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FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
[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.
REASON FOR AMENDMENT
The undersigned registrant hereby amends in its entirety Part I of its
quarterly report on Form 10-Q for the quarterly period ended April 4, 1999.
The Company has restated its first quarter 1999 unaudited consolidated
financial statements based on the results of a physical count of its service
business finished goods inventory in October 1999. The restatement has caused
the Company to be in non-compliance throughout 1999 with certain covenants and
payment provisions of its credit agreement, and accordingly all outstanding
borrowings under the credit agreement have been classified as a current
liability. See notes 2 and 7 to the unaudited consolidated financial statements
included herein.
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FORM 10-Q/A INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - April 4, 1999 (Restated) and January 3, 1999 3
Consolidated Statements of (Loss) Income - Three Months Ended
April 4, 1999 (Restated) and March 29, 1998 4
Consolidated Statements of Cash Flows - Three Months Ended
April 4, 1999 (Restated) and March 29, 1998 5
Notes to Consolidated Financial Statements (Restated) 6 - 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Restated) 11 - 16
Item 3. Market Risk 16 - 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
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
-------------------- ---------------------
(RESTATED)
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
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 (note 2) 47,941 59,617
Prepaid expenses and other assets 13,064 12,664
-------------------- ---------------------
TOTAL CURRENT ASSETS 149,561 163,782
Property, plant and equipment, net 46,868 45,459
Goodwill 15,034 15,965
Intangibles and other assets 6,506 4,771
-------------------- ---------------------
$ 217,969 $ 229,977
-------------------- ---------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (note 7) $ 103,922 $ 7,936
Accounts payable and accrued expenses 69,110 67,096
Deferred income 14,791 13,344
-------------------- ---------------------
TOTAL CURRENT LIABILITIES 187,823 88,376
Long-term debt, less current portion 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
and outstanding, respectively 116 116
Additional paid-in capital 30,411 29,216
Accumulated deficit (7,523) (2,039)
Accumulated other comprehensive loss (2,725) (2,676)
-------------------- ---------------------
TOTAL STOCKHOLDERS' EQUITY 20,279 24,617
-------------------- ---------------------
$ 217,969 $ 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
---------------- ---------------
(RESTATED)
<S> <C> <C>
REVENUES, NET:
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
Service inventory adjustment (note 2) 2,676
Selling, general and administration 19,807 20,271
Engineering, research and
product development 4,067 4,325
---------------- ---------------
103,076 119,292
---------------- ---------------
OPERATING (LOSS) INCOME (2,687) 2,818
Interest expense, net 2,678 2,593
---------------- ---------------
(LOSS) INCOME BEFORE INCOME TAXES (5,365) 225
Income tax expense 119 56
---------------- ---------------
NET (LOSS) INCOME $ (5,484) $ 169
---------------- ---------------
(Loss) earnings per common share (basic) $ (0.47) $ 0.01
---------------- ---------------
(Loss) earnings per common share (diluted) $ (0.47) $ 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 SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
APRIL 4, MARCH 29,
(In thousands) 1999 1998
-------------------- --------------------
(RESTATED)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (5,484) $ 169
Adjustments to reconcile net (loss) income to cash provided
by operating activities:
Depreciation 3,620 3,477
Amortization 1,689 1,994
Service inventory adjustment (note 2) 2,676
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. FINANCIAL STATEMENTS
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 except for the inventory adjustment discussed
in note 2) 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. 1999 INVENTORY ADJUSTMENTS AND QUARTERLY RESTATEMENTS
During October 1999, the Company conducted a physical count of the
Enterprising Solutions Service company ("ESSC") parts and supplies
finished goods inventory. During its reconciliation of the physical
count to its perpetual inventory records, the Company discovered
discrepancies that occurred undetected in the first and second quarters
of 1999 associated with the internal transfer of parts among various
locations within the Company. These discrepancies have the effect of
increasing ESSC's first quarter 1999 cost of revenue and operating
loss, and decreasing inventory by $2.7 million. The Company's unaudited
consolidated financial statements for the first quarter of 1999 has
been restated as follows:
<TABLE>
<CAPTION>
Quarter Ended
April 4, 1999
-------------------------------
Reported Restated
--------------- -------------
<S> <C> <C>
Operating loss $ (11) $ (2,687)
Net loss $ (2,808) $ (5,484)
Net loss per common share $ (0.24) $ (0.47)
</TABLE>
<TABLE>
<CAPTION>
As of
April l4, 1999
--------------- -------------
Reported Restated
--------------- -------------
<S> <C> <C>
Inventory $ 50,617 $ 47,941
Accumulated deficit $ (4,847) $ (7,523)
</TABLE>
3. INVENTORIES
Inventories are stated at the lower of cost, determined on the
first-in, first-out method, or market. Inventories consist of, in
thousands:
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<TABLE>
<CAPTION>
APRIL 4, JANUARY 3,
1999 1999
----------- ----------
(RESTATED)
<S> <C> <C>
Raw Materials $ 5,140 $ 4,086
Work in process 1,052 930
Finished goods 41,749 54,601
----------- ----------
$ 47,941 $ 59,617
----------- ----------
</TABLE>
4. EARNINGS PER SHARE
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
------------ ----------- ----------
BASIC EPS (Restated) (Restated)
<S> <C> <C> <C>
Loss available to shareholders $ (5,484) 11,608 $ (0.47)
Weighted shares from stock options
------------ ----------- ----------
DILUTED EPS $ (5,484) 11,608 $ (0.47)
------------ ----------- ----------
<CAPTION>
Three Months Ended March 29, 1998
-------------------------------------------------
BASIC EPS
<S> <C> <C> <C>
Income available to shareholders $ 169 11,464 $ 0.01
Weighted shares from stock options 1,208
------------ ----------- ----------
DILUTED EPS $ 169 12,672 $ 0.01
------------ ----------- ----------
</TABLE>
For the three months ended April 4, 1999, 449,000 equivalent shares
have been omitted due to their antidilutive nature.
5. 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.
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<TABLE>
<CAPTION>
Three Months Ended or As of
April 4, March 29,
(in thousands) 1999 1998
----------- ------------
(Restated)
<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 (4,485) (3,458)
----------- ------------
$ (2,687) $ 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 83,544 91,549
Corporate and other 36,555 23,142
----------- ------------
$ 217,969 $ 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>
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
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 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
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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.
7. DEBT
Due to the restatement of the Company's first quarter 1999 unaudited
consolidated financial statements, the Company was not in compliance
with certain loan covenants and payment provisions as of the end of the
first quarter 1999. Accordingly all of the outstanding borrowings under
the credit agreement have been classified as current at the end of the
first quarter 1999.
The Company is in negotiations with the lenders concerning its
non-compliance with covenants and payment provisions and possible
remedies. These remedies could include waivers, forbearance, or
restructuring of the debt. The Company is experiencing liquidity
problems and has vendors in a past due position. Continued losses and
an absence of lender support, will cause additional liquidity concerns
and have a material adverse effect on the Company's ability to continue
as a going concern.
If the Company's current credit facility is refinanced or the
outstanding balance is declared by the lender to be payable on demand,
the remaining unamortized deferred financing costs of $4.9 million as
of April 4, 1999 associated with this credit facility will be adjusted
in the period of refinancing or when the debt is declared payable.
8. COMPREHENSIVE INCOME
The Company's loss, if reported on a comprehensive basis, would be $5.5
million restated 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.
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9. NEW ACCOUNTING PRONOUCEMENTS
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 during the third
fiscal quarter of 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:
Amounts in this discussion and analysis have been restated as disclosed in note
2 of the unaudited consolidated financial statements.
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.
Document Solutions ("DSC") revenue was 21.3% 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, during 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 1ST QUARTER
1999 1998
(RESTATED) CHANGE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross margin - Enterprising Service Solutions $ 2.9 $ (1.1) $ 4.0
Gross margin - Document Solutions 18.3 (5.1) 23.4
------------ ------------ ------------
Total gross margin 21.2 (6.2) 27.4
------------ ------------ ------------
As a % of revenue 21.1 % 22.4 %
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Gross margin, as a percent of revenue, decreased from 22.4% in the first quarter
of 1998 to 21.1% 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 first
quarter of 1998. For ESSC, gross margin decreased from 9.6% for the first three
months of 1998 to 7.8% for 1999. The gross margin decline was principally the
result of higher material costs partially offset by 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>
The Company provided a full valuation allowance against the domestic deferred
tax assets created primarily as the result of the Company's first quarter 1999
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>
- ---------------------------------------------------------------------------------------------------------------------
(RESTATED)
(in millions) 1ST QUARTER 4TH QUARTER
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Working capital $ (38.3) $ 75.4
Inventories 47.9 59.6
Debt obligations 103.9 112.9
Debt to equity ratio 5.1 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 for the first quarter of 1998. The change in cash from
operations was principally due to the decreases in inventory (excluding the
inventory adjustment) and accounts receivable partially offset by the Company's
operating loss. The Company's working capital decreased $113.7 million as of
April 4, 1999, as compared to January 3, 1999 due primarily to the following: a
reclassification of long-term debt to current debt, a $9.0 million decrease in
inventory resulting from the Company's inventory reduction program (excluding
the inventory adjustment); a $2.0 million increase in accounts payable due to an
increased aging of payables; and a $1.0 million decrease in accounts receivable
directly related to the Company's lower revenue. Total 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. As
of April 4, 1999, the revolving credit facility exceeded the borrowing base
formula due to the inventory restatement explained in note 2.
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
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Company renegotiated the term of the interest rate swap, decreasing the term
from five to three years. As a result 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
PAGE 14
<PAGE> 15
be exercised before then. Amendment 7 reduces NationsBank's revolving credit
commitment to $62 million at the 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 was not in compliance with covenants and payment provisions of its
credit facility at the end of the first quarter of 1999, due to restatements of
the Company's first quarter 1999 unaudited consolidated financial statements
(see note 2 to the Company's unaudited consolidated financial statements).
As of November 1999, the Company is in negotiations with the lenders concerning
its covenant and payment non-compliance and possible remedies. These remedies
could include waivers, forbearance, or restructuring of the debt. The Company is
experiencing liquidity problems and has vendors in a past due position.
Continued losses and an absence of lender support will cause additional
liquidity concerns and have a material adverse effect on the Company's ability
to continue as a going concern.
If the Company's current credit facility is refinanced or the outstanding
balance is declared by the lender to be payable on demand, the remaining
unamortized deferred financing costs of $4.9 million as of April 4, 1999
associated with this credit facility will be expensed in the period of
refinancing or when the debt is declared payable.
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 was
scheduled to be completely installed and tested by early December 1999. The
Company believed its worst case would be addressed with the new systems. Due to
performance issues with the new system, certain aspects of the project have been
delayed until after the end of 1999 and the contingency plan was implemented.
This plan is directed at insuring that its remaining major systems which have
not yet been replaced are Year 2000 compliant. Based up the representations of
the Company's vendor, this work is scheduled and expected to be completed and
the systems tested by the middle of December 1999. The programs which are not
modified for Year 2000 compliance are not expected to have a material impact on
the operations of the Company. As a result, the Company does not anticipate Year
2000 problems will materially affect its operations. The approximately $18-$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
PAGE 15
<PAGE> 16
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.
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 and relationship with its lenders, 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.
PAGE 16
<PAGE> 17
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 17
<PAGE> 18
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>
27.1 Financial Data Schedule (Restated)
</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 18
<PAGE> 19
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 24, 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 19
<PAGE> 20
GENICOM CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS TO FORM 10-Q/A
FOR THE QUARTERLY PERIOD ENDED APRIL 4, 1999
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- -------------- ------------------------------------- ---------------------
<S> <C> <C>
27.1 Financial Data Schedule (Restated) Filed only with
EDGAR version
</TABLE>
E - 1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-2-2000
<PERIOD-START> JAN-4-1999
<PERIOD-END> APR-4-1999
<CASH> 5,137
<SECURITIES> 0
<RECEIVABLES> 88,054
<ALLOWANCES> (5,292)
<INVENTORY> 47,941
<CURRENT-ASSETS> 149,561
<PP&E> 111,568
<DEPRECIATION> (64,700)
<TOTAL-ASSETS> 217,969
<CURRENT-LIABILITIES> 187,823
<BONDS> 0
0
0
<COMMON> 116
<OTHER-SE> 20,163
<TOTAL-LIABILITY-AND-EQUITY> 217,969
<SALES> 63,162
<TOTAL-REVENUES> 100,389
<CGS> 44,847
<TOTAL-COSTS> 73,850
<OTHER-EXPENSES> 23,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,678
<INCOME-PRETAX> (5,365)
<INCOME-TAX> 119
<INCOME-CONTINUING> (5,484)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,484)
<EPS-BASIC> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
