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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 June 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______to_______
Commission File No.: 0-14685
GENICOM CORPORATION
(Exact name of registrant as specified in it charter)
DELAWARE 51-0271821
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
14800 CONFERENCE CENTER DRIVE
SUITE 400, WESTFIELDS
CHANTILLY, VIRGINIA 20151
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 802-9200
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes x No_
As of August 3, 1998, there were 11,559,197 shares of Common Stock of
the Registrant outstanding.
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FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 28, 1998 and December 28, 1997 3
Consolidated Statements of Income - Three Months and Six Months Ended
June 28, 1998 and June 29, 1997 4
Consolidated Statements of Cash Flows - Six Months Ended
June 28, 1998 and June 29, 1997 5
Notes to Consolidated Financial Statements 6 - 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12 - 15
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
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Index to Exhibits E-1
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 28, DECEMBER 28,
(In thousands, except share data) 1998 1997
---- ----
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,549 $ 4,622
Accounts receivable, less allowance for
doubtful accounts of $5,254 and $4,470 84,872 89,692
Other receivables 3,435 3,252
Inventories 68,883 67,553
Prepaid expenses and other assets 15,770 8,390
--------- ---------
TOTAL CURRENT ASSETS 179,509 173,509
Property, plant and equipment, net 41,178 36,146
Goodwill 16,883 33,800
Intangibles and other assets 5,416 6,594
--------- ---------
$ 242,986 $ 250,049
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,584 $ 6,391
Accounts payable and accrued expenses 77,536 84,578
Deferred income 14,816 16,350
--------- ---------
TOTAL CURRENT LIABILITIES 96,936 107,319
Long-term debt, less current portion 102,700 87,072
Other non-current liabilities 10,721 10,262
--------- ---------
TOTAL LIABILITIES 210,357 204,653
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 18,000,000 shares
authorized, 11,559,197 and 11,365,750 shares issued
and outstanding 116 114
Additional paid-in capital 28,930 26,959
Retained earnings 5,385 20,020
Foreign currency translation adjustment (1,802) (1,697)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 32,629 45,396
--------- ---------
$ 242,986 $ 250,049
========= =========
The accompanying notes are an integral part of these financial statements.
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GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED, SIX MONTHS ENDED,
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
(In thousands, except per share data) 1998 1997 1998 1997
---- ---- ---- ----
REVENUES, NET:
Products $ 74,681 $ 69,568 $ 155,012 $ 135,202
Services 37,369 29,079 79,148 59,790
--------- --------- --------- ---------
112,050 98,647 234,160 194,992
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Cost of revenues:
Products 53,691 46,959 110,651 91,915
Services 35,017 27,829 72,753 55,253
Selling, general and administration 21,782 15,668 42,053 32,785
Engineering, research and product
development 4,099 2,916 8,424 5,461
Write-off of goodwill 15,000 15,000
--------- --------- --------- ---------
129,589 93,372 248,881 185,414
--------- --------- --------- ----------
OPERATING (LOSS) INCOME (17,539) 5,275 (14,721) 9,578
Interest expense, net 2,737 1,659 5,330 3,032
--------- --------- --------- ---------
(LOSS) INCOME BEFORE INCOME TAXES (20,276) 3,616 (20,051) 6,546
Income tax (benefit) expense (5,470) 773 (5,414) 1,186
--------- --------- --------- ---------
NET (LOSS) INCOME $ (14,806) $ 2,843 $ (14,637) $ 5,360
========= ========= ========= =========
(Loss) earnings per common share (basic) $ (1.28) $ 0.26 $ (1.27) $ 0.49
========= ========= ========== =========
(Loss) earnings per common share (diluted) $ (1.28) $ 0.23 $ (1.27) $ 0.43
========= ========= ========= =========
Weighted average number of common shares
outstanding (basic) 11,555 11,016 11,510 11,007
========= ========= ========= =========
Weighted average number of common shares
and dilutive shares (diluted) 11,555 12,429 11,510 12,414
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
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GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED,
-------------------------
JUNE 28, JUNE 29,
(thousands) 1998 1997
---- ----
Cash flows from operating activities:
Net (loss) income $(14,637) $ 5,360
Adjustments to reconcile net (loss) income to cash provided
by (used in) operating activities:
Depreciation 7,116 6,642
Amortization 4,274 2,296
Write-off of goodwill 15,000
Changes in assets and liabilities:
Accounts receivable 4,637 (889)
Inventories (1,330) (11,748)
Accounts payable and accrued expenses (4,470) (7,121)
Deferred income (1,534) (755)
Other (4,834) (4,466)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,222 (10,681)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (12,110) (7,235)
Other investing (1,638)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (13,748) (7,235)
-------- --------
Cash flows from financing activities:
Borrowings on long-term debt 21,613 22,567
Payments on long-term debt (7,792) (11,564)
Bank overdraft (2,172) 5,682
Financing costs (73) (165)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,576 16,520
-------- --------
Effect of exchange rate changes on cash and cash equivalents (123) (81)
-------- --------
Net increase (decrease) in cash and cash equivalents 1,927 (1,477)
Cash and cash equivalents at beginning of period 4,622 5,866
-------- --------
Cash and cash equivalents at end of period $ 6,549 $ 4,389
======== ========
The accompanying notes are an integral part of these financial statements
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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 June 28, 1998, and the results of
operations and cash flows for the periods indicated. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's
December 28, 1997 Annual Report. The results of operations for the six
months ended June 28, 1998, are not necessarily indicative of the
operating results to be expected for the full year.
2. Inventories are stated at the lower of cost, determined on the
first-in, first-out method, or market. Inventories consist of, in
thousands:
June 28, December 28,
1998 1997
---- ----
Raw materials $ 5,687 $ 9,295
Work in process 1,471 1,994
Finished goods 61,725 56,264
------- -------
$68,883 $67,553
======= =======
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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.
(in thousands) Three Months Ended June 28, 1998
-------------------------------------------
Income Shares Per Share
------------ ------------- -------------
BASIC EPS
Income available to shareholders $ (14,806) 11,555 $ (1.28)
------------ ------------- -------------
Weighted shares from stock options 0
-------------
DILUTED EPS $ (14,806) 11,555 $ (1.28)
------------ ------------- -------------
Three Months Ended June 29, 1997
-------------------------------------------
BASIC EPS
Income available to shareholders $ 2,843 11,016 $ 0.26
------------ ------------- -------------
Weighted shares from stock options 1,413
-------------
DILUTED EPS $ 2,843 12,429 $ 0.23
Six Months Ended June 28, 1998
-------------------------------------------
Income Shares Per Share
------------ ------------- -------------
BASIC EPS
Income available to shareholders $ (14,637) 11,510 $ (1.27)
------------ ------------- -------------
Weighted shares from stock options 0
-------------
DILUTED EPS $ (14,637) 11,510 $ (1.27)
------------ ------------- -------------
Six Months Ended June 29, 1997
-------------------------------------------
Income Shares Per Share
------------ ------------- -------------
BASIC EPS
Income available to shareholders $ 5,360 11,007 $ 0.49
------------ ------------- -------------
Weighted shares from stock options 1,407
-------------
DILUTED EPS $ 5,360 12,414 $ 0.43
------------ ------------- -------------
4. Segment Information
The Company operates in the serial, line and page printer business
where it designs, manufactures and markets printers as well as the
related supplies and spare parts (Document Solutions company). The
Company's operation in services provides 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). The production and sales of relay products, a
product line the Company sold in November 1997, comprised less than 10%
of revenue, operating income and identifiable assets. This product line
is included in the Document Solutions segment for 1997. Revenue between
industry segments are not material.
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Six Months Ended or As of
June 28, June 29,
(in thousands) 1998 1997
---- ----
REVENUE
Document Solutions $ 155,012 $ 135,202
Enterprising Service Solutions 79,148 59,790
--------- ---------
$ 234,160 $ 194,992
--------- ---------
OPERATING INCOME
Document Solutions $ 2,074 $ 16,215
Enterprising Service Solutions (16,795) (6,637)
--------- ---------
$ (14,721) $ 9,578
--------- ---------
DEPRECIATION AND AMORTIZATION
Document Solutions $ 3,416 $ 2,603
Enterprising Service Solutions 7,204 5,723
Corporate and other 770 612
--------- ---------
$ 11,390 $ 8,938
--------- ---------
ASSETS
Document Solutions $ 129,387 $ 122,524
Enterprising Service Solutions 81,532 58,198
Corporate and other 32,067 15,263
--------- ---------
$ 242,986 $ 195,985
--------- ---------
CAPITAL EXPENDITURES
Document Solutions $ 2,007 $ 1,219
Enterprising Service Solutions 6,937 3,586
Corporate and other 3,166 2,430
--------- ---------
$ 12,110 $ 7,235
--------- ---------
5. Business Acquisitions
Novadyne Computer Systems, Incorporated
On November 14, 1997, the Company purchased selected assets of Novadyne
Computer Systems, Inc. for approximately $17.3 million including the
assumption of certain liabilities. The transaction was financed through
the Company's credit facility with NationsBank of Texas, N.A.
Pro Forma Financial Information
Presented below are the unaudited actual and pro forma statements of
operations as if the acquired operations had been integrated into the
Company effective December 30, 1996. Accounting adjustments have been
made in the pro forma financial information to include estimated costs
of the combinations and to reflect the integration and consolidation of
facilities and personnel. Included in such integration costs are
relocation costs associated with facilities and employee expenses. This
pro forma information has been prepared for comparative purposes only
and does not purport to be
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indicative of the results that actually would have been obtained if
the acquired operations had been conducted by the Company during the
periods presented, and is not intended to be a projection of future
results. Presentation is in thousands except for earnings per share
amounts.
Three Months Ended Six Months Ended
------------------ ----------------
(proforma) (proforma)
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
---- ---- ---- ----
Revenue $ 112,050 $ 107,359 $ 234,160 $ 212,362
Pre-Tax (Loss) Income (20,276) 4,686 (20,051) 8,686
------------ ------------ ------------ ------------
Net (Loss) Income (14,806) 3,485 (14,637) 6,644
------------ ------------ ------------ ------------
(Loss) Earnings per share $ (1.28) $ 0.32 $ (1.27) $ 0.60
------------ ------------ ------------ ------------
Weighted average shares outstanding 11,555 11,016 11,510 11,007
------------ ------------ ------------ ------------
Digital Equipment Corporation Agreements
On August 10, 1997, the Company purchased Digital Equipment
Corporation's Printing Systems Business and became Digital's exclusive
supplier of Digital-branded printer products. The multi-year agreement
also established a cooperative alliance where the Company will provide
a broad line of products, business planning, technical support and
distribution services to Digital's marketing channels in each of their
global geographies. The Company and Digital have also agreed to pursue
joint marketing programs for each other's capabilities, products and
services.
6. Commitments and Contingencies
Environmental matters:
The Company and the former owner of its Waynesboro, Virginia facility,
General Electric Company ("G.E."), have generated and managed hazardous
wastes at the facility for many years as a result of their use of
certain materials in manufacturing processes. The Company and the
United States Environmental Protection Agency ("EPA") have agreed to a
corrective action consent order (the "Order"), which became effective
on September 14, 1990. The Order requires the Company to undertake an
investigation of solid waste management units at its Waynesboro,
Virginia facility and to conduct a study of any necessary corrective
measures that may be required. The investigative work under the Order
was completed in December 1997 and the Company submitted a report to
the EPA. The EPA has not yet formally responded to the report, although
the EPA has stated informally that it may require additional
investigative work. Although not required by the Order, the Company has
agreed to install and operate an interim ground water stabilization
system, subject to EPA approval of the system design. The interim
groundwater stabilization program may be chosen as the final remedy for
the site, or additional corrective measures may eventually be required.
It is not possible to reliably estimate the costs that any such
possible additional corrective measures would entail. However, if
additional corrective measures are required, the Company expects that
it will enter into discussion with EPA concerning their scope and a
further order for that purpose.
The Company has been notified by the EPA that it is one of 700
potentially responsible parties ("PRPs") under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, for
necessary corrective action at a hazardous waste disposal site in
Greer, South Carolina. In
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prior years, the Company arranged for the transportation of wastes to
the site for treatment or disposal. During 1995, the PRPs entered into
an administrative consent order with EPA under which they will
undertake a remedial investigation and feasibility study which is
currently underway.
Atlantic Design:
December of 1995, the Company entered into a five year agreement which
was extended an additional year in June 1996 (renewable annually after
6 years) with Atlantic Design Company, Inc. ("ADC") a subsidiary of
Ogden Services Corporation, pursuant to which ADC acquired the
Company's manufacturing operations in McAllen, Texas and Reynosa,
Mexico. Under the agreement, ADC is committed to manufacturing a
significant part of the Company's impact printer products, printed
circuit boards, related supplies and spare parts, while the Company
retains design, intellectual and distribution rights with respect
thereto.
Ogden Services Corporation has divested certain ADC facilities and has
attempted to divest the Reynosa operations. The Company's contract with
ADC contains a clause requiring GENICOM's consent to the sale, which
consent cannot be unreasonably withheld. The Company has evaluated
preliminary information received from ADC concerning a potential buyer,
but, to the Company's knowledge, the sale of the Reynosa facility is
not imminent.
In August 1997, ADC filed a Demand for Arbitration with the American
Arbitration Association seeking a legal interpretation of the pricing
provisions in the agreement between ADC and the Company and the
recovery of an amount in dispute said to be approximately $2 million.
The Company filed a counterclaim against ADC for approximately $10
million alleging various breaches of the agreement. Ogden Services
Corporation and ADC filed counterclaims against the Company seeking
damages in excess of $10 million alleging additional various breaches
by the Company of the agreement.
On July 4, 1998, the Company, ADC and Ogden Services Corporation
settled the arbitration. Primary settlement terms included settlement
of all claims and counterclaims in the arbitration, a $2.1 million
payment to ADC for which the Company was fully reserved, a price
increase effective for shipments after August 15, 1998, and a guarantee
of orders for one year. ADC is continuing as a supplier for the
Company.
Other matters:
In the ordinary course of business, the Company is party to various
environmental, administrative and legal proceedings. In the opinion of
management, the Company's liability, if any, in all pending litigation
or other legal proceedings, other than those discussed above, will not
have a material effect upon the financial condition, results of
operations or liquidity of the Company.
7. The Company adopted SFAS 130, "Reporting Comprehensive Income", in the
first quarter of 1998. The Company's loss, if reported on a
comprehensive basis, would be $14,965,000 for the three months ended
June 28, 1998 and $14,716,000 for the six months ended June 28, 1998.
The Company had a loss in its foreign currency translation amount of
$212,000 from March 29, 1998 and $105,000 from December 28, 1997, with
after tax losses $159,000 and $79,000, respectively. For the second
quarter of 1997, the foreign currency translation loss was $42,000,
with an after tax loss of $33,000. For the six months ended June 29,
1997, the foreign currency translation loss was $181,000, with an after
tax loss of $148,000. The Company's comprehensive income for the second
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quarter of 1997 would have been $2.8 million and for the six months
ended June 29, 1997, $5.2 million.
8. On July 2, 1998, the Company and its banks amended the credit agreement
with NationsBank of Texas, N.A., as agent for the group of banks. The
amendment adjusts the Company's required financial covenants, limits
capital expenditures to a maximum of $27 million for 1998, adjusts the
borrowing base percentages allowing the Company increased borrowing
ability and adjusts the interest rate upwards 1.50% on the incremental
increased borrowing against the higher base.
9. Based upon recent review of certain long-lived assets, the Company
determined that the value of goodwill associated with the acquisitions
of Centronics, Printer Systems Corporation and Harris Adacom was
impaired. In accordance with FAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", during
the second fiscal quarter of 1998, the Company took a pre-tax charge
associated with this impairment of approximately $15 million. By
segment, service's pre-tax charge was $8.2 million and product's
pre-tax charge was $6.8 million.
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition:
RESULTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------- ----------------------------------
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1998 CHANGE 1997 1998 CHANGE 1997
Revenues - Enterprising Service Solutions $ 37,369 $ 8,290 $ 29,079 $ 79,148 $ 19,358 $ 59,790
Revenues - Document Solutions 74,681 5,113 69,568 155,012 19,810 135,202
---------- ---------- ---------- ---------- ---------- ----------
Total Revenue $ 112,050 $ 13,403 $ 98,647 $ 234,160 $ 39,168 $ 194,992
---------- ---------- ---------- ---------- ---------- ----------
Percentage change 13.6% 20.1%
Revenue in the second quarter of 1998 increased 13.6% from the second quarter of
1997 primarily due to the revenue growth in Document Solutions ("DSC") as a
result of the agreements with Digital Equipment Corporation ("DEC") and in
Enterprising Service Solutions ("ESSC") as a result of the acquisition of
certain assets of Novadyne Computer Systems. DSC revenue, excluding Relays, was
14.6% higher than the second quarter of 1997 as a result of the agreements with
DEC. ESSC revenue increased 28.5%. This increase was primarily the result of the
Novadyne acquisition and the final balance of a systems integration contract
with NASDAQ. The depot in Louisville, Kentucky began to recover some revenue
levels previously lost due to the transition of depot services from Bedford,
Massachusetts and Waynesboro, Virginia.
For 1998 year to date, revenue increased $39.2 million from 1997. DSC's revenue,
excluding Relays, increased $28.5 million or 22.6% primarily due to the
agreements with DEC. ESSC's revenue for 1998 increased $19.4 million or 32.4
percent compared to 1997 principally from the acquisition of certain assets of
Novadyne Computer Systems which increased revenues in field service, a contract
with NASDAQ for upgrading their computer network and increased integration
business in the Canadian subsidiary.
Relay revenues, which are included as part of Document Solutions in the above
table for 1997, were $4.4 million for the second quarter of 1997 and $8.7
million for the six months ended June 29, 1997. This product line was sold in
November of 1997.
2ND QUARTER 4TH QUARTER 2ND QUARTER
(in millions) 1998 1997 1997
- ------------- ---- ---- ----
Order Backlog $ 40.8 $ 44.8 $ 51.9
Change: 2nd Quarter of 1998 compared to
Amount (4.0) (11.1)
Percentage -8.9% -21.4%
The decrease in order backlog from the second quarter of 1997 primarily reflects
the effect of the sale of the relay product line. The relay backlog was $8.1
million as of June 29, 1997. The decrease in the order backlog from the fourth
quarter of 1997 is principally due to a decrease in printer and supplies backlog
partially offset by the recording of ESSC annual contracts recorded in January.
The Company's backlog as of any particular date should not be the sole
measurement used in determining sales for any future period.
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THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1998 CHANGE 1997 1998 CHANGE 1997
- ------------- ---- ------ ---- ---- ------ ----
Gross margin - Enterprising Service Solutions $ 2.4 $ 1.1 1.3 $ 6.4 $ 1.9 $ 4.5
Gross margin - Document Solutions 21.0 (1.6) 22.6 44.4 1.1 43.3
--------- -------- -------- -------- ------- ---------
Total gross margin $ 23.4 $ (0.5) 23.9 $ 50.8 $ 3.0 $ 47.8
--------- -------- -------- -------- ------- ---------
As a % of revenue 20.8% 24.2% 21.7% 24.5%
Gross margin, as a percent of revenue, decreased from 24.2% in the second
quarter of 1997 to 20.8% in the second quarter of 1998. As a percent of revenue,
gross margin for DSC excluding Relays decreased to 28.1% for the quarter ending
June 28, 1998 from 32.8% for the quarter ending June 29, 1997. This decrease is
primarily the result of the lower volume of supplies sales which carry a larger
margin percentage than printers and a change in the sale mix of printers. For
ESSC, gross margin increased from 4.3% for the second three months of 1997 to
6.3% for 1998 reflecting some improvement in the operating efficiency of ESSC.
As a percent of revenue, gross margin for the six months ended June 28, 1998 was
21.7% as compared to 24.5% for the six months ended June 29, 1997. The gross
margin percentage for DSC for the first six months of 1998 decreased to 28.1%
from 32.8% in 1997 due to the second quarter reduction of supplies sales and the
sales mix in printer sales. ESSC's gross margin percentage increase slightly to
8.1% for year to date 1998 from 7.6% for the same period in 1997 reflecting some
operational efficiency improvements.
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1998 CHANGE 1997 1998 CHANGE 1997
- ------------- ---- ------ ---- ---- ------ ----
Operating expenses:
Selling, general and administrative $ 21.8 $ 6.1 $ 15.7 $ 42.1 $ 9.3 $ 32.8
Engineering, research and product
development 4.1 1.2 2.9 8.4 3.0 5.4
Write-off of goodwill 15.0 15.0 -- 15.0 15.0 --
------- ------- ------- ------- ------- -------
Total $ 40.9 $ 22.3 $ 18.6 $ 65.5 $ 27.3 $ 38.2
------- ------- ------- ------- ------- -------
As a % of revenue 36.5% 18.9% 28.0% 19.6%
The increase of $7.3 million in operating expenses, excluding the goodwill
write-off, from the second quarter of 1997 was primarily the result of increased
development and marketing costs to support new product introductions and higher
marketing costs in ESSC. Operating expenses increased, excluding the write-off
of goodwill as a percentage of revenue in the second quarter of 1998, to 23.1%
as compared to 18.9% in 1997.
For the first six months of 1998, operating expenses increased $12.3 million,
excluding the goodwill write-off, compared to 1997 primarily for the reasons
mentioned above.
During the second quarter of 1998, based upon review of long-lived assets, the
Company determined that the value of goodwill associated with the acquisitions
of Centronics, Printer Systems Corporation and Harris Adacom was impaired. In
accordance with FAS 121, during the second fiscal quarter of 1998, the Company
took a pre-tax charge associated with this impairment of approximately $15
million.
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THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1998 CHANGE 1997 1998 CHANGE 1997
- ------------- ---- ------ ---- ---- ------ ----
Interest expense, net $ 2.7 $ 1.0 $ 1.7 $ 5.3 $ 2.3 $ 3.0
Percentage change 58.8% 76.7%
Interest expense increased $1.0 million in the second quarter of 1998 as
compared to the year-ago quarter primarily as a result of higher borrowings in
1998 due to higher debt need to support the working capital needs of the
business and higher development costs associated with new product introductions.
Interest expense for the six months ended June 28, 1998 increased $2.3 million
compared to the same period in 1997 for the above reasons.
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1998 CHANGE 1997 1998 CHANGE 1997
- ------------- ---- ------ ---- ---- ------ ----
Income tax expense $ (5.5) $ (6.3) $ 0.8 $ (5.4) $ (6.6) $ 1.2
Effective tax rate 27.0% 21.4% 27.0% 18.1%
The Company's effective tax rate for the second quarter and the first six months
of 1998 was 27.0 percent. The tax rate is being affected by the anticipated
utilization of foreign operating losses. During the first six months of 1997,
the Company reversed part of its valuation allowance for its foreign deferred
tax assets.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED
----------------
2ND QUARTER 2ND QUARTER
(in millions) 1998 1997
- ------------- ---- ----
Cash provided by (used in) operations $ 4.2 $ (10.7)
Cash used in investing activities (13.7) (7.2)
Cash provided by financing activities 11.6 16.5
2ND QUARTER 4TH QUARTER
(in millions) 1998 1997
- ------------- ---- ----
Working capital $ 82.4 $ 66.2
Inventories 68.9 67.6
Debt obligations 107.3 93.5
Debt to equity ratio 3.3 to 1 2.1 to 1
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Cash provided by operations changed $14.9 million from the first half of 1997
principally due to the write-off of goodwill in the second quarter of 1998. The
Company's working capital increased $16.2 million as of June 28, 1998 as
compared to December 28, 1997 due primarily to a $7.4 million increase in
prepaid and other assets driven by negative taxes payable and a $7.0 million
decrease in accounts payable and accrued expenses. Debt increased significantly
with the proceeds used to support the working capital needs of the business, the
acquisition of certain assets of Novadyne Computer Systems, and the operating
loss. The Company had approximately $175,000 available for borrowing under its
credit facilities as of June 28, 1998.
On July 2, 1998, the Company and its banks amended the credit agreement with
NationsBank of Texas, N.A., as agent for the group of banks. The amendment
adjusts the Company's required financial covenants, limits capital expenditures
to a maximum of $27 million for 1998, adjusts the borrowing base percentages
allowing the Company increased borrowing ability and adjusts the interest rate
upwards 1.50% on the incremental increased borrowing against the higher base.
In August 1997, Atlantic Design Company, Inc. ("ADC") filed a Demand for
Arbitration (see "Note 6" for a discussion of the ADC agreement) with the
American Arbitration Association seeking a legal interpretation of the pricing
provisions in the agreement between ADC and the Company and the recovery of an
amount in dispute said to be approximately $2 million. The Company filed a
counterclaim against ADC for approximately $10 million alleging various breaches
of the agreement. Ogden Services Corporation and ADC filed counterclaims against
the Company seeking damages in excess of $10 million alleging additional various
breaches by the Company of the agreement.
On July 4, 1998, the Company, ADC and Ogden Services Corporation settled the
arbitration. Primary settlement terms included settlement of all claims and
counterclaims in the arbitration, a $2.1 million payment to ADC for which the
Company was fully reserved, a price increase effective for shipments after
August 15, 1998, and a guarantee of orders for one year. ADC is continuing as a
supplier for the Company.
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
integration of acquisitions, including but not limited to the Company's
acquisition of certain assets of Novadyne Computer Systems as of November 14,
1997, the Company's ability to reach an appropriate level of operating
efficiency in the services group, 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.
15
16
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 20, 1998.
c) At said annual meeting, stockholders elected the Company's three directors,
amended the Company's 1997 Stock Option Plan, approved the 1998 Employee
Ownership Participation Plan, approved the 1998Non-Employee Director Stock
Option Plan and approved the appointment of Cooper & Lybrand L.L.P. as the
Company's independent accountants.
Directors
Director Votes for Withheld Broker Non-Votes
-------- --------- -------- ----------------
Don E. Ackerman 9,821,388 47,490 0
John Hill 9,818,488 50,390 0
Paul T. Winn 9,821,378 47,500 0
Stock Option Plan
Abstentions or
Votes for Votes against Broker Non-Votes
5,669,384 641,073 61,417
Employee Ownership Participation Plan
Abstentions or
Votes for Votes against Broker Non-Votes
6,259,313 139,770 43,492
Non-Employee Director Stock Option Plan
Abstentions or
Votes for Votes against Broker Non-Votes
5,735,269 659,170 48,138
16
17
Accountants
Abstentions or
Votes for Votes against Broker Non-Votes
9,851,045 10,317 7,516
Item 5. Other Information:
The SEC has adopted Rule 14a-4(c), effective June 29, 1998, which determines how
proxies designated by public corporations may use discretionary voting authority
on stockholder proposals made at annual meetings. Under this rule, the Company
will have unrestricted use of discretionary voting authority if it does not
receive prior written notice of an intent to submit a proposal at the meeting.
For the Company's 1999 annual meeting, this notice must be received by February
27, 1999.
Item 6. Exhibits and Reports on Form 8-K:
a) Exhibits
NUMBER DESCRIPTION
------ -----------
10.1 Third Amendment to Amended and Restated
Credit Agreement dated May 7, 1998
10.2 Fourth Amendment to Amended and Restated
Credit Agreement and Waiver dated July 1,
1998
10.3 Settlement Agreement between Genicom
Corporation, Atlantic Design Company, Inc.
and Ogden Services Corporation dated July 4,
1998 (portions of this document have been
omitted pursuant to a request for
confidential treatment)
10.4# Genicom Corporation Retirement Income
Agreement with Paul T. Winn
27.1 Financial Data Schedule
# Management contracts or compensatory plan
b) Reports on Form 8-K:
On June 28, 1998, the Company filed an 8-K regarding the settlement of
the Atlantic Design Company, Inc. and Ogden Service Corporation
arbitration, the amending of its credit facility with NationsBank, as
agent for a group of banks, and the write-off of $15 million of
goodwill related to historical acquisitions.
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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 10, 1998
/s/James C. Gale
-------------------------------------
Signature
James C. Gale
Senior Vice President and Chief
Financial Officer
(Mr. Gale is a Chief Financial
Officer and has been duly
authorized to sign on behalf of the
Registrant)
18
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GENICOM CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1998
EXHIBIT
NUMBER DESCRIPTION PAGE
- -------------- ---------------------------------------------------------------------- ----------------------
10.1 Third Amendment to Amended and Restated Credit Agreement dated May
7, 1998
10.2 Fourth Amendment to Amended and Restated Credit Agreement dated July
1, 1998
10.3 Settlement Agreement between Genicom Corporation, Atlantic Design
Company, Inc. and Ogden Services Corporation dated July 4, 1998
10.4 Genicom Corporation Retirement Income Agreement with Paul T. Winn
27.1 Financial Data Schedule Filed only with
EDGAR version