003.
Gross Profit
Although gross profit decreased by (euro)4.0 million from (euro)60.8
million, for the six months ended June 30, 2002, to (euro)56.8 million, for the
six months ended June 30, 2003, the gross margin expressed as a percentage of
revenue increased significantly, from 56.6%, for the six months ended June 30,
2002, to 64.6%, for the six months ended June 30, 2003.
The permanent shift to automated services, the consolidation of call
centers in 2002 and the new long distance contract had a positive effect on our
gross margin, due to the reduction of cost of services. Additionally, cost of
services for the six months ended June 30, 2002 included (euro)1.7 million of
non-recurring costs.
The following table sets forth our gross profit by segment for 2002 and
2003, both as an absolute amount and as a percentage of segment revenues.
Six months ended June 30,
-------------------------------------------------------------------
2002 2003
In thousands % of In thousands % of
of (euro) revenues of (euro) revenues
---------------- ------------ ---------------- ------------
North America.... 35,060 50,2% 30,389 59,5%
Europe........... 22,912 77,5% 23,085 79,3%
Asia-Pacific..... 1,681 55,2% 2,312 61,4%
Global Video..... 1,098 22.2% 1,004 25.6%
--------- ------- --------- -------
Gross profit..... 60,751 56.6% 56,790 64.6%
====== ===== ====== =====
Operating Expenses
The following table breaks down our operating costs and expenses that are
not included in cost of revenue for 2002 and 2003 by major category.
Six months ended June 30,
-------------------------------------------------------------------
2002 2003
In thousands % of In thousands % of
of (euro) revenues of (euro) revenues
---------------- ------------ ---------------- ------------
Research and development..... 2,448 2.3% 2,085 2.4%
Selling and marketing........ 27,372 25.5% 19,160 21.8%
General and administrative... 31,581 29.4% 20,331 23.1%
Non-recurring charge......... 3,671 3.4% -- --
Amortization of intangibles.. 7,481 7.0% 5,226 6.0%
--------- ------- --------- -------
Total operating expenses 72,553 67.6% 46,802 53.3%
====== ===== ====== =====
Research and Development
Research and development expenses expressed as a percentage of total
revenues remained stable.
Selling and Marketing
Selling and marketing expenses decreased by (euro)8.2 million, or 30.0%,
from (euro)27.4 million for the six months ended June 30, 2002 to (euro)19.2
million for the six months ended June 30, 2003. The decrease is mainly explained
by the decrease of 18% of the average exchange rate of U.S. dollar. As a
percentage of total revenues, selling and marketing expenses decreased from
25.5% to 21.8% for the six months ended June 30, 2002 and 2003, respectively.
Selling and marketing efforts are focused on further penetrating the market and
increasing global brand awareness.
General and Administrative
General and administrative expenses decreased by (euro)11.3 million, or
35.6%, from (euro)31.6 million for the six months ended June 30, 2002 to
(euro)20.3 million for the six months ended June 30, 2003. As a percentage of
total revenues, general and administrative expenses decreased from 29.4% to
23.1% for the six months ended June 30, 2002 and 2003, respectively.
The significant decrease in amount and in percentage of total revenues is
mainly explained by the decrease of 18% of the average exchange rate of the U.S.
dollar, the non-recurring charge of (euro)2.5 million associated with the early
termination of a Rich Media contract during the six months ended June 30, 2002,
and some cost reduction efforts.
Amortization of Intangibles
Amortization of intangibles decreased by 30.1%, from (euro)7.5 million for
the six months ended June 30, 2002 to (euro)5.2 million for the six months ended
June 30, 2003. As a percentage of total revenues, amortization of intangibles
decreased from 7.0% to 6.0% for the six months ended June 30, 2002 and 2003,
respectively. The decrease is due to the impairment of Astound's technology
recorded in 2002.
Operating Income (Loss)
The following table breaks down operating income (loss) by segment for the
same period in 2002 and 2003:
Six months ended June 30,
--------------------------------
2002 2003
(in thousands of (euro))
North America................ (4,288) 6,903
Europe....................... 8,235 11,116
Asia-Pacific................. 59 751
Global Video................. (778) (223)
Corporate.................... (15,030) (8,559)
---------- ----------
Total (11,802) 9,988
======== =====
EBITDA
EBITDA increased from (euro)4.8 million to (euro)20.9 million for the six
months ended June 30, 2002 and 2003, respectively. EBITDA margin expressed as a
percentage of total revenues increased by a factor of 5, from 4.5% to 23.8% for
the six months ended June 30, 2002 and 2003, respectively. EBITDA for the six
months ended June 30, 2002 included non-recurring items of (euro)8.9 million.
For a reconciliation of EBITDA to operating income (loss), see paragraph
"Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)".
Financial Income (Expenses), net
We generated net financial income of (euro)1 million for the six months
ended June 30, 2003, after incurring net financial expenses of (euro)6.4 million
for the six months ended June 30, 2002. This change is due to interest expenses
that decreased from (euro)5.1 million for the six months ended June 30, 2002 to
(euro)3.7 million for the six months ended June 30, 2003, as a consequence of
the currency exchange rate of the U.S. dollar. Additionally, the foreign
exchange difference was a gain of (euro)5.3 million for the six months ended
June 30, 2003, compared to a loss of (euro)0.6 for the six months ended June 30,
2002.
Income Tax (Expense) Credit
Income tax expenses amounted to (euro)0.5 million for the six months ended
June 30, 2003, compared to a credit of (euro)0.7 million for the six months
ended June 30, 2002.
Net Income (loss)
For the foregoing reasons, net income amounted to (euro)10.5 million for
the six months ended June 30, 2003, compared to a net loss of (euro)17.5 million
for the six months ended June 30, 2002. Excluding the amortization intangibles,
net income would amount to (euro)15.8 million for the six months ended June 30,
2003, compared to a net loss of (euro)10.1 million for the six months ended June
30, 2002.
Liquidity and Capital Resources
General
Our capital requirements are driven primarily by working capital, capital
expenditures for telecommunications and bridging equipment, and to a lesser
extent, servers, computers and software, and debt service requirements. To date,
we have funded our capital requirements through a combination of equity
offerings, borrowings (including bank financings and convertible debt
issuances), and operating cash flow.
At June 30, 2003, our principal sources of liquidity included (euro)16.3
million in cash and cash equivalents and a total of (euro)4.6 million of
unutilized short-term credit facilities. Under the terms of our U.S.$ 125
million credit facility, additional indebtedness is limited, which may limit our
ability to borrow under our short-term credit facilities.
In connection with the acquisition of Vialog, in April 2001, we entered
into a U.S.$ 125 million credit facility, which was used to refinance existing
debt of our Company and Vialog and for working capital purposes. This facility
that is described in more detail below was amended on April 30, 2003 to
reschedule repayments. The credit agreement and all amendments thereto have
been filed as exhibits to our annual report on Form 20-F for the year ended
December 31, 2002.
Assuming that we are in compliance with the terms and conditions of the
U.S.$ 125 million credit facility, we believe that our capital resources will be
sufficient to meet our current working capital needs.
Cash flows
Cash and cash equivalents net of bank overdrafts increased from (euro)6.6
million at the end of December 2002 to (euro)11.7 million at June 30, 2003. At
December 31, 2002, the (euro)6.6 million amount included (euro)9.9 million of
cash at hand, (euro)0.1 million of short-term investments offset by (euro)3.4
million of bank overdrafts. At June 30, 2003, the (euro)11.7 million amount
included (euro)11.1 million of cash at hand, (euro)5.2 million of short-term
investments offset by (euro)4.6 million of bank overdrafts.
We generated cash of (euro)8.7 million in operating activities for the six
months ended June 30, 2003. This cash was mainly provided by the cash operating
income of (euro)15.6 million, partially offset by the change in operating assets
and liabilities ((euro)6.9 million).
We used cash of (euro)2.9 million in investing activities for the six
months ended June 30, 2003. Our practice is generally to purchase additional
bridging and streaming capacity when average daily usage reaches approximately
70% of available capacity. Our capital expenditures as a percentage of revenues
decreased from 8.2% to 6.8% of revenues for the six months ended June 30, 2002
and 2003, respectively.
We generated cash of (euro)1.1 million in financing activities for the six
months ended June 30, 2003, mainly due to the bank overdrafts that increased
from (euro)3.4 million to (euro)4.6 million during the six months ended June 30,
2003.
Bank Financing Restructuring
Terms of the Financial Restructuring
On April 11, 2003, we reached an agreement in principle with our lenders
under the U.S.$ 125 million credit facility, several of the holders of our 3%
convertible bonds and certain of our shareholders (some of whom are also
bondholders) on a financial restructuring plan that is designed to facilitate
our continuing growth in the coming years. The agreement was negotiated under a
procedure that involved the appointment by a French court of a mediator at our
request whose mandate was to facilitate the renegotiation process.
The financial restructuring was essentially comprised of:
- Various amendments to our April 2001 U.S.$ 125 million credit facility
that extends the maturity of the remaining principal through October
2008 (which took effect when the conditions subsequent were met);
- Deferral of the maturity date for 50% of the principal of our
outstanding 3% convertible bonds (which was approved by holders of such
bonds on May 26, 2003); and
- A (euro)6-8 million offering of rights to subscribe for our ordinary
shares (which was completed on August 5, 2003 following a reduction in
the nominal value of our shares as approved by our shareholders on June
5, 2003 to (euro)1 per share from (euro)5 per share).
Amendments to the April 2001 U.S.$ 125 Million Credit Facility
On April 30, 2003, we signed an amendment to the April 2001 U.S.$ 125
million credit facility with our main bank creditors. The amendment provides for
the extension of the maturity of the U.S.$118 million remaining principal amount
under the credit facility, from October 2006 to October 2008, and the
rescheduling of principal repayments. A copy of this amendment is filed with the
SEC as Exhibit 4.3 to our annual report on Form 20-F for the year ended December
31, 2002.
The amended principal payment schedule on an annual basis compared to the
prior maturity schedule is disclosed in the following paragraph << rescheduling
of principal repayments >>.
Under the amendment, U.S.$7 million of principal will be payable on April
30, 2004 and U.S.$11 million of principal will be payable on October 31, 2004,
with varying amounts of principal payable every six months thereafter until
maturity. Interest will continue to be paid according to the original schedule
(i.e. semi-annually on April 30 and October 31), subject to an increase of up to
200 basis points, commencing in 2006. We have also agreed to prepay the loan if
our excess cash flows (excluding the proceeds of the proposed rights offering
described below) exceed certain levels.
The amendment requires us to use our best efforts to raise at least U.S.$3
million (or equivalent in euros) by entering into a factoring arrangement for up
to U.S.$6 million (or equivalent in euros) of customer receivables by waiving
the negative pledge on up to U.S.$6 million of such receivables and otherwise
permitting their sale or disposition.
The amendment, signed on April 30, 2003, did not modify the definition of
the four covenants to comply with. However, the financial ratios that regularly
measure the compliance of the covenants have been updated, particularly to take
into account the updated maturity of the credit facility.
The definition of the four covenants is as follows:
- The cash cover ratio, which means the ratio of consolidated cash flow to
consolidated debt service, should be above a certain amount at each
quarter-end between March 31, 2003 and September 30, 2008. This amount,
between 0.7 and 1.5, increases until 2004 and decreases thereafter.
- The interest cover ratio, which means the ratio of consolidated EBITDA
to consolidated net interest expense, should be above a certain amount
at each quarter-end between March 31, 2003 and September 30, 2008. This
amount, between 2.0 and 5.0, increases until 2004 and remains stable
thereafter.
- The leverage ratio, which means the ratio of outstanding consolidated
net indebtedness to consolidated EBITDA, should be below a certain
amount at each quarter-end between March 31, 2003 and September 30,
2008. This amount, between 6.9 and 1.5, decreases progressively to reach
the minimum of 1.5 in 2006.
- The capital expenditures should be below a certain amount for each year
between 2003 and 2007. This amount, between (euro)12 million and
(euro)16 million, increases progressively until 2007.
The detailed quarterly amounts of these three ratios and annual amount of
capital expenditures are not disclosed in this document for reasons of
confidentiality.
The amendment was subject to the following conditions subsequent that were
subsequently lifted:
- The rights offering with preferential subscription rights for current
shareholders was approved by our shareholders and completed in July 2003, and
- The bondholders amended the terms of our 3% convertible bonds due on
September 1, 2004 to provide that 50% of the (euro)18.37 of principal per bond
be repayable on the original maturity date, i.e. September 1, 2004, and that the
remaining 50% of principal per bond be repayable on October 31, 2005.
Deferral of 50% of Principal Repayment for the 3% Convertible Bonds due in 2004
As a condition to the financial restructuring, we were required to
reschedule 50% of the principal repayment of our outstanding 3% convertible
bonds due in 2004 (all of which was previously due September 1, 2004). The
rescheduling was approved by our 3% convertible bondholders on May 26, 2003. We
are now scheduled to repay 50% of the outstanding principal ((euro)8.75 million)
on September 1, 2004 and the remaining 50% of the outstanding principal
((euro)8.75 million) on October 31, 2005.
Part'com S.A. and certain of our affiliates and Pechel Industries S.A.,
who together hold approximately 42.6% of the outstanding 3% convertible bonds,
had advised us that they intended to vote in favor of the proposal. Part'com
S.A. is also a shareholder of our Company and had made other commitments in
connection with the rights offering.
Rescheduling of principal repayments
As of December 31, 2002, future repayments of long-term debt, excluding
capital lease obligations, were as follows:
2003(1)..................... (euro) 1,143
2004(1)..................... 40,327
2005........................ 27,356
2006........................ 52,482
2007........................ --
2008........................ --
2009 and thereafter......... --
--------------------
Total....................... (euro) 121,308
- ---------------
(1) The initial U.S.$ 125 million credit facility provided for total payments
of $17 million in 2003. The April 30, 2003 amendment provides that the
deferral of $16 million of those principal payments is definitive upon
signature. However if we had failed to meet the conditions subsequent,
absent a waiver from our main bank creditors, the 2003 principal payments
would have been due and payable on January 10, 2004.
According to the amendment signed on April 30, 2003, the amended principal
payment schedule on an annual basis compared to the prior maturity schedule is
as follows:
Repayments according
Original repayments to amendment signed on Difference of Difference of repayments
April 30, 2003 repayments (2002 closing exchange rate)
-----------------------------------------------------------------
in millions of U.S. dollars in millions of euros
---------------------------
2003.... $ 17.0 $ 1.0 $ (16.0) (euro) (15.3)
2004.... 22.0 $ 18.0 (4.0) (3.8)
2005.... 24.0 $ 22.0 (2.0) (1.9)
2006.... 55.0 $ 30.0 (25.0) (23.8)
2007.... -- $ 23.5 23.5 22.4
2008.... -- $ 23.5 $ 23.5 (euro) 22.4
---- ------ ------ -----------
Total....... $ 118.0 $ 118.0 -- --
======= ======= == ==
The following breakdown of future repayments of long-term debt at June 30,
2003, excluding capital lease obligations, takes into account the April 30, 2003
amendment of our U.S.$1.25 million credit facility.
2003....................... (euro) 1,064
2004....................... 20,060
2005....................... 23,541
2006....................... 26,289
2007....................... 20,566
2008....................... 20,564
2009 and thereafter --
--------------------
Total...................... (euro) 112,084
Capital resources
Subscription Rights Offering
As part of the financial restructuring, we agreed to seek to raise at
least (euro) 6 million by way of a rights offering by August 31, 2003. On June
5, 2003, we received the approval of our shareholders for a subscription rights
offering and on June 27, 2003, our Board of Directors fixed the main terms of
the rights offering for a maximal amount of (euro)8 million.
The subscription rights offering permitted all of our existing
shareholders (including ADS holders) to subscribe for newly issued shares at a
price amounting to approximately (euro)2.20 per share and we registered a
portion of the rights offering in the United States. The rights offering
launched by us on July 10, 2003 was fully subscribed (100%) for a total amount
of (euro)6.2 million, including the additional paid-in-capital. For details
regarding the terms and results of the rights offering, please see amendment No.
1 to our registration statement on Form F-3, as filed with the SEC on July 2,
2003, and our current report on Form 6-K, dated August 5, 2003.
As agreed, we deposited the proceeds of the rights offering (approximately
(euro) 6.2 million) in an escrow account, and will use the proceeds to repay the
principal of, or repurchase, our 3% convertible bonds due in 2004.
Reduction in Capital
To facilitate the rights offering described above, we requested that our
shareholders approve a reduction in the nominal value of our ordinary shares to
(euro)1.0 per share at the June 5, 2003 shareholders meeting. The existing
nominal value was (euro)5 per share. Under French law, we could not offer shares
in the rights offering at a lower price that is less than the nominal value of
those shares.
Other commitments
We have entered into an interest rate swap agreements to hedge our
exposure on a portion of our debt. The comprehensive loss for this interest rate
swap agreement amounted to (euro) 1.0 million at June 30, 2003.
We do not have any material guarantees outstanding, nor do we have any
securitization or other off balance sheet financing arrangements, other than
those described in note No 15, Commitments and Contingencies, to the financial
statements contained in the Form 20-F for the year ended December 31, 2002 filed
with the Securities and Exchange Commission.
Trend Information
Revenues guidance
On April 24, 2003, we announced some guidance for the year ending December
31, 2003. For internal planning purposes, we have targeted revenues to reach
between (euro) 175 million and (euro) 185 million.
These revenue targets are subject to significant uncertainty, and might
not be reached for any number of reasons, including those described under Item
3, "Key Information - Risk Factors" in our annual report on Form 20-F for the
year ended December 31, 2002.
Closing of Chanhassen call center
On September 22, 2003, we announced the Chanhassen, Minnesota, call center
closing by the end of the year. This new closing in North America is explained
by the call center automation, in particular the deployment of a new back office
operating system and the ongoing move towards automated services. Chanhassen's
call volumes will be re-routed to Reston, Virginia, where we has been building a
high-capacity call center. The related costs to close the call center will be
approximately (euro)0.9 million under U.S. GAAP and will be recorded in
non-recurring operating expenses in the fourth quarter of 2003. This charge will
include employee severance, unusable future facility lease commitments, the
write-off of certain leasehold improvements and equipment as well as other
miscellaneous costs associated with exiting the call center. We estimate that
future annual cost savings from the consolidation will generate approximately
(euro)1.1 million from 2004.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with U.S.
generally accepted accounting principles. The preparation of these financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and related
disclosure of contingent assets and liabilities.
We believe the following critical accounting policies, among others,
represent the more significant judgments and estimates used in the preparation
of our consolidated financial statements.
Allowance for doubtful accounts
We evaluate the collectibility of our accounts receivable based on a
combination of factors. In circumstances where we are aware of a specific
customer's inability to meet our financial obligations to us (e.g., bankruptcy
filings, failure to pay amounts due to us or others), we record a specific
reserve for bad debts against amounts due to reduce the net recognized
receivable to the amount we reasonably believe will be collected. For all other
customers, we recognize reserves for bad debts based on past write-off history
(average percentage of receivables written off historically), and the length of
time the receivables are past due. If circumstances change (i.e. higher than
expected defaults or an unexpected material adverse change in a major customer's
ability to meet our financial obligations to us), our estimates of the
recoverability of amounts due us could be reduced by a material amount.
Impairment of goodwill and identifiable intangible assets
In reviewing the recoverability of our goodwill and identifiable intangible
assets, we must make assumptions regarding estimated future cash flows and other
factors to determine the fair value of the respective assets. These assumptions
require us to exercise significant judgment, often on a subjective basis. If
these estimates or their related assumptions change in the future, we may be
required to record impairment charges for these assets. During 2001 and 2002, we
recorded an impairment charge on these assets of (euro)61.3 million and
(euro)93.6 million, respectively. No additional impairment charge was recorded
in the three and six months ended June 30, 2003.
Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets. Under SFAS 142, we
discontinued amortizing our goodwill, but we are required to review our goodwill
for impairment on an annual basis thereafter. Based on the circumstances and
underlying assumptions made when the impairment reviews are performed in the
future, further impairment charges could be required.
We continue to amortize our identifiable intangible assets that have
determinable lives, but we are required to review the recoverability of these
assets whenever events or changes in business circumstances indicate that the
assets may be impaired. Based on the circumstances and underlying assumptions
made at the time of these reviews, further impairment charges could be required.
Deferred tax assets
We recognize deferred tax assets and liabilities based on the differences
between the financial statement carrying amounts and the tax bases of assets and
liabilities. We regularly review our deferred tax assets for recoverability and
establish a valuation allowance based upon historical losses, projected future
taxable income for each subsidiary and the expected timing of the reversals of
existing temporary differences. As a result of this review, we have recorded a
deferred tax asset of (euro)0.1 million at June 30, 2003, and we have
established a full valuation allowance on the remaining amount of our deferred
tax assets.
2. Financial Statements
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, June 30,
2002 2003
------------ --------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents.......................................... (euro) 9,976 (euro) 16,256
Accounts receivable, less allowances of(euro)3,502 at
December 31, 2002 and (euro)3,051 at June 30, 2003............... 35,930 37,755
Inventory.......................................................... 72 48
Prepaid expenses................................................... 1,874 3,465
Other current assets............................................... 5,261 3,127
----- -----
Total current assets........................................... 53,113 60,651
Property and equipment, net............................................ 32,234 27,731
Goodwill and other intangibles, net.................................... 158,213 151,244
Investment in affiliated company....................................... 118 133
Deferred tax assets.................................................... 361 111
Deferred financing costs, net.......................................... 3,797 3,291
Other assets........................................................... 1,897 1,583
----- -----
Total assets........................................ (euro) 249,733 (euro) 244,744
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdrafts.................................................... (euro) 3,417 (euro) 4,605
Accounts payable................................................... 14,344 10,675
Accrued liabilities................................................ 7,178 6,890
Accrued compensation............................................... 6,555 7,480
Tax payable........................................................ 8,998 10,421
Deferred revenue................................................... 352 301
Current portion of long-term debt.................................. 1,143 7,191
Current portion of capitalized lease obligations................... 191 190
Current portion of deferred tax liability.......................... 3,097 3,097
Current portion of other long-term liability....................... 2,284 802
Other current liabilities.......................................... 1,759 1,272
----- -----
Total current liabilities...................................... 49,318 52,924
Long-term portion of long-term debt.................................... 120,165 104,893
Long-term portion of capitalized lease obligations..................... 149 128
Long term portion of deferred tax liability............................ 20,666 19,122
Other long-term liability.............................................. 6,644 4,831
Commitments and contingencies.......................................... -- --
Shareholders' equity:
Ordinary shares; (euro)5.00 and (euro)1.00 nominal value at
December 31, 2002 and June 30, 2003, respectively; 15,409,933
and 15,482,195 shares issued and outstanding at December 31,
2002 and June 30, 2003, respectively............................. 77,050 15,482
Common shares to be issued:(euro)5.00 and(euro)1.00 nominal
value at December 31, 2002 and June 30, 2003, respectively;
137,347 and 65,085 shares at December 31, 2002 and June 30,
2003, respectively............................................... 687 65
Additional paid-in capital......................................... 194,217 193,565
Accumulated other comprehensive income............................. 6,980 7,955
Deferred compensation.............................................. (220) (97)
Accumulated deficit................................................ (225,172) (153,373)
-------- --------
53,542 63,597
Less cost of treasury shares: 22,131 shares at December 2002
and June 30, 2003................................................ (751) (751)
---- ----
Total shareholders' equity................................... 52,791 62,846
------ ------
Total liabilities and shareholders' equity.............. (euro) 249,733 (euro) 244,744
============= =============
See notes to financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except share data)
Three months ended June 30, Six months ended June 30,
--------------------------- --------------------------
2002 2003 2002 2003
-------- -------- -------- --------
Revenue:
Services........................... (euro) 51,599 (euro) 42,125 (euro) 106,539 (euro) 87,696
Products........................... 347 145 859 228
-------- --- --- ---
51,946 42,270 107,398 87,924
Cost of revenue:
Services........................... 23,010 14,177 45,944 30,990
Products........................... 218 85 703 144
-------- -- --- ---
23,228 14,262 46,647 31,134
-------- ------ ------ ------
Gross profit 28,718 28,008 60,751 56,790
Operating expenses:
Research and development........... 1,188 1,053 2,448 2,085
Selling and marketing.............. 13,864 10,484 27,372 19,160
General and administrative......... 16,371 8,862 31,581 20,331
Restructuring charge............... -- -- 3,671 --
Amortization of intangibles........ 3,832 2,611 7,481 5,226
-------- ----- ----- -----
Total operating expenses...... 35,255 23,010 72,553 46,802
Operating income (loss).............. (6,537) 4,998 (11,802) 9,988
Financial income (expense)...........
Interest income.................... 31 120 89 179
Interest expense................... (2,811) (1,253) (5,108) (3,705)
Foreign exchange gain (loss)....... (25) 642 (565) 5,330
Other financial expense, net....... (520) (482) (795) (770)
-------- ----- ----- -----
Financial income (expense), net...... (3,325) (973) (6,379) 1,034
Equity in income (loss) of affiliated
company.............................. (3) 11 (11) 15
-- -- ---- --
Income (loss) before taxes........... (9,865) 4,036 (18,192) 11,037
Income tax (expense) credit.......... 302 (328) 651 (494)
-------- ----- --- -----
Net income (loss)............. (euro)(9,563) (euro)3,708 (euro)(17,541) (euro)10,543
============= =========== ============== ============
Basic net income (loss) per share.... (euro)(0.62) (euro)0.24 (euro)(1.13) (euro)0.68
============ ========== =========== ==========
Diluted net income (loss) per share.. (euro)(0.62) (euro)0.23 (euro)(1.13) (euro)0.66
============ ========== =========== ==========
Number of shares used in computing basic 15,544,450 15,547,280 15,536,374 15,547,280
net income (loss) per share
Dilution effect on convertible notes. -- 552,188 -- 552,188
Number of shares used in computing diluted
net income (loss) per share.......... 15,544,450 16,099,468 15,536,374 16,099,468
See notes to financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Six Months ended June 30,
2002 2003
---- ----
Cash flows from operating activities:
Net income (loss)..........................................................(euro) (17,541) (euro) 10,543
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities
Depreciation............................................................ 9,118 5,733
Amortization of other intangibles....................................... 7,481 5,226
Amortization of deferred financing costs and debt issuance discount..... 678 620
Amortization of deferred charges........................................ 39 40
Allowance for bad debts................................................. 1,658 208
Amortization of deferred stock-based compensation....................... 123 123
Loss (gain) on disposal of assets....................................... (70) 22
Deferred tax credit..................................................... (2,418) (1,517)
Equity in (income) loss of affiliated company........................... 11 (15)
Changes in unrealized foreign exchange gain on long-term debt........... -- (5,408)
Changes in operating assets and liabilities, net of effects of
acquisition of businesses:
Increase in accounts receivable......................................... (1,437) (4,140)
Decrease (increase) in inventory........................................ (41) 24
Decrease (increase) in prepaid expenses................................. 1,953 (1,697)
Decrease in other assets................................................ 884 1,293
Decrease in accounts payable............................................ (5,576) (3,722)
Increase (decrease) in accrued liabilities.............................. (929) 251
Increase (decrease) in accrued compensation............................. (355) 1,246
Increase (decrease) in accrued taxes.................................... (1,974) 1,837
(Decrease) in deferred revenue.......................................... (304) (51)
Increase (decrease) in other liabilities................................ 3,556 (1,908)
----- -------
Net cash provided by (used in) operating activities........................ (5,144) 8,708
======= =====
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired........................... (4,299) --
Acquisition of furniture and equipment..................................... (4,245) (2,894)
Proceeds from sales of furniture and equipment............................. 768 --
---------- ------------
Net cash used in investing activities...................................... (7,776) (2,894)
======= =======
Cash flows from financing activities:
Increase in bank overdrafts................................................ -- 1,204
Net proceeds from issuance of common stock................................. 277 --
Principal payments on long-term debt....................................... (2,296) (144)
Deferred financing costs................................................... (607) --
---------- ------------
Net cash provided by (used in) financing activities........................ (2,626) 1,060
======= =====
Effect of foreign exchange rate changes on cash and cash equivalents....... 1,035 (594)
Increase (decrease) in cash and cash equivalents........................... (14,511) 6,280
Cash and cash equivalents, beginning of period............................. 17,510 9,976
------ -----
Cash and cash equivalents, end of period................................... (euro) 2,999 (euro) 16,256
============ =============
Supplemental disclosures of cash flow information:
Interest paid........................................................... (euro) 4,761 (euro) 3,498
Income taxes paid....................................................... 1,820 1,042
Non-cash investing activities:
Fixed assets acquired under capital lease................................ -- 22
Acquisition of businesses:
Cash paid in connection with previous period acquisitions............... (euro) 4,299 --
------------
Cash paid............................................................... 4,299 --
Less cash acquired...................................................... -- --
----------
Net cash paid for acquisitions of businesses............................... (euro) 4,299 --
============
See notes to financial statements
3. NOTES
GENESYS S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands, except share data and when indicated)
Note 1. Organization and business
Genesys S.A., together with its subsidiaries ("the Company"), is a limited
liability company organized under the laws of France.
The Company is a global communications specialist, providing practical and
innovative real-time collaborative and managed event services worldwide.
Note 2. Basis of presentation
As a publicly traded company on the Nouveau Marche of Euronext Paris since
October 1998, the Company publishes consolidated financial statements that have
been prepared in accordance with generally accepted accounting principles in
France, which differ in certain respects from generally accepted accounting
principles in the United States.
In addition, the Company has been listed on the Nasdaq Stock Market since
April 26, 2001. As a result, the Company publishes consolidated financial
statements prepared in accordance with generally accepted accounting principles
in the United States.
The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with accounting principles generally
accepted in the United States and pursuant to the rules and regulations of the
Securities and Exchange Commission for interim financial information. These
financial statements reflect all adjustments (consisting of normal recurring
accruals) which, in the opinion of management, are necessary for a fair
presentation of the interim periods presented. The unaudited results of
operations for the three and six months ended June 30, 2003 are not necessarily
an indication of the results of operations that may be expected for the full
year ending December 31, 2003. These financial statements do not include all
disclosures associated with annual financial statements and, accordingly, should
be read in conjunction with the financial statements and footnotes for the year
ended December 31, 2002 included in the Company's Form 20-F.
The consolidated financial statements include the accounts of the Company
and its subsidiaries.
The main consolidation principles are as follows:
- Companies which are wholly owned or which the Company controls are
consolidated;
- Companies over which the Company exercises significant influence
but does not control are accounted for under the equity method of
accounting;
- All significant inter-company transactions and balances are
eliminated.
GENESYS S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
(in thousands, except share data and when indicated)
The following companies have been consolidated:
Interest and
Name Location control
---- -------- ------------
Fully consolidated companies:
Genesys S.A........................................ Montpellier, France Parent company
Genesys Conferencing France, S.A................... Ivry, France 100%
Genesys Conferencing A.B........................... Stockholm, Sweden 100%
Genesys Conferencing S.A........................... Brussels, Belgium 100%
Genesys Conferencing Ltd........................... Croydon, England 100%
Genesys Conferencing Pte Ltd....................... Singapore 100%
Genesys Conferencing Pty Ltd....................... Melbourne, Australia 100%
Genesys Conferencing Ltd........................... Hong Kong 100%
Genesys Conferencing, Inc.......................... Denver, USA 100%
Genesys Conferencing S.R.L......................... Milan, Italy 100%
Genesys Conferencing Ltd........................... Toronto, Canada 100%
Darome Teleconferencing GmbH....................... Berlin, Germany 100%
Eesys, S.A.S...................................... Paris, France 100%
Geene, S.A.S....................................... Paris, France 100%
305 4344 Nova Scotia Ltd........................... Halifax, Canada 100%
305 4345 Nova Scotia Ltd........................... Halifax, Canada 100%
Genesys Conferencing Sdn Bhd (*)................... Kuala Lumpur, Malaysia 100%
Affiliates accounted for under the equity method:
Genesys Conferencing Iberia........................ Madrid, Spain 20%
(*) The activity of the Malaysian subsidiary started on November 5, 2002.
Not fully consolidated at December 31, 2002 due to its low level of activity,
the consolidated statements of operations for the three and six months ended
June 30, 2003 includes only the period between January 1, 2003 and June 30,
2003.
Note 3. Acquisitions
In November 2002, Genesys Conferencing Pte and Genesys SA purchased the two
existing shares having a nominal value of one ringgit (Malaysian currency) of
the Malaysian company Genesys Conferencing Sdn Bhd. Thereafter, the Company took
part in a capital increase of 98 shares of 1 ringgit. The Malaysian subsidiary
began operating on November 5, 2002.
GENESYS S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
(in thousands, except share data and when indicated)
Note 4. Share Capital
The special shareholders' meeting decided on June 5, 2003 to reduce
ordinary shares of the Company by (euro)61,885 from (euro)77,356 to (euro)15,471
in the statutory accounts of the Company, against the accumulated deficit.
The nominal value per share was reduced from 5 euros to 1 euro. Thereafter,
ordinary shares amounted to 15,471,204 shares having a nominal value of one
euro.
Due to the decrease of nominal value per share, the common stock to be
issued was reduced by (euro)304, against an increase of
additional-paid-in-capital.
On June 5, 2003, the special shareholders' meeting decided to plan a
capital increase in cash for an amount from (euro)6 million to (euro)8 million,
including additional-paid-in-capital with preferential subscription rights for
current shareholders. On June 27, 2003, the Board of Directors decided the main
terms of the capital increase.
In January, February and June 2003, 72,262 convertible notes issued on
March 27, 2001 to finance the acquisition of Astound were converted into shares.
As a result, (euro)361 was reclassified from common shares to be issued to
ordinary shares.
Note 5. Other long-term liabilities
Other long-term liabilities consist of the following:
December 31, June 30,
2002 2003
---- ----
Accrued restructuring expenses (Unites States, 2002 plan)... (euro) 3,583 (euro) 1,870
Accrued restructuring expenses (United States, 1998-99 1,353 1,093
plans)......................................................
Accrued restructuring expenses (Germany).................... 448 389
Accrued severance and related litigation.................... 1,409 888
Fair value of interest-rate swap............................ 1,839 956
Deferred rent............................................... 217 221
Others...................................................... 79 216
------------ ------------
Total other long-term liability............................. 8,928 5,633
===== =====
Less current portion of accrued restructuring expenses...... (2,284) (802)
------------ ------------
Other long-term liability, less current portion............. (euro) 6,644 (euro) 4,831
============ ============
GENESYS S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
(in thousands, except share data and when indicated)
Note 6. Long-term debt
Long-term debt consists of the following:
December 31, June 30,
2002 2003
---- ----
Term loans, variable rate...........................................(euro) 103,137 (euro) 94,665
Term loans, fixed rate 74 74
Revolving loans, variable rate...................................... 9,536 8,751
3% Convertible notes, net of unamortized discount of(euro)297 and
(euro)276 at December 31, 2002 and June 30, 2003, respectively 8,441 8,474
Interest free loan from Anvar....................................... 120 120
Capital lease obligations........................................... 340 318
-------------- --------------
Total long-term debt................................................ 121,648 112,402
======= =======
Less current portion................................................ (1,334) (7,381)
-------------- --------------
Long-term debt, less current portion................................(euro) 120,314 (euro) 105,021
============== ==============
Bank Financing Restructuring
Terms of the Financial Restructuring
On April 11, 2003, the Company reached an agreement in principle with its
lenders under the U.S.$ 125 million credit facility, several of the holders of
its 3% convertible bonds and certain of its shareholders (some of whom are also
bondholders), on a financial restructuring plan that is designed to facilitate
its continuing growth in the coming years. The agreement was negotiated under a
procedure that involved the appointment by a French court of a mediator whose
mandate was to facilitate the renegotiation process.
The financial restructuring is essentially comprised of:
- Various amendments to its April 2001 U.S.$ 125 million credit facility
that extends the maturity of the remaining principal through October
2008;
- Deferral of the maturity date for 50% of the principal of its outstanding
3% convertible bonds; and
- A (euro)6-8 million offering of rights to subscribe for its ordinary
shares.
Amendments to the April 2001 U.S.$ 125 Million Credit Facility
On April 30, 2003, the Company and its main bank creditors signed an
amendment to the April 2001 U.S.$ 125 million credit facility. The amendment
provides for the extension of the maturity of the U.S.$118 million remaining
principal amount under the credit facility from April 2006 to October 2008, and
the rescheduling of principal repayments.
The amended principal payment schedule on an annual basis compared to the
prior maturity schedule is disclosed in the following paragraph "rescheduling of
principal repayments".
Under the amendment, U.S.$7 million of principal will be payable on April
30, 2004 and U.S.$11 million of principal will be payable on October 31, 2004,
with varying amounts of principal payable every six months thereafter until
maturity. Interest will continue to be paid according to the original schedule
(i.e. semi-annually on April 30 and October 31), subject to an increase of up to
200 basis points, commencing in 2006. The Company has also agreed to prepay the
loan if its excess cash flows (excluding the proceeds of the proposed rights
offering described below) exceed certain levels.
GENESYS S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
(in thousands, except share data and when indicated)
The amendment allows the Company to raise at least U.S.$3 million (or
equivalent in euros) by entering into a factoring arrangement for up to U.S.$6
million (or equivalent in euros) of customer receivables by waiving the negative
pledge on up to U.S.$6 million of such receivables and otherwise permitting
their sale or disposition.
The amendment, signed on April 30, 2003, did not modify the definition of
the four covenants to comply with. However, the financial ratios that regularly
measure the compliance of the covenants have been updated, particularly to take
into account the updated maturity of the credit facility.
The definition of the four covenants is as follows:
- The cash cover ratio, which means the ratio of consolidated cash flow to
consolidated debt service, should be above a certain amount at each
quarter-end between March 31, 2003 and September 30, 2008. This amount,
between 0.7 and 1.5, increases until 2004 and decreases thereafter.
- The interest cover ratio, which means the ratio of consolidated EBITDA to
consolidated net interest expense, should be above a certain amount at
each quarter-end between March 31, 2003 and September 30, 2008. This
amount, between 2.0 and 5.0, increases until 2004 and remains stable
thereafter.
- The leverage ratio, which means the ratio of outstanding consolidated net
indebtedness to consolidated EBITDA, should be below a certain amount at
each quarter-end between March 31, 2003 and September 30, 2008. This
amount, between 6.9 and 1.5, decreases progressively to reach the minimum
of 1.5 in 2006.
- The capital expenditures should be below a certain amount for each year
between 2003 and 2007. This amount, between (euro)12 million and (euro)16
million, increases progressively until 2007.
The detailed quarterly amounts of these three ratios and annual amount of
capital expenditures are not disclosed in this document for reasons of
confidentiality.
The amendment was subject to the following conditions that were
subsequently lifted:
- The rights offering with preferential subscription rights for current
shareholders was approved by the Company's shareholders and completed in
July 2003, and
- The bondholders amended the terms of the Company's 3% convertible bonds
due on September 1, 2004 to provide that 50% of the (euro)18.37 of
principal per bond be repayable on the original maturity date, i.e. on
September 1, 2004 and the remaining 50% of principal per bond be
repayable on October 31, 2005.
Deferral of 50% of Principal Repayment for the 3% Convertible Bonds due in 2004
Under the financial restructuring plan, the bondholders of the 3%
convertible bonds due in 2004 approved on May 26, 2003 the rescheduling of 50%
of the principal repayment (all of which was previously due September 1, 2004).
The Company will repay 50% of the outstanding principal ((euro)8.75 million) on
September 1, 2004 and the remaining 50% of the outstanding principal ((euro)8.75
million) on October 31, 2005.
Part'com S.A. and certain of its affiliates and Pechel Industries S.A., who
together hold approximately 42.6% of the outstanding 3% convertible bonds, had
advised the Company that they intended to vote in favor of the proposal.
Part'com S.A. is also a shareholder of the Company and had made other
commitments in connection with the rights offering, as discussed above.
GENESYS S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
(in thousands, except share data and when indicated)
Rescheduling of principal repayments
As of December 31, 2002, future repayments of long-term debt, excluding
capital lease obligations, were as follows:
2003(1).................... (euro) 1,143
2004(1).................... 40,327
2005....................... 27,356
2006....................... 52,482
2007....................... --
2008....................... --
2009 and thereafter........ --
-------------------
Total (euro) 121,308
- ------------
(1) The initial U.S.$ 125 million credit facility provided for total payments
of $17 million in 2003. The April 30, 2003 amendment provides that the
deferral of $16 million of those principal payments is definitive upon
signature. However if we had failed to meet the conditions subsequent,
absent a waiver from our main bank creditors, the 2003 principal payments
would have been due and payable on January 10, 2004.
According to the amendment signed on April 30, 2003, the amended principal
payment schedule on an annual basis compared to the prior maturity schedule is
as follows:
Repayments according to amendment Difference of Difference of
Original repayments signed on April 30, 2003 repayments repayments
------------------------------------------------------------------------------------------------------
in millions of U.S. dollars In millions of euros
--------------------
2003..... $ 17.0 $ 1.0 $(16.0) (euro) (15.3)
2004..... 22.0 $ 18.0 (4.0) (3.8)
2005..... 24.0 $ 22.0 (2.0) (1.9)
2006..... 55.0 $ 30.0 (25.0) (23.8)
2007..... -- $ 23.5 23.5 22.4
2008..... -- $ 23.5 $ 23.5 (euro) 22.4
---- ------ ------ -----------
Total........ $118.0 $118.0 -- --
====== ======= == ==
The following breakdown of future repayments of long-term debt at June 30,
2003, excluding capital lease obligations, takes into account the April 30, 2003
amendment of our U.S.$125 million credit facility:
2003...................... (euro) 1,064
2004...................... 20,060
2005...................... 23,541
2006...................... 26,289
2007...................... 20,566
2008...................... 20,564
2009 and thereafter....... --
-------------------
Total..................... (euro) 112,084
GENESYS S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
(in thousands, except share data and when indicated)
Note 7. Revenue breakdown
Revenues consist of the following:
Three months ended Six months ended
June 30, June 30,
-------- --------
2002 2003 2002 2003
---- ---- ---- ----
Services
--Genesys Meeting Center.................... (euro) 28,830 (euro) 27,825 (euro) 55,662 (euro) 57,137
--Events & Managed services................. 20,382 12,264 45,939 26,528
--Video conferencing........................ 2,387 2,036 4,938 4,031
Equipment................................... 347 145 859 228
--- --- --- ---
Total....................................... (euro) 51,946 (euro) 42,270 (euro) 107,398 (euro) 87,924
============= ============== ============= =============
Note 8. Segment and geographic information
The Company and its subsidiaries currently operate in four reportable
segments: North America, Europe, Asia-Pacific, and a Global Video division. The
Company makes key decisions and evaluates performance of the Company based on
these segments.
The Company believes that EBITDA is a meaningful measure of performance and
use it for purposes of managing its business and evaluating its financial
health. The Company defines EBITDA as earnings (loss) before income taxes,
interest, depreciation, amortization charges and impairment of goodwill and
other intangibles. Its depreciation charges are divided among the line items
cost of revenue, research and development, selling and marketing and general and
administrative expenses, based on the use of the assets being amortized. EBITDA
is not a measurement of operating performance calculated in accordance with
accounting principles generally accepted in the United States, and should not be
considered a substitute for operating income (loss), net income (loss), cash
flows from operating activities or other statement of operations or cash flow
statement data prepared in accordance with accounting principles generally
accepted in the United States, or as a measure of profitability or liquidity.
EBITDA may not be indicative of our historical operating results; nor is it
meant to be predictive of potential results. Because all companies do not
calculate EBITDA identically, the presentation of EBITDA contained in this
document may not be comparable to similarly named measures of other companies.
The following is a summary of operations by segment for three months ended
June 30, 2002 and 2003:
North Asia- Global Inter-
America Europe Pacific Video Corporate segment Total
------- ------ ------- ----- --------- ------- -----
Three months ended
June 30, 2002
Revenue................... (euro) 33,115 (euro) 15,873 (euro) 1,682 (euro) 2,387 -- (euro) (1,111) (euro) 51,946
Gross Profit.............. 15,975 11,516 895 332 -- -- 28,718
EBITDA.................... 7,695 1,475 336 (377) (euro) (7,368) -- 1,761
Operating income (loss)... 1,445 211 111 (653) (7,651) -- (6,537)
Three months ended
June 30, 2003
Revenue................... (euro) 23,650 (euro) 14,819 (euro) 2,078 (euro) 1,998 -- (euro) (275) (euro) 42,270
Gross Profit.............. 14,516 11,686 1,328 478 -- -- 28,008
EBITDA.................... 7,220 5,896 522 70 (3,320) -- 10,388
Operating income (loss)... 3,405 5,306 407 (146) (3,974) -- 4,998
GENESYS S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
(in thousands, except share data and when indicated)
The following is a summary of operations by segment for the six months
ended June 30, 2002 and 2003:
North Asia- Global Inter-
America Europe Pacific Video Corporate segment Total
------- ------ ------- ----- --------- ------- -----
Six months ended June 30, 2002
Revenue................... (euro) 69,653 (euro) 30,706 (euro) 3,083 (euro) 4,938 -- (euro) (962) (euro) 107,398
Gross Profit.............. 35,060 22,912 1,681 1,098 -- -- 60,751
EBITDA.................... 8,805 10,292 383 (183) (euro) (14,487) -- 4,810
Operating income (loss)... (4,288) 8,235 (59) (778) (15,030) -- (11,802)
Six months ended June 30, 2003
Revenue................... (euro) 51,166 (euro) 30,033 (euro) 3,695 (euro) 4,005 -- (euro) 975 (euro) 87,924
Gross Profit.............. 30,389 23,085 2,312 1,004 -- -- 56,790
EBITDA.................... 14,640 12,325 970 222 (7,210) -- 20,947
Operating income (loss)... 6,903 11,116 751 (223) (8,559) -- 9,988
EBITDA calculation
Management believes that the most directly comparable GAAP measure to
EBITDA is operating income (loss).
The following table reconciles EBITDA to operating income (loss) for the
periods presented.
Three months ended Six months ended
June 30, June 30,
-------- --------
2002 2003 2002 2003
---- ---- ---- ----
Operating income (loss)....... (euro) (6,537) (euro) 4,998 (euro) (11,802) (euro) 9,988
Depreciation.................. 4,466 2,779 9,131 5,733
Amortization of intangibles... 3,832 2,611 7,481 5,226
------------- ------------- -------------- -------------
EBITDA........................ (euro) 1,761 (euro) 10,388 (euro) 4,810 (euro) 20,947
============= ============= ============== =============
Note 9. Commitments associated with the U.S.$ 125 million credit facility
On June 29, 2001, the Company entered into a U.S. $57.5 million interest
rate swap agreement to hedge its exposure on 50% of its outstanding term loans
under the U.S. $125 million credit facility, excluding the U.S. $10 million
revolving line of credit, granted in April 2001, denominated in U.S. dollars.
After the second repayment of this credit facility, the swap agreement covers
U.S.$54 million. The effect of the latter agreement was to convert underlying
variable rate debt based on Libor USD to fixed rate debt with an interest rate
of 5.52%. The comprehensive loss of this interest rate swap agreement amounted
to (euro)956 at June 30, 2003.
The U.S. $125 million credit facility agreement is secured by the
following:
-- Stock pledge of shares of Genesys Conferencing Ltd (England), Genesys
Conferencing AB (Sweden), Genesys Conferencing Inc, including subsidiaries;
-- Security over some assets such as accounts receivable and other assets
of Genesys Conferencing Inc.
GENESYS S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
(in thousands, except share data and when indicated)
Note 10. Reconciliation to generally accepted accounting principles in the
United States (U.S. GAAP)
Reconciliation of net income (loss) under French and U.S. GAAP
The following table shows the reconciliation of net loss (income) for the
three and six months ended June 30, 2002 and 2003 between the generally accepted
accounting principles in France (French GAAP) and the generally accepted
accounting principles in the United States (U.S. GAAP):
Three months ended Six months ended
June 30, June 30,
2002 2003 2002 2003
---- ---- ---- ----
Net income (loss) according to French GAAP (euro) (13,393) (euro) 862 (euro) (21,438) (euro) 1,543
U.S. GAAP adjustments:
- --Foreign currency differences.............. 696 1,410 -- 5,408
- --Amortization of goodwill and intangibles.. 2,359 779 5,221 2,254
- --Deferred compensation..................... (62) (62) (123) (123)
- --Debt issuance costs....................... (436) -- (3) --
- --Income tax and deferred tax............... 1,206 774 2,409 1,548
- --Accrued restructuring costs.............. -- -- (3,671) --
- --Treasury shares........................... 69 (18) 64 (18)
- --Operating leases.......................... -- (37) -- (69)
- --Others, net............................... (2) -- -- --
-------------- ------------ -------------- -------------
Total....................................... (euro) 3,830 (euro) 2,846 (euro) 3,897 (euro) 9,000
============== ============ ============== =============
Net income (loss) according to U.S. GAAP.... (euro) (9,563) (euro) 3,708 (euro) (17,541) (euro) 10,543
============== ============ ============== =============
Reconciliation shareholders' equity under French and U.S. GAAP
The following table shows the reconciliation of shareholders' equity at
December 31, 2002 and June 30, 2003 between the generally accepted accounting
principles in France (French GAAP) and the generally accepted accounting
principles in the United States (U.S. GAAP):
December 31, June 30,
2002 2003
------------ --------
Shareholders' equity according to French GAAP (euro) 73,623 (euro) 76,820
U.S. GAAP adjustments:
- --Fair value of financial instruments....... (1,839) (956)
- --Amortization of goodwill and intangibles.. 2,404 4,301
- --Impairment of goodwill and intangibles.... (40,567) (38,786)
- --Deferred compensation..................... 5,895 6,476
- --Debt issuance costs....................... 241 241
- --Income tax and deferred tax............... 16,039 17,587
- --Accrued restructuring costs.............. (3,117) (2,861)
- --Treasury shares........................... (18) (36)
- --Operating leases.......................... 134 63
- --Others, net............................... (4) (3)
--------------- ---------------
Total....................................... (euro) (20,832) (euro) (13,974)
=============== ===============
Shareholders' equity according to U.S. GAAP. (euro) 52,791 (euro) 62,846
=============== ===============
GENESYS S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
(in thousands, except share data and when indicated)
Note 11. Subsequent information
Capital increase
On August 4, 2003, the Company announced that the capital increase launched
by the Company on July 10, 2003 was fully issued (100%) for a total amount of
6,192,877 euros, including the additional paid-in-capital. As a result, the
Company issued 2,814,944 ordinary shares that have been listed on the Nouveau
Marche of Euronext Paris since August 6, 2003. After this capital increase, the
common stock includes 18,297,139 shares with a unit nominal value of 1 euro (see
note 4, Share capital).
The completion of this capital increase was the last condition of the
restructuring of long-term debt that has been brought to a successful
conclusion.
Closing of Chanhassen call center
On September 22, 2003, the Company announced the Chanhassen, Minnesota call
center closing by the end of the year. This new closing in North America can be
explained by the call center automation, in particular the deployment of a new
back office operating system and the ongoing move towards automated services.
Chanhassen's call volumes will be re-routed to Reston, Virginia, where the
Company has been building a high-capacity call center. The related costs to
close the call center will be approximately (euro)0.9 million under U.S. GAAP
and will be recorded in non-recurring operating expenses in the fourth quarter
of 2003. This charge will include employee severance, unusable future facility
lease commitments, the write-off of certain leasehold improvements and equipment
as well as other miscellaneous costs associated with exiting the call center.
The Company estimates that future annual cost savings from the consolidation
will generate approximately (euro)1.1 million from 2004.
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.
Dated: October 23, 2003
GENESYS SA
By: /s/ Francois Legros
----------------------------------
Name: Francois Legros
Title: Chairman and Chief Executive
Officer