<PAGE> 1
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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 April 4, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to __________
Commission File No.: 0-14685
GENICOM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 51-0271821
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14800 CONFERENCE CENTER DRIVE
SUITE 400, WESTFIELDS
CHANTILLY, VIRGINIA 20151
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 802-9200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes[X] No __
As of April 30, 1999, there were 11,636,540 shares of Common Stock
of the Registrant outstanding.
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FORM 10-Q INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - April 4, 1999 and January 3, 1999 3
Consolidated Statements of (Loss) Income - Three Months Ended
April 4, 1999 and March 29, 1998 4
Consolidated Statements of Cash Flows - Three Months Ended
April 4, 1999 and March 29, 1998 5
Notes to Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 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
Signatures 16
Index to Exhibits E-1
</TABLE>
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 4, JANUARY 3,
(In thousands, except share data) 1999 1999
--------------------- ------------------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 5,137 $ 4,894
Accounts receivable, less allowance for
doubtful accounts of $5,292 and $5,716 82,762 83,893
Other receivables 657 2,714
Inventories 50,617 59,617
Prepaid expenses and other assets 13,064 12,664
--------------------- ------------------------
TOTAL CURRENT ASSETS 152,237 163,782
Property, plant and equipment, net 46,868 45,459
Goodwill 15,034 15,965
Intangibles and other assets 6,506 4,771
--------------------- ------------------------
$ 220,645 $ 229,977
===================== ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 6,722 $ 7,936
Accounts payable and accrued expenses 69,110 67,096
Deferred income 14,791 13,344
--------------------- ------------------------
TOTAL CURRENT LIABILITIES 90,623 88,376
Long-term debt, less current portion 97,200 105,000
Other non-current liabilities 9,867 11,984
--------------------- ------------------------
TOTAL LIABILITIES 197,690 205,360
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 18,000,000 shares
authorized, 11,609,083 and 11,581,661 shares issued 116 116
and outstanding
Additional paid-in capital 30,411 29,216
Retained earnings (4,847) (2,039)
Accumulated other comprehensive loss (2,725) (2,676)
--------------------- ------------------------
TOTAL STOCKHOLDERS' EQUITY 22,955 24,617
--------------------- ------------------------
$ 220,645 $ 229,977
===================== ========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
APRIL 4, MARCH 29,
(In thousands, except per share data) 1999 1998
========= ==========
REVENUES, NET:
<S> <C> <C>
Products $ 63,162 $ 80,331
Services 37,227 41,779
--------- ---------
100,389 122,110
--------- ---------
OPERATING COSTS AND EXPENSES:
Cost of revenues:
Products 44,847 56,960
Services 31,679 37,736
Selling, general and administration 19,807 20,271
Engineering, research and
product development 4,067 4,325
--------- ---------
100,400 119,292
--------- ---------
OPERATING (LOSS) INCOME (11) 2,818
Interest expense, net 2,678 2,593
--------- ---------
(LOSS) INCOME BEFORE INCOME TAXES (2,689) 225
Income tax expense 119 56
--------- ---------
NET (LOSS) INCOME $ (2,808) $ 169
========= =========
(Loss) earnings per common share (basic) $ (0.24) $ 0.01
========= =========
(Loss) earnings per common share (diluted) $ (0.24) $ 0.01
========= =========
Weighted average number of common shares
outstanding (basic) 11,608 11,464
========= =========
Weighted average number of common shares
and dilutive shares (diluted) 11,608 12,672
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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GENICOM CORPORATION AND SUBSDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
APRIL 4, MARCH 29,
(In thousands) 1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (2,808) $ 169
Adjustments to reconcile net (loss)/income to cash provided
by operating activities:
Depreciation 3,620 3,477
Amortization 1,689 1,994
Changes in assets and liabilities:
Accounts receivable 3,938 (2,916)
Inventories 9,640 3,218
Accounts payable and accrued expenses (2,116) (3,340)
Deferred income 1,447 528
Other (1,452) (4)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,958 3,126
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (4,826) (6,727)
Other investing (1,095)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (4,826) (7,822)
-------- --------
Cash flows from financing activities:
Borrowings on long-term debt 588 8,521
Payments on long-term debt (9,602) (2,952)
Bank overdraft (2,172)
Financing costs (31) (62)
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (9,045) 3,335
-------- --------
Effect of exchange rate changes on cash and cash equivalents 156 38
-------- --------
Net increase (decrease) in cash and cash equivalents 243 (1,323)
Cash and cash equivalents at beginning of period 4,894 4,622
-------- --------
Cash and cash equivalents at end of period $ 5,137 $ 3,299
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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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 April 4, 1999, and the results of
operations and cash flows for the periods indicated. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's January
3, 1999 Annual Report on Form 10-K. The results of operations for the
three months ended April 4, 1999, are not necessarily indicative of the
operating results to be expected for the full year.
2. 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>
APRIL 4, JANUARY 3,
1999 1999
----------------------- ------------------------
<S> <C> <C>
Raw Materials $ 5,140 $ 4,086
Work in process 1,052 930
Finished goods 44,425 54,601
----------------------- ------------------------
$ 50,617 $ 59,617
======================= ========================
</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 April 4, 1999
------------------------------------------------------------
Income Shares Per Share
----------------- ------------------ ------------------
<S> <C> <C> <C>
BASIC EPS
Loss available to shareholders $ (2,808) 11,608 $ (0.24)
Weighted shares from stock options
----------------- ------------------ ------------------
DILUTED EPS $ (2,808) 11,608 $ (0.24)
----------------- ------------------ ------------------
<CAPTION>
Three Months Ended March 29, 1998
------------------------------------------------------------
<S> <C> <C> <C>
BASIC EPS
Income available to shareholders $ 169 11,464 $ 0.01
Weighted shares from stock options 1,208
----------------- ------------------ ------------------
DILUTED EPS $ 169 12,672 $ 0.01
----------------- ------------------ ------------------
</TABLE>
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4. Segment Information
The Company operates in the serial, line and page printer business
where it designs, manufactures and markets printers as well as the
related supplies and spare parts (Document Solutions company). The
Company's operation in services provides customers with a full range
of network information technology services with field services,
depot repair, parts and logistics and network products (Enterprising
Service Solutions company). Revenue between industry segments are
not material.
<TABLE>
<CAPTION>
Three Months Ended or As of
April 4, March 29,
(in thousands) 1999 1998
---------------------- ----------------------
<S> <C> <C>
REVENUE
Document Solutions $ 63,162 $ 80,331
Enterprising Service Solutions 37,227 41,779
---------------------- ----------------------
$ 100,389 $ 122,110
---------------------- ----------------------
OPERATING (LOSS) INCOME
Document Solutions $ 1,798 $ 6,276
Enterprising Service Solutions (1,809) (3,458)
---------------------- ----------------------
$ (11) $ 2,818
---------------------- ----------------------
DEPRECIATION AND AMORTIZATION
Document Solutions $ 1,434 $ 1,548
Enterprising Service Solutions 3,588 3,540
Corporate and other 287 383
---------------------- ----------------------
$ 5,309 $ 5,471
---------------------- ----------------------
ASSETS
Document Solutions $ 97,870 $ 137,877
Enterprising Service Solutions 86,220 91,549
Corporate and other 36,555 23,142
---------------------- ----------------------
$ 220,645 $ 252,568
---------------------- ----------------------
CAPITAL EXPENDITURES
Document Solutions $ 839 $ 1,065
Enterprising Service Solutions 1,958 4,191
Corporate and other 2,029 1,471
---------------------- ----------------------
$ 4,826 $ 6,727
====================== ======================
</TABLE>
5. Commitments and Contingencies
Environmental matters:
The Company and the former owner of its Waynesboro, Virginia
facility, General Electric Company ("G.E."), have generated and
managed hazardous wastes at the facility for many years as a result
of their use of certain materials in manufacturing processes. The
Company and the United States Environmental Protection Agency
("EPA") have agreed to a corrective action consent order (the
"Order"), which became effective on September 14, 1990. The Order
requires the Company to undertake an investigation of solid waste
management units at its Waynesboro, Virginia facility and to conduct
a study of any necessary corrective measures that may be required.
The investigative work under the Order was completed in December
1997 and the Company submitted a final investigative report to the
EPA. The EPA has not yet formally responded to the report, although
the EPA has stated informally that it may require additional
investigative work. Although not required by the Order, the Company
has agreed to install and operate an
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interim ground water stabilization system, subject to EPA approval
of the system design. The interim groundwater stabilization program
may be chosen as the final remedy for the site, or additional
corrective measures may eventually be required. It is not possible
to reliably estimate the costs that any such possible additional
corrective measures would entail. However, if additional corrective
measures are required, the Company expects that it will enter into
discussion with the EPA concerning their scope and a further order
for that purpose.
The Company has been notified by the EPA that it is one of 700
potentially responsible parties ("PRPs") under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, for
necessary corrective action at a hazardous waste disposal site in
Greer, South Carolina. In prior years, the Company arranged for the
transportation of wastes to the site for treatment or disposal.
During 1995, the PRPs entered into an administrative consent order
with EPA under which they would undertake a remedial investigation
and feasibility study. That study is currently underway. The Company
has not had and does not anticipate any material expenditures in
connection with this matter.
Atlantic Design Company:
In December 1995, the Company entered into a five year agreement
which was extended an additional year in June 1996 (renewable
annually after 6 years) with Atlantic Design Company, a subsidiary
of Ogden Services Corporation, pursuant to which ADC acquired the
Company's manufacturing operations in McAllen, Texas and Reynosa,
Mexico. Under the agreement, ADC is committed to manufacturing a
significant part of the Company's impact printer products, printed
circuit boards, related supplies and spare parts, while the Company
retains design, intellectual and distribution rights with respect
thereto. In August 1997, ADC filed a Demand for Arbitration with the
American Arbitration Association seeking a legal interpretation of
the pricing provisions in the agreement between ADC and the Company.
The Company filed a counterclaim against ADC. Ogden Services
Corporation and ADC then filed a counterclaim against the Company.
On July 4, 1998, the Company, ADC and Ogden Services Corporation
settled the arbitration. Primary settlement terms included
settlement of all claims and counterclaims in the arbitration, a
$2.1 million payment to ADC (for which the Company was fully
reserved), a price increase effective for shipments after August 15,
1998, and a guarantee of orders for one year. ADC is continuing as a
supplier for the Company.
Other matters:
In the ordinary course of business, the Company is party to various
environmental, administrative and legal proceedings. In the opinion
of management, the Company's liability, if any, in all pending
litigation or other legal proceedings, other than those discussed
above, will not have a material effect upon the financial condition,
results of operations or liquidity of the Company.
6. The Company's loss, if reported on a comprehensive basis, would be
$2.9 million for the first quarter of 1999. The Company had an after
tax loss in its foreign currency translation amount of $49,000 from
January 3, 1999. For the first quarter of 1998, the foreign currency
translation gain was $107,000, with an after tax gain of $80,000.
The Company's comprehensive income for the first quarter of 1998
would have been $249,000.
7. In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement
requires that an entity recognize all derivatives as either assets
or liabilities in the balance sheet and measure those instruments at
fair value. The Company will be required to adopt this new
accounting standard by January 1, 2000. Management does not
anticipate early adoption. The Company believes that the effect of
adoption of SFAS No. 133 will not be material.
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition:
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(in millions) 1ST QUARTER 1ST QUARTER
1999 CHANGE 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues - Enterprising Service Solutions $ 37.2 $ (4.6) $ 41.8
Revenues - Document Solutions 63.2 (17.1) 80.3
------------- ------------ -------------
Total Revenues $ 100.4 $ (21.7) $ 122.1
------------- ------------ -------------
Percentage change (17.8)%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Revenue in the first quarter of 1999 decreased 17.8% from the first quarter of
1998 primarily due to lower supply sales related to the Texas Instruments and
Digital low-end installed printer base that has significantly declined since the
first quarter of 1998 and a decline in professional service revenue in the U.S.
Documents Solutions ("DSC") revenue was 21.2% lower than the first quarter of
1998 principally as a result of the supply sales mentioned above. Enterprising
Service Solutions ("ESSC") revenue decreased 11.0% from the prior year quarter.
The decrease in ESSC revenue was principally due to the lower professional
services revenue in the U.S. In comparison, the first quarter of 1998, ESSC was
completing a large contract with NASDAQ. To a lesser extent, revenue for ESSC
was also affected by a roll-off of selected accounts and a decision to exit
certain low margin business. These declines were partially offset by increased
integration business in the Canadian subsidiary.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(in millions) 1ST QUARTER 4TH QUARTER 1ST QUARTER
1999 1998 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Order backlog $ 36.1 $ 30.2 $ 49.6
Change: 1st Quarter of 1999 compared to
Amount 5.9 (13.5)
Percentage 19.5% (27.2)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in order backlog from the 1998 first quarter primarily reflects a
change in contract mix for ESSC, partially offset by an increase in DSC backlog
due to new products. The increase in backlog from the fourth quarter of 1998 is
principally due to DSC's new product backlog. The Company's backlog as of any
particular date should not be the sole measurement used in determining sales for
any future period.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(in millions) 1ST QUARTER 1ST QUARTER
1999 CHANGE 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross margin - Enterprising Service Solutions $ 5.5 $ 1.5 $ 4.0
Gross margin - Document Solutions 18.3 (5.1) 23.4
---------------- ---------------- ----------------
Total gross margin 23.8 (3.6) 27.4
---------------- ---------------- ----------------
As a % of revenue 23.7% 22.4%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Gross margin, as a percent of revenue, increased from 22.4% in the first quarter
of 1998 to 23.7% in the first quarter of 1999. As a percent of revenue, gross
margin for DSC was basically flat at approximately 29.0% in 1999 and 1998. For
ESSC, gross margin increased from 9.7% for the first three months of 1998 to
14.9% for 1999. The gross margin improvement was principally the result of
better operating efficiencies in both depot and field service in the U.S.
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(in millions) 1ST QUARTER 1ST QUARTER
1999 CHANGE 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating expenses:
Selling, general and
administrative $ 19.8 $ (0.5) $ 20.3
Engineering, research and
product development 4.1 (0.2) 4.3
---------------- ---------------- ----------------
Total $ 23.9 $ (0.7) $ 24.6
As a % of revenue 23.8% 20.1%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease of $0.7 million in operating expenses from the first quarter of
1998 was primarily a result of lower marketing expenses in ESSC due to
adjustments to the sales force in early 1998 after the acquisition of Novadyne
Computer Systems in late 1997. This decrease was partially offset by consulting
expenses related to the amending of the Company's credit agreement with
NationsBank of Texas, N.A., increased benefit costs, and higher depreciation
expenses related to the Company's new business systems.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(in millions) 1ST QUARTER 1ST QUARTER
1999 CHANGE 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense, net $ 2.7 $ 0.1 $ 2.6
Percentage change 3.8%
- --------------------------------------------------------------------------------------------------
</TABLE>
Interest expense increased slightly. Debt levels did not differ significantly
compared to the first quarter of 1998. Interest expense is expected to increase
in the second quarter of 1999 due to increased borrowing and amortization of
bank fees from the amendment of the Company's credit agreement (see "Banking
Arrangements").
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(in millions) 1ST QUARTER 1ST QUARTER
1999 CHANGE 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense $ 0.1 $ 0.0 $ 0.1
Effective tax rate 0.0% 24.9%
- ----------------------------------------------------------------------------------------------------
</TABLE>
During the first quarter of 1999, the Company fully reserved the deferred tax
assets created as the result of the Company's current operating loss consistent
with its review at the end of 1998 of the recoverability of its deferred tax
assets. The recorded tax expense related to foreign income. During the first
quarter of 1998, the tax rate was affected by the anticipated partial
utilization of fully reserved foreign operating losses.
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LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(in millions) 1ST QUARTER 1ST QUARTER
1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by operations $ 14.0 $ 3.1
Cash used in investing activities (4.8) (7.8)
Cash (used in) provided by financing activities (9.0) 3.3
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(in millions) 1ST QUARTER 4TH QUARTER
1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Working capital $ 61.6 $ 75.4
Inventories 50.6 59.6
Debt obligations 103.9 112.9
Debt to equity ratio 4.5 to 1 4.6 to 1
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Cash provided by operations was $14.0 million for the first quarter of 1999
compared to $3.1 million in the first quarter of 1998. The change in cash from
operations was principally due to the decreases in inventory and accounts
receivable partially offset by the Company's operating loss. The Company's
working capital decreased $13.8 million as of April 4, 1999, as compared to
January 3, 1999 due primarily to the following: a $9.0 million decrease in
inventory resulting from the Company's inventory reduction program; a $2.0
million increase in accounts payable due to an increased aging of payables; a
$1.0 million decrease in accounts receivable directly related to the Company's
lower revenue. Debt decreased significantly from December 1998. This decrease
was required as the Company's borrowing base relating to the revolving credit
line declined with the reductions to inventory and accounts receivable. In early
April 1999, the Company drew on its new liquidity facility to fund current
liabilities (see "Banking Arrangements") bringing debt levels close to 1998
year-end levels. Debt to equity ratio improved slightly over year-end. As of
April 4, 1999, the Company had $0.8 million available for borrowing on its
revolving credit agreement.
BANKING ARRANGEMENTS
On January 12, 1996, the Company reached an agreement with NationsBank of Texas,
N.A., as agent for a group of banks ("NationsBank"), on $75 million of credit
facilities. Under the agreement, NationsBank provided a $35 million revolving
credit facility and two term loans totaling $40 million. The Company initially
used borrowing under this credit agreement to retire all the debt associated
with its former credit agreement with CIT and to retire all of the Company's
outstanding senior subordinated notes. In a separate transaction, the Company
entered into an interest rate swap arrangement with NationsBank which fixes the
interest rate for five years on a substantial portion of the debt. The fixed
rate at the time the agreement was executed averaged 8.25%. In May 1996, the
Company renegotiated the term of the interest rate swap, decreasing the term
from five to three years. As a result
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of the term change, the Company received a payment of $530,000, resulting in a
gain which is being amortized to income over the remaining life of the Company
term loans. On September 30, 1996, the Company and NationsBank amended the
credit facilities. This amendment redefined the financial covenants and adjusted
the interest rates as well as the principal payments under the agreement. On
July 3, 1997, the Company and NationsBank further amended the credit agreement
to increase the Company's revolving credit line from $35 million to $40 million.
Other terms and conditions of the credit agreement generally remained unchanged.
On September 5, 1997, the Company again amended and restated its credit
agreement with NationsBank, increasing its total credit facility to $110 million
from $80 million. The Company used part of the proceeds from the credit
facilities to repay a $9 million note to Texas Instruments. The term notes
totaled $55 million with maturities of 5 and 7 years and the revolving credit
line was increased from $40 million to $55 million. The financial covenants for
the facility were redefined. The Company entered into a new interest rate swap
which fixed the interest rate on $37.5 million of debt for a term of three
years. The fixed rate at the time the amendment was executed was approximately
8.5%. The revolving credit facility was increased to $70 million in October 1997
when commitments from additional lenders were received, thereby increasing the
total credit facilities to $125 million. The facility is collateralized by
substantially all of the Company's assets. The revolving credit facility matures
September 5, 2002.
At the end of the first fiscal quarter of 1998, the Company fell short of
meeting the Consolidated Funded Debt Coverage Ratio and the Consolidated Fixed
Charges Coverage Ratio as required by the credit agreement due principally to
higher levels of capital expenditures in ESSC and low earnings. NationsBank
waived the requirement for that quarter.
On July 2, 1998, the Company and NationsBank amended the credit agreement. The
amendment adjusted the Company's required financial covenants until the end of
1998, limited capital expenditures to a maximum of $27 million for 1998,
adjusted the borrowing base percentages until the end of 1998 (allowing the
Company increased borrowing ability) and adjusted the interest rate upwards
1.50% on the incremental increased borrowing against the higher base.
On November 12, 1998, the credit agreement was again amended. The amendment
extended the increased borrowing base percentages through February 15, 1999 and
adjusted the financial covenants for the fourth quarter of 1998.
On February 11, 1999, a further amendment to the credit agreement took effect.
This amendment retained the increased borrowing base percentages though April 5,
1999 and pledged 65% of the shares in the Company's Canadian subsidiary as
additional collateral.
On April 2, 1999, an additional amendment (Amendment 7) to the credit agreement
extended the increased borrowing base percentages until June 2000 and changed
the financial covenants to 1) minimum earnings before charges for interest,
state, federal and municipal income taxes, depreciation, and amortization, 2)
minimum net worth requirements, and 3) limit 1999 capital expenditures to
approximately $19 million. In addition, the Company is able to borrow $10
million for short term liquidity, which can be repaid on September 30, 1999 or
extended on a quarterly basis with consideration of 0.5% of the liquidity
facility outstanding. The interest rate on the revolver and the additional $10
million is 3.5% above LIBOR on Eurodollar loans. The Company drew on this
liquidity facility in April.
As consideration for Amendment 7, the Company agreed to pay an amendment fee of
$1.2 million upon the earlier of the payment in full of the credit facilities
and cancellation of all commitments or the acceleration by NationsBank of the
Company's obligations. This fee has been accrued. The Company has further agreed
to pay a continuation fee on the last day of each fiscal quarter beginning with
the fourth quarter of fiscal year 1999 until the obligations are paid. The
continuation fee is 0.5% of all obligations outstanding on the last day of each
such fiscal quarter. NationsBank also received the rights to purchase warrants
for one million shares of GENICOM common stock at $1.94 per share. The warrants
are callable through March 31, 2000 under certain conditions and cannot be
exercised before then. Amendment 7 reduces NationsBank's revolving credit
commitment to $62 million at the
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end of the first fiscal quarter of 1999, $61 million at the end of the second
fiscal quarter of 1999, $58 million at the end of the third fiscal quarter of
1999, and $52 million at the end of fiscal 1999. The amount outstanding under
the revolver at April 4, 1999 was $52.2 million.
The Company believes that current financing arrangements are sufficient to fund
operations but it is the Company's goal to replace its current credit agreement
with other financing more suited to its cash and business needs.
YEAR 2000
GENICOM is taking an active approach to address computer issues associated with
the onset of the new Millennium - specifically, the impact of the possible
failure of computer systems and computer driven equipment due to the digit
rollover to the year 2000. The Year 2000 problem is pervasive and complex as
virtually every IT and non-IT system could be affected in some way by the
rollover of the two-digit year value from 99 to 00. The issue is whether
computer systems or embedded technology will properly recognize date sensitive
information when the year changes to 2000. IT and non-IT systems that do not
properly recognize such information could generate erroneous data or cause
failures.
If not properly addressed, the Year 2000 problem could result in failures in
Company computer systems or items with embedded systems, or the computer systems
or equipment of third parties with whom the Company deals worldwide. Any such
failures of the Company's and/or third parties' IT and non-IT systems could have
a material impact on the Company's ability to conduct business.
Since 1996, the Company has been identifying and seeking to minimize its
exposure to the Year 2000 problem. In 1996, the Company began expending
significant funds under contracts with EDS to replace the majority of its
internal computer system. During this process, the Company has required third
party vendors to make representations that the components of the new systems and
related software are Year 2000 compliant. The replacement equipment is scheduled
to be completely installed and tested by the end of the third quarter of 1999.
The Company is currently on schedule related to the installation. As a result,
the Company does not anticipate Year 2000 problems with its internal systems.
The approximately $20 million cost of the replacement system is being
capitalized by the Company. The Company has incurred approximately $17.1 million
through April 4, 1999 associated with this replacement system.
Management has also considered whether the Year 2000 problem will affect the
products or services provided by the Company to its customers. Because the
Company's printer products do not contain date sensitive embedded software and
do not manipulate, calculate, convert, compare, sequence or present any date
data, these products should not present Year 2000 compliance issues. The Company
does, through its Enterprising Service Solutions company, resell and install
computer software that could be susceptible to Year 2000 problems. The Company's
practice is to disclaim responsibility for Year 2000 compliance relating to
third party software.
At this time, GENICOM is actively working to ensure that foreseeable Year 2000
computer problems related to Company computer systems and products are
effectively addressed. The Company does not expect that the commitment of
resources to study and correct internally any Year 2000 problems to result in
the delay of its projects or product development.
The Company has generally completed reviewing vendor and customer compliance as
well as items that may be affected by embedded systems such as manufacturing and
telephone equipment. The review included inquiries of vendors and customers
related to their Year 2000 compliance. As a result of this review, the Company
believes no material expenditures will be required at this time related to
customer and vendor compliance.
The Company cannot estimate or predict the potential adverse consequences, if
any, that could result from a third party failure to effectively address this
issue or failure of certain equipment and is unable to predict if those parties'
noncompliance or equipment failure will have a material adverse effect on
earnings.
PAGE 13
<PAGE> 14
EURO CONVERSION
On January 1, 1999, the exchange rates of eleven countries (Germany, France, the
Netherlands, Austria, Italy, Spain, Finland, Ireland, Belgium, Portugal, and
Luxembourg) were fixed among one another and became the currencies of the EURO.
The individual currencies of the eleven countries will remain in circulation
until mid-2002. The EURO currency will be introduced on January 1, 2002. The
Company does not expect future balance sheets and statements of earnings and
cash flows to be materially impacted by the EURO conversion.
FORWARD LOOKING INFORMATION
GENICOM provides an array of services and products addressing different niches
of the information processing industry, competing against a wide range of
companies from large multinationals to small domestic entrepreneurs. Except for
the historical information contained herein, the matters discussed in this 10Q
include forward-looking statements that involve a number of risks and
uncertainties. Terms such as "believes", "expects", "plans", "intends",
"estimates", or "anticipates", and variations of such words and similar
expressions are intended to identify such forward looking statements. There are
certain important factors and risks, including the change in hardware and
software technology, economic conditions in the North American, Western European
and Asian markets, the anticipation of growth of certain market segments and the
positioning of the Company's products and services in those segments, certain
service customers whose business is declining, seasonality in the buying cycles
of certain of the Company's customers, the timing of product announcements, the
release of new or enhanced products and services, the introduction of
competitive products and services by existing or new competitors, access to and
development of product rights and technologies, the management of growth, the
Company's cash needs, GENICOM's ability to attract and retain highly skilled
technical, managerial and sales and marketing personnel, possible litigation
related to the Company's operations, including litigation arising under various
environmental laws, and the other risks detailed from time to time in the
Company's SEC reports, including reports on Form 10K, that could cause results
to differ materially from those anticipated by the statements contained herein.
Item 3. Market Risk
The Company is exposed to the impact of interest rate and foreign currency risk.
In the normal course of business, the Company employs established policies and
procedures to manage its exposure to changes in interest rates and fluctuations
in the value of foreign currencies using a variety of financial instruments.
The Company's objective in managing its exposure to interest rate changes is to
limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowings costs. To achieve its objectives, the Company
primarily uses an interest rate swap to manage net exposure to interest rate
changes related to its credit facility.
International revenues from the Company's foreign subsidiaries were
approximately 34% of total revenue. International sales are made mostly from the
Company's foreign subsidiaries in their respective countries and are typically
denominated in the local currency of each country. These subsidiaries also incur
most of their expenses in the local currency. Accordingly, all foreign
subsidiaries use the local currency as their functional currency.
The Company's international business is subject to risks typical of an
international business including, but not limited to, differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
the Company's future results could be materially adversely impacted by changes
in these or other factors.
The Company's exposure to foreign exchange rate fluctuations arises in part from
intercompany accounts in which costs incurred in the United States are charged
to the Company's foreign subsidiaries. The Company is also exposed to foreign
exchange rate fluctuations as the financial results of foreign subsidiaries are
translated into U.S. dollars in consolidation. As exchange rates vary, those
results, when translated, may vary from expectations and adversely impact
overall expected profitability.
PAGE 14
<PAGE> 15
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings:
Not applicable.
Item 2. Changes in Securities:
Not applicable
Item. 3 Defaults Upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
Not applicable
Item 5. Other Information:
SEC Rule 14a-4(c) determines how proxies designated by public corporation may
use discretionary voting authority on stockholder proposals made at annual
meetings. Under this rule, the Company will have unrestricted use of
discretionary voting authority if it does not receive prior written notice of an
intent to submit a proposal at the meeting. For the Company's 2000 annual
meeting, this notice must be received by February 25, 2000.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------------------- -----------------------------------------------
<S> <C> <C>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
On April 9, 1999, the Company filed an 8-K with regards to its
seventh amendment to its credit agreement with NationsBank of
Texas, N.A., as agent for a group of banks.
PAGE 15
<PAGE> 16
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: May 11, 1999
/s/James C. Gale
-------------------------------------------------
Signature
James C. Gale
Senior Vice President Finance and Chief Financial
Officer
(Mr. Gale is the Chief Financial Officer and has
been duly authorized to sign on behalf of the
Registrant)
PAGE 16
<PAGE> 17
GENICOM CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 4, 1999
<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> 3-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> APR-04-1999
<CASH> 5,137
<SECURITIES> 0
<RECEIVABLES> 88,054
<ALLOWANCES> (5,292)
<INVENTORY> 50,617
<CURRENT-ASSETS> 152,237
<PP&E> 111,568
<DEPRECIATION> (64,700)
<TOTAL-ASSETS> 220,645
<CURRENT-LIABILITIES> 90,623
<BONDS> 0
0
0
<COMMON> 116
<OTHER-SE> 22,839
<TOTAL-LIABILITY-AND-EQUITY> 220,645
<SALES> 63,162
<TOTAL-REVENUES> 100,389
<CGS> 44,847
<TOTAL-COSTS> 76,526
<OTHER-EXPENSES> 23,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,678
<INCOME-PRETAX> (2,689)
<INCOME-TAX> 119
<INCOME-CONTINUING> (2,808)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,808)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
