<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 001-15527
VIALOG Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04-3305282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
32 Crosby Drive
Bedford, Massachusetts 01730
(Address of principal executive offices, including Zip Code)
(781) 761-6200
(Registrant's telephone number, including area code)
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 twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes [X] No [_]
At November 10, 2000 the registrant had outstanding an aggregate of
9,721,005 shares of its Common Stock, $.01 par value.
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<PAGE>
VIALOG CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1999 and September 30, 2000
(Unaudited)............................................................ 3
Consolidated Statements of Operations (Unaudited) for the Three and Nine
Months Ended September 30, 1999 and 2000............................... 4
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months
Ended September 30, 1999 and 2000...................................... 5
Notes to Consolidated Financial Statements (Unaudited).................. 6-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 10-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 16
Item 6. Exhibits and Reports on Form 8-K.................................. 16
Signatures................................................................ 17
Exhibit Index............................................................. 18
</TABLE>
2
<PAGE>
VIALOG CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 547 $ 1,709
Accounts receivable, net of allowance for doubtful
accounts of $579 and $908 in 1999 and 2000,
respectively..................................... 11,637 18,310
Prepaid expenses.................................. 435 456
Other current assets.............................. 310 383
-------- --------
Total current assets............................ 12,929 20,858
Property and equipment, net......................... 17,814 20,295
Deferred debt issuance costs........................ 3,801 2,335
Goodwill and intangible assets, net................. 64,094 61,014
Other assets........................................ 583 1,083
-------- --------
Total assets.................................... $ 99,221 $105,585
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving line of credit.......................... $ 4,770 $ 6,074
Current portion of long-term debt................. 2,332 3,180
Accounts payable.................................. 5,216 11,255
Accrued interest expense.......................... 1,215 3,606
Accrued expenses and other liabilities............ 3,319 3,945
-------- --------
Total current liabilities....................... 16,852 28,060
Long-term debt, less current portion................ 75,827 76,658
Other long-term liabilities......................... 1,499 1,251
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 10,000,000
shares authorized; none issued and outstanding... -- --
Common stock, $0.01 par value; 30,000,000 shares
authorized; issued: 9,144,200 and 9,572,518
shares in 1999 and 2000, respectively;
outstanding: 9,133,569 and 9,561,887 shares in
1999 and 2000, respectively...................... 91 96
Additional paid-in capital........................ 45,602 46,179
Accumulated deficit............................... (40,603) (46,612)
Treasury stock, at cost; 10,631 shares............ (47) (47)
-------- --------
Total stockholders' equity (deficit)............ 5,043 (384)
-------- --------
Total liabilities and stockholders' equity
(deficit)...................................... $ 99,221 $105,585
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 2000 1999 2000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues...................... $ 17,002 $ 19,165 $ 50,915 $ 57,787
Cost of revenues, excluding
depreciation..................... 8,306 8,054 24,190 25,144
Selling, general and
administrative expense........... 5,628 8,651 17,111 20,406
Depreciation expense.............. 1,106 1,375 3,006 3,963
Amortization of goodwill and
intangibles...................... 999 1,047 2,828 3,158
Non-recurring charge.............. -- -- 2,982 --
--------- --------- --------- ---------
Operating income................ 963 38 798 5,116
Interest expense, net............. (3,391) (3,569) (10,101) (10,600)
--------- --------- --------- ---------
Loss before income tax expense.. (2,428) (3,531) (9,303) (5,484)
Income tax expense................ (50) (200) (100) (525)
--------- --------- --------- ---------
Net loss........................ $ (2,478) $ (3,731) $ (9,403) $ (6,009)
========= ========= ========= =========
Net loss per share--basic and
diluted.......................... $ (0.28) $ (0.39) $ (1.23) $ (0.64)
========= ========= ========= =========
Weighted average shares
outstanding--basic and diluted... 8,739,225 9,496,301 7,627,620 9,341,200
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months
Ended September
30,
-----------------
1999 2000
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................... $ (9,403) $(6,009)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.............................................. 3,006 3,963
Amortization of goodwill and intangibles.................. 2,828 3,158
Amortization of debt issuance costs and debt discount..... 2,371 2,430
Provision for doubtful accounts........................... 294 612
Write-off of deferred financing costs..................... -- 1,710
Compensation expense for issuance of common stock and
options.................................................. 52 31
Non-cash portion of non-recurring charge.................. 797 --
Changes in operating assets and liabilities, net of effects
from acquisitions of businesses:
Accounts receivable....................................... (1,858) (7,285)
Prepaid expenses and other current assets................. (81) (94)
Other assets.............................................. 746 (443)
Accounts payable.......................................... (694) 6,039
Accrued expenses.......................................... 3,844 2,365
Other long-term liabilities............................... 860 (271)
-------- -------
Cash flows provided by operating activities............. 2,762 6,206
-------- -------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired........... (29,095) --
Additions to property and equipment........................ (5,786) (6,698)
-------- -------
Cash flows used in investing activities................. (34,881) (6,698)
-------- -------
Cash flows from financing activities:
Advances on line of credit, net............................ 1,531 1,304
Proceeds from issuance (payments) of long-term debt, net... (1,327) 863
Proceeds from issuance of common stock..................... 33,664 551
Deferred offering costs.................................... 596 --
Deferred debt issuance costs............................... (44) (1,064)
-------- -------
Cash flows provided by financing activities............. 34,420 1,654
-------- -------
Net increase in cash and cash equivalents................... 2,301 1,162
Cash and cash equivalents at beginning of period............ 232 547
-------- -------
Cash and cash equivalents at end of period.................. $ 2,533 $ 1,709
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.................................................. $ 5,351 $ 5,787
======== =======
Taxes..................................................... $ -- $ 62
======== =======
Acquisitions of businesses:
Assets acquired............................................ $ 31,041 $ --
Liabilities assumed and issued............................. (1,855) --
Common stock issued........................................ -- --
-------- -------
Cash paid.................................................. 29,186 --
Less cash acquired......................................... (91) --
-------- -------
Net cash paid for acquisitions of businesses............ $ 29,095 $ --
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments (all of which
are of a normal recurring nature) which, in the opinion of management, are
necessary for a fair statement of the results of the interim periods
presented. The unaudited results of operations for the three and nine months
ended September 30, 2000 are not necessarily an indication of the results of
operations for the full year. These financial statements do not include all
disclosures associated with annual financial statements and, accordingly,
should be read in conjunction with the financial statements and footnotes for
the year ended December 31, 1999 included in the Company's Form 10-K. The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
(2) Description of Business
VIALOG Corporation (the "Company") was incorporated in Massachusetts on
January 1, 1996. The Company was formed to create a national provider of
conferencing services, consisting primarily of operator-attended and operator
on-demand audioconferencing, as well as video and Internet conferencing
services. On November 12, 1997, the Company closed a private placement of
$75.0 million in Senior Notes due 2001 (the "Private Placement").
Contemporaneously with the closing of the Private Placement, the Company
acquired six private conference service bureaus located in the United States
(the "Original Acquisitions"). On February 10, 1999, the Company completed an
initial public offering of its common stock and consummated agreements to
acquire three private conference service bureaus located in the United States
(see Note 4 "Acquisitions").
Prior to November 12, 1997, the Company did not conduct any operations, and
all activities conducted by it related to the acquisitions and the completion
of financing transactions to fund the acquisitions.
(3) Initial Public Offering
On February 10, 1999, the Company completed an initial public offering for
the sale of 4,600,000 shares of common stock. The net proceeds from this
offering, after deducting underwriting discounts, commissions and offering
expenses, were approximately $32.7 million. Of the net proceeds, approximately
$29.1 million was used to acquire three private conference service bureaus (as
discussed in Note 4). In addition, approximately $305,000 of indebtedness was
paid to the former stockholder of one of the acquisitions. The remaining net
proceeds of $3.3 million was used for working capital and general corporate
purposes.
(4) Acquisitions
On February 10, 1999, the Company acquired all of the issued and outstanding
stock of A Business Conference-Call, Inc. ("ABCC"), Conference Pros
International, Inc. ("CPI"), and A Better Conference, Inc. ("ABCI"). These
acquisitions occurred contemporaneously with the closing of the initial public
offering of the Company's common stock. Each of the acquisitions (together
with the Original Acquisitions, each an "Operating Center"; collectively, the
"Operating Centers") is a wholly-owned subsidiary of the Company. The
acquisitions were accounted for using the purchase method of accounting.
The total purchase price of the acquired companies was $29.1 million and
consisted of $28.4 million in cash paid to the stockholders of the acquired
companies, approximately $400,000 of acquisition costs and approximately
$300,000 related to tax reimbursements.
6
<PAGE>
The purchase price exceeded the fair value of the net assets by an estimated
$27.4 million. The excess was allocated to goodwill and other intangibles and
is being amortized over periods from 3 to 20 years. In addition, the Company
repaid $305,000 of long-term debt of the acquired companies.
(5) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
($000's)
<S> <C> <C>
12 3/4% Senior Notes payable, due November 15,
2001, net of unamortized discount of $2,027
and $1,211, respectively...................... $72,973 $73,789
Term loans..................................... 4,655 5,814
Capitalized lease obligations.................. 525 235
Other long-term debt........................... 6 --
------- -------
Total long-term debt......................... 78,159 79,838
Less current portion......................... 2,332 3,180
------- -------
Total long-term debt, less current portion... $75,827 $76,658
======= =======
</TABLE>
Senior Notes Payable
The Senior Notes issued in the Private Placement bear interest at 12 3/4%
per annum, payable semi-annually on May 15 and November 15 of each year. The
Senior Notes, which are guaranteed by each of the Operating Centers, mature on
November 15, 2001 and are redeemable in whole or in part at the option of the
Company on or after November 15, 1999 at 110% of the principal amount thereof,
and on or after November 15, 2000 at 105% of the principal amount thereof, in
each case together with accrued interest to the date of redemption.
(6) Net Loss Per Share
As the Company was in a net loss position for the three and nine months
ended September 30, 1999 and 2000, common stock equivalents of 1,188,783,
1,380,775, 1,445,097 and 1,190,305 for the three months ended September 30,
1999 and 2000 and the nine months ended September 30, 1999 and 2000,
respectively, were excluded from the diluted net loss per share calculation as
they would be antidilutive. As a result, diluted net loss per share for the
three and nine months ended September 30, 1999 and 2000 is the same as basic
net loss per share and, therefore, has not been presented separately.
(7) Non-recurring Charges
During the third quarter of 1998, the Company incurred a $1.2 million non-
recurring charge related to the consolidation of the Atlanta and Montgomery
Operating Centers. In accordance with the consolidation plan, the Atlanta
Operating Center remained staffed through January 1999, after which time the
Atlanta facility was vacated and its traffic managed by conference
coordinators in the Montgomery Operating Center as well as other Operating
Centers. During the three and nine months ended September 30, 2000, the
Company paid out approximately $25,000 and $101,000, respectively, related to
rental costs on the Atlanta facility. At September 30, 2000, approximately
$342,000 of the original accrual for the non-recurring charge was remaining
for estimated costs still to be incurred related to the remaining rental
commitment on the Atlanta facility.
During the second quarter of 1999, the Company incurred a $3.0 million non-
recurring charge related to the consolidation of four of the Company's
Operating Centers. The Operating Centers affected include Oradell, New Jersey
and Danbury, Connecticut, which the Company closed in the third quarter of
1999; and Houston, Texas and Palm Springs, California, which the Company
closed in the fourth quarter of 1999. In conjunction with the
7
<PAGE>
closings, the Company expanded its other facilities to accommodate the
transitioned business. In addition, the Company relocated its corporate
offices during the second quarter of 2000 and combined its Cambridge Operating
Center with its corporate offices during the third quarter of 2000. During the
three and nine months ended September 30, 2000, the Company paid out
approximately $198,000 and $823,000, respectively, related primarily to
personnel reductions and facility closings, and wrote off approximately
$196,000 of leasehold improvements related to the corporate offices. At
September 30, 2000, approximately $578,000 of the original accrual for the
non-recurring charge was remaining for estimated costs in accordance with the
terms of the original restructuring plan.
(8) Subsequent Event--Merger Agreement with Genesys S.A.
On October 2, 2000, the Company entered into a definitive merger agreement
with Genesys S.A., a corporation organized under the laws of France ("Genesys
Conferencing"), pursuant to which Genesys Conferencing will acquire the
Company. As part of the transaction, Genesys Conferencing will apply for
listing on the Nasdaq stock market of American Depositary Shares (ADSs)
representing its underlying ordinary shares that the Company's shareholders
will be entitled to receive pursuant to the merger. To effect the acquisition,
the merger agreement provides that the Company's shareholders will receive the
ADS equivalent of 0.2563 of a Genesys Conferencing ordinary share in exchange
for each share of the Company's common stock, subject to a "collar," which
provides that the Company's shareholders could receive the ADS equivalent of
between 0.2183 Genesys Conferencing ordinary shares and 0.3352 Genesys
Conferencing ordinary shares for each Company share depending on the Genesys
Conferencing share price at the closing of the acquisition as determined in
accordance with the merger agreement. Based on the recent closing prices of
Genesys Conferencing's ordinary shares, (i) the transaction is valued at
approximately $241 million, or approximately $90 million in the Company's debt
plus $13.26 per Company share, and (ii) the Company's shareholders would own
approximately 21 percent of Genesys Conferencing upon the closing of the
acquisition. The closing of the acquisition, which is expected to occur in the
first quarter of 2001, is subject to the approval of the Company's
shareholders, the approval of the issuance of the new Genesys Conferencing
shares underlying the ADSs by Genesys Conferencing's shareholders, the listing
of the ADSs on the Nasdaq Stock Market and other customary closing conditions.
The merger agreement also provides that under certain circumstances, the
Company will pay Genesys Conferencing a $5.25 million fee if the merger
agreement is terminated.
8
<PAGE>
(9) Supplemental Consolidating Condensed Financial Information
The 12 3/4% Senior Notes due November 15, 2001, in the aggregate principal
amount of $75.0 million, are fully and unconditionally guaranteed, on a joint
and several basis, by all of the Company's subsidiaries. Each of the
guarantors is a wholly-owned subsidiary of the Company. Summarized financial
information of the Company and its subsidiaries is presented below as of and
for the nine months ended September 30, 2000. Separate financial statements
and other disclosures concerning the guarantor subsidiaries are not presented
because management has determined that they are not material to investors.
<TABLE>
<CAPTION>
VIALOG Call
Corp. Access Points ABCC TCC ABCI CPI Americo CDC Eliminations Consolidated
-------- ------- ------- ------- ------- ------ ------ ------- ------ ------------ ------------
($000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet
Information as of
September 30,
2000 (unaudited)
Total current
assets........... $(35,691) $25,798 $13,848 $11,415 $ 6,034 $ 636 $ (102) $(1,255) $ 175 $ -- $ 20,858
Property and
equipment, net... 1,391 8,730 6,359 2,026 829 252 229 437 42 -- 20,295
Investment in
subsidiaries..... 86,307 -- -- -- -- -- -- -- -- (86,307) --
Goodwill and
intangible
assets, net...... -- 13,234 15,807 13,689 3,378 5,176 5,256 2,409 2,065 -- 61,014
Other assets..... 3,014 253 67 22 7 -- -- 49 6 -- 3,418
-------- ------- ------- ------- ------- ------ ------ ------- ------ -------- --------
Total assets.... $ 55,021 $48,015 $36,081 $27,152 $10,248 $6,064 $5,383 $ 1,640 $2,288 $(86,307) $105,585
======== ======= ======= ======= ======= ====== ====== ======= ====== ======== ========
Current
liabilities...... $ 24,584 $ 1,810 $ 746 $ 398 $ 298 $ (51) $ 92 $ 139 $ 44 $ -- $ 28,060
Long-term debt,
excluding current
portion.......... 76,654 -- -- -- 4 -- -- -- -- -- 76,658
Other
liabilities...... 45 229 591 -- -- 20 46 320 -- -- 1,251
Stockholders'
equity
(deficit)........ (46,262) 45,976 34,744 26,754 9,946 6,095 5,245 1,181 2,244 (86,307) (384)
-------- ------- ------- ------- ------- ------ ------ ------- ------ -------- --------
Total
liabilities and
stockholders'
equity
(deficit)....... $ 55,021 $48,015 $36,081 $27,152 $10,248 $6,064 $5,383 $ 1,640 $2,288 $(86,307) $105,585
======== ======= ======= ======= ======= ====== ====== ======= ====== ======== ========
Statement of
Operations
Information for
the Nine Months
Ended September
30, 2000
(unaudited)
Net revenues..... $ -- $25,490 $15,449 $11,703 $ 4,897 $ -- $ -- $ -- $ 413 $ (165) $ 57,787
Cost of revenues,
excluding
depreciation..... 2,522 10,213 6,346 3,812 1,987 4 83 19 323 (165) 25,144
Selling, general
and
administrative
expenses......... 18,273 829 444 387 383 24 23 -- 43 -- 20,406
Depreciation
expense.......... 279 1,682 1,027 322 220 109 144 90 90 -- 3,963
Amortization of
goodwill and
intangibles...... -- 650 828 720 153 312 297 108 90 -- 3,158
-------- ------- ------- ------- ------- ------ ------ ------- ------ -------- --------
Operating income
(loss).......... (21,074) 12,116 6,804 6,462 2,154 (449) (547) (217) (133) -- 5,116
Interest income
(expense), net... (10,583) (5) 4 -- (7) (8) -- (1) -- -- (10,600)
-------- ------- ------- ------- ------- ------ ------ ------- ------ -------- --------
Income (loss)
before income
tax expense..... (31,657) 12,111 6,808 6,462 2,147 (457) (547) (218) (133) -- (5,484)
Income tax
expense.......... -- (525) -- -- -- -- -- -- -- -- (525)
-------- ------- ------- ------- ------- ------ ------ ------- ------ -------- --------
Net income
(loss).......... $(31,657) $11,586 $ 6,808 $ 6,462 $ 2,147 $ (457) $ (547) $ (218) $ (133) $ -- $ (6,009)
======== ======= ======= ======= ======= ====== ====== ======= ====== ======== ========
Cash Flow
Information for
the Nine Months
Ended September
30, 2000
(unaudited)
Cash flows
provided by (used
in) operating
activities....... $ 86 $ 2,781 $ 3,132 $ 104 $ 108 $ 73 $ (27) $ 17 $ (68) $ -- $ 6,206
Cash flows used
in investing
activities....... (1,043) (2,638) (2,822) (113) (68) -- -- -- (14) -- (6,698)
Cash flows
provided by (used
in) financing
activities....... 1,950 (8) (114) -- (39) (112) (6) (17) -- -- 1,654
-------- ------- ------- ------- ------- ------ ------ ------- ------ -------- --------
Net increase
(decrease) in
cash and cash
equivalents...... 993 135 196 (9) 1 (39) (33) -- (82) -- 1,162
Cash and cash
equivalents at
the beginning of
period........... 386 (49) 91 14 -- (10) 33 -- 82 -- 547
-------- ------- ------- ------- ------- ------ ------ ------- ------ -------- --------
Cash and cash
equivalents at
the end of
period........... $ 1,379 $ 86 $ 287 $ 5 $ 1 $ (49) $ -- $ -- $ -- $ -- $ 1,709
======== ======= ======= ======= ======= ====== ====== ======= ====== ======== ========
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the financial statements and
footnotes for the three and nine months ended September 30, 2000 and the Form
10-K for the year ended December 31, 1999 filed with the Securities and
Exchange Commission.
VIALOG Corporation
Results of Operations
The Company was incorporated on January 1, 1996. On November 12, 1997, the
Company consummated agreements to acquire six private conference service
bureaus, all of which became wholly-owned subsidiaries of the Company. Prior
to November 12, 1997, the Company did not conduct any operations, and all
activities conducted by it were related to the original acquisitions. On
February 10, 1999, the Company completed an initial public offering of its
common stock and contemporaneously acquired three private conference service
bureaus, all of which became wholly-owned subsidiaries of the Company.
Net revenues. Net revenues increased approximately $2.2 million, or 13%,
from $17.0 million to $19.2 million for the three months ended September 30,
1999 and 2000, respectively, and increased $6.9 million, or 13%, from $50.9
million to $57.8 million for the nine months ended September 30, 1999 and
2000, respectively. The increase was primarily due to increased call volumes
for audio and video conferencing services and, additionally, for the nine
months ended September 30, 1999 and 2000, the acquisition of three private
conference service bureaus on February 10, 1999. The major components of this
increase were (i) an increase in the Reston center's net revenues of $1.3
million and $5.6 million for the three and nine months ended September 30,
2000, respectively, which consisted of increased sales of conferencing
services to predominantly existing customers as well as the transitioned
traffic resulting from the consolidation of other operating centers, (ii) an
increase in the combined Atlanta and Montgomery operating center's net
revenues of $1.5 million and $3.9 million for the three and nine months ended
September 30, 2000, respectively, which was primarily attributable to
increased audioconferencing services to existing customers and new customers,
as well as the transitioned traffic resulting from the consolidation of other
operating centers, (iii) a decrease in the Cambridge operating center's net
revenues of $182,000 and $303,000 for the three and nine months ended
September 30, 2000, respectively, which was primarily attributable to
decreased volume and transitioning of some traffic to other centers, (iv) an
increase of $619,000 for the nine months ended September 30, 2000, relating to
the Chanhassen, Houston and Palm Springs operating centers which were acquired
on February 10, 1999 and included in the Company's consolidated results
beginning February 11, 1999, resulting in a partial period of operations
included in the nine months ended September 30, 1999, and (v) a decrease of
$412,000 and $2.9 million for the three and nine months ended September 30,
2000, respectively, relating to the consolidation of the Oradell and Danbury
operating centers, both of which were closed during the third quarter of 1999
and the related traffic transitioned to other operating centers.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation, decreased approximately $252,000, or 3%, from $8.3 million to
$8.1 million for the three months ended September 30, 1999 and 2000,
respectively, and increased approximately $1.0 million, or 4%, from $24.2
million to $25.1 million for the nine months ended September 30, 1999 and
2000, respectively, but decreased as a percentage of revenue from 48.9% to
42.0% for the three months ended September 30, 1999 and 2000, respectively,
and from 47.5% to 43.5% for the nine months ended September 30, 1999 and 2000,
respectively. Overall, the net decrease for the three months ended September
30, 2000 and the modest increase for the nine months ended September 30, 2000
were primarily attributable to the effect of long distance cost savings
experienced as a result of new contracts with lower rates and the migrating of
traffic to lower cost long distance service providers offset by volume
increases. Specifically, the dollar fluctuations were the result of (i) an
increase in the Reston center's cost of revenues, excluding depreciation, of
$539,000 and $3.5 million for the three and nine months ended
10
<PAGE>
September 30, 2000, respectively, resulting from increased telecommunications
costs and personnel and related costs associated with increased call volumes
as well as the transitioning of traffic from the consolidation of other
operating centers, (ii) a net decrease in the combined Atlanta and Montgomery
center's cost of revenues, excluding depreciation, of $257,000 and $953,000
for the three and nine months ended September 30, 2000, respectively, which
was attributable to the combination of long distance cost savings experienced
as a result of migrating traffic to lower cost long distance service providers
and increased staffing and operations-related costs associated with increased
call volumes as well as the transitioning of traffic from the consolidation of
other operating centers, (iii) a net decrease in the Cambridge operating
center's cost of revenues, excluding depreciation, of $76,000 and $241,000 for
the three and nine months ended September 30, 2000, respectively, which was
attributable primarily to the effect of long distance cost savings experienced
as a result of migrating traffic to lower cost long distance service, (iv) a
net decrease of $47,000 for the three months ended September 30, 2000 and an
increase of $300,000 for the nine months ended September 30, 2000, in
information technology related costs and other technology infrastructure
improvements, and (v) a decrease of $411,000 and $1.6 million for the three
and nine months ended September 30, 2000, respectively, relating to the
consolidation of the Oradell and Danbury operating centers, both of which were
closed during the third quarter of 1999. The decrease as a percentage of
revenues was primarily due to an overall reduction in telecommunications cost
per minute resulting from negotiating telecommunications contracts with lower
rates and, additionally, for the nine months ended September 30, 1999 and
2000, the favorable impact resulting from the acquisition of the three
operating centers on February 10, 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $3.0 million, or 54%, from $5.6 million to
$8.7 million for the three months ended September 30, 1999 and 2000,
respectively, and increased $3.3 million, or 19%, from $17.1 million to $20.4
million, for the nine months ended September 30, 1999 and 2000, respectively.
Included in the results for the three and nine months ended September 30, 2000
was a $1.7 million write-off of costs relating to the Company's exchange offer
for its senior notes which was discontinued because of the Company's pending
acquisition by Genesys S.A. ("Genesys Conferencing"). Included in the results
for the nine months ended September 30, 1999 was a write-off of approximately
$1.2 million in costs associated with the departure of the former Chief
Executive Officer and other management staff which occurred during the second
quarter of 1999. The remaining increase was due to (i) an increase in selling
expense of $738,000 and $1.2 million for the three and nine months ended
September 30, 2000, respectively, related to increases in personnel,
commissions and related expenses associated with higher sales volume, and (ii)
an increase, excluding the $1.7 million current year charge and the $1.2
million prior year charge noted above, of $568,000 and $1.6 million related to
increased staffing costs such as compensation, benefits and travel expenses as
well as outside services in the general and administrative area.
Depreciation and amortization expense. Depreciation and amortization expense
increased $317,000 from $2.1 million to $2.4 million for the three months
ended September 30, 1999 and 2000, respectively, and increased $1.3 million
from $5.8 million to $7.1 million for the nine months ended September 30, 1999
and 2000, respectively. The increase was primarily due to additions to
property and equipment throughout 1999 and 2000, as well as the additional
property and equipment purchased in connection with the acquisition of the
Chanhassen, Houston and Palm Springs operating centers which were acquired on
February 10, 1999. In addition, amortization of goodwill and intangibles
increased $48,000 and $330,000 for the three and nine months ended September
30, 2000, respectively, which represents primarily amortization expense
related to the three operating centers acquired on February 10, 1999.
Non-recurring charge. The results for the nine months ended September 30,
1999 include a non-recurring charge of approximately $3.0 million related to
the consolidation of four of the Company's operating centers. The operating
centers affected included Oradell, New Jersey and Danbury, Connecticut, which
the Company closed in the third quarter of 1999; and Houston, Texas, and Palm
Springs, California, which the Company closed in the fourth quarter of 1999.
In conjunction with these closings, the Company expanded its other facilities
to accommodate the transitioned business. In addition, the Company relocated
its corporate offices during the second quarter of 2000 and combined its
Cambridge operating center with its corporate offices during the third quarter
of 2000. The non-recurring charge included (i) approximately $1.2 million
associated with facility lease
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costs from the exit dates through the lease termination dates (net of
estimated sublease income), (ii) $860,000 associated with personnel reductions
of approximately 130 conference coordinators, customer service, technical
support, and general and administrative positions, (iii) $683,000 associated
with the impairment of intangible assets, (iv) $150,000 associated with legal
fees and other exit costs, and (v) $114,000 associated with the write-off of
leasehold improvements. During the three and nine months ended September 30,
2000, the Company paid out approximately $198,000 and $823,000, respectively,
related primarily to personnel reductions and facility closings, and wrote off
approximately $196,000 during the nine months ended September 30, 2000 of
leasehold improvements related to the corporate offices. At September 30,
2000, approximately $578,000 of the original accrual for the non-recurring
charge was remaining for estimated costs in accordance with the terms of the
original restructuring plan.
Interest expense, net. Interest expense, net increased $178,000 from $3.4
million to $3.6 million for the three months ended September 30, 1999 and
2000, respectively, and increased $499,000 from $10.1 million to $10.6 million
for the nine months ended September 30, 1999 and 2000, respectively. The
increase was primarily due to the following: (i) an increase of $213,000 and
$541,000 for the three and nine months ended September 30, 2000, respectively,
of interest expense related to the Company's revolving credit facility, (ii)
an increase of $10,000 and $19,000 for the three and nine months ended
September 30, 2000, respectively, in non-cash interest expense related to the
amortization of deferred debt issuance costs, and (iii) decreased interest
income of approximately $45,000 and $61,000 for the three and nine months
ended September 30, 2000 due to reduced cash balances.
Liquidity and Capital Resources
The Company generated positive cash flows of approximately $1.2 million for
the nine months ended September 30, 2000 as compared to positive cash flows of
$2.3 million for the nine months ended September 30, 1999. Included in the
cash flows for the nine months ended September 30, 1999 was approximately $4.3
million related to the excess of the proceeds from the initial public offering
over the acquisitions of the three operating centers acquired on February 10,
1999. For the nine months ended September 30, 2000, the Company generated
positive cash flows from operations of $6.2 million. Cash used in investing
activities of $6.7 million for the nine months ended September 30, 2000
represents the acquisition of property and equipment. Cash provided by
financing activities of $1.7 million for the nine months ended September 30,
2000 includes, among other items, $2.2 million related to advances, net of
repayments, under the Company's senior credit facility.
During the first quarter, we commenced implementation of a new billing
system. As previously announced, this new system will enable us to provide on-
line, web-based billing, flexible ratings and bill presentation options, ease
of implementing billing for new services and improved efficiency in the bill
production process. In conjunction with this new billing system, we have
converted from per-call billing to monthly billing for many of our customers.
Primarily as a result of this change, as well as the need to adapt our new
system to meet the specific billing formats requested by our customers, we
have experienced an increase in the aging of our accounts receivable, as well
as a short-term disruption in our cash flow. We anticipate that as the
benefits of the new billing system are realized, our receivables aging and
cash flow will improve.
On November 12, 1997, the Company completed a private placement of $75.0
million of senior notes. The senior notes bear interest at 12 3/4% per annum,
payable semi-annually on May 15 and November 15 of each year. The senior notes
are guaranteed by the operating centers and mature on November 15, 2001. The
senior notes are redeemable in whole or in part at the option of the Company
on or after November 15, 1999 at 110% of the principal amount thereof, and on
or after November 15, 2000 at 105% of the principal amount thereof until
maturity, in each case together with accrued interest to the date of
redemption. In conjunction with the announced acquisition of the Company by
Genesys Conferencing, the Company's debt will be refinanced to enable the
Company to pay or defease the senior notes concurrently within sixty days of
the acquisition. In the event of a change in control, as defined in the
Indenture, the Company may be required to repurchase all of the outstanding
senior notes at 105% of the principal amount plus accrued interest and
additional interest, if any (101% of the principal amount if the Company can
satisfy a debt incurrence test under the Indenture, which test
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<PAGE>
the Company will likely not satisfy in connection with the Genesys
Conferencing acquisition). The Indenture contains restrictive covenants with
respect to the Company that among other things, create limitations (subject to
certain exceptions) on (i) the incurrence of additional indebtedness, (ii) the
ability of the Company to purchase, redeem or otherwise acquire or retire any
common stock or warrants, rights or options to acquire common stock, to retire
any subordinated indebtedness prior to final maturity or to make investments
in any person, (iii) certain transactions with affiliates, (iv) the ability to
materially change the present method of conducting business, (v) the granting
of liens on property or assets, (vi) mergers, consolidations and the
disposition of assets, (vii) declaring and paying any dividends or making any
distribution on shares of common stock, and (viii) the issuance or sale of any
capital stock of the Company's subsidiaries. The Indenture does not require
the Company to maintain compliance with any financial ratios or tests, except
with respect to certain restrictive covenants noted above. At September 30,
2000, the Company was in compliance with all covenants contained in the
Indenture.
On October 6, 1998, the Company closed a two year, $15.0 million senior
credit facility with Coast Business Credit, a division of Southern Pacific
Bank. On May 10, 2000 and on November 10, 2000, certain terms of the credit
facility were amended. The senior credit facility, as amended, provides for
(i) a term loan in the principal amount of $1.5 million, (ii) a term loan of
up to 80% of the purchase price of new and used equipment, not to exceed $9.0
million, and (iii) a revolving loan based on a percentage of eligible accounts
receivable. Loans under the senior credit facility bear interest at the higher
of 7% or interest rates ranging from the prime rate plus 1 1/2% to the prime
rate plus 2%, and interest is based on a minimum outstanding principal balance
of the greater of $5.0 million or 33% of the available credit facility. The
senior credit facility includes certain early termination fees. The senior
credit facility is secured by the assets of each of the operating centers and
the assets of VIALOG Corporation, excluding the ownership interest in each of
the operating centers. In October 2000, the credit facility was extended for
an additional one year period. The Company is required to maintain compliance
with certain financial ratios and tests consisting of a debt service coverage
ratio and a minimum tangible net worth level. At September 30, 2000, the
Company was in compliance with such ratios and tests. As of September 30,
2000, the Company had outstanding $500,000 on the term loan; $5.3 million on
the equipment term loan; and $6.1 million on the revolving loan.
The Company anticipates that its cash flows from operations, supplemented by
borrowings, will meet or exceed its working capital needs, debt service
requirements and planned capital expenditures for property and equipment for
the next twelve months. The Company expects to meet its longer term liquidity
requirements through a combination of working capital, cash flow from
operations, borrowings, and future issuances of debt and/or equity securities.
However, no assurances can be given that such funds will be available when
required or on terms favorable to the Company.
The Company is highly leveraged at September 30, 2000. This indebtedness
requires the Company to dedicate a significant portion of its cash flow from
operations to service its indebtedness and makes the Company more vulnerable
to unfavorable changes in general economic conditions.
Merger Agreement with Genesys Conferencing
On October 2, 2000, the Company entered into a definitive merger agreement
with Genesys S.A., a corporation organized under the laws of France ("Genesys
Conferencing"), pursuant to which Genesys Conferencing will acquire the
Company. As part of the transaction, Genesys Conferencing will apply for
listing on the Nasdaq stock market of American Depositary Shares (ADSs)
representing its underlying ordinary shares that the Company's shareholders
will be entitled to receive pursuant to the merger. To effect the acquisition,
the merger agreement provides that the Company's shareholders will receive the
ADS equivalent of 0.2563 of a Genesys Conferencing ordinary share in exchange
for each share of the Company's common stock, subject to a "collar," which
provides that the Company's shareholders could receive the ADS equivalent of
between 0.2183 Genesys Conferencing ordinary shares and 0.3352 Genesys
Conferencing ordinary shares for each Company share depending on the Genesys
Conferencing share price at the closing of the acquisition as determined in
accordance with the merger agreement. Based on the recent closing prices of
Genesys Conferencing's ordinary
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shares, (i) the transaction is valued at approximately $241 million, or
approximately $90 million in the Company's debt plus $13.26 per Company share,
and (ii) the Company's shareholders would own approximately 21 percent of
Genesys Conferencing upon the closing of the acquisition. The closing of the
acquisition, which is expected to occur in the first quarter of 2001, is
subject to the approval of the Company's shareholders, the approval of the
issuance of the new Genesys Conferencing shares underlying the ADSs by Genesys
Conferencing's shareholders, the listing of the ADSs on the Nasdaq Stock
Market and other customary closing conditions. The merger agreement also
provides that under certain circumstances, the Company will pay Genesys
Conferencing a $5.25 million fee if the merger agreement is terminated.
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial
Statements". The Company is required to adopt this accounting guidance, as
amended by SAB 101A and SAB 101B, no later than the fourth quarter of fiscal
year 2000. The Company believes its existing revenue recognition policies and
procedures are in compliance with SAB 101, and therefore, does not anticipate
its adoption will have a material impact on the Company's financial condition,
results of operations or cash flows.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation": an Interpretation of APB Opinion No. 25. This Interpretation
clarifies the application of APB No. 25 for certain issues, including: the
definition of an employee, the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of
modifications to the terms of a previously fixed stock option or award, and
the accounting for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000, but certain
conclusions apply to events occurring after December 15, 1998 or January 12,
2000. To the extent that this Interpretation covers events occurring during
the period after December 15, 1998, or January 12, 2000, but before the
effective date, the effects of applying this Interpretation are recognized on
a prospective basis from July 1, 2000. The adoption of this Interpretation did
not have a material impact on the Company's financial position, results of
operations or cash flows.
Cautionary Statements for Forward Looking Information
Management's discussion and analysis set forth above contains certain
forward looking statements, including statements regarding its financial
position and results of operations. These forward looking statements are based
on current expectations. Certain factors have been identified by the Company
which could cause the Company's actual results to differ materially from
expected and historical results. These factors are discussed in the Safe
Harbor for Forward Looking Statements section of the Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
Company's Form 10-K for the year ended December 31, 1999, and should be read
in conjunction with this Form 10-Q.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk primarily from interest rates on its
$15.0 million credit facility with Coast Business Credit, a division of
Southern Pacific Bank. The credit facility, as amended, provides for (i) a
term loan in the principal amount of $1.5 million, (ii) a term loan of up to
80% of the purchase price of new and used equipment, not to exceed $9.0
million, and (iii) a revolving loan based on a percentage of eligible accounts
receivable. Loans under the credit facility bear interest at the higher of 7%
or interest rates ranging from the prime rate plus 1 1/2% to the prime rate
plus 2%, and interest is based on a minimum outstanding principal balance of
the greater of $5.0 million or 33% of the available credit facility.
The sensitivity analysis below, which hypothetically illustrates our
potential market risk exposure, estimates the effects of hypothetical sudden
and sustained changes in the applicable market conditions on 2000 earnings.
The sensitivity analysis presented does not consider any additional actions
the Company may take to mitigate its exposure to such changes. The market
changes, assumed to occur as of September 30, 2000, include a 50 basis point
and a 100 basis point change in market interest rates. The hypothetical
changes and assumptions may be different from what actually occurs in the
future.
As of September 30, 2000, the Company had no derivative financial
instruments to manage interest rate risk. As such, the Company is exposed to
earnings and fair value risk due to changes in interest rates with respect to
its revolving line of credit and its long-term obligations. As of September
30, 2000, approximately 13.8% of the Company's credit facility and long-term
obligations were floating rate obligations. The detrimental effect on the
Company's earnings of the hypothetical 50 basis point and 100 basis point
increase in interest rates described above for the nine months ended September
30, 2000 would be approximately $43,000 and $87,000, respectively, before
income taxes.
The Company does not have any other material market risk exposure.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently a party to any material legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 11(a)--Calculation of Shares Used in Determining Net Loss Per Share
Exhibit 27--Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-K was filed on August 1, 2000, to report that the Company
had extended the expiration date of its exchange offer for all of its
outstanding $75 million 12 3/4% Series B senior notes due November 15, 2001
until 5:00 p.m., New York City time, on September 15, 2000. The exchange offer
was previously scheduled to expire at 5:00 p.m., New York City time, on July
31, 2000. The Company also announced that it is in continuing discussions with
a number of parties, including two major financial institutions which the
Company has been working with since earlier this year, to arrange the
financing necessary to complete the exchange offer.
A report on Form 8-K was filed on September 18, 2000 to report that the
Company had extended the expiration date of its exchange offer for all of its
outstanding $75 million 12 3/4% Series B senior notes due November 15, 2001
until 5:00 p.m., New York City time, on October 31, 2000. The Company also
announced that its continuing discussions with several major financial
institutions to arrange the financing necessary for the exchange offer are
proceeding well and that the Company is optimistic that the necessary
financing will be available prior to the expiration date.
A report on Form 8-K was filed on October 2, 2000, to report that the
Company entered into a definitive merger agreement with Genesys S.A., a
corporation organized under the laws of France ("Genesys Conferencing"),
pursuant to which Genesys Conferencing will acquire the Company. As part of
the transaction, Genesys Conferencing will apply for listing on the Nasdaq
stock market of American Depositary Shares (ADSs) representing its underlying
ordinary shares that Vialog shareholders will be entitled to receive pursuant
to the merger. To effect the acquisition, the merger agreement provides that
the Company's shareholders will receive the ADS equivalent of 0.2563 of a
Genesys Conferencing ordinary share in exchange for each share of the
Company's common stock, subject to a "collar," which provides that the
Company's shareholders could receive the ADS equivalent of between 0.2183
Genesys Conferencing ordinary shares and 0.3352 Genesys Conferencing ordinary
shares for each Company share depending on the Genesys Conferencing share
price at the closing of the acquisition as determined in accordance with the
merger agreement. Based on the closing prices of Genesys Conferencing's
ordinary shares at around the date the merger agreement was filed, (i) the
transaction is valued at approximately $241 million, or approximately $90
million in Vialog debt plus $13.26 per Vialog share, and (ii) Vialog
shareholders would own approximately 21 percent of Genesys Conferencing upon
the closing of the acquisition. The closing of the acquisition, which is
expected to occur in the first quarter of 2001, is subject to the approval of
the Company's shareholders, the approval of the issuance of the new Genesys
Conferencing shares underlying the ADSs by Genesys Conferencing's
shareholders,the listing of the ADSs on the Nasdaq Stock Market and other
customary closing conditions. The merger agreement also provides that under
certain circumstances, the Company will pay Genesys Conferencing a $5.25
million fee if the merger is terminated.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VIALOG Corporation
(Registrant)
Date: November 14, 2000 /s/ Kim A. Mayyasi
_____________________________________
Kim A. Mayyasi,
President and Chief Executive
Officer
/s/ Michael E. Savage
_____________________________________
Michael E. Savage,
Senior Vice President and CFO
(Principal Financial Officer and
Principal Accounting Officer)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
10--Fourth Amendment to Loan and Security Agreement
11(a)--Calculation of Shares Used in Determining Net Loss Per Share
27-- Financial Data Schedule
</TABLE>
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