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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 20-F
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(SPECIAL FINANCIAL REPORT PURSUANT TO RULE 15d-2 OF THE SECURITIES
EXCHANGE ACT OF 1934 (CONTAINS FINANCIAL STATEMENTS ONLY))
For the fiscal year ended December 31, 2000
Commission file number 001-16451
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GENESYS S.A.
(Exact name of registrant as specified in its charter)
N/A Republic of France
(Translation of registrant's name (Jurisdiction of incorporation or
into English) organization)
Le Regent--4 rue Jules Ferry, BP 1145, 34008 Montpellier Cedex, France
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the
Act: None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
American Depositary Shares, each representing one-half
of one ordinary share, nominal value (Euro) 5 per
share................................................ Nasdaq Stock Market
Ordinary shares, nominal value (Euro) 5 per share*.... Nasdaq Stock Market
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* Listed, not for trading or quotation purposes, but only in connection with
the registration of the American Depositary Shares pursuant to the
requirements of the Securities and Exchange Commission.
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report (December 31, 2000): Ordinary shares, (Euro) 5 nominal value: 9,342,381
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark which financial statement item the registrant has
elected to follow. Item 17 [_] Item 18 [X]
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SPECIAL FINANCIAL REPORT
TABLE OF CONTENTS
Introductory Note........................................................... 2
Item 5. Operating and Financial Review and Prospects........................ 2
Item 11. Quantitative and Qualitative Disclosures about Market Risk......... 12
Item 18. Financial Statements............................................... F-1
1
INTRODUCTORY NOTE
In February 2001, the Securities and Exchange Commission declared effective
the registration statement on Form F-4 (File No. 333-55392) that we filed in
connection with our acquisition of Vialog Corporation. That registration
statement did not contain financial statements for the year ended December 31,
2000. Accordingly, we are filing this special financial report pursuant to Rule
15d-2 under the Securities and Exchange Act of 1934, as amended, to provide our
financial statements for the fiscal year ended December 31, 2000. Although Rule
15d-2 does not require us to do so, we have also included a discussion of our
financial condition and results of operations for the historical periods
covered by our financial statements.
Item 5. Operating and Financial Review and Prospects
Overview
We were founded in Montpellier, France in 1986 to develop automated audio
conferencing services. Since then, we have expanded through internal growth and
acquisitions to become one of the world's largest independent providers of
interactive group communications services, based on sales. We have
significantly expanded our global presence and the scope of our service
offering since the beginning of 1998. During that period, we have evolved from
a regional audio conferencing provider generating 94.9% of our revenues within
Europe in 1998 to become a global company earning 50.35% of our revenues
outside Europe in 2000. We have also diversified the scope of our products and
services. At the beginning of 1998, we provided only audio conferencing
services. Since then, we have expanded our services to include video
conferencing (beginning in 1998), data collaboration (beginning in the third
quarter of 2000) and Web streaming services (beginning in the third quarter of
2000).
Since the beginning of 2001, we have completed two major acquisitions. In
March 2001, we acquired Astound Incorporated, a leading provider of Web
conferencing and data collaboration software. In April 2001, we acquired Vialog
Corporation, a leading independent provider of conferencing services in the
United States. Since both of these acquisitions occurred after the end of 2000,
they are not reflected in our accounts at December 31, 2000 and are not
discussed below.
Impact of Acquisitions
One of the primary drivers of our growth since the beginning of 1998 has
been our effort to expand our global presence and service offering by making
strategic acquisitions. Among the most significant effects of our acquisitions
since 1998 have been:
. Increased revenues. During the three year period ended December 31,
2000, our revenues grew from (Euro) 19.2 million in 1998 to (Euro) 92.4
million in 2000. Companies acquired during 1999 accounted for
(Euro) 19.2 million in revenues, or approximately 66.8% of total annual
revenue growth, in 1999. An additional (Euro) 1.2 million, or 4% of the
total annual revenue growth in 1999, was due to the impact of including
a full year of revenues in 1999 from companies that were consolidated
for less than the full year in 1998. Companies acquired during 2000
accounted for (Euro) 2.5 million in revenues, or approximately 5.7% of
total annual revenue growth, in 2000. An additional (Euro) 18.5 million,
or 42% of total annual revenue growth in 2000, was due to the impact of
including a full year of revenues in 2000 from companies that were
consolidated for less than the full year in 1999.
. Change in composition of revenues and margins. Most of the companies
that we have acquired generate a significant proportion of their
revenues from operator-assisted services. These services generate higher
labor costs, and thus lower margins, than automated unattended
conferencing services. As a result, we position operator-assisted
service as a complement to our core automated service, and are migrating
existing customers from operator-assisted services to higher margin
automated services. We also expect to generate a greater proportion of
our revenues in the future from data collaboration and Web streaming
services.
2
. Global presence. Our acquisitions have enabled us to expand our
geographic coverage from 5 European countries at the beginning of 1998
to 14 countries in Europe, North America, Australia and Asia at the end
of 2000. Based on our experience in marketing global conferencing
services, we believe our global coverage enhances our ability to win
contracts from the multinational customers that are the world's largest
users of conferencing services. One of the effects of our expansion into
new markets has been to increase our exposure to exchange rate
fluctuations. The impact of exchange rate fluctuations is discussed in
more detail below.
. Increased amortization and financial expenses. We have accounted for all
of our acquisitions under the purchase method of accounting. Under this
method of accounting, we record the excess of the purchase price over
the net assets of acquired companies as goodwill and identifiable
intangible and tangible assets, which we amortize on a straight line
basis over a period ranging from five to 20 years. The resulting
increase in amortization expense has had and will continue to have a
significant impact on our results of operations. In 2000, we recorded
(Euro) 7.0 million in goodwill and other intangibles amortization
charges. In connection with our acquisitions, we have also incurred
additional indebtedness, which has increased our net financial expenses.
We intend to continue to make strategic acquisitions to further expand our
global presence and to broaden the scope of our services. As we do so, the
factors mentioned above may have an increasing impact on our results of
operations.
Our principal acquisitions in 2000 are summarized in the following table:
Purchase
Price in
Name Country Date millions Principal benefits to Genesys
- ---- --------- ---------- ----------- ----------------------------
Cable & Wireless
Communications' audio
and video conferencing U.K. April 2000 (Euro) 5.7 Strengthen audio and video
services in Europe..... conferencing position in
Europe
Mediactiv/MedLive....... France June 2000 (Euro) 2.7 Web event expertise
Cote & Com.............. France July 2000 (Euro) 1.4 Web event expertise
Langages Virtuels
(EBCS/Axone)........... France July 2000 (Euro) 13.2 Web streaming expertise
Telcen.................. Australia July 2000 (Euro) 0.9 Expand video conferencing in
Australia
Telechoice
Deutschland/Eureka Germany Sept. 2000 (Euro) 6.7 Strengthen audio and video
Global conferencing position in
Teleconferencing....... Germany
We include the results of acquired companies in our results of operations
from their respective dates of acquisition. As a result, our historical
financial statements are not directly comparable from one period to the next.
Key factors affecting revenues and operating income
Revenue
We generate our revenues primarily from fees charged to our customers for
conferencing and related services. We earn revenues from four principal types
of interactive group communications services:
. Audio conferencing. Historically, we have generated the large majority
of our revenues from fees charged to customers for audio conferencing
services, which accounted for 81.7% of our total revenues in 2000. Our
basic audio conferencing services are billed on a per-line, per-minute
basis.
3
. Video conferencing. We began offering video conferencing services in
1998, in partnership with VideoWeb, and have significantly expanded
those services since our acquisition of VideoWeb in April 1999. In 2000,
video conferencing services accounted for approximately 13.0% of total
revenues. Our basic video conferencing services are billed on a per-
line, per-minute basis.
. Data collaboration. We began offering data collaboration services in the
fourth quarter of 2000, following the launch of our PowerShare
application. Data collaboration services are billed on a per-user, per-
minute basis.
. Web streaming. We began offering these services in June 2000, following
our acquisition of Mediactiv, and have further strengthened our position
since then through the acquisition of Langages Virtuels and Cote&Com.
The financial statements for 2000 include seven months of Mediactiv's
results of operations, five months of Langages Virtuels' results of
operations and five months of Cote & Com's results of operations. In
2000, web streaming services accounted for approximately 1.6% of total
revenues. We expect these services to account for a greater proportion
of our revenue in future periods as we roll out our Web streaming
services on a broader scale. We charge for Web streaming services on a
per event basis that takes into account the size and complexity of the
services requested.
For each of our audio, video and data services, the key factors that
determine revenues are the volume of minutes sold and the average per-line,
per-minute price for the service. We have experienced strong volume growth in
each of these types of services since 1998, driven primarily by acquisitions,
together with, in the case of audio and video conferencing, strong organic
growth. Average per-minute prices for audio conferencing have declined since
1998, primarily as a result of the effect of volume discounts and an emphasis
on automated unattended conferencing services, which we bill at lower rates
(although with higher margins). The key drivers of Web streaming revenues are
the number of events managed and the average per event price for the service.
We also earn other revenues from the sale of audio and video conferencing
equipment. These sales accounted for 3.3% of our total revenues in 2000. We
offer conferencing equipment for sale to promote use of our services and as an
added benefit to those customers that seek to purchase both their conferencing
equipment and their conferencing services from a single supplier.
Cost of Revenue and Gross Profit
Our cost of revenue consists of operator and technical support salaries and
of office expenses for operations staff, depreciation on our teleconferencing
bridges and telecommunications equipment, telecommunications costs and
equipment product costs. Of these costs, the largest components are operator
and technical support salaries and depreciation. Our overall gross margin
declined from 57.5% of total sales in 1998 to 55.9% in 2000. This decline
resulted primarily from an increase in the percentage of revenues earned from
lower margin operator assisted services following the acquisitions of companies
with a high percentage of such services, particularly in the United States and
the United Kingdom. We expect our gross margin to improve if we are successful
in our strategy of migrating existing customers to higher margin automated
conferencing services.
Seasonality of Revenues
We historically have experienced, and expect to continue to experience,
seasonal fluctuations in revenues, including relatively low revenues in the
third quarter. This seasonality results mainly from decreases in general
consumption during the summer vacation periods, particularly in the months of
July and August. Because of this seasonality, the rate of revenue growth is
typically lower in the third quarter than in other quarters.
4
Operating income
Our operating income depends on our revenue, our cost of revenue, and the
level of our other operating expenses. Our principal operating expenses are:
. Research and development costs, which consist primarily of salaries and
benefits for research and development personnel, depreciation of
research and development equipment and related expenses.
. Selling and marketing expenses, which consist primarily of the costs of
advertising and marketing materials and salaries and benefits paid to
sales personnel.
. General and administrative expenses, which consist primarily of
personnel costs and costs for general corporate functions, including
finance, accounting, facilities and administration and human resources,
and fees for professional services such as consulting, legal and
accounting services.
. Amortization of goodwill and other intangibles, which consists
principally of expenses related to the amortization of goodwill from
acquisitions, and to a lesser extent, of the amortization of other
intangibles.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
We believe that EBITDA is a meaningful measure of performance and use it for
purposes of managing our business and evaluating our financial health. We
define EBITDA as operating income (loss) plus depreciation and amortization
charges and amortization of goodwill and other intangibles. Our depreciation
charges are divided among the line items cost of revenue, research and
development, selling and marketing and general and administrative expenses
based on the use of the assets being amortized. EBITDA is not a measurement of
operating performance calculated in accordance with accounting principles
generally accepted in the United States, and should not be considered a
substitute for operating income, net income, cash flows from operating
activities or other statement of operations or cash flow statement data
prepared in accordance with accounting principles generally accepted in the
United States, or as a measure of profitability or liquidity. EBITDA may not be
indicative of our historical operating results; nor is it meant to be
predictive of potential results. Because all companies do not calculate EBITDA
identically, the presentation of EBITDA contained in this special financial
report may not be comparable to similarly named measures of other companies.
Our EBITDA increased as a percentage of revenues from 10.7% in 1998 to 14.1%
in 1999, then declined to 12.9% in 2000. One of the most important drivers
behind our EBITDA margin is the level of our personnel costs, which are divided
among the line items cost of revenue, research and development, selling and
marketing and general and administrative expenses based on the function of the
relevant employees.
Year ended December 31, 2000 compared with year ended December 31, 1999
Revenue
The following table sets forth our revenues for 1999 and 2000 by category
and expressed as a percentage of total revenues.
Year ended December 31,
-------------------------------------
1999 2000
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(Euro) in % of (Euro) in % of
thousands revenues thousands revenues
Audio conferencing....................... 42,788 89.2% 75,541 81.7%
Video conferencing and other services.... 4,372 9.1% 13,795 14.9%
Products................................. 835 1.7% 3,083 3.4%
------ ------ ------ ------
Total revenues........................... 47,995 100.0% 92,419 100.0%
====== ====== ====== ======
5
Total revenues increased from (Euro) 48.0 million in 1999 to (Euro) 92.4
million in 2000, an increase of 92.6%. Of the (Euro) 44.4 million increase,
(Euro) 2.5 million, or 5.7% of the increase, was attributable to acquisitions
made during 2000. Approximately (Euro) 8.1 million, or 18.2% of the increase in
revenues from 1999 to 2000 was due to the impact of currency exchange rate
movements, as the euro depreciated against the dollar and other non-euro
currencies in which we do business. Approximately (Euro) 18.5 million, or 42%
of the increase in revenues from 1999 to 2000 was due to the impact of
including a full year of revenues from Williams, Aloha and VideoWeb in 2000, as
opposed to including only five, nine and eight months, respectively, in 1999.
The remaining (Euro) 15.3 million increase was driven by strong revenue growth
in Europe, particularly in the United Kingdom and Germany, due to growth in
automated services.
Audio conferencing. Audio conferencing revenues increased 76.5%, from
(Euro) 42.8 million during 1999 to (Euro) 75.5 million during 2000. Of the
(Euro) 32.7 million increase in audio conferencing revenues, the main part was
attributable to impact of including a full year of revenues from Williams and
Aloha in 2000, as opposed to including only five and nine months, respectively,
in 1999. The remaining increase was driven by strong revenue growth in Europe,
particularly in the United Kingdom and France, due to strong growth in
automated services.
Video and data conferencing. Video and data conferencing revenues more than
tripled from (Euro) 4.4 million in 1999 to (Euro) 13.8 million in 2000. The
(Euro) 9.4 million increase in revenues was attributable to the consolidation
of Williams and VideoWeb revenues for the full year in 2000, compared to five
and eight months, respectively, in 1999 and the acquisition of Cable &
Wireless' European video conferencing activities in April 2000. The figure for
2000 also includes (Euro) 1.5 million in web streaming revenues. These services
were offered for the first time in 2000.
Geographic composition of revenues. The following table shows our revenues
by region for each of 1999 and 2000 and expressed as a percentage of total
revenues.
Year ended December 31,
-------------------------------------
1999 2000
------------------ ------------------
(Euro) in % of (Euro) in % of
thousands revenues thousands revenues
Europe.................................... 27,861 58.1% 45,886 49.6%
United States............................. 18,158 37.8% 42,097 45.6%
Asia-Pacific.............................. 1,976 4.1% 4,436 4.8%
------ ------ ------ ------
Total revenues............................ 47,995 100.0% 92,419 100.0%
====== ====== ====== ======
The change in the geographic composition of revenues primarily reflects the
impact of including the revenues of Williams and Aloha for the full year in
2000, as opposed to only five and nine months, respectively, in 1999.
Gross Profit
Gross profit increased from (Euro) 27.4 million in 1999 to (Euro) 51.7
million in 2000. Gross profit declined as a percentage of sales from 57.2% in
1999 to 55.9% in 2000. This reduction in margins resulted from an increase in
labor costs as a result of the acquisition of Aloha, Video Web and Williams,
which were acquired in the course of 1999 and generate most of their revenues
from operator-assisted conferencing. The decline in margins also reflects our
acquisitions during the second half of 2000 in the field of Web Streaming,
which generates lower margins than audio conferencing. Excluding the impact of
acquisitions made during 1999 and 2000, our gross margin increased from 1999 to
2000.
6
Operating Loss
Our operating loss increased from (Euro) 0.5 million in 1999 to (Euro) 3.0
million in 2000. The following table sets forth our operating costs and
expenses that are not included in cost of revenue for 1999 and 2000 by major
components and expressed as a percentage of total revenues.
Year ended December 31,
-------------------------------------
1999 2000
------------------ ------------------
(Euro) (Euro)
in % of in % of
thousands revenues thousands revenues
Research and development................ 1,629 3.4% 2,613 2.8%
Selling and marketing................... 10,130 21.1% 17,867 19.3%
General and administrative.............. 12,952 27.0% 27,165 29.4%
Amortization of goodwill and other
intangibles............................ 3,216 6.7% 7,015 7.6%
------ ------
Total operating expenses................ 27,927 58.2% 54,660 59.1%
====== ======
Research and Development
Research and development expenses increased by 60.4% from (Euro) 1.6 million
in 1999 to (Euro) 2.6 million in 2000. The increase in research and development
costs resulted primarily from additional employees hired in connection with our
research and development efforts in connection with data collaboration and
enhancements to our TeleMeeting service and our Multi-Conference Manager
browser. As a percentage of total revenues, research and development expenses
declined from 3.4% in 1999 to 2.8% in 2000. This decrease primarily reflects a
broader revenue base (especially after our acquisitions in 1999) over which to
spread our research and development expenses.
Selling and Marketing
Selling and marketing expenses increased by 76.4% from (Euro) 10.1 million
in 1999 to (Euro) 17.9 million in 2000. The increase primarily reflects the
addition of sales personnel from Williams, which was acquired in July 1999, and
Mediactiv, Cote & Com, Langages Virtuels, Telcen, Telechoice and Eureka, each
of which were acquired in 2000. It also reflects, to a lesser extent, growth in
the size of our global marketing team. As a percentage of total revenues,
selling and marketing expenses decreased from 21.1% in 1999 to 19.3% in 2000,
reflecting increased usage by our existing customers and greater revenues per
sales person.
General and Administrative
General and administrative costs more than doubled, from (Euro) 13.0 million
in 1999 to (Euro) 27.2 million in 2000. As a percentage of total revenues,
general and administrative costs increased from 27.0% in 1999 to 29.4% in 2000.
The increase in general and administrative costs was primarily due to the
recruitment of personnel to handle upgrades to our management information
systems and additional accounting and support staff, and consulting and legal
fees paid in connection with acquisitions investigated but not completed. The
increase also reflects the acquisition of general and administrative personnel
from Williams and the companies we acquired during 2000.
Amortization of Goodwill and Other Intangibles
Amortization of goodwill and other intangibles more than doubled from
(Euro) 3.2 million in 1999 to (Euro) 7.0 million in 2000. This increase
primarily reflects the recording of a full year of amortization expenses for
Williams, Aloha and VideoWeb in 2000, as opposed to only five, nine and eight
months, respectively, during 1999. The increase also reflects goodwill recorded
in connection with the acquisitions of Mediactiv, Cote & Com, Langages
Virtuels, Telcen, Telechoice and Eureka in 2000.
7
EBITDA Margin
Our EBITDA increased from (Euro) 6.8 million in 1999 to (Euro) 12.0 million
in 2000. Our EBITDA margin decreased from 14.1% in 1999 to 12.9% in 2000. The
decrease in EBITDA margins primarily reflects the impact of increased corporate
expenses incurred in preparation for the integration of Vialog. It also
reflects the impact of charges associated with the acquisition of Mediactiv,
Langages Virtuels, Cote & Com, Eureka and Telcen, each of whom was generating
losses at the time it was acquired, as well as charges linked to the creation
of new subsidiaries in Norway and Denmark. To a lesser extent, the decrease in
EBITDA margin reflects the impact of consolidating Williams, which had lower
margins, for a full year in 2000, as opposed to only six months in 1999.
Financial Income (Expense)
We generated net financial income of (Euro) 0.7 million in 2000, after
incurring net financial expense of (Euro) 2.1 million in 1999. The change
primarily reflects a significant increase in interest income and other net
financial income, primarily reflecting the investment of cash received as a
result of a capital increase in June 2000.
Income Tax Expense
We recorded income tax expense of (Euro) 3.6 million in 2000, as compared
with (Euro) 1.3 million in 1999. The increase reflects higher earnings in the
countries where we pay income tax, particularly in the United Kingdom and, to a
lesser extent, Sweden.
Net Loss
For the foregoing reasons, we recorded a net loss of (Euro) 6.0 million in
2000, as compared with a net loss of (Euro) 3.8 million in 1999.
Year ended December 31, 1999 compared with year ended December 31, 1998
Revenue
The following table sets forth our revenues for 1998 and 1999 by category
and expressed as a percentage of total revenues.
Year ended December 31,
-------------------------------------
1998 1999
------------------ ------------------
(Euro) in % of (Euro) in % of
thousands revenues thousands revenues
Audio conferencing........................ 18,037 93.9% 42,788 89.2%
Video conferencing........................ 274 1.4% 4,372 9.1%
Other..................................... 910 4.7% 835 1.7%
------ ----- ------ -----
Total revenues............................ 19,221 100.0% 47,995 100.0%
====== ===== ====== =====
Total revenues increased from (Euro) 19.2 million in 1998 to (Euro) 48.0
million in 1999, an increase of 149.7%. Approximately 1.2% of this increase was
due to the impact of currency exchange rate movements. Audio conferencing
revenues declined as a percentage of revenues from 93.9% of total revenues in
1998 to 89.2% in 1999. Video conferencing revenues increased as a percentage of
revenues from 1.4% of total revenues in 1998 to 9.1% of total revenues in 1999.
8
Audio conferencing. Audio conferencing revenues increased 137.2%, from
(Euro) 18.0 million in 1998 to (Euro) 42.8 million in 1999. Of the (Euro) 24.8
million increase in audio conferencing revenues, (Euro) 15.5 million, or 62.5%
of the increase, was attributable to acquisitions made during 1999, including
Aloha and Williams. The remaining (Euro) 9.3 increase was attributable
primarily to organic revenue growth in Europe, principally in the United
Kingdom and France. This growth was driven primarily by the roll-out of
automated services.
Video conferencing. Video conferencing revenues increased more than fifteen-
fold, from (Euro) 0.3 million in 1998 to (Euro) 4.4 million in 1999. Of the
(Euro) 4.1 million increase in revenues, (Euro) 3.8 million, or 92.7% of the
increase was attributable to acquisitions made during 1999, mainly including
the acquisition of VideoWeb Ltd., a British video conferencing company, in
April 1999.
Geographic composition of revenues. The following table shows our revenues
by region for each of 1998 and 1999 and expressed as a percentage of total
revenues.
Year ended December 31,
-------------------------------------
1998 1999
------------------ ------------------
(Euro) (Euro)
in % of in % of
thousands revenues thousands revenues
Europe.................................... 18,244 94.9% 27,861 58.1%
United States............................. 447 2.3% 18,158 37.8%
Asia-Pacific.............................. 530 2.8% 1,976 4.1%
------ ----- ------ -----
Total revenues............................ 19,221 100.0% 47,995 100.0%
====== ===== ====== =====
The change in the geographic composition of revenues resulted primarily from
the acquisitions of the U.S.-based companies Aloha and Williams in 1999.
Gross profit
Gross profit increased from (Euro) 11.0 million in 1998 to (Euro) 27.7
million in 1999. Gross profit declined as a percentage of sales from 57.5% in
1998 to 57.2% in 1999. This slight reduction in gross margins resulted from an
increase in labor costs as a result of the acquisitions of Aloha, Williams and
VideoWeb, each of which generated most of its revenues from operator-assisted
conferencing. The decrease in margins due to these acquisitions more than
offset an improvement in gross margins at our other subsidiaries.
Operating Loss
Our net operating loss decreased from (Euro) 1.0 million in 1998 to
(Euro) 0.5 million in 1999. The following table sets forth our operating costs
and expenses for 1998 and 1999 that are not included in cost of revenue by
major components and expressed as a percentage of total revenues.
Year ended December 31,
-------------------------------------
1998 1999
------------------ ------------------
(Euro) (Euro)
in % in in % of
thousands revenues thousands revenues
Research and development................ 910 4.7% 1,629 3.4%
Selling and marketing................... 5,747 29.9% 10,130 21.1%
General and administrative.............. 4,014 20.8% 12,952 27.0%
Amortization of goodwill and other
intangibles............................ 1,396 7.3% 3,216 6.7%
------ ------
Total operating expenses................ 12,057 62.7% 27,927 58.2%
====== ======
Research and Development
Research and development increased by 79.0%, from 0.9 million in 1998 to
(Euro) 1.6 million in 1999. The increase in research and development costs
resulted primarily from our work on enhancements to our
9
TeleMeeting and Multi Conference Manager products, and also reflects the
addition of video conferencing research personnel from VideoWeb. As a
percentage of total revenues, research and development expenses declined from
4.7% in 1998 to 3.4% in 1999. This decline principally reflects the
acquisition of Williams and Aloha, each of which spent a much smaller
percentage of its revenues on research and development than we did.
Selling and Marketing
Selling and marketing expenses increased by 76.2%, from (Euro) 5.7 million
in 1998 to (Euro) 10.1 million in 1999. The increase resulted primarily from
the acquisition of Williams. As a percentage of total revenues, selling and
marketing expenses decreased from 29.9% in 1998 to 21.1% in 1999, reflecting
higher usage by our existing customers and higher average revenue per
salesperson, which together offset higher selling and marketing expenses, as a
percentage of revenues, at Williams.
General and Administrative
General and administrative costs more than tripled in absolute terms,
increasing from (Euro) 4.0 million in 1998 to (Euro) 13.0 million in 1999. As
a percentage of total revenues, general and administrative costs increased
from 20.8% in 1998 to 27.0% in 1999. The increase in general and
administrative expenses was primarily due to higher general and administrative
expenses at Williams, the recruitment of personnel to handle upgrades to our
management information systems and additional accounting and support staff,
and consulting and legal fees paid in connection with acquisitions.
Amortization of Goodwill and Other Intangibles
Amortization of goodwill and other intangibles increased from (Euro) 1.4
million in 1998 to (Euro) 3.2 million in 1999, an increase of 130.4%, as a
result of additional goodwill recorded in connection with the acquisitions of
Aloha, VideoWeb and Williams.
EBITDA Margin
EBITDA increased from (Euro) 2.1 million in 1998 to (Euro) 6.8 million in
1999, and increased as a percentage of revenues from 10.7% in 1998 to 14.1% in
1999. The improvement in EBITDA margins reflects a strong improvement in
profitability at our operations in the United Kingdom due to the deployment of
automated services as well as improved profitability in France and Sweden.
These improvements in profitability more than offset the effect of
consolidating Williams, which had lower margins, for five months in 1999.
Financial Expense
Financial expense increased from (Euro) 0.3 million in 1998 to (Euro) 2.1
million in 1999 as a result of indebtedness incurred in connection with the
acquisitions of Aloha, VideoWeb and Williams.
Income Tax Expense
Income tax expense increased from (Euro) 0.3 million in 1998 to (Euro) 1.3
million in 1999.This increase resulted from higher earnings in the countries
where we pay income taxes, principally in the United Kingdom and Sweden.
Net Loss
For the reasons outlined above, our net loss increased from (Euro) 1.6
million in 1998 to (Euro) 3.8 million in 1999.
10
Liquidity and Capital Resources
General
Our capital requirements are driven primarily by the implementation of our
acquisition strategy and capital expenditures on telecommunications and
bridging equipment. To date, we have funded our capital requirements through a
combination of equity offerings, borrowings including bank financings and
convertible debt issuances, and operating cash flow.
At December 31, 2000, our principal sources of liquidity included
(Euro) 49.7 million in cash and cash equivalents and a total of (Euro) 3.6
million of unutilized short-term credit facilities.
In connection with the acquisition of Vialog, in April 2001, we and Vialog
entered into a U.S.$ 125 million credit facility that will be used refinance
existing debt of Genesys and Vialog and for working capital purposes. This
facility is described in more detail below. We believe that our capital
resources are sufficient to meet our current working capital needs.
Cash Flows
Cash and cash equivalents increased to (Euro) 49.7 million at the end of
December 2000 from (Euro) 13.8 million at the end of December 1999. Operating
activities provided cash of (Euro) 9.3 million. Cash of (Euro) 28.2 million was
used in investing activities, primarily in connection with the acquisition of
Cable & Wireless' audio and video conferencing activities in Europe and the
acquisition of MedLive, Mediactiv, Langages Virtuels, Cote & Com, Telcen,
Telechoice and Eureka. Cash used in investing activities also reflected capital
expenditures of (Euro) 10.6 million for telecommunications bridges and computer
equipment and an issuance of (Euro) 5.8 million in promissory notes in
connection with the acquisition of Astound. Financing activities provided
(Euro) 54 million, primarily reflecting the closing of an equity offering in
June 2000 that provided net proceeds of (Euro) 55.2 million.
Capital Expenditures
The following table sets forth our capital expenditures for the periods
indicated.
Year ended
December 31,
------------------
1998 1999 2000
----- ----- ------
((Euro) in
thousands)
Capital expenditures......................................... 3,848 7,465 10,593
Our capital expenditures relate primarily to bridging equipment necessary to
carry the conferencing traffic generated by our services. We make purchases of
bridging equipment to keep pace with volume growth, and expect that our capital
expenditures as a percentage of sales will decline in future periods as we earn
a greater proportion of our revenues from Internet-based activities, which
typically involve lower costs for servers and related equipment. Our policy is
to purchase additional bridging and streaming capacity when average daily usage
reaches 70% of available capacity.
Credit Facility and other outstanding indebtedness
In April 2001, we and Vialog entered into a credit facility agreement with
BNP Paribas, CIBC World Markets and Fortis Bank. We expect to realize
substantial savings as the result of the refinancing of existing debt of Vialog
and Genesys through this credit facility. The credit facility includes the
following tranches:
. A U.S.$ 50 million senior term loan facility granted to Vialog, to be
used by Vialog to refinance its existing debt. This facility matures on
April 28, 2006 and bears interest at the rate of LIBOR plus a margin of
2.25%.
11
. A U.S.$ 30 million senior term loan facility granted to Vialog, to be
used by Vialog to refinance its existing debt. This facility matures on
October 31, 2006 and bears interest at the rate of LIBOR plus a margin
of 2.75% per annum
. A U.S.$ 35 million senior term loan facility granted to Genesys, to be
used by us to partially refinance our existing debt. This facility
matures on April 28, 2006 and bears interest at the rate of LIBOR plus a
margin of 2.25% per annum.
. A U.S.$ 5 million revolving loan facility granted to Vialog, to be used
by Vialog for working capital purposes. This facility bears interest at
the rate of LIBOR plus a margin of 2.25% per annum.
. A U.S.$ 5 million revolving loan facility granted to Genesys, to be used
by us for working capital purposes. This facility bears interest at the
rate of LIBOR plus a margin of 2.25% per annum.
The above margin levels will be subject to adjustment after the first
anniversary of the agreement based on the ratio of our consolidated net
indebtedness to consolidated EBITDA. The U.S.$ 50 million and U.S.$ 35 million
term loans granted to Vialog and Genesys, respectively, is to be repaid in
semi-annual installments in accordance with a schedule set forth in the credit
facility agreement. The U.S.$ 30 million facility is to be repaid in one
payment at maturity. All amounts borrowed are repayable at any time in whole or
in part at the option of the borrower, and the agreement provides for mandatory
prepayment under certain conditions. The agreement contains certain financial
and non-financial covenants customary for a transaction of this type.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Impact of Exchange Rate Fluctuations
We prepare our financial statements in euros. In 2000, 46% of our total
revenues were recorded in U.S. dollars, 29% in British pounds, and 3% in
Australian dollars. Virtually all of the remaining revenues were in euros or
European currencies that now have fixed exchange rates against the euro.
Purchases and expenses in U.S. dollars, British pounds and Australian dollars
represented approximately 43%, 23% and 3%, respectively, of our cost of
revenues and operating expenses in 2000. A strengthening of the euro (against
which the French franc is fixed) against the U.S. dollar, the British pound,
the Australian dollar and other currencies in which we receive revenues could
reduce our reported revenues and our reported operating and net income. Since
its introduction on January 1, 1999, the euro has declined from U.S.$1.17 per
euro to $ 0.8470 per euro as of June 28, 2001. This decline has increased the
euro value of the U.S. dollar revenues that we have earned in our U.S.
activities. The impact on our revenues of the decline of the euro against
various currencies, primarily the dollar and the British pound, is described
under "Results of Operations" above. We incurred a net foreign exchange gain of
(Euro) 296,000 in 1998, a net foreign exchange loss of (Euro) 36,000 in 1999
and a net foreign exchange gain of (Euro) 767,000 in 2000. The impact of
currency exchange movements on our results of operations is typically mitigated
by the fact that we incur expenses in local currency, and that we borrow in
local currency in the United Kingdom and the United States, although this does
not eliminate the entire impact. The extent to which changes in our revenues
have historically been affected by currency exchange rate movements are
described above. When deemed appropriate, we have entered into transactions to
hedge our exposure to foreign exchange risks incurred in connection with
borrowings, including by entering into forward contracts to purchase U.S.
dollars and British pounds.
Interest Rate Risk
We are exposed to interest rate risk in our financing instruments. At
December 31, 2000, we had variable rate debt totaling (Euro) 39.2 million and
had (Euro) 3.1 million invested in short-term money market accounts bearing
variable rates of interest. In order to reduce our exposure to fluctuations in
interest rates, we have entered, when deemed appropriate, into transactions to
hedge our exposure to interest rates, including by entering an interest rate
swap with a notional amount of U.S.$20 million in order to hedge a portion of a
U.S.$35 million term loan taken out in connection with our acquisition of
Williams. We do not use derivative financial instruments for trading or other
speculative purposes.
12
Item 18. Financial Statements
Report of Independent Auditors.............................................. F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements Of Operations....................................... F-4
Consolidated Statements Of Changes In Shareholders' Equity.................. F-5
Consolidated Statements Of Cash Flows....................................... F-6
Notes To Consolidated Financial Statements.................................. F-7
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Genesys S.A.
We have audited the accompanying consolidated balance sheets of Genesys S.A.
as of December 31, 1998, 1999 and 2000, and the related consolidated statements
of operations, shareholders' equity, and cash flows for the years ended
December 31, 1998, 1999 and 2000. These consolidated financial statements are
the responsibility of the Genesys' management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Genesys S.A. at December 31, 1998, 1999 and 2000, and the consolidated
results of its operations and its cash flows for the years ended December 31,
1998, 1999 and 2000, in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG AUDIT
/s/ Antoine Peskine
Represented by
Antoine Peskine
Montpellier, France
May 28, 2001
F-2
GENESYS S.A.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(all amounts have been translated from the prior reporting currency, French
franc,
to euro, using the December 31, 1998 fixed rate)
December 31,
---------------------------------------------
1998 1999 2000
------------- -------------- --------------
Assets
Current assets:
Cash and cash equivalents..... (Euro) 19,413 (Euro) 13,754 (Euro) 49,705
Accounts receivable, less
allowances of (Euro) 152 in
1998, (Euro) 1,235 in 1999
and (Euro) 1,431 in 2000..... 5,100 17,138 22,974
Inventory..................... 86 63 136
Prepaid expenses and other
current assets............... 809 1,239 4,523
------------- -------------- --------------
Total current assets........ 25,408 32,194 77,338
Property and equipment, net..... 5,523 18,904 22,475
Goodwill and other intangibles,
net............................ 20,217 69,820 100,258
Investment in affiliated
company........................ -- 185 109
Deferred tax assets............. 406 502 281
Deferred financing costs, net... -- 1,151 756
Promissory notes................ -- -- 5,462
Other assets.................... 66 134 490
------------- -------------- --------------
Total assets................ (Euro) 51,620 (Euro) 122,890 (Euro) 207,169
============= ============== ==============
Liabilities and Shareholders'
Equity
Current liabilities:
Bank overdrafts............... (Euro) 19 (Euro) 499 (Euro) 1,882
Accounts payable.............. 2,187 5,285 8,462
Accrued liabilities........... 745 3,529 4,244
Accrued compensation.......... 702 1,292 3,956
Tax payable................... 1,035 2,195 4,750
Deferred revenue.............. 507 304 863
Current portion of long-term
debt......................... 2,525 2,135 6,782
Current portion of capitalized
lease obligations............ 152 646 503
Other current liabilities..... 300 3,615 3,191
------------- -------------- --------------
Total current liabilities... 8,172 19,500 34,633
Long-term portion of long-term
debt........................... 7,113 61,631 44,041
Long-term portion of capitalized
lease obligations.............. 269 425 382
Commitments and contingencies... -- -- --
Shareholders' equity:
Ordinary shares; (Euro) 4.57,
(Euro) 4.57 and (Euro) 5.00
nominal value at December 31,
1998, 1999 and 2000,
respectively; 6,043,002,
6,627,607 and 9,342,381
shares issued and outstanding
at December 31, 1998, 1999
and 2000, respectively....... 27,637 30,311 46,712
Additional paid-in capital.... 11,375 15,146 90,199
Accumulated other
comprehensive income......... 10 2,671 4,117
Accumulated deficit........... (2,956) (6,794) (12,766)
------------- -------------- --------------
36,066 41,334 128,262
Less cost of treasury shares:
2,905 shares at December 31,
2000......................... -- -- (149)
------------- -------------- --------------
Total shareholders' equity.. 36,066 41,334 128,113
------------- -------------- --------------
Total liabilities and
shareholders' equity........... (Euro) 51,620 (Euro) 122,890 (Euro) 207,169
============= ============== ==============
See notes to financial statements
F-3
GENESYS S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(all amounts have been translated from the prior reporting currency, French
franc,
to euro, using the December 31, 1998 fixed rate)
Years ended December 31,
-------------------------------------------
1998 1999 2000
------------- ------------- -------------
Revenue:
Services....................... (Euro) 18,311 (Euro) 47,159 (Euro) 89,336
Products....................... 910 836 3,083
------------- ------------- -------------
19,221 47,995 92,419
Cost of revenue:
Services....................... 7,517 19,959 38,173
Products....................... 656 596 2,548
------------- ------------- -------------
8,173 20,555 40,721
------------- ------------- -------------
Gross profit..................... 11,048 27,440 51,698
Operating expenses:
Research and development....... 910 1,629 2,613
Selling and marketing.......... 5,747 10,130 17,867
General and administrative..... 4,004 12,952 27,165
Amortization of goodwill and
other intangibles............. 1,396 3,216 7,015
------------- ------------- -------------
Total operating expenses..... 12,057 27,927 54,660
Operating loss................... (1,009) (487) (2,962)
Financial income (expense)
Interest income................ 292 198 1,486
Interest expense............... (963) (2,242) (3,558)
Foreign exchange gain (loss)... 296 (36) 767
Other financial income
(expense), net................ 40 (3) 1,960
------------- ------------- -------------
Financial expense, net........... (335) (2,083) 655
Equity in loss of affiliated
company......................... -- (15) (76)
------------- ------------- -------------
Loss before taxes................ (1,344) (2,585) (2,383)
Income tax expense............... (293) (1,253) (3,589)
------------- ------------- -------------
Net loss......................... (Euro) (1,637) (Euro) (3,838) (Euro) (5,972)
============= ============= =============
Basic and diluted net loss per
share........................... (Euro) (0.39) (Euro) (0.60) (Euro) (0.76)
============= ============= =============
Number of shares used in
computing basic and diluted net
loss per share.................. 4,209,669 6,374,278 7,831,257
============= ============= =============
See notes to financial statements
F-4
GENESYS S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, except share data)
(all amounts have been translated from the prior reporting currency, French
franc,
to euro, using the December 31, 1998 fixed rate)
Retained Accumulated Share-
Ordinary Shares Additional Earnings Other holders'
----------------------- Paid-in Treasury (Accumulated Comprehensive Equity
Shares Amount Capital shares Deficit) Income (Loss) (Deficit)
--------- ------------- ------------- ----------- -------------- ------------- --------------
Balance at January 1,
1998................... 3,643,002 (Euro) 16,661 (Euro) 28 (Euro) -- (Euro) (1,319) (Euro) (12) (Euro) 15,358
Issuance of ordinary
shares at FF 65.00
((Euro) 9.91) per
share, net of offering
expenses............... 2,400,000 10,976 11,347 -- -- -- 22,323
Components of
comprehensive loss:
Net loss............... -- -- -- -- (1,637) -- (1,637)
Unrealized gains on
investments........... -- -- -- -- -- 38 38
Foreign currency
translation........... -- -- -- -- -- (16) (16)
--------- ------------- ------------- ----------- -------------- ------------ --------------
Total comprehensive
income (loss).......... -- -- -- -- (1,637) 22 (1,615)
--------- ------------- ------------- ----------- -------------- ------------ --------------
Balance December 31,
1998................... 6,043,002 (Euro) 27,637 (Euro) 11,375 (Euro) -- (Euro) (2,956) (Euro) 10 (Euro) 36,066
Issuance of ordinary
shares at FF 72.31
((Euro) 11.02) per
share, net of offering
expenses............... 584,605 2,674 3,771 -- -- -- 6,445
Components of
comprehensive loss:
Net loss............... -- -- -- -- (3,838) -- (3,838)
Unrealized loss on
investments........... -- -- -- -- -- (24) (24)
Foreign currency
translation........... -- -- -- -- -- 2,685 2,685
--------- ------------- ------------- ----------- -------------- ------------ --------------
Total comprehensive
income (loss).......... -- -- -- -- (3,838) 2,661 (1,177)
--------- ------------- ------------- ----------- -------------- ------------ --------------
Balance December 31,
1999................... 6,627,607 (Euro) 30,311 (Euro) 15,146 (Euro) -- (Euro) (6,794) (Euro) 2,671 (Euro) 41,334
Issuance of ordinary
shares at prices
ranging from FF 283.01
((Euro) 43.14) to FF
396.03 ((Euro) 60.37)
per share, net of
offering expenses...... 2,714,774 12,684 78,800 -- -- -- 91,484
Conversion of capital
into euro and increase
in par value from
(Euro) 4.57
to (Euro) 5.00......... -- 3,717 (3,747) -- -- -- (30)
Purchase of treasury
stock.................. -- -- -- (149) -- -- (149)
Components of
comprehensive loss:
Net loss............... -- -- -- -- (5,972) -- (5,972)
Unrealized loss on
investments........... -- -- -- -- -- (43) (43)
Foreign currency
translation........... -- -- -- -- -- 1,489 1,489
--------- ------------- ------------- ----------- -------------- ------------ --------------
Total comprehensive
income (loss).......... -- -- -- -- (5,972) 1,446 (4,526)
--------- ------------- ------------- ----------- -------------- ------------ --------------
Balance December 31,
2000................... 9,342,381 (Euro) 46,712 (Euro) 90,199 (Euro) (149) (Euro) (12,766) (Euro) 4,117 (Euro) 128,113
========= ============= ============= =========== ============== ============ ==============
See notes to financial statements
F-5
GENESYS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(all amounts have been translated from the prior reporting currency, French
franc, to euro, using the December 31, 1998 fixed rate)
Years ended December 31,
-------------------------------------------
1998 1999 2000
------------- ------------- -------------
Cash flows from operating
activities:
Net loss......................... (Euro) (1,637) (Euro) (3,838) (Euro) (5,972)
Adjustments to reconcile net loss
to net cash provided by (used
in) operating activities:
Depreciation and amortization... 1,678 4,023 7,474
Amortization of goodwill and
other intangibles.............. 1,396 3,216 7,015
Amortization of deferred
financing costs and debt
issuance discount.............. -- 347 437
Allowance for bad debts......... 96 604 297
Loss on disposal of assets...... 479 154 49
Deferred taxes.................. (175) 73 378
Equity in loss of affiliated
company........................ -- 15 75
Changes in unrealized gains
(losses) on investments........ 38 (24) (43)
Changes in operating assets and
liabilities, net of effects of
acquisition of businesses:
(Increase) in accounts
receivable..................... (1,621) (5,852) (3,614)
Decrease in inventory........... 9 25 169
(Increase) in prepaid expenses.. (274) (521) (344)
Decrease (increase) in other
assets......................... (92) 1,650 (1,843)
(Increase) in intangibles....... (78) (15) --
Increase in accounts payable and
accrued liabilities............ 634 1,891 2,364
Increase in accrued
compensation................... 161 590 2,569
Increase (decrease) in accrued
taxes.......................... (240) 1,161 1,861
(Decrease) in deferred revenue.. (190) (203) (740)
Increase (decrease) in other
liabilities.................... (212) 649 (830)
------------- ------------- -------------
Net cash provided by (used in)
operating activities............ (28) 3,945 9,302
============= ============= =============
Cash flows from investing
activities:
Acquisition of customer list..... -- -- (4,470)
Acquisitions of businesses, net
of cash acquired................ (2,091) (53,124) (7,498)
Acquisition of furniture and
equipment....................... (3,848) (7,465) (10,593)
Proceeds from sales of furniture
and equipment................... 7 18 119
Issuance of promissory notes..... -- -- (5,793)
------------- ------------- -------------
Net cash used in investing
activities...................... (5,932) (60,571) (28,235)
============= ============= =============
Cash flows from financing
activities:
Increase (decrease) in bank
overdrafts...................... (32) 480 1,099
Net proceeds from issuance of
convertible bonds............... -- 25,000 --
Net proceeds from issuance of
common stock.................... 22,324 -- 55,206
Purchase of treasury stock....... -- -- (149)
Proceeds from the issuance of
long-term debt.................. 391 33,352 5,376
Principal payments on long-term
debt............................ (4,215) (7,059) (7,971)
Deferred financing costs......... -- (1,256) --
------------- ------------- -------------
Net cash provided by financing
activities...................... 18,468 50,517 53,561
============= ============= =============
Effect of foreign exchange rate
changes on cash and cash
equivalents..................... (325) 450 1,343
Increase (decrease) in cash and
cash equivalents................ 12,183 (5,659) 35,951
Cash and cash equivalents,
beginning of period............. 7,230 19,413 13,754
------------- ------------- -------------
Cash and cash equivalents, end of
period.......................... (Euro) 19,413 (Euro) 13,754 (Euro) 49,705
============= ============= =============
Supplemental disclosures of cash
flow information:
Interest paid................... (Euro) 255 (Euro) 382 (Euro) 3,472
Income taxes paid............... 983 809 1,677
Non-cash investing and financing
transactions:
Fixed assets acquired under
capital leases................. (Euro) 323 (Euro) 15 (Euro) 397
Issuance of common stock in
connection with acquisitions... -- 6,444 22,429
Acquisition of businesses:
Assets acquired................. (Euro) 2,147 (Euro) 68,365 (Euro) 28,818
Liabilities assumed and issued.. (20) (5,634) (2,648)
Common stock issued............. -- (6,444) (22,435)
Acquisition costs incurred in
connection with probable
acquisitions................... -- -- 2,914
Cash paid in connection with
previous periods acquisitions.. -- -- 1,876
Cash to be paid in the following
period......................... -- (1,876) (920)
------------- ------------- -------------
Cash paid....................... 2,127 54,411 7,605
Less cash acquired.............. (36) (1,287) (107)
------------- ------------- -------------
Net cash paid for acquisitions
of businesses.................. (Euro) 2,091 (Euro) 53,124 (Euro) 7,498
============= ============= =============
See notes to financial statements
F-6
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and when indicated)
Note 1. Organization and business
Genesys S.A., together with its subsidiaries ("the Company"), is a limited
liability company organized under the laws of France.
The Company is a telecommunications service provider specializing in
teleconferencing services. It offers to its customers an extensive range of
teleconferencing services, including telephone meetings, data-conferencing and
videoconferencing.
Note 2. Summary of significant accounting policies
Basis of presentation
The accompanying consolidated financial statements were prepared in
accordance with generally accepted accounting principles in the United States.
As a publicly traded company on the Nouveau Marche of Euronext Paris since
October 1998, the Company publishes consolidated financial statements that have
been prepared in accordance with generally accepted accounting principles in
France which differ in certain respects from generally accepted accounting
principles in the United States.
The main consolidation principles are as follows:
. Companies which are wholly owned or which the Company controls are
consolidated;
. Companies over which the Company exercises significant influence but
does not control are accounted for under the equity method of
accounting;
. All significant inter-company transactions and balances are eliminated.
The following companies have been consolidated:
Interest and
Name Location control
---- ------------------------------ --------------
Fully consolidated companies:
Genesys S.A..................... Montpellier, France Parent company
Genesys Conferencing A.B........ Stockholm, Sweden 100%
Genesys Conferencing S.A........ Brussels, Belgium 100%
Genesys Conferencing Ltd........ Thatcham, England 100%
Darome Teleconferencing GmbH.... Berlin, Germany 100%
Genesys Conferencing Pte Ltd.... Singapore 100%
Genesys Conferencing Pty Ltd.,
formerly Confertel Pty Ltd. ... Melbourne, Australia 100%
Genesys Conferencing Ltd........ Hong Kong 100%
Genesys Conferencing, Inc....... Denver, USA 100%
Cote & Com, SARL................ Vincennes, France 100%
EBCS, SARL...................... Cachan, France 100%
Axone, SARL..................... Cachan, France 100%
Mediactiv, S.A.................. Saint Fort sur Gironde, France 100%
Medlive, SARL................... Saint Fort sur Gironde, France 100%
Telechoice, GmbH................ Rodermark, Germany 100%
Eureka, GmbH.................... Rodermark, Germany 100%
Affiliates accounted for under
the equity method:
Genesys Conferencing Iberia..... Madrid, Spain 20%
F-7
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
Use of estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and the accompanying notes. Actual
results could differ from these estimates.
Translation of financial statements of foreign subsidiaries
Prior to January 1, 2000, the reporting and the functional currency was the
French franc. The consolidated financial statements for all years have been
translated from French francs into euro equivalents using the fixed rate of FF
6.55957 per euro as of December 31, 1998. Comparative financial statements
reported in euros depict the same trends as would have been presented if the
Company had continued to present financial statements in French francs.
Financial statements for periods prior to January 1, 2000 will not be
comparable to the financial statements of other companies that report in euro
which previously reported in currencies other than French franc. The functional
currency of each subsidiary is the local currency. In accordance with Statement
of Financial Accounting Standard No. 52, assets and liabilities of the Company
and its subsidiaries with functional currencies other than the French Franc are
translated into French Franc equivalents at the rate of exchange in effect on
the balance sheet date. Revenues and expenses are translated at the average
exchange rates for the year. Foreign Currency translation gains or losses are
recorded as a separate component of shareholders' equity.
Due to the number of currencies involved, the constant change in currency
exposures, and the substantial volatility of currency exchange rates, the
effect of exchange rate fluctuations upon future operating results could be
significant.
Transactions in foreign currencies
At year end, foreign currency denominated balances are translated using
closing rates of exchange. In accordance with FASB Statement No 52, unrealized
gains and losses are recognized in income for the period unless the supporting
transactions hedge a foreign currency commitment or a net investment in a
foreign entity.
Revenue recognition
The Company generally recognizes revenue upon completion of conferencing
services or at the time of shipment of equipment, assuming that persuasive
evidence of an arrangement exists, the sales price is fixed or determinable and
collectibility is probable, unless the Company has future obligations for
installation or has to obtain customer acceptance, in which case revenue is
deferred until these obligations are met. Amounts billed in excess of revenue
recognized are included as deferred revenue in the accompanying consolidated
balance sheets.
Cost of services
Cost of services consists principally of telephony costs, equipment product
costs, operator and operations management salaries and office expenses for
operations staff and depreciation on teleconferencing bridges and
telecommunications equipment.
Reclassifications
Certain reclassifications have been made in prior years' financial
statements to conform to classification used in the current year. Beginning
fiscal year 2000, certain company expenses have been presented using more
accurate allocation keys. Such reclassification had no impact on reported net
earnings, earnings per share or shareholders' equity.
F-8
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
Cash and cash equivalents
The Company considers all highly liquid investments with insignificant
interest rate risk and purchased with an original maturity of three months or
less from the date of purchase to be cash equivalents. Management determines
the appropriate classification of its cash equivalents and investment
securities at the time of purchase and reevaluates its determination as of each
balance sheet date. Management has classified the Company's marketable
securities as available-for-sale securities within cash and cash equivalents in
the accompanying consolidated financial statements. Unrealized gains and losses
on such securities are recorded as a component of comprehensive income.
Inventories
Video and audio equipment inventories are stated at the lower of cost or
market, on a first-in, first-out ("FIFO") basis.
Goodwill
Goodwill and identifiable intangible assets, which consisted of assembled
workforce and customer relationships, result from the excess of the purchase
price over the fair value of net tangible assets of businesses acquired.
Goodwill and other intangible assets are being amortized on a straight-line
basis over the following periods: 4 to 5 years for assembled workforce, 5 to 10
years for customer relationships and 20 years (audio and video
teleconferencing) or 5 years (data and web conferencing) for goodwill, which
represent their estimated useful lives. The Company measures impairment of
goodwill and other intangible assets by considering a number of factors as of
each balance sheet date including (i) current operating results of the
applicable Acquired Companies, (ii) projected future operating results of the
applicable acquired companies, and (iii) any other material event or
circumstance that indicates the carrying amount of the assets may not be
recoverable. Recoverability of goodwill and other intangible assets is measured
by a comparison of the carrying amount of the asset to future undiscounted net
cash flows expected to be generated by the acquired company. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets.
Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Property and equipment are depreciated using the straight-line method over
estimated useful lives of the assets. The following table shows estimated
useful lives of property and equipment:
Telecommunications equipment................................. 5 years
Fixtures and fittings........................................ 5 to 10 years
Office and computer equipment................................ 3 to 5 years
Furniture.................................................... 5 to 10 years
Buildings.................................................... 25 years
Impairment of long-lived assets
In accordance with the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", the Company
F-9
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
reviews long-lived assets, including property and equipment, for impairment
whenever events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable. The lowest level at which
the Company assesses and measures impairment is the country level. Under SFAS
121, an impairment loss would be recognized when estimated undiscounted future
cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. Impairment, if any, is assessed
using discounted cash flows. Through December 31, 2000, there have been no
impairment losses.
Research and development
The Company maintains engineering departments that, in part, develop
features and products for group communications. The Company charges to expense
when incurred that portion of the costs of these departments which relates to
research and development activities. The remaining costs of these departments
are charged to general and administrative expense.
In 2000, research and development expenses amounted to (Euro) 2,613, which
represents 2.8% of total revenue. Expenses relating to software and information
system network development classified as general and administrative expenses
amounted in 2000 to (Euro) 2,555, which represents 2.7% of total revenue.
Computer software costs
In accordance with Statement of Position 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal use", the company
capitalizes certain costs related to internal use software once specific
criteria have been met.
Deferred financing costs
Costs to obtain debt financing are capitalized and amortized over the life
of the related debt using the effective interest method.
Income taxes
In accordance with Financial Accounting Standards Board Statement No. 109,
the Company provides for deferred taxes using the liability method of
accounting. Under this method, deferred tax assets and liabilities are
determined based on the temporary differences arising between the tax bases of
assets and liabilities and their financial reporting amounts, based on enacted
tax laws and statutory tax rates applicable to the periods in which the
differences are expected to reverse. A valuation allowance is recognized if, on
the weight of available evidence, it is more likely than not that some portion
or all of the deferred tax asset will not be realized.
Stock options
The Company accounts for stock options granted to employees in accordance
with the provisions of Accounting Principles Board Statement No. 25 "Accounting
for Stock issued to Employees". Under APB 25, no compensation expense is
recognized for stock options issued to employees with an exercise price equal
to the deemed fair value of the underlying shares. Stock options issued with an
exercise price less than the deemed fair value result in deferred compensation
which is amortized to expense over the vesting period. No such deferred
compensation was recorded by the Company.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation", provides an alternative to APB 25 in accounting for stock-
based compensation issued to employees using the fair value based method.
Companies can elect to continue to apply the provisions of APB 25 but are
required by SFAS 123 to disclose the pro forma effect on net income and net
income per share as if the fair value basis method had been applied.
F-10
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
The Company has elected to continue to apply APB 25 and presents the pro
forma disclosure required by SFAS 123 in Note 11 to these notes to consolidated
financial statements.
Comprehensive income (loss)
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". SFAS 130 establishes new
rules for the reporting and display of comprehensive income (loss) and its
components. The Company's other comprehensive income (loss), as set forth in
the accompanying consolidated statements of shareholders' equity, includes net
loss, unrealized gains and losses on investments and cumulative foreign
currency translation adjustments.
Net earnings per share
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share" basic and diluted earnings per share have been presented.
Basic earnings per share exclude the dilutive effects of options and reflect
only the actual ordinary shares outstanding. Diluted earnings per share include
the dilutive effects of options as if they had been exercised. Because the
potentially issuable shares from the exercise of stock options would be
antidilutive, there are no differences between basic and diluted net loss per
share for the Company through December 31, 2000.
The Company executed a twenty-seven-for-one stock split in December 1997 and
a two-for-one stock split in August 1998. All share data in the consolidated
financial statements and accompanying notes have been adjusted to reflect these
stock splits.
Segment reporting
Management has reviewed Statement of Financial Accounting Standards No. 131
"Disclosures About Segments of an Enterprise and Related Information" and
considered the way its operations are currently organized. Management has
concluded that the Company operates currently in three regional segments
(Europe, United States and Asia-Pacific) as management internally evaluates and
reports the performance of the Company on the basis of these separate 3
business units.
Advertising expense
The cost of advertising is expensed as incurred. The Company's advertising
costs for the years ended December 31, 1998, 1999 and 2000 were (Euro) 563,
(Euro) 925 and (Euro) 2,810, respectively.
Concentration of risk
Financial instruments that potentially subject the Company to concentrations
of credit risk primarily consist of cash equivalents and trade receivables.
The Company has cash investment policies that limit investments to short-
term low-risk instruments. The Company's cash is held primarily in Euros and
U.S. dollars and concentrated mainly in 4 banks in France, the United Kingdom,
the United States and Belgium.
The Company sells its services and products to customers in a variety of
countries in Europe, United States and Asia-Pacific. The Company performs
ongoing credit evaluations of its customers and maintains
F-11
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
allowances for potential credit losses. To date, such losses have been within
management's expectations. A summary of the activity in the allowance for
doubtful accounts is as follows:
Years ended December 31,
--------------------------------------
1998 1999 2000
---------- ------------ ------------
Allowance balance at January 1...... (Euro) 56 (Euro) 152 (Euro) 1,235
Amounts charged to expense.......... 103 798 676
Amounts written off................. (7) (82) (525)
Net assets acquired................. -- 367 45
---------- ------------ ------------
Allowance balance at December 31.... (Euro) 152 (Euro) 1,235 (Euro) 1,431
========== ============ ============
For all periods presented, no customer represented revenues in excess of 10%
of the Company's total consolidated revenues.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standard Board issued Statement No.
133, "Accounting for the Derivative Instruments and Hedging Activities". The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. This statement is effective for fiscal years beginning
after June 15, 2000, and will be adopted by the Company for the year ending
December 31, 2001. Because of the Company's minimal use of derivative
instruments. management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements". The
bulletin summarizes some of the Commission's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company has evaluated SAB 101 and it believes that its current revenue
recognition complies with the bulletin.
In March 2000, the Emerging Issues Task Force reached a consensus on Issue
00-2, "Accounting for the Costs of Developing a Web Site". In general, EITF 00-
2 states that the costs of developing a web site should be accounted for under
provisions of Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." EITF 00-2 was adopted by the
Company for costs incurred after June 30, 2000.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 "Accounting for Certain Transactions involving Stock
Compensation". FIN 44 provides guidance for certain issues arising in the
application of APB Opinion No. 25 "Accounting for Stock Issued to Employees".
The Company adopted this interpretation at July 1, 2000.
Note 3. Acquisitions
All acquisitions made by the Company have been accounted for under the
purchase method of accounting. The results of operations of the acquired
businesses are included in the consolidated financial statements from the dates
of acquisition.
On September 30, 1997, the Company acquired all of the issued and
outstanding stock of Darome Teleconferencing Ltd. ("Darome Ltd."), a British
teleconferencing company specializing in operator assisted
F-12
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
services. The total purchase price was (Euro) 23,852 and consisted of
(Euro) 23,404 (GBP 16,000) in cash and (Euro) 448 of acquisition costs. The
total purchase price was allocated as follows:
Working capital............................................. (Euro) 2,750
Property & equipment, net................................... 1,451
Goodwill and other intangible assets........................ 19,720
Other assets................................................ 4
Long-term liabilities....................................... (73)
-------------
(Euro) 23,852
=============
The purchase price exceeded the fair value of net tangible assets acquired
by (Euro) 19,720. The excess was allocated to goodwill for (Euro) 13,996,
amortized over 20 years, assembled workforce for (Euro) 468, amortized over 5
years, and customer relationships for (Euro) 5,256, amortized over 10 years.
On June 22, 1998, the Company acquired all of the issued and outstanding
stock of Confertel Pty, an Australian teleconferencing company. The total
purchase price was (Euro) 627 and consisted of (Euro) 584 (AUD 1,060) in cash
and (Euro) 43 of acquisition costs. The total purchase price was allocated as
follows:
Working capital................................................. (Euro) 125
Property & equipment, net....................................... 18
Goodwill........................................................ 483
Other assets.................................................... 1
----------
(Euro) 627
==========
The purchase price exceeded the fair value of net tangible assets acquired
by (Euro) 483. The excess was allocated to goodwill and is being amortized over
20 years.
On August 13, 1998, the Company acquired all of the issued and outstanding
stock of US Telemanagement Group, Inc. ("UST"), doing business as Summons
Conferencing, an American teleconferencing company specializing in internet
services. The total purchase price was (Euro) 1,409 and consisted of
(Euro) 1,386 (U.S.$ 1,550) in cash and (Euro) 23 of acquisition costs. The
purchase price exceeded the fair value of the net tangible assets acquired by
(Euro) 1,407. The excess was allocated to goodwill and is being amortized over
20 years.
On April 1, 1999, Genesys Conferencing, Inc. ("GCI"), a wholly-owned
subsidiary of the Company, acquired substantially all of the assets of Aloha
Conferencing Inc., an American teleconferencing company. The total purchase
price was (Euro) 14,104 and consisted of (Euro) 13,684 (U.S.$ 14,925) in cash
and (Euro) 421 of acquisition costs. The total purchase price was allocated as
follows:
Working capital.............................................. (Euro) 727
Property & equipment, net.................................... 584
Goodwill and other intangible assets......................... 12,710
Other assets................................................. 83
-------------
(Euro) 14,104
=============
F-13
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
The purchase price exceeded the fair value of the net tangible assets
acquired by (Euro) 12,710. The excess was allocated to goodwill for
(Euro) 10,822, amortized over 20 years, assembled workforce for (Euro) 629,
amortized over 5 years, and customer relationships for (Euro) 1,259, amortized
over 10 years.
On April 13, 1999, the Company acquired all of the issued and outstanding
stock of VideoWeb Ltd., a British videoconferencing company. The total
purchase price was (Euro) 10,082 and consisted of (Euro) 3,425 (GBP 2,300) in
cash, 584,605 shares of Genesys S.A. with a fair market value of (Euro) 6,444
at the time of issuance and (Euro) 213 of acquisition costs. The total
purchase price was allocated as follows:
Working capital............................................. (Euro) 28
Property & equipment, net................................... 888
Goodwill and other intangible assets........................ 10,072
Other assets................................................ 32
Long-term liabilities....................................... (948)
-------------
(Euro) 10,082
=============
The purchase price exceeded the fair value of the net tangible assets
acquired by (Euro) 10,072. The excess was allocated to goodwill for
(Euro) 8,622, amortized over 20 years, assembled workforce for (Euro) 233,
amortized over 5 years, and customer relationships for (Euro) 1,217, amortized
over 10 years.
On July 31, 1999, the Company acquired Conferencing Acquisition Corporation
("CAC"), a subsidiary of Williams Inc., an American teleconferencing company.
CAC was an entity established by Williams, Inc. for purposes of effecting the
acquisition of certain assets and liabilities of Williams Conferencing by
Genesys. The total purchase price was (Euro) 37,428 and consisted of
(Euro) 35,964 (U.S.$ 38,452) in cash and (Euro) 1,464 of acquisition costs.
The total purchase price was allocated as follows:
Working capital............................................. (Euro) 3,033
Property & equipment, net................................... 5,900
Goodwill and other intangible assets........................ 27,374
Other assets................................................ 1,197
Long-term liabilities....................................... (76)
-------------
(Euro) 37,428
=============
The purchase price exceeded the fair value of net tangible assets acquired
by (Euro) 27,374. The excess was allocated to goodwill for (Euro) 23,717,
amortized over 20 years, assembled workforce for (Euro) 1,219, amortized over
5 years, and customer relationships for (Euro) 2,438, amortized over 10 years.
On November 2, 1999, UST and CAC merged into GCI.
On January 1, 2000, VideoWeb Ltd merged into Genesys Conferencing Ltd
(formerly "Darome Ltd").
In April 2000, the Company acquired the audio and video conferencing
activities of Cable & Wireless Communications. The transaction amounted to GBP
3,436 ((Euro) 5.7 million). This investment has been recorded in intangible
assets as customer relationships and is being amortized over 10 years.
On June 6, 2000, the Company acquired 3,999 of the 4,000 issued and
outstanding shares of Mediactiv, a French company specializing in the
organization of medical conferences on the Internet. The total purchase
F-14
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
price was (Euro) 1,856 and consisted of 30,289 shares of Genesys S.A. with a
fair market value of (Euro) 1,829 at the time of issuance and (Euro) 27 of
acquisition costs. The purchase price exceeded the fair value of the net
tangible assets acquired by (Euro) 1,762. The excess was allocated to goodwill
and is being amortized over 5 years.
On June 6, 2000, as part of the same business acquisition described above,
the Company acquired 499 of all 500 shares of the issued and outstanding shares
of MedLive, a French holding company. The total purchase price was (Euro) 905
and consisted of (Euro) 586 in cash and 5,288 shares of Genesys S.A. with a
fair market value of (Euro) 319 at the time of issuance. The purchase price
exceeded the fair value of the net tangible assets acquired by (Euro) 901. The
excess was allocated to goodwill and is being amortized over 5 years.
On July 31, 2000, the Company acquired all of the issued and outstanding
stock of Cote&Com, a French company specializing in live webcast of financial
presentation, for 31,044 shares of Genesys S.A. with a fair market value of
(Euro) 1,426 at the time of issuance. The purchase price exceeded the fair
value of the net tangible assets acquired by (Euro) 1,510. The excess was
allocated to goodwill and is being amortized over 5 years.
On July 31, 2000, the Company acquired all of the issued and outstanding
stock of EBCS ("Languages Virtuels"), a French company specializing in
multimedia web-streaming and rich media on the Internet, for 155,500 ordinary
shares of Genesys S.A. with a fair market value of (Euro) 6,709 at the time of
issuance. The purchase price exceeded the fair value of the net tangible assets
acquired by (Euro) 6,587. The excess was allocated to goodwill and is being
amortized over 5 years.
On July 31, 2000, as part of the same business acquisition, the Company also
acquired all of the issued and outstanding stock of Axone, a company
specializing in web events, for 150,000 ordinary shares of Genesys S.A. with a
fair market value of (Euro) 6,471 at the time of issuance. The purchase price
exceeded the fair value of the net tangible assets acquired by (Euro) 6,570.
The excess was allocated to goodwill and is being amortized over 5 years.
On July 31, 2000, the Company also acquired the audio and video conferencing
activities of Telcen, an Australian teleconferencing company, for AUD 1,400
((Euro) 894) in cash. The purchase price exceeded the fair value of the net
tangible assets acquired by (Euro) 793. The excess was allocated to goodwill
and is being amortized over 20 years. Telecen activities were subsequently
contributed to Genesys Conferencing Pty Ltd.
On September 20, 2000, the Company acquired all of the issued and
outstanding stock of Telechoice Deutschland GmbH, a German company engaged in
offering services and trading products in the area of telecommunications, and
Eureka Global Teleconferencing Service GmbH, a German Company specializing in
audio-, video- and data conferencing, for 124,597 ordinary shares of Genesys
S.A. with a fair market value of (Euro) 5,675 at the time of the purchase
agreement, and DEM 2,100 ((Euro) 1,074) in cash. The purchase price exceeded
the fair value of the net tangible assets acquired by (Euro) 7,268. The excess
was allocated to goodwill and is being amortized over 20 years. A contractual
additional amount ((Euro) 920) was recorded as goodwill in December 2000.
The Company announced on October 2, 2000 an agreement to acquire Vialog
Corporation (Bedford, Massachusetts), an American company listed on the
American Stock Exchange. As part of the transaction, the Company intends to
apply for listing on the Nasdaq stock market of American Depositary Shares
(ADSs) representing its underlying ordinary shares. The acquisition agreement
provided that Vialog shareholders would receive the ADS equivalent of 0.2563 of
a Company's ordinary share in exchange for each share of Vialog common stock,
subject to a "collar" which provided that the Vialog shareholders could receive
the ADSs equivalent of between 0.2183 of the Company's ordinary shares and
0.3352 of the Company's ordinary shares for each Vialog share depending on the
Company's share price at closing. The closing of the acquisition was subject to
the approval of Vialog shareholders, the approval of the issuance of the new
Company's shares
F-15
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
underlying the ADSs by the Company's shareholders, the satisfaction of various
regulatory requirements, the listing of the ADSs on the Nasdaq stock market and
other customary closing conditions. Pursuant to the merger agreement, the
Company was expected to arrange for Vialog to refinance its existing U.S.$ 90.0
million debt (equivalent to (Euro) 95.9 million) as a condition to the closing
of the transaction.
On September 19, 2000, the Company bought a U.S.$ 2.5 million (equivalent to
(Euro) 2.8 million) convertible promissory note from Astound Incorporated, a
Canadian corporation providing services in Web conferencing and data
collaboration. During November 2000, the Company purchased an additional U.S.$
2.5 million (equivalent to (Euro) 2.8 million) convertible note from Astound.
The notes are convertible into Astound's ordinary shares representing
approximately 6.3% of the capital of Astound Incorporated on a fully diluted
basis.
On December 18, 2000, the Company entered into an agreement to acquire all
of the outstanding stock and other securities of Astound it did not own at that
date. The acquisition agreement provided that Astound shareholders would
receive shares exchangeable into 1.0 million Genesys ordinary shares and U.S.$
7.0 million in cash, subject to certain adjustments. In addition to the
purchase price, Genesys has agreed to pay Astound shareholders U.S.$ 6,292
(equivalent to (Euro) 6,702) at closing, which represented U.S.$ 5,192
(equivalent to (Euro) 5,530) of proceeds to be received by Astound shortly
before closing upon the exercise of outstanding warrants and U.S.$ 1,100
(equivalent to (Euro) 1,172) of proceeds that would be received if outstanding
employee held options are exercised in the future. Under the agreement with
Astound, the number of shares to be issued by Genesys will be reduced if the
average closing price of its shares for a period of 10 trading days ending 3
days prior to the closing is greater than (Euro) 80, and the cash portion of
the price will be increased if the average price is between (Euro) 35 and
(Euro) 39. In addition, Genesys will be entering into employment agreements
with 11 key employees of Astound and granting options to acquire a total of
approximately 225,700 Genesys shares to these employees and the founder of
Astound. The acquisition of Astound is subject to the approval by Astound's
shareholders of a plan of arrangement, which has to be reviewed by a court in
Toronto under Canadian law, approval by Genesys shareholders of the issuance of
mandatorily convertible bonds to the Genesys affiliates that will issue the
exchangeable shares, and other customary conditions such as regulatory
approvals. The Company has agreed with Astound to obtain its shareholders'
approval prior to March 31, 2001.
Pro forma information (unaudited)
The unaudited pro forma consolidated historical results for the years ended
December 31, 1998 and 1999 below present the combined results of operations of
the Company assuming that the acquisitions of Confertel Pty, UST, VideoWeb
Ltd., Aloha Conferencing Inc. and CAC took place at the beginning of 1998.
Years ended December 31,
-----------------------------------
1998 1999
-------------- --------------
Net revenues................................ (Euro) 51,919 (Euro) 65,648
Net loss.................................... (13,955) (12,492)
Net loss per share.......................... (Euro) (2.91) (Euro) (2.84)
The pro forma results include amortization of the goodwill and other
intangible assets described above and interest expense on debt assumed to be
issued to finance the acquisitions. The pro forma results are not necessarily
indicative of the results that would have been obtained had these events
actually occurred at the beginning of the periods presented, nor are they
necessarily indicative of future consolidated results.
F-16
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
Note 4. Cash equivalents
The following is a summary of available-for-sale securities:
December 31,
----------------------------------------
1998 1999 2000
------------- ------------ -------------
Cash equivalents:
Money market funds................... (Euro) 9,708 (Euro) 2,776 (Euro) 3,096
Term deposits........................ 7,013 -- 39,062
------------- ------------ -------------
(Euro) 16,721 (Euro) 2,776 (Euro) 42,158
============= ============ =============
Unrealized holding gains on available-for-sale securities at December 31,
1998 and 1999 were (Euro) 54 and (Euro) 30, respectively. At December 31, 2000,
there is no material unrealized holding gains on available-for-sale securities.
Note 5. Property and equipment
Property and equipment consist of the following:
December 31,
--------------------------------------------
1998 1999 2000
------------- ------------- --------------
Telecommunications equipment..... (Euro) 5,856 (Euro) 16,814 (Euro) 23,522
Office and computer equipment.... 2,838 8,099 11,913
Leasehold improvements........... 391 1,252 2,128
Construction in process.......... 8 684 281
------------- ------------- --------------
9,093 26,849 37,844
Less accumulated depreciation.... (3,570) (7,945) (15,369)
------------- ------------- --------------
(Euro) 5,523 (Euro) 18,904 (Euro) 22,475
============= ============= ==============
The Company leases certain of its equipment under capital leases. The cost
of such equipment included in property and equipment was (Euro) 895, (Euro) 962
and (Euro) 1,649 at December 31, 1998, 1999 and 2000, respectively. Accumulated
amortization of this equipment was (Euro) 419, (Euro) 610 and (Euro) 1,115 at
December 31, 1998, 1999 and 2000, respectively.
Note 6. Goodwill and other intangible assets
Goodwill and other intangible assets consist of the following:
December 31,
--------------------------------------------
1998 1999 2000
------------- ------------- --------------
Goodwill........................ (Euro) 16,090 (Euro) 61,600 (Euro) 91,458
Customer relationships.......... 5,332 10,431 16,383
Assembled workforce............. 469 2,643 2,797
Costs incurred in connection
with probable acquisitions..... -- -- 1,682
Licenses........................ 22 71 44
------------- ------------- --------------
21,913 74,745 112,364
Less accumulated amortization... (1,696) (4,925) (12,106)
------------- ------------- --------------
(Euro) 20,217 (Euro) 69,820 (Euro) 100,258
============= ============= ==============
F-17
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
The costs incurred during the year 2000 that relate to probable acquisition
of the companies Vialog and Astound were recorded as other intangible assets
for (Euro) 1,682 at December 31, 2000. Depreciation will start at acquisition
date.
Note 7. Short-term credit facilities
Borrowings under short-term facilities represent overdraft positions on the
Company's bank accounts. Such borrowings bear interest at 6.1% at December 31,
2000. The weighted average interest rate for the Company was 9.4% for 1998,
7.3% for 1999 and 5.4% for 2000. The short-term facilities provide for a
maximum amount of borrowings of (Euro) 3.6 million as of December 31, 2000.
Note 8. Long-term debt
Long-term debt consists of the following:
December 31,
------------------------------------------
1998 1999 2000
------------ ------------- -------------
Term loans, variable rate.......... (Euro) 6,245 (Euro) 36,098 (Euro) 38,601
3% Convertible notes, net of non
amortized discount of (Euro) 2,761
in 1999 and (Euro) 659 in 2000.... -- 25,242 11,326
British Pound (GBP) denominated
loan.............................. 2,835 1,930 642
Interest free loan from ANVAR,
payable in installments through
September, 2002................... 557 496 254
Capital lease obligations.......... 421 1,071 885
------------ ------------- -------------
Total long-term debt............... 10,059 64,837 51,708
Less current portion............... (2,677) (2,781) (7,285)
------------ ------------- -------------
Long-term debt, less current
portion........................... (Euro) 7,382 (Euro) 62,056 (Euro) 44,423
============ ============= =============
On July 16, 1999, the Company entered into a new credit agreement ("bridge
loan") in order to partially finance the acquisition of CAC. This agreement
provides for a U.S.$ 35 million term loan ((Euro) 34.3 million), which bears
interest at Libor 1 month plus 1.5% and was to be repaid in 6 semi-annual
installments starting in September 2001. The loan contained certain affirmative
and negative covenants. The shares of GCI and Genesys Conferencing Ltd. had
been pledged to secure this loan. The assets of Genesys S.A. had been secured
by its banks in the amount of (Euro) 720 as collateral for the loan issued. The
average interest rate for the loan was 7.8% in 2000 and 7.2% in 1999.
On August 11, 2000, the Company refinanced the bridge loan with a $ 35.0
million multi-currency term loan, which bears interest at Libor 1 month plus
2.0%. The other terms and conditions of the loan (repayment schedule,
covenants, pledge and security) have not been modified compared to the bridge
loan. The average interest rate for the loan was 8.6% in 2000. At December 31,
2000, the loan bears interest at 8.7%.
On April 12, 2000, the Company entered into a credit agreement in order to
partially finance the acquisition of the audio and video conferencing
activities of Cable & Wireless Communications. This agreement provides for a
GBP 3.3 million ((Euro) 5.5 million) term loan, which bears interest at 8.3%
(fixed rate). This loan was repaid on August 18, 2000.
The Company also entered into several other term loan agreements with
various financial institutions. The average interest rate was 4.8% for 1998,
4.2% for 1999 and 5.8% for 2000. At December 31, 2000, these loans bear
interest at an average interest rate of 5.6%. The loans contain certain
affirmative and negative covenants.
F-18
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
On August 6, 1999, the Company issued 1,524,390 3% convertible notes, each
with a principal amount of (Euro) 18.37, for (Euro) 16.40 each. Each note is
convertible into one share of common stock, and unless converted is due
September 1, 2004. The notes are callable at the Company's option. The original
issuance discount of (Euro) 3,003 is being amortized as additional interest
expense over the life of the notes. 851,056 notes were converted into shares of
common stock during the year 2000.
A GBP 4.0 million ((Euro) 5.8 million) denominated loan was entered into in
1997 in order to partially finance the acquisition of Darome Ltd. The loan
bears interest at Libor plus 0.75%. The amount outstanding is repayable in
equal quarterly installments through June 30, 2001. The loan contains certain
affirmative and negative covenants. The average interest rates for the GBP
denominated loan were 8.1%, 6.3% and 6.7% in 1997, 1998 and 1999 respectively.
At December 31, 2000, the loan bears interest at 6.7%.
The Company was granted an interest free loan for FF 2,666 ((Euro) 406) by
ANVAR (an agency of the French government) for a research program for the
development of videoconferencing services. The loan became due in 1999 as the
Company stopped the program after the acquisition of VideoWeb Ltd. in Europe
and CAC in the United States. The outstanding amount due at December 31, 2000
((Euro) 254) will be repaid over a period of 2 years.
Future repayments of long-term debt, excluding capital lease obligations,
are as follows:
2001.......................................................... (Euro) 6,781
2002.......................................................... 11,639
2003.......................................................... 13,383
2004.......................................................... 18,916
2005 and thereafter........................................... 102
Note 9. Fair value of financial instruments
At December 31, 2000, 1999 and 1998, the carrying values of current
financial instruments such as cash, accounts receivable and payable, other
receivables, accrued liabilities and the current portion of long-term debt
approximated their market values, based on the short-term maturities of these
instruments. At December 31, 1998, 1999 and 2000, the fair values and carrying
values of long-term debt obligations were:
1998 1999 2000
------------------------- --------------------------- ---------------------------
Carrying Carrying Carrying
Fair value value Fair value Value Fair value Value
------------ ------------ ------------- ------------- ------------- -------------
Long-term debt.......... (Euro) 7,266 (Euro) 7,382 (Euro) 84,248 (Euro) 62,056 (Euro) 53,373 (Euro) 40,270
Of which Convertible
notes.................. -- -- (Euro) 47,256 (Euro) 25,242 (Euro) 24,680 (Euro) 11,326
The fair value of long-term debt is estimated based on the quoted market
prices for the same or similar issues, or where quoted prices are not
available, on the present value of future cash flows discounted at borrowing
rates currently offered for debt with similar remaining maturities.
Note 10. Shareholders' equity
In September 1997, the Company issued 1,799,280 ordinary shares in a private
placement at a price of FF 55.60 (Euro) 8.48) per share for cash.
F-19
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
On December 31, 1997, the Company increased the amount of common stock by
(Euro) 16,014 by incorporation of retained earnings and additional paid-in
capital.
On October 6, 1998, the Company sold 2,400,000 ordinary shares on the
Nouveau Marche of Euronext Paris at a price of FF 65.00 ((Euro) 9.91) per
share. The cash proceeds from this Initial Public Offering were partially used
to finance acquisitions.
On July 6, 1999, the Company issued 584,605 shares at a price of FF 72.31
(equivalent to (Euro) 11.02) per share in exchange for all of the outstanding
shares of VideoWeb Ltd.
On June 6, 2000, in connection with the acquisition of Mediactiv and
Medlive, the Company issued 30,289 and 5,288 shares, respectively, at a price
of FF 396.03 ((Euro) 60.37) per share in exchange for shares of the acquired
companies.
On June 26, 2000, the Company closed an offering of 1,367,000 shares on the
Nouveau Marche of Euronext Paris at a price of (Euro) 39.82 per share. Each
share carries an equity warrant issued at a price of (Euro) 2.18; 2 warrants
will allow the holder to purchase one of the Company's ordinary shares at an
exercise price of (Euro) 54.00 up to the expiration date of June 27, 2003. The
net proceeds of the offering were approximately (Euro) 55.5 million.
On July 31, 2000, in connection with the acquisition of Cote&Com, EBCS
("Languages Virtuels") and Axone, the Company issued 31,044, 155,500 and
150,000 shares, respectively, at prices of FF 301.31 ((Euro) 45.93), FF 283.01
((Euro) 43.14) and FF 283.01 ((Euro) 43.14) per share, respectively, in
exchange for shares of the acquired companies.
On September 20, 2000, in connection with the acquisition of Telechoice
Deutschland GmbH and Eureka Global Teleconferencing Service GmbH, the Company
issued 124,597 shares at a price of FF 298.77 ((Euro) 45.54) per share in
exchange for shares of the acquired companies.
On September 29, 2000, the share capital was converted into euros.
Consequently, the share capital was increased by (Euro) 3,717 by withdrawal
from additional paid-in capital and the par value of the shares was increased
from (Euro) 4.57 (FF30.00) to (Euro) 5.00.
Stock repurchase program
In September 2000, the Board of Directors approved the implementation of a
share repurchase program whereby the Company may repurchase up to 683,088 of
its ordinary shares. At December 31, 2000, the Company held 2,905 shares for a
total cost of (Euro) 149.
Preemptive subscription rights
Shareholders have preemptive rights to subscribe on a pro rata basis for
additional shares issued by the Company for cash. Shareholders may waive their
preemptive subscription rights at an extraordinary general meeting of
shareholders under certain circumstances. Preemptive subscription rights, if
not previously waived, are transferable during the subscription period relating
to a particular offer of shares.
Dividend rights
The Company may distribute dividends out of its "distributable profits,"
plus any amounts held in its reserve which the shareholders decide to make
available for distribution, other than those reserves which are specifically
required by law or its by-laws. "Distributable profits" consist of its
statutory net profits in each fiscal year, as increased or reduced by any
profit or loss carried forward from prior years, less any contributions to the
reserve accounts pursuant to law or its by-laws.
F-20
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
The Company must allocate five percent of its statutory net profit for each
year to its legal reserve account before dividends may be paid with respect to
that year. Such allocation must be made until the amount in the legal reserve
is equal to 10 percent of the aggregate nominal value of the issued and
outstanding share capital. This restriction on the payment of dividends also
applies to each of the Company's French subsidiaries on a statutory basis. At
December 31, 2000, the Company's legal reserve was (Euro) 125. The legal
reserve may be distributed to shareholders only upon liquidation of the
Company.
Note 11. Employee stock option plans
1998 Stock Plan
On September 23, 1998, the Board of Directors approved the 1998 Stock Plan
("the 1998 plan") for grants of options for ordinary shares to directors,
officers and key employees. A total of 412,890 shares are authorized for
issuance under the 1998 plan. Stock options under the 1998 plan are granted at
prices equivalent to the offering price. Under the terms of the 1998 plan, the
options give the right to purchase one share per option. The options generally
vest at a rate of 20% by the first year anniversary ("tranche A"), 50% by the
third year anniversary ("tranche B") and the final 30% by the fourth year
anniversary ("tranche C"). Shares acquired upon the exercise of stock options
must be held for 3 years for tranche A options and 2 years for tranche B
options and tranche C options. The options expire eight years after the date of
grant. Ordinary shares attributable to awards which have expired, terminated or
been canceled or forfeited are available for issuance or use in connection with
future awards.
1999 Stock Plan
On September 15, 1999, the Board of Directors approved the 1999 Stock Plan
("the 1999 plan") for grants of options for ordinary shares to directors,
officers and key employees. A total of 301,483 shares are authorized for
issuance under the 1999 plan. Stock options under the 1999 plan are granted at
prices equivalent to the average market value of the Company's ordinary shares
calculated over the 20 trading sessions prior to the date of grant. The other
terms of the 1999 plan are identical to the 1998 plan.
2000 Stock Plan
On September 8, 2000, the Board of Directors of the Company approved the
2000 Stock Plan ("the 2000 plan") pursuant to the authorization given by the
shareholders' meeting held on June 6, 2000. A total of 550,000 shares are
authorized for issuance under the 2000 plan. Stock options under the 2000 plan
are granted at prices equivalent to the average market value of the Company's
ordinary shares calculated over the 20 trading sessions prior to the date of
grant. Under the terms of the 2000 plan, the options give the right to purchase
one share per option. The options generally vest at a rate of 20% by the first
year anniversary ("tranche A"), 50% by the third year anniversary ("tranche B")
and the final 30% by the fourth year anniversary ("tranche C"). Shares acquired
upon the exercise of stock options must be held for 3 years for tranche A
options and 2 years for tranche B options and tranche C options. Options expire
eight years after the date of grant. Ordinary shares attributable to awards
which have expired, terminated or been canceled or forfeited are available for
issuance or use in connection with future awards.
On September 8, 2000, the Board of Directors amended the existing 1998, 1999
and 2000 stock option plans with respect to the change of control clause that
stipulates that if an individual shareholder or a group of shareholders (acting
together) owns more than 25% of the Company's shares, accelerated vesting of
options will be possible, at discretion of the Board, and for certain
identified employees of the Company.
F-21
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
Stock option activity under the 1998, 1999 and 2000 plans was as follows:
Weighted Weighted
average average
Shares exercise exercise
available Options price price
for grant outstanding (in FF) (in (Euro))
--------- ----------- -------- -----------
Balance as of December 31, 1997.... -- -- -- --
Authorized......................... 412,890 -- -- --
Granted............................ (412,890) 412,890 65.00 9.91
-------- ------- ------ -----
Balance as of December 31, 1998.... -- 412,890 65.00 9.91
Authorized......................... 230,504 -- -- --
Granted............................ (251,483) 251,483 100.49 15.32
Canceled........................... 70,979 (70,979) 65.00 9.91
-------- ------- ------ -----
Balance as of December 31, 1999.... 50,000 593,394 80.04 12.20
-------- ------- ------ -----
Authorized......................... 512,458
--------
Granted............................ (335,500) 335,500 334.82 51.04
-------- ------- ------ -----
Canceled........................... 37,542 (37,542) 73.51 11.21
-------- ------- ------ -----
Balance as of December 31, 2000.... 264,500 891,352 176.22 26.86
-------- ------- ------ -----
The following table summarizes the status of stock options outstanding and
exercisable at December 31, 2000:
Options outstanding
----------------------------------------
Weighted-
average Options
remaining exercisable
Number contractual life Number
Range of exercise price outstanding (in years) exercisable
- ----------------------- ----------- ---------------- -----------
FF 65.00 ((Euro) 9.91)............... 313,369 5.8 62,674
FF 100.49 ((Euro) 15.32)............. 242,483 6.7 48,497
FF 330.73--FF 350.74 ((Euro) 50.42--
(Euro) 53.47)....................... 335,500 7.6 --
------- --- -------
891,352 6.7 111,171
======= === =======
Stock based compensation
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The
fair value of these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following assumptions:
1998 1999 2000
--------- --------- ---------
Expected dividend yield........................ 0% 0% 0%
Expected volatility............................ 0.750 0.525 0.913
Risk-free interest rate........................ 3.52% 4.68% 5.40%
Weighted average expected life................. 5.6 years 5.6 years 5.6 years
F-22
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows (in thousands of euros except for earnings
per share information):
Years ended December 31,
-------------------------------------------
1998 1999 2000
------------- ------------- -------------
Pro forma net loss................ (Euro) (1,898) (Euro) (4,731) (Euro) (9,410)
Pro forma net loss per common
share............................ (0.45) (0.74) (1.20)
The weighted average fair value of options granted during 1998, 1999 and
2000 was as follows:
Years ended December 31,
-------------------------------------------
1998 1999 2000
------------- ------------- -------------
Options whose price was less than
the market price of the
underlying shares on the grant
date............................. (Euro) 6.52 (Euro) 8.70 (Euro) 46.98
Options whose price was greater
than the market price of the
underlying shares on the grant
date............................. -- -- 39.93
Note 12. Income taxes
The components of the income tax (benefit) provision are as follows:
Years ended December 31,
-------------------------------------------
1998 1999 2000
------------- ------------- -------------
Current: (Euro) 468 (Euro) 1,180 (Euro) 3,326
- --Domestic........................ 4 4 1,152
- --Foreign......................... 464 1,176 2,174
Deferred: (175) 73 263
- --Domestic........................ (40) 84 (14)
- --Foreign......................... (135) (11) 277
------------- ------------- -------------
Net income tax provision.......... (Euro) 293 (Euro) 1,253 (Euro) 3,589
============= ============= =============
The provision for income taxes differs from the computed "expected" income
tax benefit using the French statutory tax rate of, 40%, 37% and 38%, in 1998,
1999 and 2000, respectively, for the following reasons (in thousands):
December 31,
---------------------------------------
1998 1999 2000
----------- ------------ ------------
Income tax benefit at statutory
rate................................ (Euro) (545) (Euro) (962) (Euro) (900)
Increase (reduction) in taxes
resulting from
Foreign income tax rates different
from the French statutory tax rate.. (40) (254) (192)
Amortization of non-deductible
goodwill and other intangibles...... 565 681 1,422
Change in valuation allowance........ 916 1,641 1,753
Offering expenses.................... (583) -- --
Tax on acquisitions costs of
companies classified in other
intangible.......................... -- -- 1,174
Other................................ (20) 147 332
----------- ------------ ------------
Reported current and deferred income
tax provision....................... (Euro) 293 (Euro) 1,253 (Euro) 3,589
=========== ============ ============
F-23
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
The consolidated net deferred tax asset consists of the following:
December 31,
-----------------------------------
1997 1999 2000
---------- ---------- -----------
Total deferred tax liability.............. (Euro) 188 (Euro) 358 (Euro) 400
---------- ---------- -----------
Net operating loss carryforwards:
- --France.................................. 1,037 1,007 905
- --Belgium................................. 279 274 221
- --Germany................................. 540 733 796
- --United States........................... 29 1,391 573
- --Singapore............................... 127 228 353
- --Australia............................... -- -- 30
- --Hong Kong............................... -- 29 58
---------- ---------- -----------
- --Total................................... 2,012 3,662 2,936
Other..................................... 242 329 2,587
---------- ---------- -----------
Total deferred tax asset.................. 2,254 3,991 5,523
---------- ---------- -----------
Net deferred tax assets................... 2,066 3,633 5,123
---------- ---------- -----------
Valuation allowance....................... (1,848) (3,489) (5,242)
---------- ---------- -----------
Deferred taxes, net....................... (Euro) 218 (Euro) 144 (Euro) (119)
========== ========== ===========
The Company has recorded a valuation allowance against deferred tax assets
generated in France, Germany, United States, Australia and Hong Kong for all
periods presented herein, due to the uncertainty of realization through future
operations. The valuation allowance will be reduced at such time as management
believes it is more likely than not that the deferred tax assets will be
realized. Any reductions in the valuation allowance will reduce future
provisions for income tax expense.
As of December 31, 2000, the Company has French net operating loss
carryforwards of approximately (Euro) 2,484, of which (Euro) 1,597 have no
expiration date. The remaining net operating loss carryforwards expire in 2002
for (Euro) 203, in 2003 for (Euro) 234 and in 2005 for (Euro) 450 if not
utilized. The other net operating loss carryforwards mainly include net
operating loss carryforwards in the United States for (Euro) 1,637 which expire
in 2019 and in Germany for (Euro) 4,619 which have no expiration date.
Note 13. Commitments and contingencies
Lease contracts
The Company leases its facilities under long-term operating lease agreements
expiring on various dates through November 2010. The Company also leases
equipment under long-term operating leases expiring between May 2001 and
October 2004. Rent expense for the years ended December 31, 1998, 1999 and 2000
was (Euro) 613, (Euro) 1,420 and (Euro) 2,783, respectively.
F-24
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
As of December 31, 2000, aggregate minimum lease payments under non
cancelable operating leases and commitments were as follows:
2001............................................................ (Euro) 4,047
2002............................................................ 1,874
2003............................................................ 939
2004............................................................ 669
2005............................................................ 484
Thereafter...................................................... 459
------------
Total........................................................... (Euro) 8,472
============
The Company also leases telecommunications bridges through capital lease
contracts, which expire in October 2001 in France and March 2001 in Sweden. The
Company leases other equipment and cars through capital leases contracts, which
expire at various dates through 2004.
The amounts of future minimum lease payments under those contracts are as
follows:
2001............................................................. (Euro) 559
2002............................................................. 251
2003............................................................. 137
2004............................................................. 13
Thereafter....................................................... --
----------
960
Amounts representing interest.................................... (77)
----------
883
Less current portion............................................. (503)
----------
(Euro) 380
==========
Other
On June 27, 2000, the Company received a preliminary conclusion of a tax
audit for Genesys S.A. for the years ended December 31, 1997, 1998 and 1999.
The amounts reported in the reassessment notice received from the tax
authorities amounted to approximately (Euro) 1.3 million in relation to the
deductibility of certain expenses incurred by the parent company such as
acquisition costs for companies outside of France, and offering and debt
issuance costs. The Company believes that, based on its outside legal counsel
and the latest correspondence from the tax authorities, the risk of liability
is remote. On September 26, 2000, the tax authorities revised their initial
notice from (Euro) 1.3 million to approximately (Euro) 760. The remaining
portion will be subject to a further decision to be taken by the European
Commission. A loss contingency amounting to (Euro) 63 has been accrued at
December 31, 2000.
The Company's U.S. subsidiary (GCI) currently assesses, collects and pays
federal, state and local taxes where it can determine the taxable transport or
transmission service, the jurisdiction in which a tax would apply and where it
has the ability to assess the tax. When GCI is unable to determine or is unable
to assess federal, state and local taxes, it does not. As of December 31, 1999
and 2000, GCI has established a reserve of approximately U.S.$ 569 (equivalent
to (Euro) 611) and U.S.$ 195 (equivalent to (Euro) 208) for federal, state and
local taxes, which it believes is sufficient to cover taxes, if any, that GCI
should have assessed through December 31, 2000, but did not, in the event they
become due.
F-25
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
On August 31 1999, the Company entered into a U.S.$ 20 million interest rate
swap agreement to hedge its exposure on a portion of its outstanding debt
denominated in U.S.$. The effect of this agreement was to convert underlying
variable rate debt based on Libor to fixed rate debt with an interest rate of
6.78%.
To hedge the exposure risk on foreign currency translation rate, the Company
entered on December 5, 2000 into term purchase agreements (forward contracts)
for nominal amounts of U.S.$ 30,125 and GBP 1,355 with a purchase date on
January 5, 2001. Gains and losses on these transactions are reported in
comprehensive income.
The Company entered into collateral security agreement in favor of banks
amounting to (Euro) 1,140.
The commitments relating to the acquisitions of Vialog and Astound were as
follows at December 31, 2000:
- (Euro) 78,296 representing the estimated purchase price of Vialog,
- (Euro) 49,504 representing the estimated purchase price of Astound,
- (Euro) 2,082 for bonus fees.
In the normal course of business, the Company is at times subject to pending
and threatened legal actions and proceedings. Management believes that the
outcome of such actions or proceedings is not expected to have a material
adverse effect on the financial position of the Company.
Note 14. Employee retirement and benefit plans
The Company contributes to pensions for personnel in France in accordance
with local law, by contributing based on salaries to the relevant government
agencies. There exists no actuarial liability in connection with these plans.
In the United States, the Company sponsors a defined contribution plan which
qualifies under section 401(k) of the Internal Revenue Code. All employees are
eligible to enroll in the plan and can contribute up to 20% of their eligible
wages into the Plan, so long as the total contributions do not exceed dollar
limits established under IRS regulations. The Company matches 20% of the
employee contributions. During 1999 and 2000, the Company made contributions of
approximately U.S.$ 43 (equivalent to (Euro) 46) and U.S.$ 122 (equivalent to
(Euro) 132) to the plan.
In England, the Company has defined contribution plans whose assets are held
separately from those of the Company. Costs recognized for these plans were
(Euro) 25, (Euro) 106 and (Euro) 184 in 1998, 1999 and 2000 respectively.
French law also requires payment of a lump sum retirement indemnity to all
employees based upon years of service and compensation at retirement. Benefits
do not vest prior to retirement. There is no formal plan and no funding of the
obligation is required. The Company's obligation is not material to its
financial condition, liquidity or results of operations as of December 31,
1998, 1999 and 2000 or for the years ended December 31, 1998, 1999 and 2000.
F-26
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
Note 15. Revenues
Revenues consist of the following:
Years ended December 31,
-----------------------------------------
1998 1999 2000
------------- ------------- -------------
Services
- --Audioconferencing................. (Euro) 18,037 (Euro) 42,788 (Euro) 75,541
- --Videoconferencing &
Dataconferencing................... 274 4,372 13,795
Products............................ 910 835 3,083
------------- ------------- -------------
Total............................... (Euro) 19,221 (Euro) 47,995 (Euro) 92,419
============= ============= =============
Note 16. Segment and geographic information
The Company and its subsidiaries operate in three geographic reportable
segments: Europe, United States and Asia-Pacific. The Company makes key
decisions and evaluates performance of the Company based on these segments.
Transfers between segments are accounted for at amounts that are generally
above cost and consistent with the rules and regulations of governing tax
authorities. Such transfers are eliminated in the consolidated financial
statements. Corporate items include non-operating overhead and research and
development expenditures. Corporate assets mainly include research and
development telecommunications equipment.
F-27
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
The following is a summary of operations by segment for the years ended
December 31, 1998, 1999 and 2000:
Asia- Inter-
Europe United States Pacific Corporate segment Total
------------- ------------- ------------ -------------- ----------- -------------
1998
Net sales
Customers............. (Euro) 18,244 (Euro) 447 (Euro) 530 -- -- (Euro) 19,221
Intercompany.......... 116 6 -- -- (Euro) (122) --
Operating income
(loss)................. 1,831 (83) (462) (Euro) (2,295) -- (1,009)
Net interest expense
(income)............... 337 -- (2) -- -- 335
Income (loss) before
tax.................... 1,494 (83) (460) (2,295) -- (1,344)
Income tax expense
(benefit).............. 424 -- (131) -- -- 293
Total assets............ 47,741 2,118 1,404 357 -- 51,620
Depreciation and
amortization........... 1,431 5 124 118 -- 1,678
Additions to long-lived
assets................. 2,575 440 678 155 -- 3,848
1999
Net sales
Customers............. (Euro) 27,861 (Euro) 18,158 (Euro) 1,976 -- -- (Euro) 47,995
Intercompany.......... 28 -- 47 -- (Euro) (75) --
Operating income
(loss)................. 6,730 (975) (347) (Euro) (5,895) -- (487)
Net interest expense
(income)............... 1,081 1,006 (3) -- -- 2,083
Income (loss) before
tax.................... 5,634 (1,981) (343) (5,895) -- (2,585)
Income tax expense
(benefit).............. 1,243 90 (80) -- -- 1,253
Equity in loss of
affiliated company..... (15) -- -- -- -- (15)
Total assets............ 55,883 66,810 2,439 520 -- 125,652
Depreciation and
amortization........... 1,726 1,923 227 147 -- 4,023
Additions to long-lived
assets................. 3,342 3,507 392 224 -- 7,465
2000
Net sales
Customers............. (Euro) 45,886 (Euro) 42,097 (Euro) 4,436 -- -- (Euro) 92,419
Intercompany.......... 22 464 -- -- (Euro) (486) --
Operating income
(loss)................. 7,743 2,437 75 (Euro) (13,217) -- (2,962)
Net interest expense
(income)............... (2,270) 1,605 10 -- -- (655)
Income (loss) before
tax.................... 9,938 832 64 (13,217) -- (2,383)
Income tax expense
(benefit).............. 3,231 126 232 -- -- 3,589
Equity in loss of
affiliated company..... (76) -- -- -- -- (76)
Total assets............ 134,789 66,955 3,862 1,563 -- 207,169
Depreciation and
amortization........... 2,979 3,835 327 334 -- 7,474
Additions to long-lived
assets................. 5,700 3,116 678 1,607 -- 11,101
F-28
GENESYS S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data and when indicated)
Geographic area information:
Other
foreign
France United States England Sweden Australia countries Total
------------- ------------- ------------- ------------ ------------ ------------ -------------
1998
Sales................... (Euro) 5,608 (Euro) 447 (Euro) 10,144 (Euro) 1,932 (Euro) 445 (Euro) 645 (Euro) 19,221
Long-lived assets....... 1,670 439 1,799 485 310 820 5,523
1999
Sales................... (Euro) 7,386 (Euro) 18,158 (Euro) 16,021 (Euro) 3,152 (Euro) 1,519 (Euro) 1,759 (Euro) 47,995
Long-lived assets....... 1,995 10,839 4,232 527 374 936 18,904
2000
Sales................... (Euro) 10,726 (Euro) 42,097 (Euro) 26,444 (Euro) 5,010 (Euro) 2,918 (Euro) 5,224 (Euro) 92,419
Long-lived assets....... 4,346 9,139 5,022 1,240 667 2,061 22,475
Note 17. Subsequent events
On February 13, 2001, the Securities and Exchange Commission declared
effective the combined Vialog/Genesys proxy statement and prospectus.
On March 8, 2001, the Board of Directors of the Company decided, based on
current conditions, not to exercise its right to adjust the exchange ratio if
the Board of Vialog were to decide to exercise its right to terminate the
merger agreement. The exchange ratio will thus under current conditions be
fixed at a maximum of 0.6703 ADS for each Vialog share, resulting in a maximum
dilution rate of 26.5%.
On March 22, 2001, the Company and Vialog jointly announced that they have
received commitments from a bank group for a U.S.$ 125 million senior credit
facility that will permit Vialog to refinance its outstanding debt following
its acquisition by the Company. In addition to this refinancing, the credit
facility will provide for the refinancing of the Company's existing debt .
On March 23, 2001, the shareholders approved the capital increase required
for the acquisitions of Vialog and Astound. The Company announced that the
shareholders of Vialog and Astound approved the acquisition of their companies
by Genesys. The shareholders of Vialog would receive approximately 24.8% of the
outstanding shares of the Company after giving effect to the Astound
acquisition. The closing of Vialog acquisition occurred on April 25, 2001 along
with the closing of the Company's refinancing of Vialog debt and Genesys
existing debt.
On March 27, 2001, the Company announced the closing of the acquisition of
100% of shares of Astound. As a result, the shareholders of Astound will
receive exchangeable shares of Astound, exchangeable at their option into an
aggregate of 1,000,000 ordinary shares of the Company and U.S.$ 7 million in
cash, subject to certain adjustments, as well as U.S.$ 3.56 million in cash on
January 4, 2002, together with interest thereon.
F-29
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this special financial report on its behalf.
GENESYS S.A.
By: /s/ Pierre Schwich
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Pierre Schwich
Chief Financial Officer
Date: June 29, 2001