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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______to_______
Commission File No.: 0-14685
GENICOM CORPORATION
(Exact name of registrant as specified in it charter)
<TABLE>
<S> <C>
DELAWARE 51-0271821
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
14800 CONFERENCE CENTER DRIVE
SUITE 400, WESTFIELDS
CHANTILLY, VIRGINIA 20151
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (703) 802-9200
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes x No_
As of November 3, 1997, there were 11,119,404 shares of Common Stock
of the Registrant outstanding.
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FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets - September 28, 1997 and December 29, 1996 3
Consolidated Statements of Income - Three Months and Nine Months Ended
September 28, 1997 and September 29, 1996 4
Consolidated Statements of Cash Flows - Three Months and Nine Months
Ended September 28, 1997 and September 29, 1996 5
Notes to Consolidated Financial Statements 6 - 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10 - 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15 - 16
Signatures 17
Index to Exhibits E-1
</TABLE>
<PAGE> 3
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 29,
(In thousands, except share data) 1997 1996
==================== =================
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,414 $ 5,866
Accounts receivable, less allowance for
doubtful accounts of $3,576 and $3,270 77,672 65,404
Other receivables 2,860 1,835
Inventories 62,755 46,947
Prepaid expenses and other assets 8,861 5,395
-------------------- -----------------
TOTAL CURRENT ASSETS 153,562 125,447
Property, plant and equipment 29,564 26,562
Goodwill 25,035 27,555
Other assets, principally intangibles 10,107 6,515
-------------------- -----------------
$ 218,268 $ 186,079
==================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt $ 5,062 $ 4,222
Accounts payable and accrued expenses 75,087 72,040
Deferred income 12,360 13,094
-------------------- -----------------
TOTAL CURRENT LIABILITIES 92,509 89,356
Long-term debt, less current portion 70,400 50,331
Other non-current liabilities 10,373 8,801
-------------------- -----------------
TOTAL LIABILITIES 173,282 148,488
-------------------- -----------------
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 18,000,000 shares
authorized, 11,089,447 and 10,983,439 shares issued 111 110
Additional paid-in capital 26,585 26,440
Retained earnings 19,811 12,162
Foreign currency translation adjustment (1,521) (1,121)
-------------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 44,986 37,591
-------------------- -----------------
$ 218,268 $ 186,079
==================== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
SEPTEMBER 28, SEPTEMBER 29,
(In thousands, except per share data) 1997 1996
================= ===================
<S> <C> <C>
REVENUES, NET:
Products $ 72,750 $ 38,888
Services 29,939 29,923
------------------ -------------------
102,689 68,811
------------------ -------------------
OPERATING COSTS AND EXPENSES:
Cost of revenues:
Products 50,663 26,089
Services 28,252 26,201
Selling, general and administration 15,251 14,534
Engineering, research and
product development 3,816 1,937
Gain on sale of investment in subsidiary
Environmental costs 1,479
Restructuring costs 4,183
------------------ -------------------
97,982 74,423
------------------ -------------------
OPERATING INCOME (LOSS) 4,707 (5,612)
Interest expense, net 1,868 1,147
Other income (63)
------------------ -------------------
INCOME (LOSS) BEFORE INCOME TAXES 2,839 (6,696)
Income tax expense (benefit) 553 (4,467)
------------------ -------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 2,286 (2,229)
EXTRAORDINARY ITEM - LOSS ON EXTINGUISHMENT
OF DEBT, NET OF $258 TAX
================== ===================
NET INCOME (LOSS) $ 2,286 $ (2,229)
================== ===================
Earnings (loss) per common share
and common share equivalent
Primary $ 0.18 $ (0.20)
================== ===================
Fully diluted $ 0.18 $ (0.20)
================== ===================
Weighted average number of common shares
and common share equivalents outstanding
Primary 12,660 10,968
------------------ -------------------
Fully diluted 12,694 10,968
================== ===================
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED,
SEPTEMBER 28, SEPTEMBER 29,
(In thousands, except per share data) 1997 1996
====================== ======================
<S> <C> <C>
REVENUES, NET:
Products $ 207,952 $ 122,190
Services 89,729 89,313
---------------------- ----------------------
297,681 211,503
---------------------- ----------------------
OPERATING COSTS AND EXPENSES:
Cost of revenues:
Products 142,578 84,727
Services 83,505 77,789
Selling, general and administration 48,036 39,821
Engineering, research and
product development 9,277 5,834
Gain on sale of investment in subsidiary (1,481)
Environmental costs 1,479
Restructuring costs 4,183
---------------------- ----------------------
283,396 212,352
---------------------- ----------------------
OPERATING INCOME (LOSS) 14,285 (849)
Interest expense, net 4,900 3,299
Other income (153)
---------------------- ----------------------
INCOME (LOSS) BEFORE INCOME TAXES 9,385 (3,995)
Income tax expense (benefit) 1,739 (3,876)
---------------------- ----------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 7,646 (119)
EXTRAORDINARY ITEM - LOSS ON EXTINGUISHMENT
OF DEBT, NET OF $258 TAX (422)
---------------------- ----------------------
NET INCOME (LOSS) $ 7,646 $ (541)
====================== ======================
Earnings (loss) per common share
and common share equivalent
Primary $ 0.61 $ (0.05)
====================== ======================
Fully diluted $ 0.60 $ (0.05)
====================== ======================
Weighted average number of common shares
and common share equivalents outstanding
Primary 12,472 10,918
====================== ======================
Fully diluted 12,683 10,918
====================== ======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
NINE MONTHS ENDED,
SEPTEMBER 28, SEPTEMBER 29,
(In thousands) 1997 1996
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 7,646 $ (541)
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation 10,063 10,856
Amortization 3,812 2,505
Environmental accrual 1,479
Restructuring charge 4,183
Gain on sale of Genicom de Mexico (1,481)
Changes in assets and liabilities net of effects from acquisitions:
Accounts receivable (13,293) 4,391
Inventories (15,008) 14,310
Accounts payable and accrued expenses 1,546 (13,290)
Deferred income (734) 714
Other 306 (6,691)
------------------ ----------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (5,662) 16,435
------------------ ----------------
Cash flows from investing activities:
Sale of Genicom de Mexico 3,950
Sale of equipment 350
Agreements with Digital Equipment Corporation (see Note 6) (4,276)
Additions to property, plant and equipment (13,618) (8,811)
Other (397) (259)
------------------ ----------------
NET CASH USED IN INVESTING ACTIVITIES (17,941) (5,120)
------------------ ----------------
Cash flows from financing activities:
Borrowings from long-term debt 56,905 63,806
Payments on long-term debt (35,996) (63,934)
Financing costs and transactions (1,468) (1,509)
------------------ ----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 19,441 (1,637)
------------------ ----------------
Effect of exchange rate changes on cash and cash equivalents (290) 20
------------------ ----------------
Net (decrease) increase in cash and cash equivalents (4,452) 9,698
Cash and cash equivalents at beginning of period 5,866 4,271
------------------ ----------------
Cash and cash equivalents at end of period $ 1,414 $ 13,969
================== ================
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying unaudited consolidated
financial statements of GENICOM Corporation and subsidiaries (the
"Company" or "GENICOM") contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the Company's
consolidated financial position as of September 28, 1997, and the
results of operations and cash flows for the periods indicated.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included
in the Company's December 29, 1996 Annual Report. The results of
operations for the nine months ended September 28, 1997, are not
necessarily indicative of the operating results for the full year.
2. Inventories are stated at the lower of cost, determined on the
first-in, first-out method, or market. Inventories consist of, in
thousands:
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 29,
1997 1996
--------------- ---------------
<S> <C> <C>
Raw materials $ 12,274 $ 9,105
Work in process 3,108 3,383
Finished goods 47,373 34,459
--------------- ---------------
$ 62,755 $ 46,947
--------------- ---------------
</TABLE>
3. Earnings per share are based upon the weighted average number of
common shares and dilutive common share equivalents (using the
treasury stock method) outstanding during the period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------ -----------------------------------------
SEPT. 28, SEPT. 29, SEPT. 28, SEPT. 29,
1997 1996 1997 1996
-------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Weighted average common share
outstanding 11,056 10,968 11,023 10,918
-------------------- ------------------- ------------------ -------------------
Dilutive common stock equivalents:
Options- Primary 1,604 1,449
-------------------- ------------------- ------------------ -------------------
Shares outstanding - Primary 12,660 10,968 12,472 10,918
-------------------- ------------------- ------------------ -------------------
Dilutive common stock equivalents:
Options - Fully diluted 1,638 1,660
-------------------- ------------------- ------------------ -------------------
Shares outstanding - Fully diluted 12,694 10,968 12,683 10,918
-------------------- ------------------- ------------------ -------------------
</TABLE>
4. For reporting periods ending after December 15, 1997, the Company will
be required to report earnings per share in accordance with SFAS
No. 128 "Earnings per Share". Basic earnings per share would have
been $0.21 and $(0.20) for the third quarter of 1997 and 1996,
respectively, and $0.69 and $(0.05) for the nine months ended
September 28, 1997 and September 29, 1996, respectively, if calculated
pursuant to SFAS No. 128.
6
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5. Texas Instruments Worldwide Printer Business
On September 30, 1996, the Company acquired certain assets of Texas
Instruments worldwide printer and related supplies business for the
purchase price of approximately $29.5 million. The acquisition was
financed primarily through the Company's credit facility with
NationsBank and a note of $9 million to Texas Instruments with
interest of approximately 8.5% payable over two years. The goodwill
of approximately $10 million associated with the purchase is being
amortized over seven years. The note to Texas Instruments was paid in
full in September 1997.
Pro Forma Financial Information
Presented below are the unaudited pro forma 1996 statements of
operations as if the acquired operations had been integrated into the
Company effective January 1, 1996. Accounting adjustments have been
made in the pro forma financial information to include estimated costs
of the combinations and to reflect the integration and consolidation
of facilities and personnel. Included in such integration costs are
relocation costs associated with facilities and employee expenses.
This pro forma information has been prepared for comparative purposes
only and does not purport to be indicative of the results that
actually would have been obtained if the acquired operations had been
conducted by the Company during the periods presented, and is not
intended to be a projection of future results. Presentation is in
thousands except for earnings per share amounts.
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------- ------------------------------------
SEPT. 28 SEPT. 29, SEPT. 28, SEPT. 29,
1997 1996 1997 1996
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenue $ 102,689 $ 91,914 $ 297,681 $ 288,921
Pre-Tax Income 2,839 (5,073) 9,385 1,445
----------------- ---------------- ---------------- ----------------
Net Income 2,286 (1,158) 7,646 3,049
----------------- ---------------- ---------------- ----------------
Earnings per share - Primary $ 0.18 $ (0.11) $ 0.60 $ 0.28
----------------- ---------------- ---------------- ----------------
Weighted average shares outstanding 12,660 10,968 12,472 10,918
----------------- ---------------- ---------------- ----------------
</TABLE>
6. Commitments and Contingencies
Environmental matters:
The Company and the former owner of its Waynesboro, Virginia facility,
General Electric Company ("G.E."), have generated and managed
hazardous wastes at the facility for many years as a result of their
use of certain materials in manufacturing processes. The Company and
the United States Environmental Protection Agency ("EPA") have agreed
to a corrective action consent order (the "Order"), which became
effective on September 14, 1990. The Order requires the Company to
undertake an investigation of solid waste management units at its
Waynesboro, Virginia facility and to conduct a study of any necessary
corrective measures that may be required. The investigative work under
the Order is expected to be completed by December 1997. Although not
required by the Order, the Company has agreed to install and operate
an interim ground water stabilization system, subject to EPA approval
of the system design. In 1996, the Company recorded a reserve for
$0.6 million for pond closure and monitoring for ten years related to
the Waynesboro facility. The interim groundwater stabilization
program may be chosen as the final remedy for the site, or additional
corrective measures may eventually be required. It is not possible to
reliably estimate the costs that any such possible additional
corrective measures would entail. However, if additional corrective
7
<PAGE> 8
measures are required, the Company expects that it will enter into
discussion with EPA concerning their scope and a further order for
that purpose.
The Company has been notified by the EPA that it is one of 700
potentially responsible parties ("PRPs") under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, for
necessary corrective action at a hazardous waste disposal site in
Greer, South Carolina. In prior years, the Company arranged for the
transportation of wastes to the site for treatment or disposal.
During 1995, the PRPs entered into an administrative consent order
with EPA under which they will undertake a remedial investigation and
feasibility study which is currently underway.
The Company was named as a defendant in an Original Petition and
Petition for Injunctive Relief filed in August 1995 which alleged that
the Company and certain other defendants were strictly liable for
damages allegedly suffered by the plaintiffs as a result of
contamination of groundwater at the Linn-Faysville Aquifer, in Texas,
due to the disposal of dangerous products and materials at a landfill
which was alleged to be the source of the contamination. This matter
was settled in May 1997 without the Company admitting liability,
curtailing additional legal expenses. The Company was fully reserved
for the amount of the settlement and related legal expenses.
Atlantic Design:
In December 1995, the Company entered into a five year agreement later
extended one year with Atlantic Design Company, a subsidiary of Ogden
Services Corporation, ("ADC") in which ADC took over the Company's
manufacturing operations and employees in McAllen, Texas and Reynosa,
Mexico. The agreement is automatically renewed unless notice is
given. ADC is committed to manufacturing all of the Company's impact
printer products, printed circuit boards, related supplies and spare
parts. The Company will retain design, intellectual property and
distribution rights. As part of this agreement, the Company is to be
a preferred provider of impact and page printers and multivendor
information technology services to Ogden Services Corporation.
Ogden Services Corporation is attempting to divest ADC. The Company's
contract with ADC contains a clause requiring GENICOM's consent to the
sale, which consent cannot be unreasonably withheld. The Company is
currently evaluating preliminary information received from ADC
concerning a potential purchaser.
In early August 1997, the Company received notification that ADC filed
a Demand for Arbitration with the American Arbitration Association
seeking a legal interpretation of the pricing provisions in the
agreement between ADC and the Company and the recovery of an amount in
dispute said to be approximately $2 million. The Company filed a
counterclaim against ADC for approximately $10 million alleging
various defaults under the agreement. Ogden Services Corporation
filed a counterclaim against the Company seeking unspecified damages
in excess of $10 million alleging the Company was improperly
interfering with the sale of ADC. No arbitrator has yet been appointed
or hearing dates set. The Company cannot presently predict the
outcome of this matter or how the respective claims will be resolved.
Neither the arbitration proceeding nor the resolution of the open
issues between the Company and ADC is expected to impact the continued
supply of the products ADC is manufacturing for the Company.
8
<PAGE> 9
Digital Equipment Corporation:
On August 10, 1997, GENICOM Corporation and Digital Equipment
Corporation ("DEC") entered into several agreements including an Asset
Purchase Agreement, a Trademark License Agreement and a Cooperative
Marketing and Sales Agreement (the "Agreements"). Under the
Agreements, the Company became DEC's exclusive supplier of
Digital-branded printer products with the Company assuming
responsibility for DEC's printer business through an in-sourcing
program that aligns the Company's operations as close to the inside of
DEC as practical. The Company is providing a broad line of products,
business planning, technical support and distribution services to
DEC's marketing channels. As part of the transaction, the Company
hired selected employees, acquired certain assets, received assignment
and license rights for certain intellectual properties, and has access
to DEC's customer base. The Company will pay DEC a royalty on all
printer sales related to the Agreements.
Other matters:
In July 1996, the Company reached an agreement with Electronic Data
Systems ("EDS") to outsource its information systems and data
processing activities. Under the agreement, EDS will operate and
service the Company's systems as well as design, install and service
new business systems and global networks. The agreement covers ten
years with an average base cost of $4.3 million per year.
In the ordinary course of business, the Company is party to various
environmental, administrative and legal proceedings. In the opinion
of management, the Company's liability, if any, in all pending
litigation or other legal proceedings, other than those discussed
above, will not have a material effect upon the financial condition,
results of operations or liquidity of the Company.
7. On July 3, 1997, the Company amended its credit agreement with
NationsBank of Texas, N.A., as agent for a group of banks, which
increased the Company's revolving credit line from $35 million to $40
million. Other terms and conditions of the credit agreement generally
remained unchanged
On September 5, 1997, the Company further amended and restated its
credit agreement with NationsBank, increasing its total credit
facilities to $110 million from $80 million. The Company used part of
the proceeds from the credit facilities to repay the $9 million note
to Texas Instruments. The term notes totaled $55 million with
maturities of 5 and 7 years and the revolving credit line was
increased from $40 million to $55 million. The financial covenants
for the facility were redefined. The Company entered into a new
interest rate swap which fixes the interest rate on $37.5 million of
debt for a term of three years. The fixed rate at the time the
amendment was executed was approximately 8.5%. The revolving credit
line was increased to $70 million in October 1997 when commitments
from additional lenders were received increasing the total credit
facilities to $125 million.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition:
RESULTS OF OPERATIONS
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<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------ -----------------------------------------
3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR.
(in millions) 1997 CHANGE 1996 1997 CHANGE 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues - Enterprising Service Solutions $ 29.9 $ 0 $ 29.9 $ 89.7 $ 0.4 $ 89.3
Revenues - Document Solutions 72.8 33.9 38.9 208.0 85.8 122.2
----------- ----------- ---------- ---------- ---------- ---------
Total Revenue $ 102.7 $ 33.9 $ 68.8 $ 297.7 $ 86.2 $ 211.5
----------- ----------- ---------- ---------- ---------- ---------
Percentage change 49.2% 40.7%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Revenue in the third quarter of 1997 increased 49.2% from the third quarter of
1996 primarily due to the revenue growth in Document Solutions ("DSC") as a
result of the acquisition of Texas Instruments' printer business and the
Digital Equipment Corporation Agreements. DSC revenue, excluding Relays, was
95.7% higher than the third quarter of 1996 as a result of the acquisition of
the Texas Instruments' printer and related supplies business and the Digital
Agreements. Enterprising Service Solutions ("ESSC") revenue was flat quarter to
quarter. Integrated Network Service ("INS") revenue, which represents
approximately of 20% ESSC revenue, increased 81.2% on strong performance of the
Canadian subsidiary and a new project in the U.S. with the NASDAQ Stock Market.
Revenue from Multivendor Services ("MVS"), also part of ESSC, decreased 9.9% in
the third quarter of 1997 compared to the year ago quarter. MVS is in the
final stages of transitioning its depot operations from Bedford, Massachusetts
and Waynesboro, Virginia to a single depot in Louisville, Kentucky. The loss
of revenue from the Bedford depot, which closed early in the second quarter,
has not yet been fully recovered by the Louisville depot. Some of the legacy
revenue from Bedford was not transferred to the Louisville depot. In addition,
the Louisville depot transition is behind schedule, is still housed in
temporary facilities and is experiencing startup inefficiencies which are being
addressed through management and operational process changes.
For 1997 year to date, revenue increased $86.2 million from 1996. DSC's
revenue, excluding Relays, increased $83.8 million or 74.9% primarily due to
the Texas Instruments acquisition and the Digital Agreements. ESSC's revenue
for 1997 increased $0.4 million compared to 1996 principally from strong
performance by INS which was partially offset by lower revenue from MVS. The
decline in revenue by MVS was primarily a result of the decline of legacy
revenue in the Bedford depot and the consolidation of the depots mentioned
above.
Relay revenues, which are included as part of Document Solutions in the above
table, were flat in the third quarter of 1997 as compared to the prior year
quarter. For 1997 year to date, relay revenues have increased $1.9 million
from 1996.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
3RD QUARTER 4TH QUARTER 3RD QUARTER
(in millions) 1997 1996 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Order Backlog $ 60.5 $ 56.7 $ 39.5
Change: 3rd Quarter of 1997 compared to
Amount 3.8 21.0
Percentage 6.7% 53.2%
- -----------------------------------------------------------------------------------------------------
</TABLE>
The increase in order backlog from the third quarter of 1996 primarily
reflects the effect of the Texas Instruments acquisition and the Digital
Agreements. The increase in the backlog from the fourth quarter of 1996 is
principally the result of the Digital Agreements partially offset by a decline
in relays backlog. The
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Company's backlog as of any particular date should not be the sole measurement
used in determining sales for any future period.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------------- -----------------------------------
3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR.
(IN MILLIONS) 1997 CHANGE 1996 1997 CHANGE 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross margin - Enterprising Service Solutions $ 1.7 $ (2.0) $ 3.7 $ 6.2 $ (5.3) $ 11.5
Gross margin - Document Solutions 22.1 9.3 12.8 65.4 27.9 37.5
- --------- --------- ---------- --------- -------- --------
Total gross margin $ 23.8 $ 7.3 $ 16.5 $ 71.6 $ 22.6 $ 49.0
- --------- --------- ---------- --------- -------- --------
As a % of revenue 23.2% 24.0% 24.1% 23.2%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Gross margin, as a percent of revenue, decreased from 24.0% in the third
quarter of 1996 to 23.2% in the third quarter of 1997. As a percent of
revenue, gross margin for DSC excluding Relays decreased to 31.2% for the
quarter ended September 28, 1997 from 37.9% for the quarter ended September 29,
1996. This decrease is primarily the result of a higher percentage of supply
sales from Texas Instruments and the Digital branded products which carry lower
gross margins than GENICOM designed supplies. For ESSC, gross margin decreased
from 12.4% for the third quarter of 1996 to 5.7% for 1997 reflecting the costs
associated with consolidation of the depots and redundant costs between depots.
Relays gross margin increased from (18.0)% to 13.4% reflecting more efficient
operation of this small business unit.
As a percent of revenue, gross margin for the nine months ended September 28,
1997 was 24.1% as compared to 23.2% for the nine months ended September 29,
1996. The gross margin percentage for DSC for the first nine months of 1997
decreased to 32.1% from 33.3% in 1996 due to the larger volume of lower margin
supplies sales mentioned above. ESSC's gross margin percentage declined to
6.9% for year to date 1997 from 12.9% for the same period in 1996 for the
reasons described above. Relay's gross margin increased from 1.8% to 20.9%.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------ --------------------------------------
3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR.
(in millions) 1997 CHANGE 1996 1997 CHANGE 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating expenses:
Selling, general and administrative $ 15.3 $ 0.8 $ 14.5 $ 48.0 $ 8.2 $ 39.8
Engineering, research and product
development 3.8 1.8 2.0 9.3 3.5 5.8
------ --------- --------- ------------ -------- --------
Total $ 19.1 $ 2.6 $ 16.5 $ 57.3 $ 11.7 $ 45.6
------ --------- --------- ------------ -------- --------
As a % of revenue 18.6% 24.0% 19.2% 21.6%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase of $2.6 million in operating expenses from the third quarter of
1996 was primarily a result of elevated levels of spending needed to support
the higher revenue in 1997 including the new products acquired from Texas
Instruments and Digital, transition costs to the new Louisville depot and
increased compensation and benefit costs. Engineering increased $1.8 million
due to development costs related to the new travel printer business acquired
from Texas Instruments and product development undertaken as part of the
Digital Agreements. Operating expenses declined as a percentage of revenue in
the second quarter of 1997 to 18.6% as compared to 24.0% in 1996.
For the first nine months of 1997, operating expenses increased $11.7 million
compared to 1996 primarily for the reasons mentioned above.
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------------ ---------------------------------------------
3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR.
(in millions) 1997 CHANGE 1996 1997 CHANGE 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest expense, net $ 1.9 $ 0.8 $ 1.1 $ 4.9 $ 1.6 $ 3.3
Percentage change 72.7% 48.5%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest expense increased $0.8 million in the third quarter of 1997 as
compared to the year-ago quarter primarily as a result of higher borrowings in
1997 due to the debt associated with the acquisition of the Texas Instruments'
printer business, increased working capital needs to support the business
expansion being experienced by the Company, the consolidation of the
Massachusetts and Virginia depots and increased capital expenditures for the
Company's new business system. Interest expense for the nine months ended
September 28, 1997 increased $1.6 million compared to the same period in 1996
for the above reasons.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------------------------- --------------------------------------------
3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR.
(in millions) 1997 CHANGE 1996 1997 CHANGE 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense $ 0.6 $ 5.1 $ (4.5) $ 1.7 $ 5.6 $ (3.9)
Effective tax rate 19.5% -66.7% 18.5% -97.0%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The effective tax rate for the third quarter of 1997 was 19.5%. This rate
reflects the Company's current estimate of its annual tax rate of approximately
19.0%. The below normal tax rate is associated with the reversal of
approximately $1.5 million of consolidated valuation allowance on deferred tax
assets. In the third quarter of 1996, the Company took a tax benefit of $2.8
million associated with reversal of U.S. deferred tax asset valuation
allowances.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
------------------------------------------------------
3RD QUARTER 3RD QUARTER
(in millions) 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash (used in) provided by operations $ (5.7) $ 16.4
Cash used in investing activities (17.9) (5.1)
Cash provided by (used in) financing activities 19.4 (1.6)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
3RD QUARTER 4TH QUARTER
(in millions) 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Working capital $ 61.1 $ 36.0
Inventories 62.8 46.9
Debt obligations 75.5 54.5
Debt to equity ratio 1.7 to 1 1.5 to 1
- ---------------------------------------------------------------------------------
</TABLE>
Cash used by operations changed $22.1 million from the first nine months of
1996 principally as a result of higher inventory and accounts receivable
balances necessary to support the increased levels of revenue. The Company's
working capital increased $25.1 million as of September 28, 1997 as compared to
December 29, 1996 due primarily to a $15.9 million increase in inventory and a
$12.3 million increase in accounts receivable necessary to support the higher
level of sales. Debt increased significantly with the proceeds used to support
the working capital needs of the business, the closing of the depots and the
increased capital expenditures of the new business systems. The debt to equity
ratio increased slightly due to the increased debt needed to support operations
which has yet to be reflected in earnings.
On July 3, 1997, the Company amended its credit agreement with NationsBank of
Texas, N.A., as agent for a group of banks, which increased the Company's
revolving credit line from $35 million to $40 million. Other terms and
conditions of the credit agreement generally remained unchanged.
On September 5, 1997, the Company further amended and restated its credit
agreement with NationsBank, increasing its total credit facilities to $110
million from $80 million. The Company used part of the proceeds from the
credit facilities to repay the $9 million note to Texas Instruments. The term
notes totaled $55 million with maturities of 5 and 7 years and the revolving
credit line was increased from $40 million to $55 million. The financial
covenants for the facility were redefined. The Company entered into a new
interest rate swap which fixes the interest rate on $37.5 million of the debt
for a term of three years. The fixed rate at the time the amendment was
executed was approximately 8.5%. The revolving credit line was increased to
$70 million in October 1997 when commitments from additional lenders were
received increasing the total credit facilities to $125 million.
As of September 28, 1997, the Company had $35.0 million available for borrowing
under its revolving credit agreement.
In early August 1997, the Company received notification that ADC filed a Demand
for Arbitration with the American Arbitration Association seeking a legal
interpretation of the pricing provisions in the agreement between ADC and the
Company and the recovery of an amount in dispute said to be approximately $2
million. The Company filed a counterclaim against ADC for approximately $10
million alleging various defaults under the agreement. Ogden Services
Corporation filed a counterclaim against the Company seeking unspecified
damages in excess of $10 million alleging the Company was improperly
interfering with the sale of ADC. No arbitrator has yet been appointed or
hearing dates set. The Company cannot presently predict the outcome of this
matter or how the respective claims will be resolved. Neither the arbitration
proceeding nor the resolution of the open issues between the Company and ADC is
expected to impact the continued supply of the products ADC is manufacturing
for the Company.
13
<PAGE> 14
GENICOM provides an array of services and products addressing different niches
of the information processing industry, competing against a wide range of
companies from large multinationals to small domestic entrepreneurs. Except
for the historical information contained herein, the matters discussed in this
10Q include forward-looking statements that involve a number of risks and
uncertainties. Terms such as "believes", "expects", "plans", "intends",
"estimates", or "anticipates", and variations of such words and similar
expressions are intended to identify such forward looking statements. There
are certain important factors and risks, including the change in hardware and
software technology, economic conditions in the North American and Western
European markets, the anticipation of growth of certain market segments and the
positioning of the Company's products and services in those segments, selective
service customers whose business is declining, seasonality in the buying cycles
of certain of the Company's customers, the timing of product announcements, the
release of new or enhanced products and services, the introduction of
competitive products and services by existing or new competitors, access to and
development of product rights and technologies, the management of growth,
disruption in the ability of Atlantic Design Corporation to maintain its
production commitments to the Company, changes in the costs of production of
the Company's products and service including any that may arise as a result of
the resolution of claims raised by Atlantic Design Company, Inc. under its
December 18, 1995 Services Agreement with the Company, the integration of
acquisitions, including but not limited to the Company's acquisition of Texas
Instruments printer business as of September 30, 1996, the Company's ability to
perform under the Digital Agreements, the transitioning of the Bedford and
Waynesboro depots to Louisville, Kentucky and resolution of start up
inefficiencies, GENICOM's ability to retain highly skilled technical,
managerial and sales and marketing personnel, possible litigation related to
the Company's operations, including litigation arising under various
environmental laws, and the other risks detailed from time to time in the
Company's SEC reports, including reports on Form 10K, that could cause results
to differ materially from those anticipated by the statements contained herein.
14
<PAGE> 15
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings:
In early August 1997, the Company received notification that ADC filed a Demand
for Arbitration with the American Arbitration Association seeking a legal
interpretation of the pricing provisions in the agreement between ADC and the
Company and the recovery of an amount in dispute said to be approximately $2
million. The Company filed a counterclaim against ADC for approximately $10
million alleging various defaults under the agreement. Ogden Services
Corporation filed a counterclaim against the Company seeking unspecified
damages in excess of $10 million alleging the Company was improperly
interfering with the sale of ADC. No arbitrator has yet been appointed or
hearing dates set. The Company cannot presently predict the outcome of this
matter or how the respective claims will be resolved. Neither the arbitration
proceeding nor the resolution of the open issues between the Company and ADC is
expected to impact the continued supply of the products ADC is manufacturing
for the Company.
Item 2. Changes in Securities:
Not applicable.
Item. 3 Defaults Upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
Not applicable
Item 5. Other Information:
Not applicable
Item 6. Exhibits and Reports on Form 8-K:
a) Exhibits
NUMBER DESCRIPTION
--------------- ------------------------------------
27.1 Financial Data Schedule
b) Reports on Form 8-K:
The Company filed a report on Form 8-K on August 25, 1997, later
amended on October 22, 1997, which reported that it had executed
agreements with Digital Equipment Corporation to be Digital's
exclusive supplier of printer products. Copies of the agreements were
included as Exhibits 2.1 through 2.3.
15
<PAGE> 16
In addition, the Company filed a report on Form 8-K on September 22,
1997 which reported that it had executed an amended and restated
credit agreement with NationsBank of Texas, N.A., as agent for a group
of banks, increasing the Company's credit facilities from $80 million
to $110 million. A copy of the agreement was included as Exhibit
10.1.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENICOM Corporation
-----------------------------------
Registrant
Date: November 12, 1997
/s/James C. Gale
-----------------------------------
Signature
James C. Gale
Senior Vice President Finance and
Chief Financial Officer
(Mr. Gale is Chief Financial
Officer and has been duly
authorized to sign on behalf of
the Registrant)
17
<PAGE> 18
GENICOM CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------------- ------------------------------------------------------------------ ------------------------
<S> <C> <C>
27.1 Financial Data Schedule Filed only with
EDGAR version
</TABLE>
E - 1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 1,414
<SECURITIES> 0
<RECEIVABLES> 77,672
<ALLOWANCES> (3,576)
<INVENTORY> 62,755
<CURRENT-ASSETS> 153,562
<PP&E> 98,284
<DEPRECIATION> (68,720)
<TOTAL-ASSETS> 218,268
<CURRENT-LIABILITIES> 92,509
<BONDS> 0
0
0
<COMMON> 111
<OTHER-SE> 44,875
<TOTAL-LIABILITY-AND-EQUITY> 218,268
<SALES> 207,952
<TOTAL-REVENUES> 297,681
<CGS> 142,578
<TOTAL-COSTS> 226,083
<OTHER-EXPENSES> 57,313
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,900
<INCOME-PRETAX> 9,385
<INCOME-TAX> 1,739
<INCOME-CONTINUING> 7,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,646
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.60
</TABLE>
