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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 29, 2000.
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _____________ to _____________ .
COMMISSION FILE NUMBER 1-15139
LANIER WORLDWIDE, INC.
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(Exact Name of Registrant as Specified in Its Charter)
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<S> <C>
DELAWARE 59-2606737
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
2300 PARKLAKE DRIVE, ATLANTA, GEORGIA 30345
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(Address of Principal Executive Offices)
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Registrant's Telephone Number, including Area Code 770-496-9500
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Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report.
Indicate by check 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 [ ]
Number of shares of common stock outstanding as of the close of business on
November 6, 2000: 84,768,152
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TABLE OF CONTENTS
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PART I
Item 1. Financial Statements (Unaudited)
CONSOLIDATED BALANCE SHEETS............................................................... 3
CONSOLIDATED STATEMENTS OF INCOME......................................................... 4
CONSOLIDATED STATEMENTS OF CASH FLOWS..................................................... 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................... 16
PART II
Item 4. Submission of Matters to a Vote of Security Holders...................................... 17
Item 5. Other Information........................................................................ 17
Item 6. Exhibits and Reports on Form 8-K......................................................... 18
SIGNATURES................................................................................................. 19
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PART I
ITEM 1. FINANCIAL STATEMENTS.
LANIER WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
2000 2000
(UNAUDITED) (AUDITED)
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................ $ 11,663 $ 8,651
Trade receivables ........................................ 311,697 323,129
Inventories .............................................. 157,616 155,790
Prepaid expenses ......................................... 19,939 18,146
Deferred income taxes .................................... 34,820 39,318
------------ ------------
Total current assets .............................. 535,735 545,034
OTHER ASSETS
Rental equipment, less allowance for
depreciation ($233,659 at Sept. 29,
2000 and $234,712 at June 30, 2000) .................. 114,966 125,793
Property, plant and equipment, less
allowance for depreciation ($84,255 at
Sept. 29, 2000 and $82,438 at June 30, 2000) .......... 40,723 40,180
Notes receivable -- net .................................. 191,740 203,170
Intangibles, less accumulated
amortization ($35,270 at Sept. 29, 2000 and
$34,039 at June 30, 2000) ............................. 104,072 108,250
Other .................................................... 29,514 27,700
------------ ------------
Total other assets ................................ 481,015 505,093
------------ ------------
TOTAL ASSETS ............................................. $ 1,016,750 $ 1,050,127
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable ............................................ $ 261,692 $ 259,073
Trade payables ........................................... 57,601 58,493
Accrued compensation ..................................... 39,059 42,381
Accrued interest and sundry taxes ........................ 17,404 19,344
Other accrued items ...................................... 31,659 44,891
Unearned service income .................................. 48,267 54,045
Income taxes ............................................. 5,372 6,822
Long-term debt current portion ........................... 821 1,185
------------ ------------
Total current liabilities ......................... 461,875 486,235
OTHER LIABILITIES
Deferred income taxes .................................... 10,860 10,798
Retirement plan accounts ................................. 38,869 38,705
Long-term debt ........................................... 389,048 389,619
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value:
25,000,000 shares authorized; none issued ............. -- --
Common Stock, $.01 par value:
500,000,000 shares authorized;
87,851,196 shares issued and outstanding .............. 879 879
Additional paid-in capital ............................... 191,273 195,702
Retained earnings ........................................ (11,260) (12,541)
Accumulated other comprehensive loss ..................... (53,512) (41,861)
Treasury stock ........................................... (11,282) (17,409)
------------ ------------
Total stockholders' equity ...................... 116,098 124,770
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............. $ 1,016,750 $ 1,050,127
============ ============
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3
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LANIER WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
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SEPTEMBER 29, OCTOBER 1,
2000 1999
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(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
REVENUE
Product sales and rentals ............................. $ 148,612 $ 168,504
Service income ........................................ 129,150 139,124
Finance income ........................................ 10,957 10,317
---------- ----------
288,719 317,945
COSTS AND EXPENSES
Cost of product sales and rentals ..................... 118,865 118,695
Cost of service ....................................... 69,001 76,890
Selling and administrative expenses ................... 80,220 98,558
Interest expense ...................................... 15,578 5,589
Other - net ........................................... 2,955 2,466
---------- ----------
286,619 302,198
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Income before income taxes ............................ 2,100 15,747
Income taxes .......................................... 819 6,030
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NET INCOME ................................................. $ 1,281 $ 9,717
========== ==========
Weighted average number of shares outstanding............ 84,320
Basic earnings per share................................. $ 0.02
==========
Weighted average number of shares
outstanding assuming dilution............................ 84,559
Diluted earnings per share................................ $ 0.02
==========
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LANIER WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 29, 2000 OCTOBER 1, 1999
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(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................ $ 1,281 $ 9,717
Adjustments to net income:
Depreciation ................................................... 23,841 25,792
Amortization ................................................... 1,586 2,261
Changes in assets and liabilities:
Trade receivables .............................................. 22,862 20,054
Receivables from Harris ........................................ -- 12,731
Inventories .................................................... (1,826) (30,841)
Prepaid expenses ............................................... (1,793) 2,112
Trade payables and accrued liabilities ......................... (19,223) (15,072)
Unearned service income ........................................ (5,778) (7,597)
Income taxes ................................................... 3,048 3,362
Other .......................................................... (2,859) (5,062)
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Net cash provided by operating activities ................... 21,139 17,457
INVESTING ACTIVITIES:
Capital expenditures:
Cash paid for acquired business ................................ -- (200)
Property, plant and equipment .................................. (5,099) (5,598)
Rental equipment ............................................... (14,458) (19,954)
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Net cash used in investing activities ................... (19,557) (25,752)
FINANCING ACTIVITIES:
Proceeds from borrowings .......................................... 143,522 4,543
Issuance of treasury stock ........................................ 1,698 --
Repayments of borrowings .......................................... (136,435) (2,288)
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Net cash provided by financing activities .................. 8,785 2,255
Effect of exchange rates on cash and cash equivalents ................ (7,355) 2,686
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................... 3,012 (3,354)
Cash and cash equivalents at beginning of year ....................... 8,651 18,209
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 11,663 $ 14,855
========== ==========
</TABLE>
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LANIER WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 29, 2000
NOTE A. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements include
the accounts of Lanier Worldwide, Inc. and Subsidiaries ("Lanier"). Lanier is
engaged in the selling and leasing of office equipment products and provides
related services to this marketplace. Prior to November 1999, Lanier was a
wholly owned subsidiary of Harris Corporation ("Harris"). On November 5, 1999,
Lanier was spun-off as a separate publicly traded company (the "Spin-Off").
These statements have been prepared in conformity with generally accepted
accounting principles and require management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant intercompany
transactions and accounts have been eliminated.
Corporate allocation of expenses charged by Harris in the first quarter
of fiscal 2000 was $1.7 million. This was based upon a pro-rata share of $7.0
million, management's estimate of the cost to perform these services on a
stand-alone basis. Estimated charges include administration expenses such as
legal and audit services, risk management, investor relations and board of
director's charges. In the opinion of management, the allocation methods used
are reasonable. Interest expense is provided on direct borrowings of Lanier.
Interest expense of Harris was not allocated to Lanier. It is not practicable to
estimate what stockholder's equity would have been if Lanier had operated as an
unaffiliated entity.
Derivatives and Hedging Activities. In June 1998, the Financial
Accounting Standards Board issued FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). The statement establishes
standards for recording derivative financial instruments and the recognition of
gains or losses resulting from changes in the fair values of those instruments.
The adoption of FAS 133 on July 1, 2000 resulted in no significant impact on
income in the consolidated statement of income, and a gain of $0.5 million in
other comprehensive income.
NOTE B. DEBT
On August 2, 2000, Lanier amended its Syndicated Credit Facilities to
modify certain covenants effective as of June 30, 2000. Also on August 2, 2000,
the 364-day revolver was reduced to $52.6 million and extended to August 2001.
The Syndicated Credit Facilities now total $534.6 million consisting of a $450
million 5-year multi-currency revolver terminating in October 2004, a $32
million term loan maturing in October 2001 and the $52.6 million 364-day
revolver.
The Syndicated Credit Facilities contain a sub-facility for up to $80
million in standby letters of credit. Outstanding standby letters of credit
under this sub-facility totaled approximately $45 million at September 29, 2000
including amounts to back up certain bilateral bank credit lines.
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At September 29, 2000 Lanier had short-term debt of $23.5 million and a
combined total of $168.0 million outstanding under a $48 million U.S. trade
receivable securitization program and a $190 million U.S. Lease securitization
program, respectively. Further, Lanier has bilateral foreign bank credit lines
and miscellaneous credit lines totaling $91.9 million, of which $49.5 million
was outstanding.
NOTE C. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss relates to: (i) foreign currency
translation adjustments arising from Lanier's foreign subsidiaries; (ii) an
unrealized holding loss on the investment in Allscripts Inc. common stock and
related equity collars; and (iii) interest rate swaps related to floating rate
long-term debt.
NOTE D. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES
In the fourth quarter of fiscal 2000, Lanier announced a worldwide
restructuring program intended to address issues created by the technology
transition within the document management industry. In connection with this
program, Lanier recorded a $33.8 million pre-tax charge to earnings ($28.5
million after tax). $22.7 million of the total charge is for severance payments
related to the elimination of approximately 460 jobs worldwide. The employees
affected by the plan are predominantly in the administration and service areas.
Also included is $1.0 million for closing facilities and $4.9 million for
exiting certain markets. An asset impairment charge of $5.2 million relates to
the write-down of goodwill in one of Lanier's foreign subsidiaries as management
determined that the carrying value of this goodwill was not recoverable from
future expected cash flows.
The following table presents the status of the restructure reserve (in
millions):
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<CAPTION>
Charged Reserve
Total to Balance at
Reserve Reserve September 29, 2000
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<S> <C> <C> <C>
Severance and related costs ...................... $ 22.7 $ 12.3 $ 10.4
Facility consolidation and exiting
certain markets ............................ 5.9 2.5 3.4
Asset impairments ................................ 5.2 5.2 --
--------- --------- ---------
$ 33.8 $ 20.0 $ 13.8
========= ========= =========
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As of September 29, 2000, approximately 338 employees have left Lanier
as part of the restructuring program. Management expects that the restructuring
program will be completed before the end of fiscal 2001.
NOTE E. SEGMENT DATA
Lanier has two reportable segments, U.S. Operations and International
Operations.
U.S. Operations. Lanier's U.S. Operations provide customers with a wide
array of customized document management solutions including black and white
digital and analog copiers, color copiers, facsimile systems, multi-function
devices, dictation equipment, computer based health care management systems,
associated parts and supplies, and a wide variety of professional services.
Lanier markets these products both on a direct sales basis and through its
national dealer network.
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International Operations. Lanier operates internationally through
direct operations in 26 countries, predominantly in Europe and Latin America.
Additionally, Lanier has indirect operations through a network of dealers and
distributors, which, combined with direct operations, provide a market presence
in over 100 countries. Lanier's International Operations provide largely the
same products and services as described above with a smaller contribution from
dictation equipment, computer based health care management systems and
professional services. These products are also marketed on a direct sales basis
and through its network of dealers and distributors.
The following table presents segment information for the three months
ended September 29, 2000 and October 1, 1999:
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<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------
SEPTEMBER 29, OCTOBER 1,
2000 1999
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Net revenue:
United States .................................................. $ 187,129 $ 199,473
International .................................................. 101,246 117,572
Corporate and other ............................................ 344 900
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Total net revenue ........................................... $ 288,719 $ 317,945
========== ==========
Net income (loss):
United States ................................................. $ 5,594 $ 5,037
International ................................................. (2,571) (690)
Corporate and other ........................................... (1,742) 5,370
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Total net income ........................................... $ 1,281 $ 9,717
========== ==========
Interest expense:
United States ................................................. $ 6,847 $ 6,385
International ................................................. 6,284 5,522
Corporate and other ........................................... 2,447 (6,318)
---------- ----------
Total interest expense ..................................... $ 15,578 $ 5,589
========== ==========
Income tax expense (benefit):
United States ................................................. $ 3,447 $ 3,099
International ................................................. 447 5
Corporate and other ........................................... (3,075) 2,926
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Total income tax expense: .................................. $ 819 $ 6,030
========== ==========
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<TABLE>
<S> <C> <C>
Assets:
United States ................................................... $ 660,344 $ 619,247
International ................................................... 358,533 444,461
Corporate and other ............................................. (2,127) 284,008
------------ ------------
Total assets: ............................................. $ 1,016,750 $ 1,347,716
============ ============
Long-lived assets:
United States ................................................... $ 148,530 $ 163,595
International ................................................... 111,231 142,844
Corporate and other ............................................. -- --
------------ ------------
Total long-lived assets ................................... $ 259,761 $ 306,439
============ ============
Depreciation and amortization:
United States ................................................... $ 12,075 $ 13,983
International ................................................... 13,352 14,070
Corporate and other ............................................. -- --
------------ ------------
Total depreciation and amortization .......................... $ 25,427 $ 28,053
============ ============
Expenditures for long-lived assets:
United States ................................................... $ 8,229 $ 13,247
International ................................................... 11,328 12,305
Corporate and other ............................................. -- --
------------ ------------
Total expenditures for long-lived assets .................... $ 19,557 $ 25,552
============ ============
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9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The consolidated balance sheet as of September 29, 2000, the
consolidated statement of income for the first quarter ended September 29, 2000,
and the consolidated statement of cash flows for the three-month period ended
September 29, 2000 have not been audited but have been prepared in conformity
with the accounting principles applied in the audited consolidated financial
statements for the fiscal year ended June 30, 2000 contained in Lanier's Annual
Report on Form 10-K. In the opinion of management, this information includes all
material adjustments necessary for a fair presentation. This Form 10-Q should be
read in conjunction with the audited consolidated financial statements and notes
included in the Annual Report.
Prior to the date of the Spin-off, operating expenses included
management fees charged by Harris to Lanier based upon a percentage of Lanier's
sales intended to cover legal, financial and other administrative expenses.
Since the Spin-off, Lanier has acquired these services independently. Interest
expense prior to the Spin-off was related to the outstanding debt as a
subsidiary of Harris. Post Spin-off interest expense is significantly higher as
a result of the debt incurred to enable the payment of the Spin-off dividend to
Harris.
Statement of Financial Accounting Standards No. 131 requires that
segment data be measured and reported on a basis that is consistent with how a
business reports activities internally to management. Prior to June 30, 2000,
Lanier operated its business as a single segment. As a result of restructuring
undertaken in the fourth quarter of fiscal 2000, Lanier has adopted a management
structure beginning in fiscal 2001 that divides Lanier into two distinct
operating segments, U.S. Operations and International Operations.
The following management discussion and analysis has been prepared
assuming the new management structure and method of allocating shared costs were
in effect for periods reported. See "Note E - Segment Data" of the accompanying
consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that reflect Lanier's
current assumptions and estimates of future performance and economic conditions.
Such statements are made in reliance upon the safe harbor provisions of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Lanier may make these statements directly in
this document or incorporate such statements into this document by reference to
other documents. Lanier may also include statements pertaining to periods
following September 29, 2000. Many of these statements may be identified by
words such as "believes," "expects," "plans," "anticipates," "projects,"
"estimates," "should result" or "are expected to," or similar expressions. Any
forward-looking statements are subject to risks and uncertainties that may cause
actual results and future trends to differ materially from those projected,
stated or implied by the forward-looking statements.
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Lanier's results and the accuracy of the forward-looking statements
could be affected by, among other things: general economic conditions in the
markets in which Lanier operates; economic developments that have a particularly
adverse effect on one or more of the markets Lanier serves; the ability to
execute management's internal operating plans; the ability to attract and retain
key management personnel; stability of key markets for office products and
document management solutions; changes in interest rates; fluctuation in foreign
currency exchange rates and the effectiveness of currency hedging programs; and
worldwide demand and product and service pricing for office products and
document management solutions. Additional information concerning these risks and
uncertainties is contained in this Form 10-Q. Caution should be taken not to
place undue reliance on any forward-looking statements, since such statements
speak only as of the date of the making of such statements. Lanier disclaims any
intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events, or otherwise.
RESULTS OF OPERATIONS
Lanier is reporting lower revenue and earnings for the first quarter of
fiscal 2001 versus the comparable period in the prior fiscal year. Management
believes the decline was principally attributable to: (i) competitive pricing
pressures largely attributable to the industry-wide transition from analog to
digital products; (ii) a reduction in service revenue primarily related to a
decline in unit population within the core business; and (iii) strengthening of
the U.S. dollar against foreign currencies, primarily European, which decreased
revenues by $12.4 million in the quarter ended September 29, 2000, calculated on
a constant-rate basis.
Gross margin declined to 34.9% for the first quarter of fiscal 2001
compared to 38.5% for the comparable period in the prior fiscal year. Management
believes the decline was principally attributable to competitive pressures which
have impacted both product and service margins. Further, management believes
margin erosion will likely continue, at least for the duration of the industry
transition to digital products, but cannot predict accurately the rate of margin
erosion or when, if at all, margins will improve.
REVENUE
Revenue for the first quarter of fiscal 2001 decreased $29.2 million,
or 9.2%, to $288.7 million from $317.9 million for the first quarter of fiscal
2000. During the twelve months ended September 29, 2000, the U.S. dollar
strengthened 20.0% against the Euro, decreasing Lanier's reported revenue for
the first quarter of fiscal 2001 by $11.7 million. Net of the total currency
translation effect of $12.4 million due to the strong U.S. dollar, first quarter
revenue decreased $16.8 million or 5.3% from the prior year's quarter.
Management believes recurring revenues consisting of service and supplies were
adversely impacted by a decline in the unit population within the core business
as well as copiers losing page output to printers. Further, sales of Lanier's
voice product products and services revenues in the United States were $9.5
million lower for the period compared to the prior year.
Revenue from Lanier's U.S. Operations for the first quarter of fiscal
2001 decreased $12.4 million, or 6.2%, to $187.1 million from $199.5 million for
the first quarter of fiscal 2000.
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Management believes this decline was primarily a result of the voice products
decline as well as lower service and supply revenue within the core business.
Revenue from Lanier's International Operations for the first quarter of
fiscal 2001 decreased $16.4 million, or 13.9%, to $101.2 million from $117.6
million for the prior year. The decline was primarily due to the translation
effect resulting from the strengthening of the U.S. dollar against the Euro,
reducing international operations revenue by $11.7 million. Management believes
the remainder of the decline was related to competitive pressures within the
industry resulting from the transition from analog to digital technology based
products.
Product Sales and Rentals. Product sales and rentals revenue for the
first quarter of fiscal 2001 decreased $19.9 million, or 11.8%, to $148.6
million from $168.5 million for the first quarter of fiscal 2000. Calculated on
a constant rate basis, the strengthening of the U.S. dollar versus foreign
currencies, primarily European, reduced revenue by $7.1 million for the first
quarter of fiscal 2001. Net of the currency translation effect, product sales
and rentals revenue decreased $12.8 million, or 7.6%, for the first quarter of
fiscal 2001 versus the comparable period in the prior year. Management believes
increased discounting as competitors attempt to maintain or increase their
installed base and a greater market presence from manufacturers are the primary
contributors to this decline. In addition, Lanier's voice products revenues
declined $7.7 million for the first quarter of fiscal 2001 compared to the first
quarter of fiscal 2000.
Service Income. Service income for the first quarter of fiscal 2001
decreased $10.0 million, or 7.2%, to $129.1 million, from $139.1 million for the
first quarter of fiscal 2000. Calculated on a constant rate basis, the
strengthening of the U.S. dollar against foreign currencies, primarily European,
reduced revenue by $5.3 million for the first quarter of fiscal 2001. Net of the
currency translation effect, service income decreased $4.7 million, or 3.4%, for
the first quarter of fiscal 2001 versus the comparable period in fiscal 2000.
Management believes the remainder of the decline was attributable to a
combination of copiers losing page output to printers, pricing pressures
associated with the industry transition to digital products and a lower machine
population.
Finance Income. For the first quarter of fiscal 2001, finance income
increased $0.7 million, or 6.8%, to $11.0 million from $10.3 million for the
first quarter of fiscal 2000. Management attributed this year's increase to the
company's continued emphasis on capital lease arrangements in place of operating
lease programs.
Gross Margin. Presented below is detailed information on gross margin:
<TABLE>
<CAPTION>
First First Change
Quarter Quarter (Percentage
F2001 F2000 Points)
------- ------- -----------
<S> <C> <C> <C>
Total Gross Margin ............................... 34.9% 38.5% (3.6)
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Product Sales & Rentals Gross
Margin............................................ 20.0% 29.6% (9.6)
Service Gross Margin ............................. 46.6% 44.7% 1.9
</TABLE>
Total gross margin for the first quarter of fiscal 2001 decreased by
$21.5 million, or 17.6%, to $100.9 million from $122.4 million for the first
quarter of fiscal 2000. The currency translation effect from the strengthening
of the U.S. dollar relative to foreign currencies was responsible for $4.0
million of this decline. Gross margin from the sale of voice products and
related services decreased by $5.8 million for the first quarter of fiscal 2001
compared to the first quarter of fiscal 2000. Management believes the remaining
decrease of $11.7 million was principally attributable to ongoing price
competition for unit placements and copiers losing page output to printers
resulting in lower after-sale revenue streams of high margin parts and supplies.
Management believes the increase in service gross margin percentage is a result
of an aggressive cost containment program coupled with the effects of the
restructuring program instituted in the fourth quarter of fiscal year 2000.
Selling and Administrative Expenses. Selling and administrative
expenses for the first quarter of fiscal 2001 decreased $18.4 million, or 18.7%,
to $80.2 million from $98.6 million for the first quarter of fiscal 2000. The
strengthening of the U.S. dollar relative to foreign currencies was responsible
for $3.0 million of this decline. Management attributed the remaining reduction
to lower payments under incentive compensation plans, the restructuring program
instituted in the fourth quarter of fiscal 2000 and the reversal of a $1.8
million accrual previously established for potential liability arising under
litigation which was favorably resolved during the quarter.
Administrative expenses for the first quarter of fiscal 2000 included a
management fee allocation from Lanier's former parent company of $1.7 million.
This amount was based upon the estimated level of expenses management expected
to incur as an independent public company.
Interest Expense and Other. Interest expense for the first quarter of
fiscal 2001 increased $10.0 million to $15.6 million from $5.6 million for the
first quarter of fiscal 2000. The increase in interest expense was a result of
the higher debt levels incurred to enable the payment of the Spin-off dividend
to Harris. Other expense for the first quarter of fiscal 2001 increased by $0.5
million from $2.5 million in fiscal 2000 to $3.0 million in fiscal 2001.
Differences were principally attributable to interest income and currency gains
on loans to Harris entities in fiscal year 2000 which were forgiven as part of
the Spin-off.
Provision for Income Taxes. Lanier's effective tax rate for the first
quarter of fiscal 2001 was 39% versus 38.3% for the comparable period in the
prior fiscal year. This year's increase in the effective tax rate was primarily
attributable to foreign losses for which Lanier was unable to recognize a tax
benefit.
Net Income. Net income for the first quarter of fiscal 2001 decreased
to $1.3 million from $9.7 million for the first quarter of fiscal 2000. The
decline was principally attributable to declines in revenue and gross margin, as
described above, and the additional interest and other expenses incurred as a
result of the Spin-off. Net income was positively impacted by the reversal
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<PAGE> 14
of the $1.8 million accrual discussed above. Net income for U.S. Operations
increased $0.6 million to $5.6 million as compared to $5.0 million from the
prior year. The net loss for International Operations increased $1.9 million to
$2.6 million from $0.7 million from the first quarter of fiscal 2000.
Earnings per Share. For the first quarter of fiscal 2001, basic and
diluted earnings per share amounted to 2 cents. This amount was calculated based
on 84,319,998 shares, the weighted average number of shares outstanding during
the quarter. The weighted average number of diluted shares included a dilutive
effect of 239,741 shares related to stock option and performance share programs.
LIQUIDITY AND CAPITAL RESOURCES
Lanier's operations are funded by cash provided from operating
activities and by financing provided under its $534.6 million of Syndicated
Credit Facilities (collectively, the "Credit Facility"), its $238 million U.S.
receivable securitization programs and various other credit facilities. As of
September 29, 2000, the Credit Facility, the U.S. securitization programs and
various other credit facilities had $410.6 million, $191.5 million and $49.5
million outstanding, respectively. Additionally, Lanier had approximately $45
million of outstanding letters of credit at September 29, 2000.
At September 29, 2000, Lanier's $534.6 million Credit Facility
consisted of three tranches: a $52.6 million 364-day revolving debt facility
expiring in August 2001, a $32 million 2-year term loan maturing in October 2001
and a $450 million five-year revolving debt facility expiring in October 2004.
Covenants, restrictions and rates are essentially the same for all three
tranches of the Credit Facility.
On August 2, 2000, Lanier amended its Credit Facility agreements and
lease securitization facility to modify certain covenants effective as of June
30, 2000. Also on August 2, 2000, the 364-day facility was reduced to $52.6
million and extended to August 2001. Further, the U.S. lease securitization
facility was reduced to $190 million. Including these changes, Lanier has
borrowing capacity of $534.6 million under its Credit Facility, $48 million
under its trade receivable securitization facility, $190 million under its lease
securitization facility and approximately $90 million under various other
facilities.
ANALYSIS OF CASH FLOWS
Net cash provided by operating activities for the first quarter of
fiscal 2001 increased $3.6 million to $21.1 million from $17.5 million for the
first quarter of fiscal 2000.
For the first quarter of fiscal 2001, the following net changes in
assets and liabilities impacted operating cash flow: (i) a decrease in trade and
notes receivables of $11.4 million and $11.5 million, respectively, primarily
due to lower sales; (ii) a $9.9 million use of cash for severance payments to
employees terminated under the restructuring program, as well as lower payments
under the company's incentive compensation plans and the resulting reduction of
the related accrued liabilities; and (iii) a decrease in unearned service income
of $5.8 million resulting from an industry-wide trend toward cost-per-copy
billing programs billed in arrears and away from prepaid service agreements.
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<PAGE> 15
Capital expenditures for the first quarter of fiscal 2001 were $5.1
million for property, plant and equipment primarily used in the facilities
management business and $14.5 million for rental equipment, compared to $5.6
million and $20.0 million, respectively, for the comparable period in the prior
fiscal year.
Cash provided by financing activities in the first quarter of fiscal
2001 was $8.8 million, compared to $2.3 million for the first quarter of 2000.
Proceeds from borrowings for the first quarter of fiscal 2001 totaled $143.5
million. Repayments of borrowings in the first quarter of fiscal 2001 were
$136.4 million. Borrowings and repayments were primarily due to refinancing
short-term working capital requirements.
Lanier has no material commitments other than supply agreements with
vendors. Lanier will continue to make additional investments in facilities,
equipment and computer equipment to support revenue requirements. Cash flow from
operations, together with anticipated borrowing arrangements, is expected
adequately to finance operating cash requirements and capital expenditures
during this fiscal year. Lanier expects to fund future acquisitions, if any, and
long-term growth primarily with cash flows from operations, borrowings under the
Credit Facility and possible future issuance of equity or debt securities.
EURO CONVERSION
On January 1, 1999, certain member nations of the European Monetary
Union or EMU adopted a common currency, the Euro. For a three-year transition
period, both the Euro and individual participants' currencies will remain in
circulation. After January 1, 2002, the Euro will be the sole legal tender for
EMU countries. The adoption of the Euro affects many financial systems and
business applications as the commerce of these nations will be transacted in
both the Euro and the existing national currency. Approximately 18% of Lanier's
revenue for the first quarter of fiscal 2001 was derived from EMU countries
compared to 19% for the first quarter of 2000.
Lanier is currently addressing Euro-related issues and its impact on
information systems, currency exchange rate risk, taxation, contracts,
competition, and pricing. To date, Lanier has not experienced an adverse impact
or material expense related to the adoption of the Euro. All costs associated
with the adoption of the Euro have been expensed as incurred. Lanier has
implemented the Euro-compliant version of the European financial systems;
however, a phased approach has been adopted whereby Lanier's EU countries will
be converted to Euro as base currency by the fourth quarter of fiscal 2001.
Several manual-billing processes will also be automated in the same timeframe.
SEASONALITY
Lanier's business is somewhat seasonal as a result of its sales incentive
programs with the strongest revenue and profit occurring in the second and
fourth quarters. The results of operations for any interim quarter are not
necessarily indicative of results for a full year.
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<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Impact of Foreign Exchange. Lanier's international sales are generally
denominated in the currency of the foreign entities, which exposes it to
fluctuations in foreign currency exchange rates and to other material risks
associated with international operations. Lanier's primary foreign currency
market exposures include the Japanese yen, Euro, and Australian dollar.
Historically, earnings have not been adversely impacted by currency
fluctuations. Currency risk associated with foreign investments has been
mitigated by liabilities denominated in local functional currencies. In
addition, Lanier utilizes exchange rate agreements, which provide limited
protection against currency exchange risks. Factors that could impact the
effectiveness of the hedging program include volatility of currency markets and
the cost and availability of hedging instruments. A ten-percent adverse change
in currency exchange rates for foreign currency derivatives held at September
29, 2000 would have an impact of approximately $5.0 million on the fair value of
such instruments. This quantification of exposure to the market risk associated
with foreign exchange financial instruments does not take into account the
offsetting impact of changes in the fair value of foreign denominated assets,
liabilities, and firm commitments.
Lanier is exposed to currency transaction risk on certain purchases of
inventory from foreign suppliers, primarily in Japan. Historically, gains and
losses resulting from currency rate fluctuations have not had a material effect
on results of operations. However, Lanier's risk exposure may increase as
international sales increase in volume and geographic distribution. The impact
of translating the assets and liabilities of international operations into U.S.
dollars is included as a component of stockholders' equity.
Interest Rate Risk. Lanier is exposed to changes in interest rates,
primarily as a result of short-term and long-term debt with both fixed and
floating interest rates. Lanier uses interest rate swap agreements to hedge its
exposure to the change in interest rates on floating rate debt. Lanier has used
interest rate swap agreements to effectively fix the LIBOR rate on $187 million
of variable rate borrowings. If market interest rates had averaged 1.0% more
than actual rates in the first quarter of fiscal 2001, Lanier's interest
expense, after considering the effects of interest rate swap agreements, would
have increased, and income before taxes would have decreased, by approximately
$1.2 million. This amount is determined by considering the impact of the
hypothetical interest rates on Lanier's borrowing costs and interest rate swap
agreements. This analysis does not consider the effects of the reduced level of
overall economic activity that could exist in such an environment.
Allscripts Inc. Common Stock and Equity Collars. Lanier received
284,241 shares of common stock of Allscripts, Inc. (MDRX) as partial
compensation of its divestment of its equity in MasterChart, Inc. in the fourth
quarter of fiscal 2000. Lanier is restricted from selling this stock until the
fourth quarter of fiscal 2001. Lanier has entered into equity collars for all
shares owned maturing in the fourth quarter of fiscal 2001, which effectively
limit the value of Lanier's investment to a range of $27.44 to $34.08 per share.
At September 29, 2000, Lanier carried the stock and collars in other assets at
fair value of $7.7 million with a deferred loss of $1.3 million, net of tax, in
accumulated other comprehensive loss.
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<PAGE> 17
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Lanier's Annual Meeting of Stockholders was held on October 26, 2000.
The results of voting were as follows:
- Sidney E. Harris (for: 73,228,903; withheld: 4,919,882) and Amos R.
McMullian (for: 73,216,282; withheld: 4,932,503) were elected as
directors to serve for three-year terms.
- The amended and restated Lanier Worldwide, Inc. Stock Incentive Plan
was ratified (for: 65,536,021; against: 11,037,822; abstained:
3,574,942).
- The amended and restated Lanier Worldwide, Inc. Key Contributor
Incentive Plan was ratified (for: 70,232,185; against: 4,330,199;
abstained: 3,586,401).
- The amended and restated Lanier Worldwide, Inc. Long-term Incentive
Plan for Key Employees was ratified (for: 69,932,865; against:
4,584,619; abstained: 3,631,301).
- The appointment of Ernst & Young LLP as independent auditors for fiscal
year 2001 was ratified (for: 74,324,603; against: 540,132; abstained:
3,284,050).
ITEM 5. OTHER INFORMATION.
RISK FACTORS
Set forth below are certain risks relating to Lanier's business and the
industry in which Lanier competes. If any of the following risks actually
occurs, Lanier's business, financial condition and results of operations could
be materially and adversely affected.
LANIER OPERATES IN HIGHLY COMPETITIVE MARKETS
Lanier's competitors include the distribution units of large office
equipment manufacturers and independent distributors, as well as office
superstores and consumer electronics chains. As digital and other new technology
develops, Lanier may find itself competing with new distribution channels,
including computer distributors and value added resellers, for products
containing new technology. While Lanier is a significant distributor in the
office products and document management solutions market, certain competitors,
principally the distribution units of large office equipment manufacturers, may
have greater total financial, purchasing and/or sourcing power than Lanier.
Lanier believes that the principal competitive factors in the office products
and document management solutions market are price and product capabilities;
quality and speed of post-sales service support; availability of equipment,
parts and supplies; speed of delivery; financing terms; and availability of
financing, leasing or rental programs.
LANIER'S SUCCESS WILL DEPEND ON ITS ABILITY TO RESPOND TO TECHNOLOGICAL
DEVELOPMENTS
The document imaging and management industry is undergoing an evolution
in product, moving toward digital technology in a multi-functional office
environment. Lanier's success will partly depend on its ability to respond to
this rapidly changing environment. There can be no assurance that Lanier will be
able to anticipate which products or technologies will gain market acceptance or
that, even if Lanier does correctly anticipate market demand, Lanier's suppliers
will be willing or able to supply such products to Lanier at competitive prices.
Further, there can be no assurance that Lanier will be able to obtain any
manufacturer's authorization necessary to market any newly developed equipment.
Additionally, new products containing new technology may be sold through other
channels of distribution. While it is possible that technological advancements,
including the lowered per unit cost that often accompanies technological
improvements, may enhance unit sales, this trend may reduce Lanier's sales
revenues, and reliability improvements may result in reduced service revenues.
There is also no assurance that the on-going demand for office related copy or
printed output will increase. Lanier will also incur increased expenses for the
training of its sales and service personnel to familiarize them with such new
technologies.
LANIER RELIES ON OUTSIDE SUPPLIERS
Lanier relies on outside suppliers to manufacture the products that it
distributes, including Ricoh, Toshiba, Hewlett-Packard, Canon, Sharp and
Okidata. Although Lanier has long-term relationships with its suppliers, there
can be no assurance that products from Lanier's suppliers will continue to be
available in the future. While Lanier is not dependent on any one particular
supplier and has no reason to believe that access to current sources of products
will become restricted, loss of such access could have a material adverse effect
on Lanier's business, financial condition and results of operations.
LANIER IS DEPENDENT ON CERTAIN KEY PERSONNEL
Lanier's success depends to a significant extent on the continued
service of certain key management personnel. The loss or interruption of the
services of Lanier's senior management personnel or the inability to attract and
retain other qualified management, sales, marketing and technical employees
could also have an adverse effect on Lanier. Lanier uses a variety of incentive
plans to attract and retain key management personnel, including a stock
incentive plan, annual bonus plans, a pension plan and a 401(k) plan.
HISTORICAL FINANCIAL INFORMATION MAY BE OF LIMITED RELEVANCE
Historical financial information for Lanier presented for periods prior
to the completion of the spin-off (the "Spin-off") from Harris Corporation
("Harris") on November 5, 1999 does not reflect the results of operations,
financial position and cash flows of Lanier had it operated as a separate
stand-alone entity during such periods.
LANIER HAS A LIMITED OPERATING HISTORY AS AN INDEPENDENT PUBLIC COMPANY
Lanier has been an independent public company since the completion of
the Spin-off on November 5, 1999. From 1983 until the Spin-off, Lanier relied on
Harris for various financial, administrative and managerial expertise in
conducting its operations. Accordingly, Lanier has only a limited operating
history with which you can evaluate independently our business and our
prospects. There can be no assurance that Lanier will be able to develop and
maintain the financial, administrative and managerial structure necessary to
operate as an independent public company, or that the development and
maintenance of such structure will not require a significant amount of
management's time and other resources.
THE POSSIBILITY OF SUBSTANTIAL SALES OF SHARES MAY HAVE AN ADVERSE IMPACT ON THE
TRADING PRICE OF THE SHARES
Based on the number of shares of Harris common stock outstanding on
October 15, 1999, Harris distributed to its stockholders a total of
approximately 79,150,272 shares of Lanier common stock (the "Shares") on
November 5, 1999 (the "Distribution"). Under the United States federal
securities laws, almost all of the Shares may be resold immediately in the
public market.
Harris retained approximately 10% of the outstanding Shares and Lanier
granted Harris certain rights entitling Harris to cause Lanier to register its
Shares under the securities laws. Harris agreed not to sell its Shares for six
months following the Distribution, but has stated its intention to sell these
shares within two years after the Distribution. If Harris or Lanier stockholders
sell large numbers of Shares over a short period of time, or if investors
anticipate large sales of Shares over a short period of time, this could
adversely affect the trading price of the Shares.
FAILURE OF THE DISTRIBUTION TO QUALIFY AS A TAX-FREE TRANSACTION COULD RESULT IN
SUBSTANTIAL LIABILITY
Harris and Lanier intended for the Distribution generally to be
tax-free for federal income tax purposes. In connection with the Distribution,
Sullivan & Cromwell, special counsel to Harris, rendered an opinion that the
Distribution was tax-free to Harris stockholders for federal income tax purposes
except to the extent of any cash received in lieu of fractional Shares. This
opinion of counsel is not binding on the Internal Revenue Service and, as a
result, we cannot assure you that the Distribution qualifies as a tax-free
transaction. Additionally, even though the Distribution is tax-free to Harris
stockholders, it is possible that the Distribution could be rendered taxable to
Harris as a result of a subsequent acquisition of Harris or Lanier.
If the Distribution was deemed not to qualify for tax-free treatment,
then, in general, a substantial corporate tax would be payable by the
consolidated group of which Harris is the common parent based upon the
difference, at the time of the Distribution, between (1) the aggregate fair
market value of the Shares distributed in the Distribution and (2) Harris'
adjusted basis in the Shares. The corporate level tax would be payable by
Harris. However, under certain circumstances, Lanier has agreed to indemnify
Harris for all or a portion of this tax liability. This indemnification
obligation, if triggered, would have a material adverse effect on the results of
operations and financial position of Lanier. In addition, under the consolidated
return regulations, each member of Harris' consolidated group (including Lanier)
is severally liable for such tax liability.
Furthermore, if the Internal Revenue Service determines that the
Distribution does not qualify as tax-free for any reason other than a
post-Distribution acquisition of Harris or Lanier, each stockholder who received
Shares in the Distribution would generally be taxed as if he or she received a
dividend from Harris at the time of the Distribution equal to the fair market
value of his or her Shares at the time of the Distribution.
Harris would also incur a substantial corporate tax liability under
Section 355(e) of the Internal Revenue Code of 1986, as amended (the "Code"), if
Harris or Lanier were to be acquired by a third party within two years after the
Distribution and Harris fails to prove that the subsequent acquisition of Harris
or Lanier and the Distribution were not made pursuant to a plan or a series of
related transactions. Lanier would be obligated to indemnify Harris for all or a
portion of this substantial corporate tax liability under the Tax Disaffiliation
Agreement under certain circumstances. This indemnification obligation would
have a material adverse effect on the results of operations and financial
position of Lanier. Stockholders who received Shares in the Distribution would
not recognize a gain or loss under Section 355(e) of the Code solely because
either Harris or Lanier is acquired by a third party after the Distribution.
LANIER'S CREDIT FACILITY AND OTHER INDEBTEDNESS MAY RESTRICT CERTAIN ACTIVITIES
Lanier entered into a credit facility with a syndicate of lending
institutions (the "Credit Facility") and incurred debt under the Credit Facility
to enable payment of a dividend to Harris in conjunction with the Spin-off and
for general working capital purposes. The Credit Facility agreements contain:
(i) a covenant regarding maintenance of a leverage ratio, which is defined as
total debt divided by earnings before interest, taxes, depreciation and
amortization (EBITDA); (ii) an interest coverage covenant, which is defined as
earnings before interest, taxes, depreciation, amortization and rental expense
(EBITDAR) divided by interest and rental expenses; and (iii) a minimum net worth
covenant. The Credit Facility agreements do not allow Lanier to pay cash
dividends or make other distributions, or to redeem, purchase or otherwise
acquire shares of its capital stock. The Credit Facility agreements contain
covenants limiting total acquisitions in any fiscal year to $10 million. This
limit increases to $50 million as Lanier lowers its leverage ratio.
Additionally, the Credit Facility agreements contain covenants which,
among other things, require production of financial statements, notice of
material litigation and material governmental and environmental proceedings,
compliance with laws and contractual obligations, payment of taxes, maintenance
of insurance and limit the incurrence of additional indebtedness, mergers,
consolidations and sales of assets, dividends, prepayment of other debt,
investments, capital expenditures, sales and leaseback transactions and
transactions with affiliates. The Credit Facility agreements also contain
customary events of default, including payment defaults, inaccuracies of
representations and warranties, violation of covenants and cross defaults to
other indebtedness.
Indebtedness under the Credit Facility is guaranteed by Lanier's
domestic subsidiaries, and by a pledge of the capital stock of its domestic
subsidiaries and certain foreign subsidiaries and by a security interest in
substantially all of its personal property in the United States. Lanier may also
incur additional indebtedness under the Credit Facility from time to time for
general corporate purposes, including working capital, capital expenditures and
future acquisitions.
ADVERSE ECONOMIC CONDITIONS COULD AFFECT LANIER'S ABILITY TO SERVICE DEBT
Lanier's ability to service its indebtedness will depend on its future
operating performance, which will be affected by prevailing economic conditions
and financial and other factors, certain aspects of which Lanier cannot control.
While Lanier believes that future operating cash flow, together with financing
arrangements, will be sufficient to finance current operating requirements,
Lanier's leverage and debt service requirements may make Lanier more vulnerable
to economic downturns. If Lanier could not service its indebtedness, it would be
forced to pursue one or more alternative strategies such as reducing its capital
expenditures, selling assets, restructuring or refinancing its indebtedness or
seeking additional equity capital (which may substantially dilute the ownership
interest of holders of Shares). There can be no assurance that Lanier can affect
any of these strategies on satisfactory terms, if at all.
CHANGES IN LANIER'S CREDIT STANDING COULD REDUCE LANIER'S ABILITY TO FINANCE
CUSTOMER PURCHASES
A portion of Lanier's operating income arises from the financing of its
customers' purchases of Lanier products. On average, 46% of Lanier's aggregate
sales in the United States, Puerto Rico, Canada and Australia are financed
through leases that typically have a term of 3 to 5 years. In Europe, 16% of
Lanier's revenue is derived from rental arrangements that differ from leases
primarily because customers may terminate the rental agreement more quickly and
easily. Lanier's ability to provide financing at competitive rates and realize
operating income is highly dependent upon its own costs of borrowing, which in
turn depends upon Lanier's credit standing. Significant changes in such standing
could reduce the profitability of Lanier's financing business and/or make
Lanier's financing less attractive to customers. Lanier cannot be certain that
it can maintain credit standing sufficient to realize profits on the portion of
revenues derived from financing arrangements.
LANIER IS SUBJECT TO RISKS RELATED TO INTERNATIONAL OPERATIONS
Lanier operates a multinational business and, accordingly, is subject
to risks inherent in international operations. Non-U.S. operations generated
approximately 35% of Lanier's first quarter fiscal 2001 revenues compared to 38%
for the full year of fiscal 2000. Due to the significant amount of non-U.S.
revenues, fluctuations in the value of foreign currencies relative to the U.S.
dollar could increase the volatility of Lanier's U.S. dollar-denominated
operating results. Lanier's non-U.S. operations are also subject to political,
economic and other risks inherent in operating in countries outside the United
States, including possible adverse government regulation, imposition of import
and export duties and quotas, currency restrictions, price controls, potentially
burdensome taxation and/or other restrictive government actions.
LANIER IS SUBJECT TO RISKS RELATED TO FOREIGN CURRENCIES
Lanier purchases and sells a significant portion of its products using
currencies other than U.S. dollars. Approximately 38% of Lanier's fiscal 2000
cost of goods sold and 34% of Lanier's first quarter fiscal 2001 cost of goods
sold were denominated in foreign currencies. Approximately 35% of Lanier's
fiscal 2000 revenues and 32% of Lanier's first quarter fiscal 2001 revenues were
denominated in foreign currencies. Due to the significant portion of products
purchased and sold by Lanier in foreign currencies, fluctuations in the value of
foreign currencies relative to the U.S. dollar could have a material adverse
effect on Lanier's U.S. dollar-denominated operating results.
EURO CONVERSION COULD ADVERSELY IMPACT LANIER'S SYSTEMS
On January 1, 1999, certain member nations of the European Economic and
Monetary Union ("EMU") adopted a common currency, the Euro. For a three-year
transition period, both the Euro and the individual countries' currencies will
remain in circulation. After January 1, 2002, the Euro will represent the sole
legal tender for EMU countries. The adoption of the Euro affects a multitude of
financial systems and business applications, as EMU countries begin to conduct
commerce in the Euro and in their existing national currencies.
For the first quarter of fiscal 2001, Lanier derived 18% of its
revenues from EMU countries. Lanier is currently addressing Euro-related issues
and their impact on Lanier's information systems, currency exchange rate risk,
taxation, contracts, competition and pricing. Action plans being implemented are
expected to result in compliance with all applicable laws and regulations.
However, there can be no certainty that Lanier's plans to address Euro-related
issues are adequate or that they will be successfully implemented or that
external factors will not have a material adverse effect upon Lanier's
operations or business in the EMU or elsewhere.
LANIER IS SUBJECT TO FOREIGN TAXATION AND ITS BLENDED TAX RATE IS SUBJECT TO
CHANGE
Lanier's effective tax rate is a blend of rates based upon a mix of tax
rates in a variety of domestic and international tax jurisdictions. Changes in
future profitability in these jurisdictions could influence the future blended
tax rate.
CERTAIN PROVISIONS OF LANIER'S RESTATED CERTIFICATE OF INCORPORATION, BYLAWS AND
RIGHTS PLAN AND THE TAX DISAFFILIATION AGREEMENT MAY DISCOURAGE TAKEOVERS
Lanier's restated certificate of incorporation and bylaws contain
provisions that may make more difficult or expensive or that may discourage a
tender offer, change in control or takeover attempt that is opposed by Lanier's
board of directors. In particular, Lanier's restated certificate of
incorporation and bylaws:
- classify Lanier's board of directors into three groups, so that
stockholders elect only one-third of the board each year;
- permit stockholders to remove directors only for cause and only by
the affirmative vote of at least 80% of Lanier's voting shares;
- permit a special stockholders' meeting to be called only by a
majority of the board of directors;
- do not permit stockholders to take action except at an annual or
special meeting of stockholders;
- require stockholders to give Lanier advance notice to nominate
candidates for election to Lanier's board of directors or to make stockholder
proposals at a stockholders' meeting;
- permit Lanier's board of directors to issue, without stockholder
approval, preferred stock with such terms as the board may determine; and
- require the vote of the holders of at least 80% of Lanier's voting
shares for stockholder amendments to Lanier's bylaws.
The preferred stock purchase rights attached to the Shares would, in
effect, prevent a person or group from acquiring more than 15% of the total
number of Shares outstanding at anytime after the Distribution without approval
from Lanier's board of directors. In addition, Delaware law generally restricts
mergers and other business combinations between Lanier and any holder of 15% or
more of the Shares, unless the transaction or the 15% acquisition is approved in
advance by Lanier's board of directors.
These provisions of Lanier's restated certificate of incorporation and
bylaws, Delaware law and the preferred stock purchase rights could discourage
potential acquisition proposals and could delay or prevent a change in control
of Lanier, even though a majority of Lanier's stockholders may consider such
proposals, if effected, desirable. Such provisions could also make it more
difficult for third parties to remove and replace the members of Lanier's board
of directors. Moreover, these provisions could diminish the opportunities for
stockholders to participate in certain tender offers, including tender offers at
prices above the then-current market value of the Shares, and may also inhibit
increases in the trading price of the Shares that could result from takeover
attempts or speculation.
In connection with the Distribution, Lanier has agreed to indemnify
Harris for all taxes and liabilities incurred solely because: (i) Lanier
breaches a representation or covenant given to Sullivan & Cromwell in connection
with rendering its tax opinion, which contributes to an Internal Revenue Service
determination that the Distribution was not tax-free; or (ii) Lanier or an
affiliate's post-Distribution action or omission contributes to an Internal
Revenue Service determination that the Distribution was not tax-free. Unless
Harris effectively rebuts the presumption that a change in control transaction
involving Lanier or disposition of Lanier occurring prior to the second
anniversary of the Distribution Date is pursuant to the same plan or series of
related transactions as the Distribution, the Internal Revenue Service might
determine that the Distribution was not tax-free, giving rise to Lanier's
indemnification obligation. These provisions of the Tax Disaffiliation Agreement
may have the effect of discouraging or preventing an acquisition of Lanier or a
disposition of Lanier's businesses, which may in turn depress the market price
for the Shares.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
-------------- -----------------------
<S> <C>
3.1 Amended and Restated Certificate of
Incorporation of the Registrant
(incorporated herein by reference to Exhibit
3.1 to the Form 8-K filed by the Registrant
on November 12, 1999).
3.2 Amended and Restated By-Laws of the
Registrant (incorporated herein by reference
to Exhibit 3.2 to the Form 8-K filed by the
Registrant on November 12, 1999).
4.1 Stockholder Protection Rights Agreement,
dated November 5, 1999, between the
Registrant and ChaseMellon Shareholder
Services, LLC (incorporated herein by
reference to Exhibit 4.1 to the Form 8-K
filed by the Registrant on November 12,
1999).
10.1 Credit and Security Agreement, dated as of
June 7, 2000, among Lanier Lease Funding
LLC, the Registrant, Lanier Lease
Receivables LLC, Lanier Collections Limited
Partnership, Blue Ridge Asset Funding
Corporation, Falcon Asset Securitization
Corporation, Wachovia Bank, N.A. and Bank
One, N.A.
10.2 Performance Guaranty, dated as of June 7,
2000, by Registrant.
10.3 Amendment No. 1 to Credit and Security
Agreement, dated as of July 31, 2000, to
that certain Credit and Security Agreement,
dated as of March 31, 2000, among Lanier
Trade Funding LLC, the Registrant, Lanier
Collections Limited Partnership, Blue Ridge
Asset Funding Corporation and Wachovia Bank,
N.A.
10.4 Consent and Amendment No. 1, dated as of
August 2, 2000, to that certain Credit and
Security Agreement, dated as of June 7,
2000, among Lanier Lease Funding LLC, the
Registrant, Lanier Lease Receivables LLC,
Lanier Collections Limited Partnership, Blue
Ridge Asset Funding Corporation, Falcon
Asset Securitization Corporation, Wachovia
Bank, N.A. and Bank One, N.A.
27.1 Financial Data Schedules (For SEC use only).
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the first quarter of
fiscal 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LANIER WORLDWIDE, INC.
Dated: November 10, 2000 By: /s/ James A. MacLennan
----------------------------------------------------
James A. MacLennan
Executive Vice President and Chief Financial Officer
(Authorized Officer and Principal Financial Officer
of the Registrant)
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