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FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to _____________
Commission File No.: 0-14685
GENICOM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 51-0271821
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14800 CONFERENCE CENTER DRIVE
SUITE 400, WESTFIELDS
CHANTILLY, VIRGINIA 20151
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 802-9200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of July 30, 1999, there were 11,683,174 shares of Common Stock of the
Registrant outstanding.
REASON FOR AMENDMENT
The undersigned registrant hereby amends in its entirety Part I of its
quarterly report on Form 10-Q for the quarterly period ended July 4, 1999.
The Company has restated its first and second quarter financial statements
based on the results of a physical count of its service finished goods business
inventory in October 1999. The restatement has caused the Company to be in
non-compliance throughout 1999 with certain covenants and payment provisions of
its credit agreement, and accordingly all outstanding borrowings under the
credit agreement have been classified as a current liability. See notes 2 and 7
to the financial statements included herein.
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FORM 10-Q/A INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - July 4, 1999 (Restated) and January 3, 1999 3
Consolidated Statements of Operations - Three and Six Months Ended
July 4, 1999 (Restated) and June 28, 1998 4
Consolidated Statements of Cash Flows - Three and Six Months Ended
July 4, 1999 (Restated) and June 28, 1998 5
Notes to Consolidated Financial Statements (Restated) 6 - 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Restated) 11 - 16
Item 3. Market Risk 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17 - 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Index to Exhibits E-1
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 4, JANUARY 3,
(In thousands, except share data) 1999 1999
----------- ----------
(UNAUDITED)
(RESTATED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,228 $ 4,894
Accounts receivable, less allowance for
doubtful accounts of $5,141 and $5,716 78,514 83,893
Other receivables 340 2,714
Inventories (note 2) 45,864 59,617
Prepaid expenses and other assets 13,126 12,664
----------- ----------
TOTAL CURRENT ASSETS 146,072 163,782
Property, plant and equipment, net 45,784 45,459
Goodwill 14,218 15,965
Intangibles and other assets 5,891 4,771
----------- ----------
$ 211,965 $ 229,977
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (note 7) $ 108,620 $ 7,936
Accounts payable and accrued expenses 60,920 67,096
Deferred income 13,412 13,344
----------- ----------
TOTAL CURRENT LIABILITIES 182,952 88,376
Long-term debt, less current portion 105,000
Other non-current liabilities 11,863 11,984
----------- ----------
TOTAL LIABILITIES 194,815 205,360
----------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 18,000,000 shares
authorized, 11,646,040 and 11,581,661 shares issued
and outstanding, respectively 116 116
Additional paid-in capital 30,465 29,216
Accumulated deficit (10,510) (2,039)
Accumulated other comprehensive loss (2,921) (2,676)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 17,150 24,617
----------- ----------
$ 211,965 $ 229,977
=========== ==========
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,
JULY 4, JUNE 28, JULY 4, JUNE 28,
(In thousands, except per share data) 1999 1998 1999 1998
---------- --------- ---------- ---------
(RESTATED) (RESTATED)
REVENUES, NET:
Products $ 66,671 $ 74,681 $ 129,833 $ 155,012
Services 35,444 37,369 72,671 79,148
---------- --------- ---------- ---------
102,115 112,050 202,504 234,160
---------- --------- ---------- ---------
OPERATING COSTS AND EXPENSES:
Cost of revenues:
Products 49,287 53,691 94,134 110,651
Services 28,997 35,017 60,676 72,753
Service inventory adjustment (note 2) 977 3,653
Selling, general and administration 18,695 21,782 38,502 42,053
Engineering, research and
product development 4,315 4,099 8,382 8,424
Write-off of goodwill 15,000 15,000
---------- --------- ---------- ---------
102,271 129,589 205,347 248,881
---------- --------- ---------- ---------
OPERATING LOSS (156) (17,539) (2,843) (14,721)
Interest expense, net 2,937 2,737 5,615 5,330
---------- --------- ---------- ---------
LOSS BEFORE INCOME TAXES (3,093) (20,276) (8,458) (20,051)
Income tax (benefit) expense (106) (5,470) 13 (5,414)
---------- --------- ---------- ---------
NET LOSS $ (2,987) $ (14,806) $ (8,471) $ (14,637)
========== ========= ========== =========
Loss per common share (basic) $ (0.26) $ (1.28) $ (0.73) $ (1.27)
========== ========= ========== =========
Loss per common share (diluted) $ (0.26) $ (1.28) $ (0.73) $ (1.27)
========== ========= ========== =========
Weighted average number of common shares
outstanding (basic) 11,642 11,555 11,626 11,510
========== ========= ========== =========
Weighted average number of common shares
and dilutive shares (diluted) 11,642 11,555 11,626 11,510
========== ========= ========== =========
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,
JULY 4, JUNE 28,
(In thousands) 1999 1998
---------- --------
(RESTATED)
Cash flows from operating activities:
Net loss $ (8,471) $(14,637)
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation 6,800 7,116
Amortization 3,542 4,274
Service inventory adjustment (note 2) 3,653
Write-off of goodwill 15,000
Changes in assets and liabilities:
Accounts receivable 8,503 4,637
Inventories 11,769 (1,330)
Accounts payable and accrued expenses (8,801) (4,470)
Deferred income 68 (1,534)
Other (953) (4,834)
---------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,110 4,222
---------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (8,297) (12,110)
Other investing (92) (1,638)
---------- --------
NET CASH USED IN INVESTING ACTIVITIES (8,389) (13,748)
---------- --------
Cash flows from financing activities:
Borrowings on long-term debt 11,409 21,613
Payments on long-term debt (15,725) (7,792)
Bank overdraft (2,172)
Financing costs (94) (73)
---------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (4,410) 11,576
---------- --------
Effect of exchange rate changes on cash and cash equivalents 23 (123)
---------- --------
Net increase in cash and cash equivalents 3,334 1,927
Cash and cash equivalents at beginning of period 4,894 4,622
---------- --------
Cash and cash equivalents at end of period $ 8,228 $ 6,549
========== ========
The accompanying notes are an integral part of these financial statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
financial statements of GENICOM Corporation and subsidiaries (the "Company"
or "GENICOM") contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the Company's consolidated financial
position as of July 4, 1999, and the results of operations and cash flows
for the periods indicated. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. It
is suggested that these condensed consolidated financial statements be read
in conjunction with the financial statements and notes thereto included in
the Company's January 3, 1999 Annual Report on Form 10-K. The results of
operations for the six months ended July 4, 1999, are not necessarily
indicative of the operating results to be expected for the full year.
2. 1999 INVENTORY ADJUSTMENTS AND QUARTERLY RESTATEMENTS
During October 1999, the Company conducted a physical count of the
Enterprising Solutions Service company ("ESSC") parts and supplies finished
goods inventory. During its reconciliation of the physical count to its
perpetual inventory records, the Company discovered discrepancies that
occurred undetected in the first and second quarters of 1999 associated
with the internal transfer of parts among various locations within the
Company. These discrepancies have the effect of increasing ESSC's cost of
revenue and operating loss $2.7 million and $1.0 million for the first and
second quarters of 1999, respectively. The Company's unaudited consolidated
financial statements for the second quarter and six months of 1999 have
been restated as follows:
Quarter Ended Six Months Ended
July 4, 1999 July 4, 1999
--------------------------------- ------------------------------
Reported Restated Reported Restated
---------------- -------------- ------------- -------------
Operating income (loss) $ 821 $ (156) $ 810 $ (2,843)
Net loss $ (2,010) $ (2,987) $ (4,818) $ (8,458)
Net loss per common share $ (0.17) $ (0.26) $ (0.41) $ (0.73)
As of
July 4, 1999
---------------------------------
Reported Restated
---------------- --------------
Inventory $ 49,517 $ 45,864
Accumulated deficit $ (6,857) $ (10,510)
3. INVENTORIES
Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or market. Inventories consist of, in thousands:
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JULY 4, JANUARY 3,
1999 1999
----------------- ----------------
(RESTATED)
Raw materials $ 4,634 $ 4,086
Work in process 814 930
Finished goods 40,416 54,601
----------------- ----------------
$ 45,864 $ 59,617
================= ================
4. EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of
common shares and dilutive common share equivalents (using the
treasury stock method) outstanding during the period.
Three Months Ended July 4, 1999
-----------------------------------------------
Loss Shares Per Share
-------------- ------------- -------------
BASIC EPS (Restated) (Restated)
Loss available to shareholders $ (2,987) 11,642 $ (0.26)
Weighted shares from stock options
-------------- ------------- -------------
DILUTED EPS $ (2,987) 11,642 $ (0.26)
-------------- ------------- -------------
Three Months Ended June 28, 1998
-----------------------------------------------
Loss Shares Per Share
-------------- ------------- -------------
BASIC EPS
Loss available to shareholders $ (14,806) 11,555 $ (1.28)
Weighted shares from stock options
-------------- ------------- -------------
DILUTED EPS $ (14,806) 11,555 $ (1.28)
-------------- ------------- -------------
Six Months Ended July 4, 1999
-----------------------------------------------
Loss Shares Per Share
-------------- ------------- -------------
BASIC EPS (Restated) (Restated)
Loss available to shareholders $ (8,471) 11,626 $ (0.73)
Weighted shares from stock options
-------------- ------------- -------------
DILUTED EPS $ (8,471) 11,626 $ (0.73)
-------------- ------------- -------------
Six Months Ended June 28, 1998
-----------------------------------------------
Loss Shares Per Share
-------------- ------------- -------------
BASIC EPS
Loss available to shareholders $ (14,637) 11,510 $ (1.27)
Weighted shares from stock options
-------------- ------------- -------------
DILUTED EPS $ (14,637) 11,510 $ (1.27)
-------------- ------------- -------------
For the three months ended July 4, 1999 and June 28, 1998, 273,000 and
1,041,000 equivalent shares, respectively, have been omitted due to their
antidilutive nature. For the six months ended July 4, 1999 and June 28,
1998, 365,000 and 1,147,000 equivalent shares, respectively, have been
omitted due to their antidilutive nature.
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5. SEGMENT INFORMATION
The Company operates in the serial, line and page printer business where it
designs, manufactures and markets printers as well as the related supplies
and spare parts (Document Solutions company). The Company's operation in
services provides customers with a full range of network information
technology services with field services, depot repair, parts and logistics
and network products (Enterprising Service Solutions company). Revenue
between industry segments is not material.
Six Months Ended or As of
July 4, June 28,
(in thousands) 1999 1998
----------------- ----------------
(Restated)
REVENUE
Document Solutions $ 129,833 $ 155,012
Enterprising Service Solutions 72,671 79,148
----------------- ----------------
$ 202,504 $ 234,160
----------------- ----------------
OPERATING (LOSS) INCOME
Document Solutions $ 4,086 $ 2,074
Enterprising Service Solutions (6,929) (16,795)
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$ (2,843) $ (14,721)
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DEPRECIATION AND AMORTIZATION
Document Solutions $ 2,777 $ 3,416
Enterprising Service Solutions 6,054 7,204
Corporate and other 1,511 770
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$ 10,342 $ 11,390
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ASSETS
Document Solutions $ 98,906 $ 129,387
Enterprising Service Solutions 77,329 81,532
Corporate and other 35,730 32,067
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$ 211,965 $ 242,986
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CAPITAL EXPENDITURES
Document Solutions $ 1,783 $ 2,007
Enterprising Service Solutions 3,999 6,937
Corporate and other 2,515 3,166
----------------- ----------------
$ 8,297 $ 12,110
----------------- ----------------
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 final investigative report to the EPA. During the
second quarter of 1999, the EPA requested additional investigative work
which the Company anticipates completing during the first quarter of 2000.
Although not required by the Order, the Company has installed and is
operating an interim groundwater stabilization system. Annual operational
expenses for the system are currently approximately $57,000. The interim
groundwater stabilization program may be chosen as the final remedy for the
site, or additional corrective measures may eventually be required. It is
not possible to reliably estimate the costs that any such possible
additional corrective measures would
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entail. However, if additional corrective measures are required, the
Company expects that it will enter into discussion with the EPA concerning
their scope and a further order for that purpose.
The Company has been notified by the EPA that it is one of 700 potentially
responsible parties ("PRPs") under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, for necessary corrective
action at a hazardous waste disposal site in Greer, South Carolina. In
prior years, the Company arranged for the transportation of wastes to the
site for treatment or disposal. During 1995, the PRPs entered into an
administrative consent order with EPA under which they would undertake a
remedial investigation and feasibility study. That study is currently
underway. The Company has not had and does not anticipate any material
expenditures in connection with this matter.
Other matters:
In the ordinary course of business, the Company is party to various
environmental, administrative and legal proceedings. In the opinion of
management, the Company's liability, if any, in all pending litigation or
other legal proceedings, other than those discussed above, will not have a
material effect upon the financial condition, results of operations or
liquidity of the Company.
7. DEBT
Due to the restatement of the Company's first and second quarter 1999
unaudited consolidated financial statements (see note 2), the Company was
in not in compliance with certain provisions of its credit facility as of
the end of the first and second quarters of 1999. At July 4, 1999, due to
the inventory restatements, the Company had borrowed in excess of its
borrowing base approximately $0.4 million. All of the outstanding
borrowings under the credit agreement have been classified as current
liabilities at the end of the second quarter of 1999.
The Company is in negotiations with the lenders concerning its
non-compliance with certain provisions and possible remedies. These
remedies could include waivers, forbearance, or restructuring of the debt.
The Company is experiencing liquidity problems and has vendors in a past
due position. Continued losses and an absence of lender support, will cause
additional liquidity concerns and have a material adverse effect on the
Company's ability to continue as a going concern.
If the Company's current credit facility is refinanced or the outstanding
balance is declared by the lender to be payable on demand, the remaining
unamortized deferred financing costs of $4.8 million as of July 4, 1999
associated with this credit facility will be adjusted in the period of
refinancing or when the debt is declared payable.
8. COMPREHENSIVE INCOME
The Company's loss, if reported on a comprehensive basis, would be as
follows:
Three Months Ended Six Months Ended
---------------------------------------- ---------------------------------------
July 4, June 28, July 4, June 28,
1999 1998 1999 1998
------------------- ------------------- ------------------- ------------------
(Restated) (Restated)
Reported loss $ (2,987) $ (14,806) $ (8,471) $ (14,637)
Foreign currency translation (196) (212) (245) (105)
Tax benefit (53) (26)
------------------- ------------------- ------------------- ------------------
Comprehensive loss $ (3,183) $ (14,965) $ (8,716) $ (14,716)
------------------- ------------------- ------------------- ------------------
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9. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement requires that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The Company will be
required to adopt this new accounting standard in the third fiscal quarter
of 2000. Management does not anticipate early adoption. The Company
believes that the effect of adoption of SFAS No. 133 will not be material.
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition:
Amounts in this discussion and analysis have been restated as disclosed in note
2 of the unaudited consolidated financial statements.
RESULTS OF OPERATIONS
===================================================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------------ ------------------------------------------
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1999 CHANGE 1998 1999 CHANGE 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues - Enterprising Service Solutions $ 35.4 $ (2.0) $ 37.4 $ 72.7 $ (6.5) $ 79.2
Revenues - Document Solutions 66.7 (8.0) 74.7 129.8 (25.2) 155.0
----------- ---------- ---------- ----------- ----------- ----------
Total Revenues $ 102.1 $ (10.0) $ 112.1 $ 202.5 $ (31.7) $ 234.2
----------- ---------- ---------- ----------- ----------- ----------
Percentage change (8.9)% (13.5)%
===================================================================================================================================
Revenue in the second quarter of 1999 decreased 8.9% from the second quarter of
1998 primarily due to lower supply sales related to the Texas Instruments and
Digital low-end installed printer base that has significantly declined since the
second quarter of 1998, lower off-site repair revenue due to a decision to close
the Fort Worth depot and exit the express parts business which were low margin
businesses, and the effect of the decline in the value of the EURO and related
currencies on prices in Europe. Documents Solutions ("DSC") revenue was 10.7%
lower than the second quarter of 1998 principally as a result of the supply
sales mentioned above and the decline in the value of the EURO. Enterprising
Service Solutions ("ESSC") revenue decreased 5.2% from the prior year quarter.
The decrease in ESSC revenue was principally due to the lower off-site revenue
partially offset by higher Canadian service revenue.
Revenue for the six months ended July 4, 1999 was 13.5% lower than the first six
months of 1998. This was due primarily to the reasons mentioned above and in
1998, ESSC had substantial revenues in the first quarter from a contract with
NASDAQ.
Digital branded printer and supply sales have softened over the past nine
months. Although broader product lines have been introduced, Compaq Computer
Corporation's acquisition of Digital has required a migration from Digital to
Compaq branding, realignment of channels and changes in the business
relationship. The Company has been authorized to sell products under the Compaq
brand, but is unable to predict the effect the changes in brand name and sales
channel could have on sales to Compaq or to Compaq's customers. The Company is
currently in discussions with Compaq concerning changes in the terms of the
contract governing their relationship.
==================================================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------------- -------------------------------------
(Restated) (Restated)
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1999 CHANGE 1998 1999 CHANGE 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Gross margin - Enterprising Service Solutions $ 5.4 $ 3.0 $ 2.4 $ 8.3 $ 1.9 $ 6.4
Gross margin - Document Solutions 17.4 (3.6) 21.0 35.7 (8.7) 44.4
----------------------------------------------------------------------------------
Total gross margin $ 22.8 $ (0.6) $ 23.4 $ 44.0 $ (6.8) $ 50.8
----------- ----------- ---------- ---------- ----------- ----------
As a % of revenue 22.3 % 20.8 % 21.7 % 21.7 %
==================================================================================================================================
Gross margin, as a percent of revenue, increased from 20.8% in the second
quarter of 1998 to 22.3% in the second quarter of 1999. As a percent of revenue,
gross margin for DSC declined to 26.1% in the second quarter of 1999 from 28.1%
in the second quarter of 1998. DSC's gross margin percentage decrease was
basically the result of a change in sales mix with a reduction in supply sales,
the higher than normal sales of pass though products at very
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low margin and the weak EURO in Europe. For ESSC, gross margin increased from
6.3% for the second quarter of 1998 to 15.4% for 1999. The gross margin
improvement was principally the result of better operating efficiencies in both
off-site and on-site service in the U.S.
For the first six months of 1999, gross margin as a percent of revenue, remained
flat as compared to 1998. DSC's gross margin was lower by 1.6% due to the
reasons mentioned above. ESSC's gross margin was higher by 6.4% principally due
to the better operating efficiencies in the U.S., partially offset by the effect
of inventory adjustments.
=================================================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------------------- ------------------------------------------------
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1999 CHANGE 1998 1999 CHANGE 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling, general and
administrative $ 18.7 $ (3.1) $ 21.8 $ 38.5 $ (3.6) $ 42.1
Engineering, research and
product development 4.3 0.2 4.1 8.4 0.0 8.4
Write-off of goodwill (15.0) 15.0 (15.0) 15.0
------------- ------------- ------------- ------------- ------------- -------------
Total $ 23.0 $ (17.9) $ 40.9 $ 46.9 $ (18.6) $ 65.5
As a % of revenue 22.5 % 36.5 % 23.2 % 28.0 %
=================================================================================================================================
The decrease of $17.9 million in operating expenses from the second quarter of
1998 was primarily a result of a write-off of goodwill in 1998 and cost controls
implemented in 1999. This decrease was partially offset by higher benefit costs
and depreciation related to the Company's new business systems.
The decrease in operating expenses for the first six months of 1999 as compared
to 1998 was a one-time write-off of goodwill in 1998, lower marketing expenses
in ESSC due to adjustments to the sales force in early 1998 after the
acquisition of Novadyne Computer Systems in late 1997 and cost controls
implemented in 1999. This decrease was partially offset by consulting expenses
related to the amending of the Company's credit agreement with NationsBank of
Texas, N.A., increased benefit costs, and higher depreciation expenses related
to the Company's new business systems.
================================================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------------------- -----------------------------------------------
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1999 CHANGE 1998 1999 CHANGE 1998
- --------------------------------------------------------------------------------------------------------------------------------
Interest expense, net $ 2.9 $ 0.2 $ 2.7 $ 5.6 $ 0.3 $ 5.3
Percentage change 7.4 % 5.7 %
================================================================================================================================
Interest expense increased $0.2 million in the second quarter of 1999 compared
to the same period a year ago due to costs associated with the Company's
amendment to its credit agreement. Debt levels did not differ significantly
compared to the second quarter of 1998. Interest expense is expected to remain
at the second quarter level through the third quarter of 1999 due to
amortization of bank fees from the amendment of the Company's credit agreement
(see "Banking Arrangements"). Interest expense for the first six months of 1999
was $0.3 million higher than the same period in 1998 due to the bank fees
mentioned above.
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=============================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------------ ----------------------------------------
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1999 CHANGE 1998 1999 CHANGE 1998
- -------------------------------------------------------------------------------------------------------------
Income tax benefit $ (0.1) $ 5.4 $ (5.5) $ 0.0 $ 5.4 $ (5.4)
Effective tax rate 4.7% 27.0% 0.0% 27.0%
=============================================================================================================
During the second quarter of 1999, the Company provided a full valuation
allowance against the domestic deferred tax assets created as the result of the
Company's current operating loss consistent with its review at the end of 1998
of the recoverability of its deferred tax assets. The recorded tax benefit was
related to foreign losses, partially offsetting earlier foreign income tax
expense. During the second quarter of 1998, the tax rate was affected by the
anticipated partial utilization of fully reserved foreign operating losses and
the tax benefits associated with the goodwill write-off. For the first six
months of 1999, deferred tax assets were fully offset by a valuation allowance
compared to 1998 when a tax benefit was recorded related to the write-off of
goodwill.
LIQUIDITY AND CAPITAL RESOURCES
===============================================================================
SIX MONTHS ENDED
-----------------------------
(in millions) 2ND QTR. 2ND QTR.
1999 1998
- -------------------------------------------------------------------------------
Cash provided by operations $ 16.1 $ 4.2
Cash used in investing activities (8.4) (13.7)
Cash (used in) provided by financing activities (4.4) 11.6
===============================================================================
===============================================================================
(RESTATED)
(in millions) 2ND QUARTER 4TH QUARTER
1999 1998
- -------------------------------------------------------------------------------
Working capital $ (36.9) $ 75.4
Inventories 45.9 59.6
Debt obligations 108.6 112.9
Debt to equity ratio 6.3 to 1 4.6 to 1
===============================================================================
Cash provided by operations was $16.1 million for the first six months of 1999
compared to $4.2 million in the first half of 1998. The increase in cash from
operations was principally due to the decreases in inventory (excluding the
inventory adjustment) and accounts receivable partially offset by the Company's
operating loss. The Company's working capital decreased $112.3 million as of
July 4, 1999, as compared to January 3, 1999 due primarily to the following: a
reclassification of debt to current debt; a $10.1 million decrease in inventory
(excluding the inventory adjustment) resulting from the Company's inventory
reduction program; a $6.2 million decrease in accounts payable; a $7.8 million
decrease in trade and other accounts receivable directly related to the
Company's lower revenue, and a $3.3 million increase in cash, primarily in
Europe. Debt decreased from
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December 1998. This decrease was required as the Company's borrowing base
relating to the revolving credit line declined with the reductions to inventory
and accounts receivable. This reduction of borrowing base was partially offset
by a liquidity facility available in April 1999. In early April, the Company
drew on its new liquidity facility to fund current liabilities (see "Banking
Arrangements"). As of July 4, 1999, the revolving credit facility exceeded the
borrowing base formula due to the inventory restatement.
BANKING ARRANGEMENTS
The Company has credit facilities with Bank of America, N.A., as agent for a
group of lenders. When put in place in early 1996, maximum availability under
the credit facilities was $75 million. The commitments under the facilities were
increased to $125 million in late 1997. As of the end of the second quarter of
fiscal 1999, the commitments had decreased to $116 million. Loans under this
agreement have been used to fund operations, capital expenditures, and
acquisitions. These facilities are secured by substantially all of the Company's
assets. They are comprised of two term loans aggregating $55 million, with
maturity dates in 2002 and 2004, and a revolving credit line of $70 million (now
reduced to $61 million) maturing in September, 2002. Connected to the facilities
is an interest rate swap which fixes the interest rate on approximately $37.5
million of the facility at approximately 8.5%. The interest rate on the balance
of the facility is based on LIBOR plus a certain percentage based on Company
performance.
In 1998, the Company and the lender group amended the facilities several times .
These amendments were necessary because the Company was unable to meet certain
of the financial covenants in the agreement and required adjustments to the
agreement to allow the Company to increase availability under the existing
credit line for working capital purposes. The amendments included adjusting the
financial covenants until the end of 1998, limiting capital expenditures to a
maximum of $27 million for 1998, adjusting borrowing base percentages through
February 15, 1999 (allowing the Company increased borrowing ability) and
adjusting the interest rate upwards 1.50% on the incremental increased borrowing
against the higher base.
In February 1999, a further amendment to the credit agreement took effect. This
amendment retained the increased borrowing base percentages through April 5,
1999. The Company also pledged 65% of the shares in the Company's Canadian
subsidiary as additional collateral.
On April 2, 1999, an additional amendment ("Amendment 7") to the credit
agreement was put in place. It extended the increased borrowing base percentages
until June 2000 and changed the financial covenants relating to 1) minimum
earnings before charges for interest, state, federal and municipal income taxes,
depreciation, and amortization ("EBITDA"), 2) minimum net worth requirements,
and 3) 1999 capital expenditures, which were limited to approximately $19
million. The lenders also made available an additional $10 million for short
term liquidity purposes. This amount, to the extent borrowed, is due on
September 30, 1999 or the due date can be extended at the Company's option on a
quarterly basis for a fee of 0.5% of the liquidity facility outstanding. The
interest rate on the revolver and the additional $10 million is 3.5% above LIBOR
on Eurodollar loans. The Company drew $10 million on the liquidity facility in
April 1999.
As consideration for Amendment 7, the Company agreed to pay an amendment fee of
$1.2 million upon the earlier of the prepayment in full of the credit facilities
or the acceleration of the Company's obligations to repay the loans. This fee
has been accrued. The Company has also agreed to pay a continuation fee on the
last day of each fiscal quarter beginning with the fourth quarter of fiscal year
1999 until the obligations are paid. The continuation fee is 0.5% of all
obligations outstanding on the last day of each such fiscal quarter. As further
consideration, the Company pledged 65% of the shares in several foreign
subsidiaries as additional collateral. The lenders also received warrants to
purchase one million shares of GENICOM common stock at $1.94 per share. The
warrants are callable through March 31, 2000 under certain conditions and cannot
be exercised before then. Amendment 7 reduced the lenders' revolving credit
commitments to $62 million at the end of the first fiscal quarter of 1999, $61
million at the end of the second fiscal quarter of 1999, $58 million at the end
of the third fiscal quarter of 1999, and $52 million at the end of fiscal 1999.
The amount outstanding under the revolver and liquidity facility at July 4, 1999
was $58.7 million.
PAGE 14
15
Due to the first and second quarter 1999 restatement of the inventory, the
Company was not in compliance with loan covenant and payment provisions of its
credit facility from the end of the first quarter of 1999 (see note 2 to the
Company's unaudited consolidated financial statements).
As of November 1999, the Company is in negotiations with the lenders concerning
its non-compliance and possible remedies. These remedies could include waivers,
forbearances, or restructuring of the debt. The Company is also experiencing
liquidity problems and has several vendors in a past due position. Continued
losses and an absence of lender support, will cause additional liquidity
concerns and have a material adverse effect on the Company's ability to continue
as a going concern.
If the Company's current credit facility is refinanced or the outstanding
balance is declared by the lender to be payable on demand, the remaining
unamortized deferred financing costs of $4.8 million as of July 4, 1999
associated with this credit facility will be adjusted in the period of
refinancing or when the debt is declared payable.
YEAR 2000
GENICOM is taking an active approach to address computer issues associated with
the onset of the new Millennium - specifically, the impact of the possible
failure of computer systems and computer driven equipment due to the digit
rollover to the year 2000. The Year 2000 problem is pervasive and complex as
virtually every IT and non-IT system could be affected in some way by the
rollover of the two-digit year value from 99 to 00. The issue is whether
computer systems or embedded technology will properly recognize date sensitive
information when the year changes to 2000. IT and non-IT systems that do not
properly recognize such information could generate erroneous data or cause
failures.
If not properly addressed, the Year 2000 problem could result in failures in
Company computer systems or items with embedded systems, or the computer systems
or equipment of third parties with whom the Company deals worldwide. Any such
failures of the Company's and/or third parties' IT and non-IT systems could have
a material impact on the Company's ability to conduct business.
Since 1996, the Company has been identifying and seeking to minimize its
exposure to the Year 2000 problem. In 1996, the Company began expending
significant funds under contracts with EDS to replace the majority of its
internal computer system. During this process, the Company has required third
party vendors to make representations that the components of the new systems and
related software are Year 2000 compliant. The replacement equipment was
scheduled to be completely installed and tested by early December 1999. The
Company believed its worst case would be addressed with the new systems. Due to
performance issues with the new system, certain aspects of the project have been
delayed until after the end of 1999 and the contingency plan was implemented.
This plan is directed at insuring that its remaining major systems which have
not yet been replaced are Year 2000 compliant. Based up the representations of
the Company's vendor, this work is scheduled and expected to be completed and
the systems tested by the middle of December 1999. The programs which are not
modified for Year 2000 compliance are not expected to have a material impact on
the operations of the Company. As a result, the Company does not anticipate Year
2000 problems will materially affect its operations. The approximately $18-$20
million cost of the replacement system is being capitalized by the Company. The
Company has incurred approximately $17.2 million through July 4, 1999 associated
with this replacement system.
Management has also considered whether the Year 2000 problem will affect the
products or services provided by the Company to its customers. Because the
Company's printer products do not contain date sensitive embedded software and
do not manipulate, calculate, convert, compare, sequence or present any date
data, these products should not present Year 2000 compliance issues. The Company
does, through its Enterprising Service Solutions company, resell and install
computer software that could be susceptible to Year 2000 problems. The Company's
practice is to disclaim responsibility for Year 2000 compliance relating to
third party software.
At this time, GENICOM is actively working to ensure that foreseeable Year 2000
computer problems related to Company computer systems and products are
effectively addressed. The Company does not expect that the
PAGE 15
16
commitment of resources to study and correct internally any Year 2000 problems
to result in the delay of its projects or product development.
The Company has generally completed reviewing vendor and customer compliance as
well as items that may be affected by embedded systems such as manufacturing and
telephone equipment. The review included inquiries of vendors and customers
related to their Year 2000 compliance. As a result of this review, the Company
believes no material expenditures will be required at this time related to
customer and vendor compliance.
The Company cannot estimate or predict the potential adverse consequences, if
any, that could result from a third party failure to effectively address this
issue or failure of certain equipment and is unable to predict if those parties'
noncompliance or equipment failure will have a material adverse effect on
earnings.
EURO CONVERSION
On January 1, 1999, the exchange rates of eleven countries (Germany, France, the
Netherlands, Austria, Italy, Spain, Finland, Ireland, Belgium, Portugal, and
Luxembourg) were fixed among one another and became the currencies of the EURO.
The individual currencies of the eleven countries will remain in circulation
until mid-2002. The EURO currency will be introduced on January 1, 2002. The
Company does not expect future balance sheets and statements of earnings and
cash flows to be materially impacted by the EURO conversion.
FORWARD LOOKING INFORMATION
GENICOM provides an array of services and products addressing different niches
of the information processing industry, competing against a wide range of
companies from large multinationals to small domestic entrepreneurs. Except for
the historical information contained herein, the matters discussed in this 10Q
include forward-looking statements that involve a number of risks and
uncertainties. Terms such as "believes", "expects", "plans", "intends",
"estimates", or "anticipates", and variations of such words and similar
expressions are intended to identify such forward looking statements. There are
certain important factors and risks, including the change in hardware and
software technology, economic conditions in the North American, Western European
and Asian markets, the anticipation of growth of certain market segments and the
positioning of the Company's products and services in those segments, certain
service customers whose business is declining, seasonality in the buying cycles
of certain of the Company's customers, the timing of product announcements, the
release of new or enhanced products and services, the introduction of
competitive products and services by existing or new competitors, access to and
development of product rights and technologies, the management of growth, the
Company's cash needs, GENICOM's ability to attract and retain highly skilled
technical, managerial and sales and marketing personnel, possible litigation
related to the Company's operations, including litigation arising under various
environmental laws, and the other risks detailed from time to time in the
Company's SEC reports, including reports on Form 10K, that could cause results
to differ materially from those anticipated by the statements contained herein.
PAGE 16
17
Item 3. Market Risk
The Company is exposed to the impact of interest rate and foreign currency risk.
In the normal course of business, the Company employs established policies and
procedures to manage its exposure to changes in interest rates and fluctuations
in the value of foreign currencies using a variety of financial instruments.
The Company's objective in managing its exposure to interest rate changes is to
limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowings costs. To achieve its objectives, the Company
primarily uses an interest rate swap to manage net exposure to interest rate
changes related to its credit facility.
International revenues from the Company's foreign subsidiaries were
approximately 34% of total revenue. International sales are made mostly from the
Company's foreign subsidiaries in their respective countries and are typically
denominated in the local currency of each country. These subsidiaries also incur
most of their expenses in the local currency. Accordingly, all foreign
subsidiaries use the local currency as their functional currency.
The Company's international business is subject to risks typical of an
international business including, but not limited to, differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
the Company's future results could be materially adversely impacted by changes
in these or other factors.
The Company's exposure to foreign exchange rate fluctuations arises in part from
intercompany accounts in which costs incurred in the United States are charged
to the Company's foreign subsidiaries. The Company is also exposed to foreign
exchange rate fluctuations as the financial results of foreign subsidiaries are
translated into U.S. dollars in consolidation. As exchange rates vary, those
results, when translated, may vary from expectations and adversely impact
overall expected profitability.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings:
Not applicable.
Item 2. Changes in Securities:
Not applicable
Item. 3 Defaults Upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
a) The Company's annual meeting of stockholders was held May 19, 1999.
c) At said annual meeting, stockholders elected the Company's four directors,
amended the Company's 1997 Stock Option Plan, and approved the appointment
of PricewaterhouseCoopers L.L.P. as the Company's independent accountants.
PAGE 17
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Directors
Director Votes for Withheld Broker Non-Votes
Don E. Ackerman 8,992,425 50,377 0
John Hill 8,995,039 47,763 0
Abraham Ostrovsky 8,995,039 47,763 0
Paul T. Winn 8,991,000 51,802 0
Stock Option Plan
Abstentions or
Votes for Votes against Broker Non-Votes
--------- ------------- ----------------
2,404,072 1,090,325 5,548,405
Accountants
Abstentions or
Votes for Votes against Broker Non-Votes
--------- ------------- ----------------
8,742,069 236,793 63,939
Item 5. Other Information:
Not applicable
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
NUMBER DESCRIPTION
------------------ ---------------------------------
27.1 Financial Data Schedule (Restated)
(b) Reports on Form 8-K:
Not applicable
PAGE 18
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENICOM Corporation
------------------------------------
Registrant
Date: November 24, 1999
/s/James C. Gale
------------------------------------
Signature
James C. Gale
Senior Vice President Finance and
Chief Financial Officer
(Mr. Gale is the Chief Financial
Officer and has been duly
authorized to sign on behalf of the
Registrant)
PAGE 19
20
GENICOM CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS TO FORM 10-Q/A
FOR THE QUARTERLY PERIOD ENDED JULY 4, 1999
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------------------ ------------------------------------ ------------
27.1 Financial Data Schedule (Restated) Filed only
with EDGAR version
E-1