1 ================================================================================ 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 April 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 April 30, 1999, there were 11,636,540 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 April 4, 1999. The Company has restated its first quarter 1999 unaudited consolidated financial statements based on the results of a physical count of its service business finished goods 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 unaudited consolidated financial statements included herein. ================================================================================ 2 FORM 10-Q/A INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - April 4, 1999 (Restated) and January 3, 1999 3 Consolidated Statements of (Loss) Income - Three Months Ended April 4, 1999 (Restated) and March 29, 1998 4 Consolidated Statements of Cash Flows - Three Months Ended April 4, 1999 (Restated) and March 29, 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 16 - 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 Signatures 19 Index to Exhibits E-1 PAGE 2 3 PART I. - FINANCIAL INFORMATION Item 1. Financial Statements GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS APRIL 4, JANUARY 3, (In thousands, except share data) 1999 1999 -------------------- --------------------- (RESTATED) (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,137 $ 4,894 Accounts receivable, less allowance for doubtful accounts of $5,292 and $5,716 82,762 83,893 Other receivables 657 2,714 Inventories (note 2) 47,941 59,617 Prepaid expenses and other assets 13,064 12,664 -------------------- --------------------- TOTAL CURRENT ASSETS 149,561 163,782 Property, plant and equipment, net 46,868 45,459 Goodwill 15,034 15,965 Intangibles and other assets 6,506 4,771 -------------------- --------------------- $ 217,969 $ 229,977 -------------------- --------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt (note 7) $ 103,922 $ 7,936 Accounts payable and accrued expenses 69,110 67,096 Deferred income 14,791 13,344 -------------------- --------------------- TOTAL CURRENT LIABILITIES 187,823 88,376 Long-term debt, less current portion 105,000 Other non-current liabilities 9,867 11,984 -------------------- --------------------- TOTAL LIABILITIES 197,690 205,360 STOCKHOLDERS' EQUITY: Common stock, $0.01 par value; 18,000,000 shares authorized, 11,609,083 and 11,581,661 shares issued and outstanding, respectively 116 116 Additional paid-in capital 30,411 29,216 Accumulated deficit (7,523) (2,039) Accumulated other comprehensive loss (2,725) (2,676) -------------------- --------------------- TOTAL STOCKHOLDERS' EQUITY 20,279 24,617 -------------------- --------------------- $ 217,969 $ 229,977 -------------------- --------------------- The accompanying notes are an integral part of these financial statements. PAGE 3 4 GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF (LOSS) INCOME (Unaudited) THREE MONTHS ENDED, APRIL 4, MARCH 29, (In thousands, except per share data) 1999 1998 ---------------- --------------- (RESTATED) REVENUES, NET: Products $ 63,162 $ 80,331 Services 37,227 41,779 ---------------- --------------- 100,389 122,110 ---------------- --------------- OPERATING COSTS AND EXPENSES: Cost of revenues: Products 44,847 56,960 Services 31,679 37,736 Service inventory adjustment (note 2) 2,676 Selling, general and administration 19,807 20,271 Engineering, research and product development 4,067 4,325 ---------------- --------------- 103,076 119,292 ---------------- --------------- OPERATING (LOSS) INCOME (2,687) 2,818 Interest expense, net 2,678 2,593 ---------------- --------------- (LOSS) INCOME BEFORE INCOME TAXES (5,365) 225 Income tax expense 119 56 ---------------- --------------- NET (LOSS) INCOME $ (5,484) $ 169 ---------------- --------------- (Loss) earnings per common share (basic) $ (0.47) $ 0.01 ---------------- --------------- (Loss) earnings per common share (diluted) $ (0.47) $ 0.01 ---------------- --------------- Weighted average number of common shares outstanding (basic) 11,608 11,464 ---------------- --------------- Weighted average number of common shares and dilutive shares (diluted) 11,608 12,672 ---------------- --------------- The accompanying notes are an integral part of these financial statements. PAGE 4 5 GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) THREE MONTHS ENDED, APRIL 4, MARCH 29, (In thousands) 1999 1998 -------------------- -------------------- (RESTATED) Cash flows from operating activities: Net (loss) income $ (5,484) $ 169 Adjustments to reconcile net (loss) income to cash provided by operating activities: Depreciation 3,620 3,477 Amortization 1,689 1,994 Service inventory adjustment (note 2) 2,676 Changes in assets and liabilities: Accounts receivable 3,938 (2,916) Inventories 9,640 3,218 Accounts payable and accrued expenses (2,116) (3,340) Deferred income 1,447 528 Other (1,452) (4) -------------------- -------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 13,958 3,126 -------------------- -------------------- Cash flows from investing activities: Additions to property, plant and equipment (4,826) (6,727) Other investing (1,095) -------------------- -------------------- NET CASH USED IN INVESTING ACTIVITIES (4,826) (7,822) -------------------- -------------------- Cash flows from financing activities: Borrowings on long-term debt 588 8,521 Payments on long-term debt (9,602) (2,952) Bank overdraft (2,172) Financing costs (31) (62) -------------------- -------------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (9,045) 3,335 -------------------- -------------------- Effect of exchange rate changes on cash and cash equivalents 156 38 -------------------- -------------------- Net increase (decrease) in cash and cash equivalents 243 (1,323) Cash and cash equivalents at beginning of period 4,894 4,622 -------------------- -------------------- Cash and cash equivalents at end of period $ 5,137 $ 3,299 -------------------- -------------------- The accompanying notes are an integral part of these financial statements PAGE 5 6 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 except for the inventory adjustment discussed in note 2) necessary to present fairly the Company's consolidated financial position as of April 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 three months ended April 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 first quarter 1999 cost of revenue and operating loss, and decreasing inventory by $2.7 million. The Company's unaudited consolidated financial statements for the first quarter of 1999 has been restated as follows: Quarter Ended April 4, 1999 ------------------------------- Reported Restated --------------- ------------- Operating loss $ (11) $ (2,687) Net loss $ (2,808) $ (5,484) Net loss per common share $ (0.24) $ (0.47) As of April l4, 1999 --------------- ------------- Reported Restated --------------- ------------- Inventory $ 50,617 $ 47,941 Accumulated deficit $ (4,847) $ (7,523) 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: PAGE 6 7 APRIL 4, JANUARY 3, 1999 1999 ----------- ---------- (RESTATED) Raw Materials $ 5,140 $ 4,086 Work in process 1,052 930 Finished goods 41,749 54,601 ----------- ---------- $ 47,941 $ 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 April 4, 1999 ------------------------------------------------- Income Shares Per Share ------------ ----------- ---------- BASIC EPS (Restated) (Restated) Loss available to shareholders $ (5,484) 11,608 $ (0.47) Weighted shares from stock options ------------ ----------- ---------- DILUTED EPS $ (5,484) 11,608 $ (0.47) ------------ ----------- ---------- Three Months Ended March 29, 1998 ------------------------------------------------- BASIC EPS Income available to shareholders $ 169 11,464 $ 0.01 Weighted shares from stock options 1,208 ------------ ----------- ---------- DILUTED EPS $ 169 12,672 $ 0.01 ------------ ----------- ---------- For the three months ended April 4, 1999, 449,000 equivalent shares have been omitted due to their antidilutive nature. 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 are not material. PAGE 7 8 Three Months Ended or As of April 4, March 29, (in thousands) 1999 1998 ----------- ------------ (Restated) REVENUE Document Solutions $ 63,162 $ 80,331 Enterprising Service Solutions 37,227 41,779 ----------- ------------ $ 100,389 $ 122,110 ----------- ------------ OPERATING (LOSS) INCOME Document Solutions $ 1,798 $ 6,276 Enterprising Service Solutions (4,485) (3,458) ----------- ------------ $ (2,687) $ 2,818 ----------- ------------ DEPRECIATION AND AMORTIZATION Document Solutions $ 1,434 $ 1,548 Enterprising Service Solutions 3,588 3,540 Corporate and other 287 383 ----------- ------------ $ 5,309 $ 5,471 ----------- ------------ ASSETS Document Solutions $ 97,870 $ 137,877 Enterprising Service Solutions 83,544 91,549 Corporate and other 36,555 23,142 ----------- ------------ $ 217,969 $ 252,568 ----------- ------------ CAPITAL EXPENDITURES Document Solutions $ 839 $ 1,065 Enterprising Service Solutions 1,958 4,191 Corporate and other 2,029 1,471 ----------- ------------ $ 4,826 $ 6,727 ----------- ------------ 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. 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 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 PAGE 8 9 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. Atlantic Design Company: In December 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, 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. 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. The Company filed a counterclaim against ADC. Ogden Services Corporation and ADC then filed a counterclaim against the Company. On July 4, 1998, the Company, ADC and Ogden Services Corporation settled the arbitration. Primary settlement terms included settlement of all claims and counterclaims in the arbitration, a $2.1 million payment to ADC (for which the Company was fully reserved), a price increase effective for shipments after August 15, 1998, and a guarantee of orders for one year. ADC is continuing as a supplier for the Company. Other matters: In the ordinary course of business, the Company is party to various environmental, administrative and legal proceedings. In the opinion of management, the Company's liability, if any, in all pending litigation or other legal proceedings, other than those discussed above, will not have a material effect upon the financial condition, results of operations or liquidity of the Company. 7. DEBT Due to the restatement of the Company's first quarter 1999 unaudited consolidated financial statements, the Company was not in compliance with certain loan covenants and payment provisions as of the end of the first quarter 1999. Accordingly all of the outstanding borrowings under the credit agreement have been classified as current at the end of the first quarter 1999. The Company is in negotiations with the lenders concerning its non-compliance with covenants and payment 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 $4.9 million as of April 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 $5.5 million restated for the first quarter of 1999. The Company had an after tax loss in its foreign currency translation amount of $49,000 from January 3, 1999. For the first quarter of 1998, the foreign currency translation gain was $107,000, with an after tax gain of $80,000. The Company's comprehensive income for the first quarter of 1998 would have been $249,000. PAGE 9 10 9. NEW ACCOUNTING PRONOUCEMENTS 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 during 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. PAGE 10 11 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 - ------------------------------------------------------------------------------------------------------------------- (in millions) 1ST QUARTER 1ST QUARTER 1999 CHANGE 1998 - ------------------------------------------------------------------------------------------------------------------- Revenues - Enterprising Service Solutions $ 37.2 $ (4.6) $ 41.8 Revenues - Document Solutions 63.2 (17.1) 80.3 --------- --------- --------- Total Revenues $ 100.4 $ (21.7) $ 122.1 --------- --------- --------- Percentage change (17.8) % - ------------------------------------------------------------------------------------------------------------------- Revenue in the first quarter of 1999 decreased 17.8% from the first 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 first quarter of 1998 and a decline in professional service revenue in the U.S. Document Solutions ("DSC") revenue was 21.3% lower than the first quarter of 1998 principally as a result of the supply sales mentioned above. Enterprising Service Solutions ("ESSC") revenue decreased 11.0% from the prior year quarter. The decrease in ESSC revenue was principally due to the lower professional services revenue in the U.S. In comparison, during the first quarter of 1998, ESSC was completing a large contract with NASDAQ. To a lesser extent, revenue for ESSC was also affected by a roll-off of selected accounts and a decision to exit certain low margin business. These declines were partially offset by increased integration business in the Canadian subsidiary. - ------------------------------------------------------------------------------------------------------------------- (in millions) 1ST QUARTER 1ST QUARTER 1999 1998 (RESTATED) CHANGE - ------------------------------------------------------------------------------------------------------------------- Gross margin - Enterprising Service Solutions $ 2.9 $ (1.1) $ 4.0 Gross margin - Document Solutions 18.3 (5.1) 23.4 ------------ ------------ ------------ Total gross margin 21.2 (6.2) 27.4 ------------ ------------ ------------ As a % of revenue 21.1 % 22.4 % - ------------------------------------------------------------------------------------------------------------------- Gross margin, as a percent of revenue, decreased from 22.4% in the first quarter of 1998 to 21.1% in the first quarter of 1999. As a percent of revenue, gross margin for DSC was basically flat at approximately 29.0% in 1999 and first quarter of 1998. For ESSC, gross margin decreased from 9.6% for the first three months of 1998 to 7.8% for 1999. The gross margin decline was principally the result of higher material costs partially offset by better operating efficiencies in both depot and field service in the U.S. PAGE 11 12 - -------------------------------------------------------------------------------------------------------------------- (in millions) 1ST QUARTER 1ST QUARTER 1999 CHANGE 1998 - -------------------------------------------------------------------------------------------------------------------- Operating expenses: Selling, general and administrative $ 19.8 $ (0.5) $ 20.3 Engineering, research and product development 4.1 (0.2) 4.3 ------------ ------------ ----------- Total $ 23.9 $ (0.7) $ 24.6 As a % of revenue 23.8 % 20.1 % - -------------------------------------------------------------------------------------------------------------------- The decrease of $0.7 million in operating expenses from the first quarter of 1998 was primarily a result of 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. 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. - ------------------------------------------------------------------------------------------------------------------- (in millions) 1ST QUARTER 1ST QUARTER 1999 CHANGE 1998 - ------------------------------------------------------------------------------------------------------------------- Interest expense, net $ 2.7 $ 0.1 $ 2.6 Percentage change 3.8 % - ------------------------------------------------------------------------------------------------------------------- Interest expense increased slightly. Debt levels did not differ significantly compared to the first quarter of 1998. Interest expense is expected to increase in the second quarter of 1999 due to increased borrowing and amortization of bank fees from the amendment of the Company's credit agreement (see "Banking Arrangements"). - ------------------------------------------------------------------------------------------------------------------ (in millions) 1ST QUARTER 1ST QUARTER 1999 CHANGE 1998 - ------------------------------------------------------------------------------------------------------------------ Income tax expense $ 0.1 $ 0.0 $ 0.1 Effective tax rate 0.0% 24.9% - ------------------------------------------------------------------------------------------------------------------ The Company provided a full valuation allowance against the domestic deferred tax assets created primarily as the result of the Company's first quarter 1999 operating loss consistent with its review at the end of 1998 of the recoverability of its deferred tax assets. The recorded tax expense related to foreign income. During the first quarter of 1998, the tax rate was affected by the anticipated partial utilization of fully reserved foreign operating losses. PAGE 12 13 LIQUIDITY AND CAPITAL RESOURCES - -------------------------------------------------------------------------------------------------------------------- (in millions) 1ST QUARTER 1ST QUARTER 1999 1998 - -------------------------------------------------------------------------------------------------------------------- Cash provided by operations $ 14.0 $ 3.1 Cash used in investing activities (4.8) (7.8) Cash (used in) provided by financing activities (9.0) 3.3 - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- (RESTATED) (in millions) 1ST QUARTER 4TH QUARTER 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Working capital $ (38.3) $ 75.4 Inventories 47.9 59.6 Debt obligations 103.9 112.9 Debt to equity ratio 5.1 to 1 4.6 to 1 - --------------------------------------------------------------------------------------------------------------------- Cash provided by operations was $14.0 million for the first quarter of 1999 compared to $3.1 million for the first quarter of 1998. The change 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 $113.7 million as of April 4, 1999, as compared to January 3, 1999 due primarily to the following: a reclassification of long-term debt to current debt, a $9.0 million decrease in inventory resulting from the Company's inventory reduction program (excluding the inventory adjustment); a $2.0 million increase in accounts payable due to an increased aging of payables; and a $1.0 million decrease in accounts receivable directly related to the Company's lower revenue. Total debt decreased significantly from December 1998. This decrease was required as the Company's borrowing base relating to the revolving credit line declined with the reductions to inventory and accounts receivable. In early April 1999, the Company drew on its new liquidity facility to fund current liabilities (see "Banking Arrangements") bringing debt levels close to 1998 year-end levels. As of April 4, 1999, the revolving credit facility exceeded the borrowing base formula due to the inventory restatement explained in note 2. BANKING ARRANGEMENTS On January 12, 1996, the Company reached an agreement with NationsBank of Texas, N.A., as agent for a group of banks ("NationsBank"), on $75 million of credit facilities. Under the agreement, NationsBank provided a $35 million revolving credit facility and two term loans totaling $40 million. The Company initially used borrowing under this credit agreement to retire all the debt associated with its former credit agreement with CIT and to retire all of the Company's outstanding senior subordinated notes. In a separate transaction, the Company entered into an interest rate swap arrangement with NationsBank which fixes the interest rate for five years on a substantial portion of the debt. The fixed rate at the time the agreement was executed averaged 8.25%. In May 1996, the PAGE 13 14 Company renegotiated the term of the interest rate swap, decreasing the term from five to three years. As a result of the term change, the Company received a payment of $530,000, resulting in a gain which is being amortized to income over the remaining life of the Company term loans. On September 30, 1996, the Company and NationsBank amended the credit facilities. This amendment redefined the financial covenants and adjusted the interest rates as well as the principal payments under the agreement. On July 3, 1997, the Company and NationsBank further amended the credit agreement to increase the Company's revolving credit line from $35 million to $40 million. Other terms and conditions of the credit agreement generally remained unchanged. On September 5, 1997, the Company again amended and restated its credit agreement with NationsBank, increasing its total credit facility to $110 million from $80 million. The Company used part of the proceeds from the credit facilities to repay a $9 million note to Texas Instruments. The term notes totaled $55 million with maturities of 5 and 7 years and the revolving credit line was increased from $40 million to $55 million. The financial covenants for the facility were redefined. The Company entered into a new interest rate swap which fixed the interest rate on $37.5 million of debt for a term of three years. The fixed rate at the time the amendment was executed was approximately 8.5%. The revolving credit facility was increased to $70 million in October 1997 when commitments from additional lenders were received, thereby increasing the total credit facilities to $125 million. The facility is collateralized by substantially all of the Company's assets. The revolving credit facility matures September 5, 2002. At the end of the first fiscal quarter of 1998, the Company fell short of meeting the Consolidated Funded Debt Coverage Ratio and the Consolidated Fixed Charges Coverage Ratio as required by the credit agreement due principally to higher levels of capital expenditures in ESSC and low earnings. NationsBank waived the requirement for that quarter. On July 2, 1998, the Company and NationsBank amended the credit agreement. The amendment adjusted the Company's required financial covenants until the end of 1998, limited capital expenditures to a maximum of $27 million for 1998, adjusted the borrowing base percentages until the end of 1998 (allowing the Company increased borrowing ability) and adjusted the interest rate upwards 1.50% on the incremental increased borrowing against the higher base. On November 12, 1998, the credit agreement was again amended. The amendment extended the increased borrowing base percentages through February 15, 1999 and adjusted the financial covenants for the fourth quarter of 1998. On February 11, 1999, a further amendment to the credit agreement took effect. This amendment retained the increased borrowing base percentages though April 5, 1999 and 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 extended the increased borrowing base percentages until June 2000 and changed the financial covenants to 1) minimum earnings before charges for interest, state, federal and municipal income taxes, depreciation, and amortization, 2) minimum net worth requirements, and 3) limit 1999 capital expenditures to approximately $19 million. In addition, the Company is able to borrow $10 million for short term liquidity, which can be repaid on September 30, 1999 or extended on a quarterly basis with consideration 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 on this liquidity facility in April. As consideration for Amendment 7, the Company agreed to pay an amendment fee of $1.2 million upon the earlier of the payment in full of the credit facilities and cancellation of all commitments or the acceleration by NationsBank of the Company's obligations. This fee has been accrued. The Company has further 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. NationsBank also received the rights to purchase warrants for 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 PAGE 14 15 be exercised before then. Amendment 7 reduces NationsBank's revolving credit commitment 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 at April 4, 1999 was $52.2 million. The Company was not in compliance with covenants and payment provisions of its credit facility at the end of the first quarter of 1999, due to restatements of the Company's first quarter 1999 unaudited consolidated financial statements (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 covenant and payment non-compliance 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 $4.9 million as of April 4, 1999 associated with this credit facility will be expensed 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 $17.1 million through April 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 PAGE 15 16 software and do not manipulate, calculate, convert, compare, sequence or present any date data, these products should not present Year 2000 compliance issues. The Company does, through its Enterprising Service Solutions company, resell and install computer software that could be susceptible to Year 2000 problems. The Company's practice is to disclaim responsibility for Year 2000 compliance relating to third party software. At this time, GENICOM is actively working to ensure that foreseeable Year 2000 computer problems related to Company computer systems and products are effectively addressed. The Company does not expect that the commitment of resources to study and correct internally any Year 2000 problems to result in the delay of its projects or product development. The Company has generally completed reviewing vendor and customer compliance as well as items that may be affected by embedded systems such as manufacturing and telephone equipment. The review included inquiries of vendors and customers related to their Year 2000 compliance. As a result of this review, the Company believes no material expenditures will be required at this time related to customer and vendor compliance. The Company cannot estimate or predict the potential adverse consequences, if any, that could result from a third party failure to effectively address this issue or failure of certain equipment and is unable to predict if those parties' noncompliance or equipment failure will have a material adverse effect on earnings. EURO CONVERSION On January 1, 1999, the exchange rates of eleven countries (Germany, France, the Netherlands, Austria, Italy, Spain, Finland, Ireland, Belgium, Portugal, and Luxembourg) were fixed among one another and became the currencies of the EURO. The individual currencies of the eleven countries will remain in circulation until mid-2002. The EURO currency will be introduced on January 1, 2002. The Company does not expect future balance sheets and statements of earnings and cash flows to be materially impacted by the EURO conversion. FORWARD LOOKING INFORMATION GENICOM provides an array of services and products addressing different niches of the information processing industry, competing against a wide range of companies from large multinationals to small domestic entrepreneurs. Except for the historical information contained herein, the matters discussed in this 10Q include forward-looking statements that involve a number of risks and uncertainties. Terms such as "believes", "expects", "plans", "intends", "estimates", or "anticipates", and variations of such words and similar expressions are intended to identify such forward looking statements. There are certain important factors and risks, including the change in hardware and software technology, economic conditions in the North American, Western European and Asian markets, the anticipation of growth of certain market segments and the positioning of the Company's products and services in those segments, certain service customers whose business is declining, seasonality in the buying cycles of certain of the Company's customers, the timing of product announcements, the release of new or enhanced products and services, the introduction of competitive products and services by existing or new competitors, access to and development of product rights and technologies, the management of growth, the Company's cash needs and relationship with its lenders, 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. 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. PAGE 16 17 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. PAGE 17 18 PART II. - OTHER INFORMATION Item 1. Legal Proceedings: Not applicable. Item 2. Changes in Securities: Not applicable Item. 3 Defaults Upon Senior Securities: Not applicable. Item 4. Submission of Matters to a Vote of Security Holders: Not applicable Item 5. Other Information: SEC Rule 14a-4(c) determines how proxies designated by public corporation 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 2000 annual meeting, this notice must be received by February 25, 2000. 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: On April 9, 1999, the Company filed an 8-K with regards to its seventh amendment to its credit agreement with NationsBank of Texas, N.A., as agent for a group of banks. PAGE 18 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENICOM Corporation ------------------------------------- Registrant Date: November 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 APRIL 4, 1999 EXHIBIT NUMBER DESCRIPTION PAGE - -------------- ------------------------------------- --------------------- 27.1 Financial Data Schedule (Restated) Filed only with EDGAR version E - 1