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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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
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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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.01 par value
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained, to the best of the registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K. X
-
As of January 30, 1998, there were 11,384,606 shares of Common Stock
of the Registrant outstanding. The aggregate market value of the shares of
Common Stock held by non-affiliates (without admitting that any person whose
shares are not included in determining such value is an affiliate) was
approximately $119,538,363 based upon the closing price of the shares in the
NASDAQ over-the-counter market on January 30, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement with respect
to the Annual Meeting of Stockholders to be held on May 20, 1998: Part III
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GENICOM CORPORATION AND SUBSIDIARIES
FORM 10-K INDEX
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PART I
Item 1. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Executive Officers of the Registrant. 16
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 17
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 51
PART III
Item 10. Directors and Executive Officers of the Registrant 51
Item 11. Executive Compensation 51
Item 12. Security Ownership of Certain Beneficial Owners and Management 51
Item 13. Certain Relationships and Related Transactions 51
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 51
Signatures 56
Index to Financial Statements and Schedules F-1
Index to Exhibits E-1
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ITEM 1. BUSINESS
GENERAL
GENICOM Corporation ("GENICOM" or the "Company"), through its worldwide
operations, provides maintenance and repair services for computer systems
produced by multiple vendors, network planning, integration and optimization
services. The Company develops, manufactures, and distributes printers and
related products. GENICOM's service business include information management,
procurement, on-site installation and repair, and off-site repair,
refurbishment, and re-manufacturing. With the acquisition of certain assets of
Novadyne Computer Systems on November 14, 1997, GENICOM significantly increased
the size of its service business. GENICOM continues to design, manufacture,
and distribute impact and page printers for (i) use in cost sensitive
environments; (ii) the printing of multi-part forms and bar-codes; (iii)
providing printing connectivity in proprietary systems; and (iv) the travel
industry. On September 30, 1996, GENICOM acquired Texas Instruments' worldwide
printer business which enabled the Company to expand its printer product line
in mid-range printers and products specifically directed at the travel
industry. In August 1997, GENICOM entered into agreements with Digital
Equipment Corporation ("DEC") to design, market, distribute and support DEC
printer products, giving GENICOM access to certain distribution channels to
which the Company did not have access previously. The Company also provides
spare parts and supplies such as print heads, printed wire boards, ribbons and
printer cartridges for both the Company's as well other manufacturers'
printers.
BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company's businesses are reported in two business segments: Enterprising
Service Solutions and Document Solutions. Financial information by business
segment and geographic location appears on pages 46, 47 and 48 of this Annual
Report on Form 10-K. This information includes sales and service revenues,
operating income and identifiable assets for the years ended December 28, 1997
and December 29, 1996.
Operation of the Company's subsidiaries in Australia, Canada, and Europe is
subject to various risks associated with political and economic developments in
such countries, such as tariffs imposed to discourage imports, varying product
standards and specifications, and value added and excise taxes. In addition,
GENICOM is exposed to currency fluctuation risks as a result of its
international sales and sourcing of products from foreign vendors.
Accordingly, sales or cost of components may decrease or increase as the value
of the United States dollar appreciates or depreciates relative to the currency
of the source country. The Company purchases forward exchange contracts as a
strategy to assist in minimizing these currency risks and expects to continue
this practice in the future.
ENTERPRISING SERVICE SOLUTIONS
GENERAL
GENICOM performs a wide range of service related activities through its
Enterprising Service Solutions company ("ESSC"). ESSC provides customer
services and support to assist in the performance of networked business
systems. ESSC's services are classified as follows:
- Professional Services - On-Site
- Procurement Services - Off-Site
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PROFESSIONAL SERVICES
Professional Services provides a full range of information management services
including creation, operation and maintenance of a customer's information
system. With the acquisition of certain assets of Novadyne Computer Systems in
November 1997, Professional Services expanded its portfolio and delivery
capabilities to include Wide Area Networking (WAN) products, staff augmentation
and deployment services with many telecommunication voice and data circuit
providers as well as the ability to support SUN operating systems.
Professional Services offers the following products:
Help Desk Services - Provides call screening and first and second
level technical support.
Network Professional Services - Provides network performance
baselining, asset baselining, consultation and analysis, network
administration, network monitoring and network design.
Project Management Services - Provides management reporting, network
changes including moves, adds, deletes and upgrades, network roll-out
or deployment, service planning, staff augmentation and training.
Logistics Services - Provides logistics planning, logistics
procurement and provisioning and parts logistics management.
PROCUREMENT SERVICES
Procurement Services provides Value-Added Resale of computer systems,
peripherals and network hardware, software and spare parts. Procurement
Services offers two product lines. System Provisioning Services provides all
network product procurement requirements. Spare Part Sales provides support
for the provisioning of multivendor printers, monitors and other computer
systems and peripherals in quantities and with same day shipment.
ON-SITE SERVICES
On-Site Services provides repair and installation of information and networked
systems. Field engineers are dispatched from a central telecommunications
support site to the customer's local premise. All required services are
performed at the customer's location. In addition to ESSC's own field
engineers, the Company has access to qualified Authorized Third-Party Service
Providers to increase geographic service coverage.
In 1997, ESSC began using a two-way paging system which allows field engineers
to update, check status and close out service calls real-time. This system
also provides the field engineers with Internet access email and data
retrieval. In 1998, ESSC should complete implementation of a computer support
system which provides customers and the Company an advanced and responsive
networked business system for managing services.
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On-Site Services offers three products.
Installation Services - Performs the physical installation of
supported equipment at the customer's location and ensures the
equipment is operational.
Remedial Services - Repairs and maintains equipment at the customer's
site.
Preventive Maintenance Service - Periodic checks are performed to
avoid unscheduled down time of a computer system.
OFF-SITE SERVICES
Off-Site Services repair, refurbish and re-manufacture business equipment and
systems at one of two repair depots in Louisville, Kentucky or Fort Worth,
Texas. The services at the Louisville depot were formerly performed at two
other depots in Bedford, Massachusetts and Waynesboro, Virginia. Both of these
depots ceased operations in 1997 and the majority of the business from these
depots was transferred to the Louisville depot.
The Louisville depot repairs printers, keyboards, personal computers,
controllers, other network related hardware, workstations, systems, and
monitors. The Fort Worth depot repairs laptop and desktop computers. The Fort
Worth facility is used principally to perform out-sourced services for AST
Research, Inc.
Off-Site Services offers three products.
Depot Repair Services - Unit repair or refurbishment in a GENICOM
quality controlled repair facility by qualified depot technicians.
Integration Services - Multivendor products are set-up, tested,
wrapped and shipped to a customer's location for "plug and play"
installation.
Asset Management Services - Repair and refurbishment of equipment and
return to the customer within twenty-four hours.
SALES AND MARKETING
ESSC's acquisition of certain assets of Novadyne Computer Systems, Inc.
provided a significant increase in sales and marketing resources. The sales
force has more than doubled from the prior year, providing increased customer
and geographic coverage. The sales team has been divided to service the four
major product groups. These sales teams target specific customers and vertical
markets with a specific set of services. These customers include systems and
peripherals manufacturers, systems integrators, systems VARs and resellers, and
major end-users.
COMPETITION
The market size of ESSC related services is expected to be almost $35 billion
in 1998, according to Dataquest estimates. Currently, there is no individual
company with a significant market share. The markets in which ESSC operates
are highly competitive. Due to the scope of service capabilities ESSC delivers
to their customers, many competitors of various size and focus are encountered.
These competitors range from the service divisions of worldwide systems and
peripheral manufacturers to small regional service providers with less than 10
employees.
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ESSC competes with, among others, independent providers of repair services,
in-house repair centers of OEMs and third party maintenance organizations
(TPMs). ESSC believes that it offers cost-effective maintenance and repair
solutions to OEMs and TPMs and, therefore, considers these entities potential
customers.
The Company believes that ESSC has developed significant scope and scale in a
broad range of service solutions. This should allow ESSC to provide its
customers with consistent service solutions at a low overall cost. ESSC
competes primarily on the basis of the scope and quality of its value-added
services and price. Due in part to the capital costs necessary to maintain
adequate inventory and equipment as well as the geographic disbursement of need
to service large OEMs and TPMs, ESSC believes the economic constraints of small
maintenance and repair companies preclude them from competing with ESSC for
large programs. ESSC also believes that the scope of its maintenance and
repair operations and capabilities provides it with some competitive advantages
over some of its competitors.
DOCUMENT SOLUTIONS
PRINTERS AND RELATED PRODUCTS
The Company offers a wide range of serial (one character at a time), line (one
or more lines at a time) and page (one page at a time) printers, with
performance features and prices suitable for a varied range of printing
applications. Besides offering a wide range of technologies and print speeds,
GENICOM's printers offer multiple combinations of features that make them
suitable for diverse applications. Such features include multiple copy and
extensive paper handling capabilities, multiple type styles (fonts) and bar
codes. GENICOM's printers are used with desktop workstations and with various
networks and stand alone configurations in conjunction with micro, mini,
super-mini and mainframe computers.
On August 10, 1997, the Company entered into agreements with Digital Equipment
Corporation (DEC) Printing Systems Business and became the exclusive supplier
of Digital Branded Printer Solutions worldwide. The Company acquired design
rights, product intellectual property rights, vendor and customer contracts,
inventory and a license to use the Digital Logo, DEC Trademark and other
trademarks for programs within the Cooperative Marketing Agreement. The
agreements expanded the Company's product lines in the mid-range client/server
environment and enabled the Company to provide custom applications in the
Digital VMS environments.
Document Solutions also sells spare parts and supplies, for both GENICOM
products and those manufactured by other vendors. Supplies include items that
have a relatively short life such as printer ribbons and cartridges, while
spare parts include items that have generally a longer life such as print heads
and printed wire boards.
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The following table sets forth a summary of certain performance features of
GENICOM's principal printer products. Manufacturer's List Price Range is as of
January, 1998. Sales price may vary depending on features installed,
customization, discounts and other factors.
<TABLE>
<CAPTION>
Manufacturer's
Suggested
Printer Technology Draft List Price
Product Family Type Print Speed Features Options Range
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IMPACT-SERIAL
93Xe series 9 wire 300 to 435 personal workstation pull tractor, serial $550-$883
serial cps printer, ideal for interface board,
matrix small footprint tabletop printer
applications stand
2400 Series 9 wire 270 to 320 designed for attachment $1,492-$1,658
serial cps to IBM 3270 controllers
matrix (coax and IBM AS/400
twinax) with versatile
paper handling
880 Series 9 wire 300 cps heavy duty printer barcode kit, acoustic $2,195-$2,320
serial cover, pedestal and
matrix paper handling
options
885 Series 9 wire 300 cps 80 column, heavy duty barcode kit, acoustic $2,295-$2,420
serial printer cover, pedestal and
matrix paper handling
options
3400 Series 9, 18 or 24 400 to 840 mid-range and paper handling $1,395-$2,995
wire serial cps high-speed network options, colorkit and
matrix printers, advanced pedestal
paper handling to
include dual tractors
and auto sheet feeder,
postnet and bar codes,
with automatic
switching serial
(parallel interface)
3500 Series 9, 18 or 24 400-840 cps designed for attachment paper handling $2,195 - $3,595
wire to IBM 3270 controllers options, colorkit and
serial (coax )and IBM AS/400 pedestal
matrix (twinax) with
additional
autoswitching parallel
interface, dual
tractors and sheet
feeder and resident bar
codes
8900 Series 18 wire 400 cps heavy duty, mid-range bar code and font $2,345-$2,859
serial printers with the kits, DEC LA 120
matrix ability to print on emulation, RS-422
9-part forms kit, current loop
kit, MacAdapter kit,
acoustic cover,
pedestal and paper
handling options
3800 Series 18 wire 600 cps high-speed, heavy duty, QMS /IGP graphics, $2,125 - $3,168
serial network printer, RS-422 kit, pedestal
matrix advanced paper handling and paper handling
and single/dual path, options
POSTNET and bar codes
3900 Series 18 wire 600 cps designed for attachment pedestal and paper $2,999 - $3,400
serial to IBM 3270 controllers handling options
matrix (coax) and IBM Systems
3X or AS/400 (twinax),
high-speed, advanced
paper handling and bar
codes
</TABLE>
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IMPACT
4490 Series
shuttle 1400 lpm heavy-duty cycle, additional fonts and $10,158 -
matrix line maintenance free paper motion $11,660
printer features, advanced detector, QMS/IGP
paper handling, graphics
graphics and bar codes
4590 Series shuttle 1400 lpm designed for attachment additional fonts and $11,158 -
matrix line to IBM 3270 controllers paper motion $12,955
printer (coax), IBM Systems 3X detector, QMS/IGP
or AS/400 (twinax) and graphics
bar codes
4800 Series shuttle 400 to 800 reliable, low cost of QMS & IGP graphics $5,995 - $8,995
matrix line lpm ownership printer IBM twinax and coax
printer designed for
connectivity to
stand-alone systems and
ethernet and token ring
LANS running TCP/IP and
other protocols
4900 Series shuttle 400 to 800 designed for attachment additional fonts $7,047 - $10,290
matrix line lpm to IBM 3270 controllers QMS/IGP bar codes
printer (coax), IBM Systems 3X
or AS/400 (twinax), bar
codes and IPDS
NONIMPACT
microLaser laser 12 to 17 ppm desktop, network and versatile $1,499 - $1,599
Series printers multiuser environments, input/output paper
high resolution, handling devices and
multiple resident duplexing
fonts, PostScript level
2 & PCL5E compatible.
Supports various paper
sizes.
7900 Series laser 10 to 16 ppm multiuser, IBM client MarkNet internal $2,582 - $4,125
printers server environments, network adapter
full IBM 4028 IPDS connects up to 18
emulation, PCL5E & different operating
Postscript Level 2 systems, versatile
compatible up to 1200 input/output paper
dpi, bar codes, labels, handling devices and
graphics, electronic duplexing, various
forms. memory options
7930/40 Series page 30 to 40 ppm multi-user materials, network connectivity $16,900 -
printers IBM client server options, printer $28,500
(LED array) environments, full IBM cabinet, high
4028 IPDS emulation, capacity paper
PCL5E and PostScript handling options
Level 2 compatible,
hard drive for software
upgradability and
storage of forms and
fonts
6000 Series thermal 2 to 8 full range of bar code additional memory, $705 - $6,560
transfer inches per and label printers emulations, and
and direct second designed for portable, media handling
thermal desktop and industrial
printers environments
TRAVEL INDUSTRY
PRODUCTS
BT201e Direct 4.9 Airlines baggage tag memory $2138
thermal inches/sec. and boarding pass
thermal printer
GR122 Magnetic N/A Decodes magnetic data pedestal $4605
coupon (not a from ATB format coupons 2nd display
decoder printer)
</TABLE>
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<TABLE>
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895e 9 wire 300 CPS Impact printing of TAT bar code scanner $1763 - $3638
serial and ATB format pin fed
matrix stock
ATB1600 Direct 40 Thermal printing to memory $5922 - $6700
thermal coupons/min. magnetic modem
encoding/decoding of
ATB format coupons
ATB1800 Thermal 40 Direct thermal and memory $6488 - $7225
transfer & coupons/min. thermal transfer modem
direct printing magnetic
thermal encoding/decoding of
ATB format coupons
ATB2000 Electro- 40 Toner based printing, memory $6619 - $8031
photographic coupons/min. magnetic printing, modem
(laser) magnetic
encoding/decoding of
ATB format non-thermal
coupons
DIGITAL BRANDED
IMPACT-SERIAL
LA30N 24 wire 300 cps personal workstation Color kit $679
serial printer, ideal for
matrix small footprint
applications
LA30W 24 wire 300 cps Personal workstation Color kit $859
serial printer, 132 column
matrix
LA400 24 wire 400 cps heavy duty printer, 132 Color kit, pull $1,549
serial column tractor, printer stand
matrix
LA600 24 wire 600 cps 132 column, heavy duty Color kit, printer $2,976
serial industrial printer stand, auto sheet
matrix feeder
DIGITAL BRANDED
IMPACT-LINE
LG05/LGL5 shuttle 500 lpm heavy-duty cycle, PGL/VGL $5,995/5,295
matrix line maintenance free
printer features, advanced
paper handling,
graphics and bar codes
LG09 shuttle 900 lpm PGL/VGL $8,995
matrix line Heavy-duty cycle,
printer maintenance free
features, advanced
paper handling,
graphics and bar codes
LG14 shuttle 1400 lpm Heavy-duty cycle, PGL/VGL $11,895
matrix line maintenance free
printer features, advanced
paper handling,
graphics and bar codes
DIGITAL BRANDED
NONIMPACT
LN17+/LN17+ps laser 17 ppm desktop, network and versatile $1,595/2,439
printers multiuser environments, input/output paper
high resolution, handling devices and
multiple resident duplexing
fonts, PostScript level
2 & PCL5E compatible.
</TABLE>
The following are trademarks or registered trademarks of their respective
companies:
DEC of Digital Equipment Corporation; Geniscript of GENICOM Corporation; IBM
and IBM Proprinter of International Business Machines Corporation; PCL5 & PCL5E
of Hewlett-Packard Company, Postscript of Adobe Systems, Inc.
Definitions: cps-characters per second, lpm-lines per minute, ppm-pages per
minute
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MANUFACTURING
Document Solutions products are manufactured and assembled primarily at
facilities in Reynosa, Mexico and McAllen, Texas under an agreement with
Atlantic Design Company ("ADC") and to a lesser extent at the Company's
facility in Temple, Texas. The Reynosa facility assembles certain impact
printer product lines and produces printed circuit boards, high-speed matrix
printheads, ribbon cartridges and a variety of conventional electromechanical
assemblies. The Temple facility is used to manufacture some of the Travel
products.
In December of 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.
Ogden Services Corporation has divested certain ADC facilities and has been
attempting to divest the Reynosa operations. The Company's contract with ADC
contains a clause requiring GENICOM's consent to the sale, which consent cannot
be unreasonably withheld. The Company has evaluated preliminary information
received from ADC concerning a potential buyer, but, to the Company's
knowledge, the sale of the Reynosa facility is not imminent.
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 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
breaches of the agreement. Ogden Services Corporation and ADC have filed
counterclaims against the Company seeking damages in excess of $10 million
alleging additional various breaches by the Company of the agreement. The
Company, Ogden and ADC have engaged in settlement discussions, but no agreement
has been reached to date. Discovery is in progress in the arbitration and
hearings had been scheduled to begin in April 1998. In late March 1998, Ogden
and ADC requested and received permission from the arbitrator to file an
amended claim to seek recision of the agreement. While ADC has not formally
filed its claim for recision, the Company is not aware of any basis for such a
claim and will vigorously contest any such assertion. While the Company
remains hopeful that a negotiated solution can be reached, the Company cannot
presently predict the outcome of this matter or how the respective claims will
be resolved. There can be no assurance that such outcomes will not have a
material adverse effect upon the Company.
SALES AND MARKETING
The major portion of printer and relay sales are made pursuant to purchase
agreements, blanket purchase orders and similar arrangements whereby products
are deliverable only after the customer issues a purchase order, release or
schedule covering specific numbers of units and specifying firm delivery dates.
Such arrangements usually contain price protection provisions which provide
that if the Company decreases its prices, customers will receive the benefit of
such price decreases for products then held in inventory. The Company's
agreements with larger OEMs for printer sales generally require the customer to
provide GENICOM with continuously updated forecasts of its requirements.
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GENICOM markets its products and services through several domestic and
international channels. GENICOM's distribution channels consist of (i) national
and regional distributors who sell to value added resellers ("VARs"), dealers
and end users, and (ii) a direct sales force which sells to OEMs, end users and
value added resellers and dealers.
Most printers are available in several standard models, enabling Document
Solutions to serve a wide range of customer requirements. A combination of
accessories satisfies various printing applications. In addition, standard
models are customized for OEMs and end users using GENICOM's engineering design
capabilities. No customer accounted for more than 10% of GENICOM's total sales
in 1997. Although in 1997, sales to DEC did not account for more than 10% of
revenue, it is expected in 1998 for DEC to be a significant customer.
GENICOM maintains international sales and marketing subsidiaries in Australia,
Canada, Sweden, Belgium, France, Germany, Italy and the United Kingdom. These
subsidiaries offer GENICOM products and services to distributors, small OEMs,
system houses, VARs and retail dealers in over 66 countries in primarily local
currencies. See "Business Segment and Geographic Information."
COMPETITION
Document Solutions' printer products compete in markets characterized by rapid
technological change and strong competition. The Company competes primarily in
the medium and high-performance segments of the printer market where users
require reliable printers principally for word processing, shared network
printing, graphics, bar codes and other business applications. The Company
competes against many well-established companies, some with financial,
technical and operating resources greater than its own. Such competitors
include large computer system manufacturers that produce printers for their own
product lines and, in certain cases, for sale to other suppliers or end users.
In addition, there are a number of independent printer manufacturers producing
printers that compete with those offered by GENICOM.
Competitive factors within the printer market include price, performance,
reliability, cost of ownership, versatility, ease of maintenance, applications
solutions support, after-sales service and support and marketing channels. As
the computer industry continues to move toward product standardization and
relies less on proprietary designs, GENICOM will be challenged to continue to
differentiate its products based on competitive factors other than price. The
Company believes that its ability to maintain a competitive market position
depends on the following: development of applications solutions to customer
needs, continued growth of nonimpact printer technologies, sustained migration
to shared printing environments, effective channels to market, continued
enhancement of the Company's product line and improvements in the Company's
productivity. To enhance its competitive position in the impact and nonimpact
market, the Company purchased the printer assets of Texas Instruments on
September 30, 1996. The addition of Texas Instruments' printer and supplies
business complemented GENICOM's other product offerings, globally expanded its
customer base and, broadened the Company's offerings in the travel industry.
The addition of travel related products provided the Company with a broad
family of impact and nonimpact products targeted at specific applications such
as itinerary confirmation, ticketing, bag tag and boarding automation. The
Company has further expanded its nonimpact printer product line with the
introduction of thermal bar coding products as complementary offerings to its
impact bar coding products.
The Company believes that the market for impact printers has largely shifted to
shared-resource, application-specific environments such as bar coding and
multipart forms. As this occurs, the Company is narrowing its focus to these
niche markets, de-emphasizing or
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discontinuing low-end offerings and channeling resources to markets where
growth potential is greatest. As the market for this technology has declined,
the Company is also focusing on the replacement market. By addressing
connectivity issues and applications such as industrial graphics and labels,
the Company has designed products which appeal to the existing user base as
well as new customers. Impact printers continue to meet customer application
needs not yet satisfied by nonimpact technologies, in such areas as multipart
forms, high-volume reliability and low cost ownership. As a result of the DEC
agreements, the Company's market for impact printers should increase due to the
fact that many of the operating environments within the DEC customer base have
a continuing need for both serial and line matrix impact products.
RELAYS
Until late 1997, the Company offered a line of relays that were used
principally in signal switching applications requiring high functional
reliability and product quality and were sold primarily for aerospace and
defense applications, automatic test equipment applications and to a lesser
extent, communication, industrial control and transportation control
applications. Relay revenues, as a percentage of total revenues, were 3.4%,
4.5% and 4.0% in 1997, 1996 and 1995, respectively. The Company sold this
product line on November 30, 1997.
GENERAL
ENVIRONMENTAL MATTERS
As a result of manufacturing processes, the Company generated and managed
hazardous wastes at its facilities. The Company does not believe that
compliance with Federal, State and local regulations will have a material
effect on its capital expenditures, financial condition or results of
operations. See "Legal Proceedings."
BACKLOG
The Company's order backlog at December 28, 1997 was approximately $44.9
million, compared with approximately $56.7 million at December 29, 1996. The
principal cause of the backlog decline was the sale of the relay product line.
GENICOM's reportable backlog reflects only fixed-price contracts for all orders
associated with service, systems integration and those orders for printers,
spare parts and supplies for which a delivery date within approximately six
months has been specified by the customer. The Company expects to ship
substantially all printer, spares and supplies orders in reported backlog
within fiscal year 1998. The Company normally experiences lower sales each
year in its third quarter due to European holidays.
GENICOM's working capital practices are consistent with the working capital
practices of the printer and service industry. GENICOM's customer payment
terms generally require invoices to be paid within thirty days of the date of
issue.
ENGINEERING, RESEARCH AND PRODUCT DEVELOPMENT
GENICOM incurs engineering, research and product development costs for the
following purposes: development of new products; applications solutions
development; modification, enhancement and achievement of cost reductions for
existing product lines; customization of products for OEMs; market research;
and development of process inspection criteria to ensure new products are built
to specification. GENICOM's expenditures for engineering, research and product
development were $13.8 million, $8.5 million, and $8.4 million in 1997, 1996
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and 1995, respectively. In 1997, 1996, and 1995 the Company expended 4.7%,
4.7%, and 5.0% of products revenue, respectively, in engineering, research and
product development.
GENICOM maintains in-house capabilities and facilities to support its
engineering and design activities. The Company also engages a number of highly
specialized independent firms to supplement its own engineering capabilities
and to design certain software and components for its products.
PROPRIETARY RIGHTS
GENICOM relies on patent, copyright and trade secret laws to protect its
proprietary and technology rights. GENICOM obtained certain patents, licenses
and cross-licenses when it acquired the Data Communication Products Business
Department from General Electric Company (collectively "G.E.") in 1983, when it
acquired the Printer related assets of Ekco Group, Inc. (formerly Centronics
Data Computer Corporation, "Centronics") in 1987, and when it acquired Harris
Adacom Network Services, Inc. and Printer Systems Corporation in 1995, as well
as Texas Instruments' printer business which the Company acquired in 1996. In
addition, in 1997, GENICOM entered into agreements with DEC and acquired
certain rights and patents, as well as the right to use the Digital name in
connection with its activities under the Digital Cooperative Marketing
Agreement. GENICOM also acquired certain rights with the acquisition of assets
of Novadyne Computer Systems. GENICOM continues to patent certain
developments, holds certain patents pending and retains numerous patents
expiring at various times between 1998 and 2012. In addition, the Company has
a cross-licensing agreement with IBM that expires 17 years after the date of
issue of certain patents pending prior to January 1, 1991.
"GENICOM" and certain other marks used in connection with the sale of the
Company's products are registered trademarks of GENICOM in the United States
and, in some cases, certain foreign countries. Under United States law, a
registered trademark remains valid for 10 years if affirmed at the end of the
sixth year. There is no limit to the number of times the registration may be
renewed for additional 10-year periods. Thereafter, each registration may be
renewed for additional 10 year periods; otherwise the registration will expire
automatically.
GENICOM's Document Solutions strategic business unit specializes in raster
imaging technology and has numerous related patents and trademarks which the
Company expects to assist in GENICOM's continued penetration into the
nonimpact market in 1998.
In connection with the acquisition of the printer-related assets of Centronics,
GENICOM acquired a license to use the name "Centronics" as a trademark,
tradename and service name. Along with a Service Agreement with AST Research,
Inc., GENICOM was granted the right to use AST's registered trademark for
refurbished equipment packaging.
HP Laserjet is a registered trademark of Hewlett-Packard Company.
SUPPLIERS
GENICOM currently purchases raw materials, components and printers from various
domestic and foreign suppliers. GENICOM utilizes supply agreements and other
arrangements whereby volume discounts can be obtained.
GENICOM purchases certain products - printers, options, supplies and component
parts, including print engines, from sole suppliers who have developed
proprietary processes that the Company incorporates into its products. In the
event that those suppliers were unable or unwilling to supply these products,
the Company believes it could establish alternate sources
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<PAGE> 14
for these products or similar products. The time required to establish an
alternate source could disrupt the manufacture or distribution of these
products, thus causing delays that could adversely affect revenues. Currently,
the Company considers most of its relationships with vendors to be good and
does not anticipate any disruption in the supply of these products.
In 1997, GENICOM procured 28% of its total inventory purchases from ADC
pursuant to the agreement. No other supplier accounted for a significant
portion of GENICOM's total 1997 purchases. In 1996, GENICOM purchased 64% of
its total purchases from ADC (See "Manufacturing" above and "Management's
Discussion and Analysis" for discussion about the Company's agreement with ADC
and disputes that have arisen under that agreement).
EMPLOYEES
As of December 28, 1997, the Company and its subsidiaries employed 1,749
employees. The Company believes its relations with its employees are
satisfactory.
The Company's production and maintenance employees at its Waynesboro facility
are represented by the United Electrical, Radio and Machine Workers of America
Local 124, under a collective bargaining agreement which expires in July 1999.
These employees were affected by the relocation of the Waynesboro depot to
Louisville, Kentucky and the sale of the relay product line. There are still
some union employees at the Waynesboro facility.
ITEM 2. PROPERTIES
The following table sets forth certain information with respect to the
Company's owned or leased property as of December 29, 1996:
<TABLE>
<CAPTION>
SQUARE OWNED OR YEAR LEASE
LOCATION PRINCIPAL USES FEET LEASED EXPIRES
======================== ===================================== ========= ============ ============
<S> <C> <C> <C> <C>
Fort Worth, TX Service 37,000 Subleased 2002
Chantilly, VA Corporate Headquarters 23,000 Leased 1998
Waynesboro, VA Service, Manufacturing, Office 377,000 Owned --
Louisville, KY Service 320,000 Leased 2007
McAllen, TX (1) Distribution 37,500 Leased 1998
Temple, TX Manufacturing 44,000 Leased 2001
Carrollton, TX Service 105,000 Leased 2002
</TABLE>
(1) This facility is currently being subleased by Atlantic Design Company as
part of the manufacturing agreement mentioned above.
GENICOM's leased property is occupied under standard industrial and commercial
leases. Each lease generally contains an optional renewal provision.
ITEM 3. LEGAL PROCEEDINGS
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
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<PAGE> 15
responded to the report. 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 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 had been 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 are 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 is alleged to be the source of the contamination.
This matter was settled during 1997. The Company was fully reserved for the
settlement amount.
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 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
breaches of the agreement. Ogden Services Corporation and ADC have filed
counterclaims against the Company seeking damages in excess of $10 million
alleging additional various breaches by the Company of the agreement. The
Company, Ogden and ADC have engaged in settlement discussions, but no agreement
has been reached to date. Discovery is in progress in the arbitration and
hearings had been scheduled to begin in April 1998. In late March 1998, Ogden
and ADC requested and received permission from the arbitrator to file an
amended claim to seek recision of the agreement. While ADC has not formally
filed its claim for recision, the Company is not aware of any basis for such a
claim and will vigorously contest any such assertion. While the Company
remains hopeful that a negotiated solution can be reached, the Company cannot
presently predict the outcome of this matter or how the respective claims will
be resolved. There can be no assurance that such outcomes will not have a
material adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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<PAGE> 16
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
Company's executive officers as of December 28, 1997:
<TABLE>
<CAPTION>
NAME AGE TITLE
=========================== ====== =====================================================================
<S> <C> <C>
Paul T. Winn 53 Director, President and Chief Executive Officer
James C. Gale 55 Senior Vice President Finance and Chief Financial Officer
Raymond D. Stapleton 58 Senior Vice President, Marketing and Sales, Enterprising Service
Solutions Company
Karen M. Morinelli 42 Vice President, Human Resources
B. Garrett Buttner 49 Vice President and General Manager, Annuities
Harold L. McIlroy 59 Vice President, Operations and General Manager, Relays
Arthur D. Gallo 55 Corporate Vice President and General Manager, Document Solutions Company
Michael J. Shelor 49 Offsite Services Vice President and General Manager, Enterprising
Service Solutions Company
John Keyser 53 Vice President and General Manager, Field Services, Enterprising Service
Solutions Company
</TABLE>
Mr. Winn joined the Company in April 1990 as President and Chief Executive
Officer and became a director in May 1990. Previously, Mr. Winn was employed
by IBM Corporation.
Mr. Gale joined the Company as Senior Vice President Finance and Chief
Financial Officer in August 1991.
Mr. Stapleton became Senior Vice President, Marketing and Sales, Enterprising
Service Solutions in October 1996 after serving the Company and its
predecessor, G.E., in various capacities for 30 years.
Ms. Morinelli was appointed Vice President, Human Resources in December 1996.
Previously Ms. Morinelli was employed by Brown and Williamson for two years and
two years with Charlotte County.
Mr. Buttner was appointed Vice President and General Manager, Annuities in
November 1995 after having served as Vice President and General Manager
Supplies Business Unit since April 1993. Prior to his appointment as a
corporate officer, Mr. Buttner had served in sales, marketing and business
management positions with GENICOM since 1988.
Mr. McIlroy was appointed Vice President in July 1995 after joining the Company
October 1991 and serving in various operations management capacities.
Mr. Gallo was appointed Corporate Vice President and General Manager, Document
Solutions Company in November 1995 after having been the President of Printer
Systems Corporation, a printer company GENICOM acquired in 1995, since 1985.
Mr. Shelor was appointed Offsite Services Vice President and General Manager,
Enterprising Service Solutions Company in November 1995 after serving the
Company and its predecessor, G.E., in various operating positions since 1969.
Mr. Keyser was appointed Vice President and General Manager, Field Service,
Enterprising Service Solutions Company in January 1997 after joining the
Company in late 1996. Prior to
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<PAGE> 17
joining the Company, Mr. Keyser worked for Memorex Telex as Vice President
Customer Support.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Stock Trading:
GENICOM's common stock is quoted and traded on the Nasdaq National Market
System (Symbol: GECM). As of January 30, 1998 there were approximately 718
shareholders of record. The following table sets forth, for the periods
indicated, the high and low closing prices per share of GENICOM common stock as
reported by Nasdaq:
<TABLE>
<CAPTION>
1997 1996
------------------------------- --------------------------------
High Low High Low
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
First Quarter $ 5 1/2 $ 3 9/16 $ 6 3/8 $ 4 1/2
Second Quarter 6 5/16 4 3/8 7 1/8 4 1/4
Third Quarter 13 3/4 6 11/16 5 1/4 4
Fourth Quarter 15 3/8 10 1/2 5 1/8 3 3/8
</TABLE>
GENICOM has not paid a cash dividend on its common stock. The Company's
current financing agreement with NationsBank, as agent for a group of banks,
prohibits the payment of dividends, thus the Company does not anticipate paying
cash dividends in the foreseeable future.
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<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
The information is set forth below:
GENICOM CORPORATION AND SUBSIDIARIES
FIVE YEAR FINANCIAL HISTORY
<TABLE>
<CAPTION>
Fiscal year, (1) 1997 1996 1995 1994 1993
------------- ------------ ------------ ------------- ------------
(In thousands, except per share and other data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $ 421,128 $ 303,258 $ 294,052 $ 233,797 $ 221,865
Operating costs and expenses (2) 404,870 300,054 278,874 224,629 219,220
------------- ------------ ------------ ------------- -----------
Operating income 16,258 3,204 15,178 9,168 2,645
Interest expense, net 7,092 4,903 7,741 7,458 7,559
Other income (3) 122 1,908 1,741
------------- ------------ ------------ ------------- -----------
Income (loss) before income taxes and
extraordinary item 9,166 (1,577) 7,437 3,618 (3,173)
Income tax expense (benefit) 1,308 (3,658) 1,285 1,048 56
------------- ------------ ------------ ------------- -----------
Income (loss) before extraordinary item 7,858 2,081 6,152 2,570 (3,229)
Extraordinary loss (4) (422)
------------- ------------ ------------ ------------- -----------
Net income (loss) $ 7,858 $ 1,659 $ 6,152 $ 2,570 $ (3,229)
============= ============ ============ ============= ===========
Earnings (loss) per share (diluted)
Income (loss) before extraordinary item $ 0.63 $ 0.17 $ 0.51 $ 0.23 $ (0.30)
Extraordinary loss (0.03)
------------- ------------ ------------ ------------- -----------
Net income (loss) $ 0.63 $ 0.14 $ 0.51 $ 0.23 $ (0.30)
============= ============ ============ ============= ===========
Weighted average shares (diluted) 12,570 12,168 12,056 11,416 10,621
============= ============ ============ ============= ===========
BALANCE SHEET DATA:
Working capital $ 66,190 $ 36,091 $ 34,530 $ 40,780 $ 33,642
Total assets 250,049 186,079 161,539 127,267 141,159
Total debt obligations 93,463 54,553 51,544 47,563 69,020
Stockholders' equity 45,396 37,591 34,533 28,083 24,575
OTHER DATA (UNAUDITED):
Employees (5) 1,749 1,671 1,638 2,382 2,147
Price range per common share:
Low $ 3 9/16 $ 3 3/8 $ 2 $ 1 $ 1 1/8
High 15 3/8 7 1/8 5 7/8 3 1/4 3 1/2
</TABLE>
(1) The Company's fiscal year ends on the Sunday nearest December 31.
Accordingly, the Company is reporting for 52-week periods for all
years presented.
(2) Includes restructuring costs of $1.0 million in 1993. In addition,
includes $1.2 million for acquisition related charges in 1995. In
1996, the Company recognized $5.7 million for restructuring and
environmental charges and $1.5 million gain on the sale of its Mexican
subsidiary.
(3) The Company recognized a gain of $0.9 and $1.7 million from the sale
of its investment in a Belgian printer development and manufacturing
company in 1994 and 1993, respectively. The Company also recognized a
gain of $1.0 million on the early extinguishment of $9.2 million
principal amount of its Senior Securities Subordinated Notes in 1994.
(4) In 1996, the Company recognized an extraordinary loss on the
extinguishment of the balance of its senior suborniated notes of $0.4
million, net of $0.3 million of taxes.
(5) Substantial staff reductions occurred in 1995 as a result of the
service agreement with ADC.
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<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
GENICOM Corporation ("GENICOM" or the "Company") is comprised of two distinct
operating companies. The Enterprising Service Solutions company provides logo
and multivendor product field support, depot repair, express parts,
professional services and network information technology and services. The
Document Solutions company designs and markets page and impact printers for a
variety of business applications as well as related supplies and spare parts.
The production and sales of relay products, which comprised less than 10% of
consolidated revenue, operating income and assets, are included with the
Document Solutions company. This product line was sold in November of 1997.
NET REVENUE
For 1997, revenues were $421.1 million, an increase of 38.9% from 1996. The
increase in revenue was primarily the result of the acquisition of the Texas
Instruments printer business as of September 30, 1996 and the Company's
agreements with Digital Equipment Corporation ("DEC") entered into in August
1997. The DEC agreements added $37.7 million in sales for the year. The
Documents Solutions company ("DSC") total revenue, excluding relays, was $278.8
million, an increase of 64.9%, principally attributable to the Texas
Instruments acquisition and the DEC agreements. For Enterprising Service
Solutions company ("ESSC"), revenue increased $7.4 million to $128.0 million.
This increase primarily resulted from the systems integration business that
benefited from a contract with NASDAQ and increased integration business in
Canada. In November of 1997, the Company acquired certain assets and selected
liabilities of Novadyne Computer Systems, Inc. which also contributed to the
revenue increase for 1997. These revenue increases were affected slightly by a
decline in service depot revenue as a result of the transition of this activity
to the Louisville, Kentucky depot. Relay revenues were $14.3 million, an
increase of $0.7 million from 1996.
The consolidated revenue was $303.3 million and $294.0 million for the fiscal
years ended December 29, 1996 and December 31, 1995. For the fiscal year ended
December 29, 1996, revenue was 3.1% higher than for the fiscal year ended
December 31, 1995. The increase in revenue for 1996 was primarily attributable
to the Texas Instruments acquisition. Relay revenues increased $1.9 million in
1996 as compared to 1995.
ORDER BACKLOG
Order backlog was $44.9 million at December 28, 1997, a decrease of $11.8
million or 20.8% from December 29, 1996. Order backlog increased $9.2 million
or 19.4% in 1996 as compared with 1995. The decrease in order backlog in 1997
is primarily attributable to the sale of the relay product line. The backlog
reflects only fixed-price contracts for all orders associated with relays,
service, systems integration and those orders for printers, spare parts and
supplies for which a delivery date within approximately six months has been
specified by the customer. The Company's backlog as of any particular date
should not be the sole measurement used in determining sales for any future
period.
GROSS MARGIN
Gross margin, as a percentage of revenue, declined in 1997 as compared to 1996
due to several factors including lower margins associated with DEC products,
foreign exchange and
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<PAGE> 20
start up costs related to the Louisville depot. In 1996 gross margin decreased
slightly as compared to 1995 due to the effect of declining legacy service
business, fixed costs associated with the Bedford depot, the decapitalization
of costs associated with inventory transferred to Atlantic Design pursuant to
the outsourcing agreement, the impact on operating efficiency of heavy snowfall
in January 1996 at the service depots and lower margins associated with certain
products the Company began to sell after the transaction with Texas
Instruments.
OPERATING EXPENSES
Operating expenses in 1997 increased in actual dollars but decreased as a
percentage of revenue over 1996. As a percentage of revenue, operating
expenses declined to 19.2% compared to 22.3% in 1996. The absolute dollar
increase in operating expense primarily related to elevated levels of spending
needed to support the higher revenue including the new product lines acquired
from Texas Instruments and the DEC agreements, increased compensation and
benefits and engineering expense for development costs related to the new
travel printer business acquired from Texas Instruments and product development
undertaken under the DEC agreements.
Operating expenses in 1996 as compared with 1995 increased overall and as a
percentage of revenue due to costs associated with the integration of the Texas
Instruments printer business and increased MIS costs as a result of the
outsourcing of this business function. The increase was partially offset by
management's focus on cost controls.
OPERATING INCOME
The Company's operating income increased $13.1 million in 1997 as compared to
1996 as a result of the increased revenues from the Texas Instruments
acquisition and the DEC agreements partially offset by DEC agreement costs and
the loss associated with the sale of the Relays product line. In 1996,
operating income was affected by the creation of restructuring and
environmental reserves, partially offset by the gain on the sale of the Mexican
subsidiary. Operating income decreased $12.0 million in 1996 compared to 1995
as a result of increased costs and declining legacy and network integration
revenues as well as restructuring and environmental reserve accruals.
INTEREST EXPENSE
Interest expense increased 44.6% or $2.2 million in 1997 as compared to 1996 as
a result of the higher level of borrowing needed to support the working capital
needs of the business, the DEC agreements and the acquisition of certain assets
of Novadyne Computer Systems, Inc.
The decrease in interest expense in 1996 of $2.8 million from 1995 was a result
of the retirement of the Company's outstanding 12.5% senior subordinated notes
in February 1996 and the refinancing of the Company's credit facility through
NationsBank of Texas, as an agent for a group of banks in January 1996.
INCOME TAX
The Company's effective income tax rate for fiscal year 1997 was 14.3% compared
with (232.0)% and 17.3% for fiscal years 1996 and 1995, respectively. The
rates in 1997, 1996
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<PAGE> 21
and 1995 were affected by reversals of valuation allowances associated with
the Company's deferred tax assets including certain net operating loss
carryforwards. Such assets were previously partially reserved due to
uncertainties regarding their ultimate recoverability. The benefits were
recorded based upon management's estimates of amounts which are expected to be
recoverable through future earnings or reversals of temporary differences.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $66.2 million in 1997 as compared to
$36.1 million in 1997. The 1997 increase was primarily the result of increases
in accounts receivable and inventory, partially offset by accounts payable
increases. These increases were principally due to acquisitions of Texas
Instruments printer business and Novadyne Computer Systems, Inc. assets as well
as the DEC agreements. The Company's current ratio was 1.6 to 1 at the end of
fiscal year 1997 compared to 1.4 to 1 at the end of fiscal year 1996. Cash and
cash equivalents decreased $1.2 million from December 29, 1996 to December 28,
1997.
Net cash used by operations was $4.1 million during 1997. The major use of
cash was an increase in working capital to support the higher levels of revenue
in 1997. Net cash generated by operations was $36.1 million in 1996 as
compared to $34.5 million in 1995. The 1996 increase was primarily the result
of miscellaneous changes in working capital.
In 1997, the Company invested $17.3 million in the purchase of certain assets
and selected liabilities of Novadyne Computer Systems, Inc. (see "Notes to
Consolidated Financial Statements") and $3.4 million associated with the DEC
agreements. The Company spent another $20.3 million in capital expenditures
which included $6.1 million for hardware and software related to the Company's
new business system. Approximately $8 million of goodwill was recorded as a
consequence of the Novadyne Computer Systems, Inc. acquisition. With regards
to restructuring of the service business, the Company spent approximately $5.6
million in cash in 1997.
During 1996, the Company invested $26.4 million through the acquisition of
Texas Instruments' printer business (see "Notes to Consolidated Financial
Statements") and in capital expenditures required to support operations. The
Company does not have any material commitments of funds for capital
expenditures other than to support the current level of operations and
installation of the new business systems and global networks previously
mentioned. The Company recorded approximately $10 million of goodwill as a
consequence of the Texas Instruments acquisition.
Earnings before interest, taxes, depreciation and amortization by business were
$36.5 million, $16.1 million and $14.2 million in 1997, 1996 and 1995,
respectively for DSC. For ESSC, earnings before interest and taxes by business
were $(1.3) million, $5.1 million and $19.1 million in 1997, 1996 and 1995,
respectively.
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 responded to the report.
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
21
<PAGE> 22
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 EPA
concerning their scope and a further order for that purpose. As of December
28, 1997, the Company was fully reserved for this matter.
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 has not had and
does not anticipate any material expenditures in connection with this matter.
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. The matter was settled during 1997 for approximately $150,000
plus legal fees for which the Company was fully reserved.
OTHER MATTERS
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 is providing 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 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 the bank group amended the credit
facilities. This amendment redefined the financial covenants, adjusted the
interest rates as well as principal payments under the agreement. On July 3,
1997, the Company and the bank group further amended the credit agreement 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 again amended and restated its credit
agreement with the bank group led by 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 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 facility
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
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<PAGE> 23
December 28, 1997, the Company had $14.2 million available under the revolving
credit agreement.
In November of 1997, the relay product line was sold to Communication
Instruments Inc. for approximately $4.8 million, an amount which approached the
book value of the assets. As a result of the sale, the Company realized a loss
of approximately $754,000 which included a curtailment loss related to it
defined pension benefit plan of approximately $557,000. The Company's
approximate net proceeds from the sale was $1.9 million.
At the end of June 1996, the Company sold the stock of its Mexican subsidiary,
whose principal asset was a building in Reynosa, Mexico, receiving net proceeds
of $3.5 million and recognizing a gain of $1.5 million .
In December of 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.
Ogden Services Corporation has divested certain ADC facilities and has been
attempting to divest the Reynosa operations. The Company's contract with ADC
contains a clause requiring GENICOM's consent to the sale, which consent cannot
be unreasonably withheld. The Company has evaluated preliminary information
received from ADC concerning a potential buyer, but, to the Company's
knowledge, the sale of the Reynosa facility is not imminent.
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 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
breaches of the agreement. Ogden Services Corporation and ADC have filed
counterclaims against the Company seeking damages in excess of $10 million
alleging additional various breaches by the Company of the agreement. The
Company, Ogden and ADC have engaged in settlement discussions, but no agreement
has been reached to date. Discovery is in progress in the arbitration and
hearings had been scheduled to begin in April 1998. In late March 1998, Ogden
and ADC requested and received permission from the arbitrator to file an
amended claim to seek recision of the agreement. While ADC has not formally
filed its claim for recision, the Company is not aware of any basis for such a
claim and will vigorously contest any such assertion. While the Company
remains hopeful that a negotiated solution can be reached, the Company cannot
presently predict the outcome of this matter or how the respective claims will
be resolved. There can be no assurance that such outcomes will not have a
material adverse effect upon the Company.
GENICOM is taking an active approach to address computer issues associated with
the onset of the new millennium - specifically, the impact of possible failure
of computer systems and computer driven equipment due to the rollover to the
year 2000. The Year 2000 problem is pervasive and complex as virtually every
computer 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 will properly
recognize date sensitive information when the year changes to 2000. Systems
that do not properly recognize such information could generate erroneous data
or cause the system to fail.
23
<PAGE> 24
If not properly addressed, the Year 2000 problem could result in failures in
Company computer systems or the computer systems of third parties with whom the
Company deals with worldwide. Any such failures of the Company's and/or third
parties computer 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 completely installed and tested by 1999. As a result, the Company
does not anticipate Year 2000 problems with its internal systems. The
approximately $10 million cost of the replacement system is being capitalized
by the Company.
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, though 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
related 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 cannot estimate
or predict the potential adverse consequences, if any, that could result from a
third party failure to effectively address this issue.
This annual report on Form 10-K for the year ended December 28, 1997 as well as
other public documents of the Company contain forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
materially from those discussed in such forward-looking statements. 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. In addition to factors that may be described in
the Company's filings with the Securities and Exchange Commission, including
this filing, the following factors, among others, could cause the Company's
results to differ materially from those expressed in any forward-looking
statements made by the Company: changes in hardware and software technology,
changing 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, service
customers whose business is declining, seasonality in the buying cycles of
certain of the Company's customers, the timing of product announcements by the
Company or its competitors, the release of new or enhanced products and
services by the Company or its competitors, the introduction of competitive
products and services by existing or new competitors, access to and development
of product rights and technologies, disruption in ADC's performance of its
production commitments to the Company, changes in the costs of production of
the Company's products and services including any that may arise as a result of
the resolution of claims raised by ADC, the management of growth, the
integration of acquisitions, including but not limited to the Company's
acquisition certain assets of Novadyne Computer Systems as of November 14,
1997, the resolution of start up inefficiencies at the depot in Louisville,
Kentucky, the Company's performance under the DEC agreements,
24
<PAGE> 25
GENICOM's ability to retain highly skilled technical, managerial and sales and
marketing personnel, and possible litigation related to the Company's
operations, including litigation arising under various environmental laws.
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
DECEMBER 28, December 29, December 31,
Year Ended, 1997 1996 1995
--------------- -------------- --------------
(In thousands, except per share data)
<S> <C> <C> <C>
REVENUES, NET:
Products $ 293,166 $ 182,707 $ 166,469
Services 127,962 120,551 127,583
--------------- -------------- --------------
421,128 303,258 294,052
--------------- -------------- --------------
OPERATING COSTS AND EXPENSES:
Cost of revenues:
Products 204,179 127,678 115,851
Service 119,768 104,611 101,762
Selling, general and administration 64,651 55,079 52,780
Engineering, research and product development 13,779 8,505 8,481
Unusual items 2,493 4,181
--------------- -------------- --------------
404,870 300,054 278,874
--------------- -------------- --------------
OPERATING INCOME 16,258 3,204 15,178
Interest expense, net 7,092 4,903 7,741
Other income 122
--------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES 9,166 (1,577) 7,437
Income tax expense (benefit) 1,308 (3,658) 1,285
--------------- -------------- --------------
NET INCOME BEFORE EXTRAORDINARY ITEM 7,858 2,081 6,152
EXTRAORDINARY ITEM - LOSS ON EXTINGUISHMENT OF
DEBT, NET OF TAXES OF $258 (422)
--------------- -------------- --------------
NET INCOME $ 7,858 $ 1,659 $ 6,152
=============== ============== ==============
EARNINGS PER COMMON SHARE, BASIC:
Income before extraordinary item $ 0.71 $ 0.19 $ 0.57
Extraordinary item (0.04)
--------------- -------------- --------------
Net income $ 0.71 $ 0.15 $ 0.57
=============== ============== ==============
EARNINGS PER COMMON SHARE ASSUMING DILUTION:
Income before extraordinary item $ 0.63 $ 0.17 $ 0.51
Extraordinary item (0.03)
--------------- -------------- --------------
Net income $ 0.63 $ 0.14 $ 0.51
=============== ============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (BASIC) 11,074 10,933 10,760
--------------- -------------- --------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
DILUTIVE SHARES (DILUTED) 12,570 12,168 12,038
--------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE> 27
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 28, December 29,
(In thousands, except share data) 1997 1996
-------------------- -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,622 $ 5,866
Accounts receivable, less allowance for
doubtful accounts of $4,470 and $3,270 89,692 65,404
Other receivables 3,252 1,835
Inventories 67,553 46,947
Prepaid expenses and other assets 8,390 5,395
-------------------- -------------------
TOTAL CURRENT ASSETS 173,509 125,447
Property, plant and equipment, net 36,146 26,562
Goodwill 33,800 27,555
Intangible assets 6,049 3,406
Other assets 545 3,109
-------------------- -------------------
TOTAL ASSETS $ 250,049 $ 186,079
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 6,391 $ 4,222
Accounts payable and accrued expenses 84,578 72,040
Deferred income 16,350 13,094
-------------------- -------------------
TOTAL CURRENT LIABILITIES 107,319 89,356
Long-term debt, less current portion 87,072 50,331
Other non-current liabilities 10,262 8,801
-------------------- -------------------
TOTAL LIABILITIES 204,653 148,488
-------------------- -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 18,000,000 shares authorized,
11,365,750 and 10,983,439 shares issued and outstanding 114 110
Additional paid-in capital 26,959 26,440
Retained earnings 20,020 12,162
Foreign currency translation adjustment (1,697) (1,121)
-------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 45,396 37,591
-------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 250,049 $ 186,079
==================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 28
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended, DECEMBER 28, December 29, December 31,
(In thousands) 1997 1996 1995
----------------- ----------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,858 $ 1,659 $ 6,152
Adjustments to reconcile net income to cash
(used in) provided by operating activities:
Depreciation 13,664 14,166 13,981
Amortization 5,303 3,706 4,125
Loss on early extinguishment of notes 422
Gain on sale of Genicom de Mexico (1,481)
Loss on Relays sale 754
Acquisition related costs 654
Restructuring accrual (5,637) 4,183
Environmental accrual 1,479
Deferred tax benefit 364 (7,186) (1,830)
Changes in assets and liabilities, net of assets acquired and
liabilities assumed
Accounts receivable (21,050) 1,544 (9,406)
Inventories (23,925) 10,916 3,348
Accounts payable and accrued expenses 17,687 3,489 (1,730)
Other 845 69 808
----------------- ----------------- ----------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (4,137) 32,966 16,102
----------------- ----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for businesses, net of cash acquired (14,131) (18,233) (10,309)
Additions to property, plant and equipment (20,329) (11,809) (16,325)
Digital Equipment Corporation agreements (3,373)
Proceeds from relays sale 4,798
Proceeds from sale of Genicom de Mexico 3,950
Proceeds from sale of equipment 350 3,031
Other investing activities (932) (259) (239)
----------------- ----------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (33,617) (26,351) (23,842)
----------------- ----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on long-term debt 77,349 70,609 31,594
Payments on long-term debt (38,439) (76,120) (31,939)
Bank overdraft (435) 2,607
Proceeds from Atlantic Design agreement 11,502
Stock option exercises 523 165 265
Other financing activities (1,595) (2,372) 265
----------------- ----------------- ----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 37,403 (5,111) 11,687
Effect of exchange rate changes on cash and cash equivalents (893) 91 (349)
----------------- ----------------- ----------------
Net (decrease) increase in cash and cash equivalents (1,244) 1,595 3,598
Cash and cash equivalents at beginning of year 5,866 4,271 673
----------------- ----------------- ----------------
Cash and cash equivalents at end of year $ 4,622 $ 5,866 $ 4,271
================= ================= ================
Cash paid during the year for:
Income taxes $ 1,727 $ 2,724 $ 1,483
Interest 5,398 6,349 8,040
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 29
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 28, 1997, December 29, 1996 and December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Currency Pension
------------------------ Paid-in Retained Translation Liability
Shares Amount Capital Earnings Adjustment Adjustment
--------- -------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF JANUARY 1, 1995 10,638 $ 106 $ 25,760 $ 4,351 $ (1,435) $ (699)
Exercise of stock options 201 2 263
Net income 6,152
Cumulative translation adjustment 104
Pension liability adjustment (71)
--------- -------- ----------- ---------- ---------- ----------
BALANCE AS OF DECEMBER 31, 1995 10,839 108 26,023 10,503 (1,331) (770)
Exercise of stock options 144 2 417
Net income 1,659
Cumulative translation adjustment 210
Pension liability adjustment 770
--------- -------- ----------- ---------- ---------- ----------
BALANCE AS OF DECEMBER 29, 1996 10,983 110 26,440 12,162 (1,121) -
Exercise of stock options 383 4 519
Net income 7,858
Cumulative translation adjustment (576)
--------- -------- ----------- ---------- ---------- ----------
BALANCE AS OF DECEMBER 28, 1997 11,366 $ 114 $ 26,959 $ 20,020 $ (1,697) $ -
---------- -------- ----------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 30
GENICOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
GENICOM Corporation (the "Company") is an international supplier of network
integration services, multivendor service and printers. The Company's
Enterprising Service Solutions company provides integrated network solutions
which include network integration, professional services and help desk support,
in addition to logo and multivendor on site and off site product repair and
parts sales. The Company's Document Solutions company designs and markets a
wide range of computer printer technologies for general purpose applications.
The Company markets its products and services through several domestic and
international channels including national and regional distributors, value
added resellers and direct sales forces. GENICOM has positioned its products
as mid-range solutions to corporate customers. Operating on a worldwide basis,
the Company has operations in the United States, Canada, Europe, Australia and
Hong Kong.
Principles of Consolidation
The consolidated financial statements include the accounts of GENICOM
Corporation and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Fiscal Year
The Company's fiscal year ends on the Sunday nearest December 31. Accordingly,
the Company is reporting for the 52-week periods ended December 28, 1997,
December 29, 1996, and December 31, 1995.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents.
Inventories
Inventories are stated at the lower of cost, determined on the first-in
first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated
using the straight-line method for financial reporting purposes based on
estimated lives at acquisition date (generally 10 to 25 years for buildings and
18 months to 10 years for machinery and equipment). The cost of assets retired
or otherwise disposed of and the accumulated depreciation thereon are removed
from the accounts with any gain or loss realized upon sale or disposal charged
or credited to operations. The Company capitalizes software purchase and
development costs related to its computerized financial and business system.
Amortization of these costs occur over their estimated economic life of 60
months.
30
<PAGE> 31
Significant improvements are capitalized, while repairs and maintenance costs
are charged to operations.
Goodwill and Intangibles
Goodwill includes the excess of acquisition costs over the fair market value of
net assets of acquired businesses and is being amortized on a straight-line
basis over 5 to 20 years. Intangible assets, including patents, copyrights,
trademarks, licenses and organization and financing costs, are amortized on a
straight-line basis over periods ranging from 2 to 15 years. The Company
assesses at each balance sheet date whether there has been a permanent
impairment in the value of the respective assets. This is accomplished by
determining whether projected undiscounted future cash flows from operations
over the remaining life exceed the net book value of the assets as of the
balance sheet date. Impairments are measured based on the fair value of the
assets. The aggregate amount of accumulated amortization for goodwill and
intangibles was $24.1 million and $18.8 million at December 28, 1997 and
December 29, 1996, respectively.
Research and Development Costs and Capitalized Software
Costs incurred in basic research and development are expensed as incurred.
Certain costs relating to software and product development are capitalized and
amortized over the estimated economic life of the product.
The Company capitalized software costs of $0.4 million and $0.2 million in 1997
and 1996, respectively. The related amortization expense was $0.1 million, $0.4
million and $1.2 million in 1997, 1996 and 1995, respectively. As of December
28, 1997 and December 29, 1996, capitalized software, net of amortization, was
$0.4 million and $0.2 million, respectively.
Income Taxes
The Company accounts for income taxes under the liability method. Certain
expenses are recognized in different periods for financial reporting and
Federal income tax purposes. Research and development credits are recognized as
a reduction of income tax expense in the year they are recognized for Federal
tax purposes. A valuation allowance reduces deferred tax assets when it is
"more likely than not" that some portion or all of the deferred tax asset will
not be realized. The Company does not provide deferred taxes on the
undistributed earnings of its foreign subsidiaries as such earnings are
intended to be permanently reinvested in those operations.
Foreign Operations
The consolidated balance sheets include foreign assets and liabilities of $73.8
million and $32.8 million as of December 28, 1997, respectively, and $53.7
million and $18.3 million as of December 29, 1996, respectively. The net
effects of foreign currency transactions reflected in income were immaterial in
fiscal years 1997, 1996, and 1995.
Assets and liabilities of most of the Company's foreign operations are
translated into U.S. dollars using exchange rates in effect at the balance
sheet date and results of operations are translated using the average exchange
rates prevailing throughout the period. The resulting translation adjustments
are recorded as a separate component of stockholders' equity. The Company's
former Mexican subsidiary, which was sold at the end of June 1996, remeasured
31
<PAGE> 32
its financial statements in U.S. dollars, as this was the currency of the
primary economic environment in which the entity operated.
Off-Balance Sheet Risk and Concentrations of Credit Risk
The Company periodically hedges against foreign currency fluctuations through
the use of forward exchange contracts. Gains and losses on contracts to hedge
foreign currency commitments are deferred and accounted for as part of the
commitment transaction except for losses expected to be incurred in future
periods which are recorded when identified.
The forward exchange contracts which the Company uses as hedges are subject to
off-balance sheet market risk. The Company believes that its risk due to
non-performance by the other parties to these contracts is remote. The Company
had $5.3 million and $6.1 million of forward exchange contracts outstanding as
of December 28, 1997 and December 29, 1996, respectively. The deferred gain
associated with these contracts was $0.2 million for December 28, 1997 and
December 29, 1996.
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of receivables. The Company extends credit to
various customers that are primarily in the computer and computer peripherals
industries. These specific industries may be similarly affected by economic
factors, however, the Company performs ongoing credit evaluations of its
customers and establishes an allowance for doubtful accounts for specific
customers that it determines to have significant credit risk. Generally, the
Company does not require collateral from its customers and has, historically,
not experienced significant credit related losses.
In 1997 and 1996, GENICOM procured 28% and 64%, respectively, of its total
inventory purchases from Atlantic Design Corporation ("ADC") pursuant to the
agreement (see Note 8). No other supplier accounted for a significant portion
of GENICOM's total 1997 purchases. In December 1995, the Company entered into
a five year agreement, later extended one year, with ADC in which ADC took over
the Company's manufacturing operations and employees in McAllen, Texas and
Reynosa, Mexico. ADC manufactures the Company's impact printer products,
printed circuit boards, related supplies and spare parts. No customer accounted
for 10% or more of external sales in 1997, 1996, or 1995.
Revenue Recognition and Warranty Costs
Revenues from the sales of products, which include printers and relays, are
recorded when products are shipped to customers. Revenues from services, which
include service and rentals, are recognized monthly as earned. Advance
billings for customer maintenance contracts are deferred and amortized over the
contract life on a straight-line basis. Estimated warranty costs for equipment
sales are provided for in the year of sale.
Net Income Per Share
Net income per common share is computed by dividing net income by the weighted
average number of outstanding common shares for basic earnings per share and
weighted average stock options outstanding plus weighted average number of
outstanding common shares outstanding for diluted earnings per share. Weighted
average number of shares issuable upon the exercise of outstanding stock
options assumes the applicable proceeds from such exercise are used to acquire
treasury shares.
32
<PAGE> 33
(in thousands except for per share amounts)
<TABLE>
<CAPTION>
---------------------------------------------------
FOR YEAR ENDED DECEMBER 28, 1997
---------------------------------------------------
Income Shares Per Share
-------------- --------------- --------------
<S> <C> <C> <C>
BASIC EPS
Income available to shareholders $ 7,858 11,074 $ 0.71
-------------- --------------- --------------
Weighted shares from stock options 1,496
---------------
DILUTED EPS $ 7,858 12,570 $ 0.63
============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------
For Year Ended December 29, 1996
---------------------------------------------------
Income Shares Per Share
-------------- --------------- --------------
<S> <C> <C> <C>
BASIC EPS
Income before extraordinary item $ 2,081 10,933 $ 0.19
-------------- --------------- --------------
Weighted shares from stock options 1,235
---------------
DILUTED EPS $ 2,081 12,168 $ 0.17
-------------- --------------- --------------
BASIC EPS
Extraordinary item $ (422) 10,933 $ (0.04)
-------------- --------------- --------------
Weighted shares from stock options 1,235
---------------
DILUTED EPS $ (422) 12,168 $ (0.03)
-------------- --------------- --------------
BASIC EPS
Net income $ 1,659 10,933 $ 0.15
-------------- --------------- --------------
Weighted shares from stock options 1,235
---------------
DILUTED EPS $ 1,659 12,168 $ 0.14
============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------
For Year Ended December 31, 1995
---------------------------------------------------
Income Shares Per Share
-------------- --------------- --------------
<S> <C> <C> <C>
BASIC EPS
Income available to shareholders $ 6,152 10,760 $ 0.57
-------------- --------------- --------------
Weighted shares from stock options 1,278
---------------
DILUTED EPS $ 6,152 12,038 $ 0.51
============== =============== ==============
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the
33
<PAGE> 34
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
NOTE 2: UNUSUAL ITEMS
During the year ended December 28, 1997, the Company recorded $2.5 million in
expense consisting of the following unusual items: loss on the sale of the
relay product line ($0.8 million) and costs associated with the DEC agreements
($1.7 million). During the year ended December 29, 1996, the Company recorded
$4.2 million in net expense consisting of the following unusual items:
restructuring charge associated with the depot relocation ($4.2 million),
environmental accrual ($1.5 million) and a gain on the sale of the Company's
Mexican subsidiary ($1.5 million).
NOTE 3: BALANCE SHEET INFORMATION
Inventories consist of:
<TABLE>
<CAPTION>
DEC. 28, Dec. 29,
(in thousands) 1997 1996
------------------- -------------------
<S> <C> <C>
Raw materials $ 9,295 $ 9,105
Work in process 1,994 3,383
Finished goods 56,264 34,459
------------------- -------------------
$ 67,553 $ 46,947
=================== ===================
</TABLE>
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
DEC. 28, Dec. 29,
(in thousands) 1997 1996
------------------- -------------------
<S> <C> <C>
Land $ 580 $ 580
Buildings 7,153 7,133
Machinery and equipment 82,320 83,567
Construction in progress 12,157 1,378
------------------- -------------------
102,210 92,658
Less: Accumulated depreciation 66,064 66,096
------------------- -------------------
$ 36,146 $ 26,562
=================== ===================
</TABLE>
Accounts payable and accrued expenses consist of:
34
<PAGE> 35
<TABLE>
<CAPTION>
DEC. 28, Dec. 29,
(in thousands) 1997 1996
------------------- -------------------
<S> <C> <C>
Trade accounts payable $ 60,585 $ 43,581
Accrued liabilities: Accrued compensation and benefits 9,768 10,333
Restructuring accrual 4,183
Interest 706 176
Other 13,519 13,767
------------------- -------------------
$ 84,578 $ 72,040
=================== ===================
</TABLE>
NOTE 4: SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(in thousands) 1997 1996
--------------- ---------------
<S> <C> <C>
Asset purchase of Novadyne Computer Systems, Inc.:
Total acquisition costs $ 17,329
Liabilities assumed (3,198)
---------------
Cash paid $ 14,131
===============
Purchase of Texas Instruments printer business:
Total acquisition costs $ 29,468
Note to Texas Instruments (9,000)
Accounts payable to Texas Instruments (1,735)
Other accrued costs (500)
---------------
Cash paid $ 18,233
===============
</TABLE>
NOTE 5: DEBT OBLIGATIONS
Long term debt consists of:
<TABLE>
<CAPTION>
DEC. 28, Dec. 29,
(in thousands) 1997 1996
------------------- -------------------
<S> <C> <C>
Revolving credit facilities $ 39,000 $ 11,000
Term loans 54,000 33,184
Note payable to Texas Instruments 9,000
Other 463 1,369
------------------- -------------------
93,463 54,553
Less: Current portion 6,391 4,222
------------------- -------------------
$ 87,072 $ 50,331
=================== ===================
</TABLE>
The carrying value of the debt approximates its market value. At December 28,
1997, future minimum principal payments on long term debt were $6.4 million for
1998, $4.0 million for 1999, $4.0 million for 2000, $4.0 million for 2001 and
$7.4 million for 2002.
35
<PAGE> 36
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 is providing a $35 million
revolving credit facility and two term loans totaling $40 million. The
revolver matures in five years, while the term loans are for five and seven
years, respectively. The rate of interest on the credit facilities is tied to
LIBOR (the rate at December 28, 1997 was approximately 6.0%) or NationsBank
prime rate (the rate at December 28, 1997 was 8.5%) and is also dependent upon
the Company's performance. On September 5, 1997, the Company amended and
restated the credit facilities increasing the two term loans to $55 million
and the revolving credit facility to $80 million. The Company is subject to
certain financial covenants which will require the Company, among other things,
to maintain a minimum consolidated tangible net worth, a funded debt coverage
ratio of not more than 3.75 to 1 for the fourth quarter of 1998, a fixed
charges coverage ratio of at least 1.75 to 1 for the fourth quarter of 1998 and
a debt to capitalization ratio of less than .75 to 1 for 1998.
As part of the acquisition of certain assets of Texas Instruments' worldwide
printer and related supplies business (see Note 11), the Company delivered to
Texas Instruments a two year balloon note payable of $9 million maturing in
1998 with an interest rate of approximately 8.5% payable quarterly. This note
was paid in full in September 1997 using the amended credit facilities
mentioned above.
As part of the purchase agreement with Printer Systems Corporation ("PSC") (see
Note 11), the Company has recorded the present value of a note payable. The
note payable has an imputed interest rate of approximately 9% and requires
annual principal and interest payments through 1998. This obligation was
retired in February of 1998.
The Company's international subsidiaries maintain various credit facilities for
their local operations. Borrowings under such credit facilities bear interest
at prevailing or negotiated rates.
During 1996, the proceeds from the NationsBank agreement were used to retire
the outstanding borrowings under the Company's prior credit facilities and
senior subordinated notes. The Company recognized a $0.4 million after tax
loss on the early extinguishment of the senior subordinated notes in 1996.
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
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 term
loans.
NOTE 6: EMPLOYEE BENEFIT PLANS
The Company provides postretirement medical and life insurance benefits to
hourly and salaried employees hired before March 22, 1993, who retire after
attaining age 60 with at least 5 years of service. Under certain conditions,
benefits may be extended to the retirees' spouse and dependents. Salaried
employees hired after March 22, 1993 are eligible for postretirement medical
and life insurance benefits only upon attainment of Social Security retirement
age and completion of 10 years of service, and no spouse or dependent coverage
is provided.
36
<PAGE> 37
The postretirement medical coverage is contributory, while the life insurance
coverage is noncontributory.
The components of net periodic postretirement benefit costs were:
<TABLE>
<CAPTION>
DEC. 28, Dec. 29, Dec. 31,
(in thousands) 1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Service cost - benefits attributed to service during the period $ 349 $ 363 $ 337
Interest cost on accumulated postretirement benefit obligation 1,177 1,090 1,339
Amortization of unrecognized transition obligation over 20 years 653 625 840
---------------- ---------------- ----------------
Net periodic postretirement benefit cost $ 2,179 $ 2,078 $ 2,516
================ ================ ================
</TABLE>
The following table sets forth the combined funded status for the Company's
postretirement benefit obligations as of the indicated actuarial valuation
dates:
<TABLE>
<CAPTION>
DEC. 28, Dec. 29,
(in thousands) 1997 1996
------------------- -------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 9,888 $ 8,092
Active plan participants 4,500 7,538
------------------- -------------------
14,388 15,630
Unrecognized transition obligation 11,419 12,180
Unrecognized net gain (4,547) (3,072)
------------------- -------------------
Accrued postretirement benefit cost $ 7,516 $ 6,522
=================== ===================
</TABLE>
For measurement purposes 8.5% annual rates of increase in the per capita cost
of covered health care benefits were assumed for both 1998 and 1997, both rates
were assumed to decrease gradually to 5.5% for 2002 and remain at that level
thereafter. If the health care cost trend rate was to increase 1.0%, the
accumulated postretirement benefit obligation as of December 28, 1997 and
December 29, 1996, would have increased by 8.2% and 9.7%, respectively. The
effect of this change on the aggregate service and interest costs for 1997 and
1996 would be increases of 15.6% and 7.6%, respectively. The weighted-average
discount rates used in determining the accumulated postretirement benefit
obligation was 7.5% and 7.75% in 1997 and 1996, respectively.
Substantially all domestic non-collective bargaining employees are eligible to
participate in the Company's retirement savings plan (the "Savings Plan"),
which qualifies under section 401(k) of the Internal Revenue Code. The Company
makes certain matching contributions which are allocated to the participants
and vest based on the employee's years of service. The Company's expense under
the Savings Plan was $0.9 million, $0.8 million and $0.8 million in fiscal
years 1997, 1996 and 1995, respectively.
The Company's domestic collective bargaining employees are covered by a
contributory defined benefit pension plan (the "Pension Plan"). The Pension
Plan benefits are based on years of credited service and the participant's
compensation. Eligible employees must elect to participate and contribute 3.0%
of compensation between $12,000 and $25,650 per calendar year. The Company
makes contributions to the Pension Plan sufficient to meet federal funding
requirements.
37
<PAGE> 38
Components of periodic pension costs were:
<TABLE>
<CAPTION>
DEC. 28, Dec. 29, Dec. 31,
(in thousands) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Service cost - benefits attributed to service during the period $ 327 $ 416 $ 340
Interest cost on projected benefit obligation 1,023 896 806
Actual return on plan assets (2,633) (1,012) (2,277)
Net amortization and deferral 1,531 125 1,681
---------- ---------- ----------
Net periodic pension expense $ 248 $ 425 $ 550
========== ========== ==========
</TABLE>
As a result of the Waynesboro depot consolidation and the sale of the relay
product line, the Company recognized additional expense associated with the
Company's pension plan. The curtailment expense for the depot consolidation
was charge against the restructuring reserve and for the relay sale, the
curtailment expense was approximately $0.6 million.
The following table sets forth the Pension Plan's funded status as of the
indicated actuarial valuation dates:
<TABLE>
<CAPTION>
DEC. 28, Dec. 29,
(in thousands) 1997 1996
------------------- -------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $ 13,844 $ 11,661
Non-vested benefits 179 639
------------------- -------------------
Total accumulated benefit obligation 14,023 12,300
Effect of projected future compensation levels 807 458
------------------- -------------------
Projected benefit obligation 14,830 12,758
Fair value of plan assets 14,642 13,056
------------------- -------------------
Fair value of plan assets (less than) in excess of
projected benefit obligation (188) 298
Unrecognized net losses from actuarial experience 496 1,084
------------------- -------------------
Prepaid pension cost $ 308 $ 1,382
=================== ===================
</TABLE>
The Company's assumptions used in determining the pension cost and pension
liability shown above were as follows:
<TABLE>
<CAPTION>
DEC. 28, Dec. 29, Dec. 31,
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
Discount rate 7.50 7.75 7.25
Rate of compensation progression 4.00 4.00 4.00
Rate of return on plan assets 9.00 9.00 9.00
</TABLE>
Pension Plan assets consist primarily of treasury notes, government and
corporate bonds, corporate equities and cash equivalent funds.
38
<PAGE> 39
The Company makes contributions to various employee benefit plans for certain
of its foreign subsidiaries and the expense for these plans was not material in
fiscal years 1997, 1996 and 1995.
NOTE 7: STOCK OPTIONS
Under the Company's stock option plan, 1,785,917 shares of unissued common
stock are reserved for issuance pursuant to options outstanding and to be
granted. Stock option activity for the respective fiscal periods is as
follows:
<TABLE>
<CAPTION>
Weighted
Number of Option Amount Average Price
Shares Per Share Per Share
--------------- ------------------- ----------------
<S> <C> <C> <C>
OUTSTANDING,
JANUARY 1, 1995 1,759,134 $ 1.00-7.50 $1.21
Granted 410,000 1.75-4.50 1.96
Exercised (201,100) 1.00-2.13 1.32
Cancelled (195,467) 1.00-7.50 1.30
--------------- ------------------ ----------------
OUTSTANDING,
DECEMBER 31, 1995 1,772,567 1.00-7.50 1.36
Granted 263,180 3.25-4.25 3.84
Exercised (144,040) 1.00-2.38 1.14
Cancelled (221,407) 1.00-7.50 2.20
--------------- ------------------ ----------------
OUTSTANDING,
DECEMBER 29, 1996 1,670,300 1.00-4.50 1.66
Granted 463,550 3.125-14.25 6.79
Exercised (382,311) 1.00-4.50 1.35
Cancelled (99,384) 1.00-4.50 2.34
=============== ================== ================
OUTSTANDING,
DECEMBER 28, 1997 1,652,155 $ 1.00-14.25 $3.07
=============== ================== ================
OPTIONS EXERCISABLE
DECEMBER 28, 1997 719,369 $ 1.00-4.675 $1.28
=============== ================== ================
OPTIONS AVAILABLE FOR
FUTURE GRANTS 133,762
===============
</TABLE>
39
<PAGE> 40
The following table summarizes information about stock options outstanding at
December 28, 1997.
<TABLE>
<CAPTION>
Remaining
Contractual Life
Exercise Number Years for Options Number
Price Outstanding Outstanding Exercisable
- ----------------- --------------- ------------------- ---------------
<S> <C> <C> <C>
$ 1.00 654,289 2.17-6.08 509,689
$1.25-$14.25 259,900 3.25-9.75 129,500
$ 1.75 181,020 7.17 59,520
$ 3.87 168,596 8 22,260
$ 3.13 216,950 9.08 -
$ 11.50 171,400 9.83 -
--------------- ---------------
1,652,155 720,969
--------------- ---------------
</TABLE>
As of December 28, 1997, the Company had an active stock option plan. The
Company applies APB Opinion 25 and related Interpretations in accounting for
its plans and stock option plan under which options are outstanding but new
grants are not being issued. No compensation cost has been recognized for the
stock options. Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant date for awards under the plan
consistent with the method of FASB Statement 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below.
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Net income in thousands
As reported $7,858 $1,659 $6,152
Pro forma $6,419 $1,109 $5,712
Basic earnings per share
As reported $0.71 $0.15 $0.57
Pro forma $0.58 $0.10 $0.53
Diluted earnings per share
As reported $0.63 $0.14 $0.51
Pro forma $0.51 $0.09 $0.47
</TABLE>
Options granted under the stock option plans are granted at prices not less
than 85.0% of the fair market value of the common stock and become exercisable
in installments at dates ranging from one to ten years from the date of grant,
as determined by the Board of Directors or the Compensation Committee thereof.
The weighted average market value per share for options granted in 1997 and
1996 was $6.79 and $4.55, respectively.
The fair value of each option is estimated on the date of grant using a type of
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the years ended December 28, 1997 and
December 29, 1996, respectively: dividend yield of 0%, expected volatility
83.5%, risk free interest rate of 6.18% and 5.64% for 1997 and 1996,
respectively, on the grant date with the maturity equal to the expected term of
6 years.
40
<PAGE> 41
As of December 28, 1997, the weighted average remaining contractual life of all
options is 7 years. As of December 28, 1997 and December 29, 1996, the pro
forma tax effects at a 34% tax rate under SFAS 109 are $959,000 and $366,000,
respectively.
In 1992 and 1993, the stockholders approved nonstatutory stock option grants of
100,000 and 10,000 shares of common stock, respectively, to certain members of
the Company's Board of Directors. The stock options become exercisable at a
rate of 33.3% per year beginning one year from grant date. However, the stock
options become fully exercisable upon the merger of the Company into another
entity or the acquisition of the Company by another entity or the sale or
transfer of substantially all assets of the Company to another entity. In
1997, the non-employee members of the Board of Directors were granted
additional stock options of 10,000 shares each. These options become
exercisable at a rate of 20% per year. As of December 28, 1997, total grants
outstanding to these Directors were 130,000 shares, of which none had been
exercised.
NOTE 8: INCOME TAXES
The components of (loss) income before income taxes were as follows:
<TABLE>
<CAPTION>
(in thousands) DEC. 28, Dec. 29, Dec. 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Domestic $ 5,622 $ (1,225) $ 7,860
Foreign 3,544 (352) (423)
------------ ------------ ------------
$ 9,166 $ (1,577) $ 7,437
============ ============ ============
</TABLE>
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
(in thousands) DEC. 28, Dec. 29, Dec. 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal $ 1,423 $ 2,103 $ 2,299
State 414 800 557
Foreign (1,278) 625 259
----------- ----------- -----------
3,115 3,528 3,115
----------- ----------- -----------
Deferred
Federal 289 (6,226) (1,414)
State 75 (960) (416)
Foreign (2,171) - -
----------- ----------- -----------
(1,807) (7,186) (1,830)
----------- ----------- -----------
$ 1,308 $ (3,658) $ 1,285
=========== =========== ===========
</TABLE>
41
<PAGE> 42
A reconciliation of the U.S. statutory Federal tax rate of 34.0% to the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
(in thousands) DEC. 28, Dec. 29, Dec. 31,
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate $ 3,116 $ (536) $ 2,529
(Decrease) increase related to:
State income taxes, net of
Federal tax benefit 323 (106) 557
Foreign income taxes (1,061) 323 259
Foreign operating losses generating
no current tax benefit 120 144
Domestic operating profit not taxed
due to carryforward losses (383)
Reduction in valuation allowance (1,037) (3,570) (1,830)
Other, net (33) 111 9
--------------- --------------- ---------------
$ 1,308 $ (3,658) $ 1,285
=============== =============== ===============
Effective rate 14.3% (232.2)% 17.3%
--------------- --------------- ---------------
</TABLE>
The major components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
(in thousands) DEC. 28, Dec. 29,
1997 1996
------------- ---------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 7,668 $ 7,181
Inventory valuation 3,976 5,162
Vacation accrual 1,051 1,146
Bad debt reserve 1,129 796
Employee benefits 2,875 3,041
Restructuring reserve 1,673
Depreciation 303 1,040
Warranty reserve 1,021 -
Environmental reserve 234 -
Deferred maintenance contracts 982 -
Other 436 4,070
Valuation allowance (8,450) (9,487)
------------- ---------------
Total deferred tax assets $ 11,225 $ 14,622
============= ===============
DEFERRED TAX LIABILITIES:
Other intangible assets (398) 3,780
Other long term liabilities 3,162 3,045
Other - 847
------------- ---------------
Total deferred tax liabilities $ 2,764 $ 7,672
============= ===============
</TABLE>
During 1997 and 1996, the Company recorded a deferred tax benefit of
approximately $2.4 and $3.6 million, respectively, relating to the reversal of
a portion of the Company's valuation allowance for its foreign and domestic
deferred tax assets, respectively. Such assets were previously partially
reserved due to uncertainties regarding their ultimate recoverability. The
benefits were recorded in 1997 and 1996 based upon management's estimate of
amounts
42
<PAGE> 43
which are expected to be recoverable through future earnings or reversals of
temporary differences. The remaining valuation allowance relates primarily to
the Company's remaining foreign net operating losses.
The cumulative amount of undistributed earnings of foreign subsidiaries which
the Company intends to permanently invest and upon which no deferred U.S.
income taxes have been provided is $11.3 million. The Company cannot
practically determine the amount of deferred income tax liability that would
result had such earnings actually been remitted. The amount of foreign
withholding taxes, at current rates, that would have been due on the earnings
had they actually been remitted was $0.5 million.
NOTE 9: RESTRUCTURING COSTS
In 1996, following Board of Directors review, the Company accrued $4.2 million
for restructuring its worldwide service business. The restructuring charge for
the service business involved, among other things, costs to facilitate the
establishment of the Company's new "end of runway" depot service center in
Louisville, Kentucky and other changes in the delivery of services by the
Enterprising Service Solutions company. The restructuring charge include
approximately $2.3 million for severance and termination benefits for 321
employees at the Company's Bedford, Massachusetts and Waynesboro, Virginia
facilities. As of December 28, 1997, the restructuring reserve had been fully
utilized.
NOTE 9: COMMITMENTS AND CONTINGENT LIABILITIES
Leasing arrangements:
As lessee:
The Company leases certain manufacturing and warehousing properties. Rent
expense amounted to $6.4 million, $6.7 million and $7.2 million in 1997, 1996
and 1995, respectively.
Minimum future lease commitments for operating leases as of December 28, 1997,
are as follows: 1998 - $5.7 million, 1999 - $4.8 million, 2000 - $3.8 million,
2001 - $2.9 million, 2002 - $2.8 million, and $8.0 million thereafter.
As lessor:
The Company has rental agreements for the leasing of printers. Operating lease
terms vary, generally from one to sixty months. Rental revenue was $3.1
million, $3.2 million and $2.3 million for 1997, 1996 and 1995, respectively.
On December 28, 1997 and December 29, 1996, the cost of equipment leased was
$3.1 million and $1.4 million, respectively, which is included in property,
plant and equipment, net of accumulated depreciation of $2.4 million and $1.8
million, respectively.
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
43
<PAGE> 44
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 report to the EPA. The EPA has not yet responded to the
report. 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 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 has been named as a defendant in an Original Petition and Petition
for Injunctive Relief filed in August 1995 which alleges that the Company and
certain other defendants are 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 is alleged to be the source of the contamination.
This matter was settled in May 1997 for approximately $0.2 million without the
Company admitting liability, curtailing additional legal expenses. The Company
was fully reserved for the amount of the settlement and related legal expenses.
During the third quarter of 1996, the Company accrued $1.5 million associated
with environmental charges. The environmental charge was the Company's best
estimate of remaining costs associated with certain environmental matters,
including $0.6 million for pond closure and monitoring for ten years at the
Company's Waynesboro, Virginia facility and $0.9 million for litigation costs
associated with the Linns-Faysville Aquifer in Texas. The balance of the
environmental reserve at December 28, 1997 was approximately $0.6 million.
Atlantic Design:
December of 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.
Ogden Services Corporation has divested certain ADC facilities and has been
attempting to divest the Reynosa operations. The Company's contract with ADC
contains a clause requiring GENICOM's consent to the sale, which consent cannot
be unreasonably withheld. The Company has evaluated preliminary information
received from ADC concerning a potential buyer, but, to the Company's
knowledge, the sale of the Reynosa facility is not imminent.
44
<PAGE> 45
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 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
breaches of the agreement. Ogden Services Corporation and ADC have filed
counterclaims against the Company seeking damages in excess of $10 million
alleging additional various breaches by the Company of the agreement. The
Company, Ogden and ADC have engaged in settlement discussions, but no agreement
has been reached to date. Discovery is in progress in the arbitration and
hearings had been scheduled to begin in April 1998. In late March 1998, Ogden
and ADC requested and received permission from the arbitrator to file an
amended claim to seek recision of the agreement. While ADC has not formally
filed its claim for recision, the Company is not aware of any basis for such a
claim and will vigorously contest any such assertion. While the Company
remains hopeful that a negotiated solution can be reached, the Company cannot
presently predict the outcome of this matter or how the respective claims will
be resolved. There can be no assurance that such outcomes will not have a
material adverse effect upon the Company.
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 is for a period of 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.
NOTE 10: RELATED PARTY TRANSACTIONS
G.E. is one of the principal stockholders of the Company. Sales by the Company
to G.E. and its affiliates amounted to $1.9 million, $2.2 million and $2.4
million in 1997, 1996 and 1995, respectively. Amounts receivable from G.E.
were immaterial as of December 28, 1997 and December 29, 1996, respectively.
In late 1997, G.E. transferred all of its holdings in GENICOM to a charitable
trust.
NOTE 11: SEGMENT AND GEOGRAPHIC INFORMATION
Industry Segments
The Company operates in the serial, line and page printer business where it
designs and markets printers as well as in 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 and services with
field services, depot repair, parts, logistics and network products
(Enterprising Service Solutions company). The production and sales of relay
products comprise less than 10% of revenue, operating income and identifiable
assets and are included in the Document Solutions segment. Revenue between
industry segments are not material.
45
<PAGE> 46
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES
Document Solutions* $ 293,166 $ 182,707 $ 166,469
Enterprising Service Solutions 127,962 120,551 127,583
---------------- ---------------- ----------------
$ 421,128 $ 303,258 $ 294,052
---------------- ---------------- ----------------
OPERATING INCOME
Document Solutions+# $ 29,713 $ 11,954 $ 7,415
Enterprising Service Solutions# (13,417) (8,750) 7,763
---------------- ---------------- ----------------
$ 16,296 $ 3,204 $ 15,178
---------------- ---------------- ----------------
DEPRECIATION AND AMORTIZATION
Document Solutions $ 5,851 $ 3,146 $ 4,471
Enterprising Service Solutions 11,741 13,239 9,487
Corporate and other 1,375 1,487 4,148
---------------- ---------------- ----------------
$ 18,967 $ 17,872 $ 18,106
---------------- ---------------- ----------------
ASSETS
Document Solutions $ 145,467 $ 96,147 $ 85,130
Enterprising Service Solutions 85,387 53,248 49,264
Corporate and other 19,195 36,684 27,145
---------------- ---------------- ----------------
$ 250,049 $ 186,079 $ 161,539
---------------- ---------------- ----------------
CAPITAL EXPENDITURES
Document Solutions $ 3,440 $ 2,493 $ 2,970
Enterprising Service Solutions 10,469 8,961 11,680
Corporate and other 6,417 355 1,675
---------------- ---------------- ----------------
$ 20,326 $ 11,809 $ 16,325
---------------- ---------------- ----------------
</TABLE>
*Includes relay revenues of $14,342, $13,651 and $11,726 for 1997, 1996 and
1995, respectively.
+Includes relay operating income (loss) of $1,236, $(807) and $(1,367) for
1997, 1996 and 1995, respectively.
#Includes restructuring accrual of $4,183 included with Enterprising Services
and environmental accrual of $1,479 for Document Solutions in 1996.
Geographic Segments
Transfers (sales) between geographic areas are accounted for at prices
approximating market. Information regarding the Company's operations in the
Pacific Rim, which are not material relative to total operations, has been
combined with its European operations. Additionally, information regarding the
Company's former Mexican subsidiary has been combined with its U.S. operations
because of the vertical integration and its close proximity to the United
States.
46
<PAGE> 47
Financial information by geographic area:
<TABLE>
<CAPTION>
(in thousands) United States
FISCAL YEAR 1997 and Canada Europe Eliminations Consolidated
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 316,397 $ 104,731 $ $ 421,128
Transfers between geographic areas 67,430 (67,430) -
-------------- --------------- -------------- ---------------
Total sales $ 383,827 $ 104,731 $ (67,430) $ 421,128
-------------- --------------- -------------- ---------------
Operating income (loss) $ 12,099 $ 4,197 $ $ 16,296
-------------- --------------- -------------- ---------------
Identifiable assets $ 130,634 $ 119,415 $ $ 250,049
============== =============== ============== ===============
</TABLE>
<TABLE>
<CAPTION>
United States
FISCAL YEAR 1996 and Canada Europe Eliminations Consolidated
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 235,780 $ 67,478 $ $ 303,258
Transfers between geographic areas 47,818 (47,818) -
-------------- --------------- -------------- ---------------
Total sales $ 283,598 $ 67,478 $ (47,818) $ 303,258
-------------- --------------- -------------- ---------------
Operating income (loss) $ 3,479 $ (275) $ $ 3,204
-------------- --------------- -------------- ---------------
Identifiable assets $ 146,923 $ 39,156 $ $ 186,079
============== =============== ============== ===============
</TABLE>
<TABLE>
<CAPTION>
United States
FISCAL YEAR 1995 and Canada Europe Eliminations Consolidated
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 231,709 $ 62,343 $ $ 294,052
Transfers between geographic areas 39,870 (39,870) -
-------------- --------------- -------------- ---------------
Total sales $ 271,579 $ 62,343 $ (39,870) $ 294,052
-------------- --------------- -------------- ---------------
Operating income (loss) $ 15,021 $ 157 $ $ 15,178
-------------- --------------- -------------- ---------------
Identifiable assets $ 123,806 $ 37,733 $ $ 161,539
============== =============== ============== ===============
</TABLE>
Total sales to customers outside the United States amounted to $139.0 million,
$94.2 million and $84.7 million for 1997, 1996 and 1995, respectively; these
amounts include export sales from the United States of $2.3 million, $1.0
million and $1.1 million in 1997, 1996 and 1995, respectively.
NOTE 13: BUSINESS ACQUISITIONS AND DISPOSITIONS
NOVADYNE COMPUTER SYSTEMS, INCORPORATED
On November 14, 1997, the Company purchased selected assets of Novadyne
Computer Systems, Inc. for approximately $17.3 million including the assumption
of certain liabilities. The transaction was financed through the Company's
credit facility with NationsBank of Texas, N.A..
PRO FORMA FINANCIAL INFORMATION
Presented below are the unaudited pro forma 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 the 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
47
<PAGE> 48
periods presented, and is not intended to be a projection of future results.
Presentation is in thousands except for earnings per share amounts.
<TABLE>
<CAPTION>
December 28, 1997 December 29, 1996
--------------------- ---------------------
<S> <C> <C>
Revenue $ 451,527 $ 341,532
Pre-Tax Income 12,209 3,286
--------------------- ---------------------
Net Income 10,104 3,087
--------------------- ---------------------
Earnings per share - Basic $ 0.91 $ 0.28
--------------------- ---------------------
Earnings per share - Diluted 0.80 0.25
--------------------- ---------------------
Weighted average shares outstanding
Basic 11,074 10,933
--------------------- ---------------------
Diluted 12,570 12,168
--------------------- ---------------------
</TABLE>
RELAYS BUSINESS
The Company recorded an operating loss of $0.8 million associated with the sale
of its relay product line in 1997. This loss included $0.6 million for pension
curtailment.
DIGITAL EQUIPMENT CORPORATION AGREEMENTS
On August 10, 1997, the Company purchased Digital Equipment Corporation's
Printing Systems Business and became Digital's exclusive supplier of
Digital-branded printer products. The multi-year agreement also established a
cooperative alliance where the Company will provide a broad line of products,
business planning, technical support and distribution services to Digital's
marketing channels in each of their global geographies. The Company and
Digital have also agreed to pursue joint marketing programs for each other's
capabilities, products and services.
During the fourth quarter the Company expensed approximately $1.7 million
dollars associated with the agreements.
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.
This note was paid in September 1997. The goodwill of approximately $10
million associated with the purchase is being amortized over seven years.
PRINTER SYSTEMS CORPORATION
On February 16, 1995, the Company acquired Printer Systems Corporation ("PSC"),
a privately held company whose primary business was the design, manufacture,
distribution and support of printer networking products for commercial
customers. PSC had 1994 revenues of approximately $10.0 million. Pursuant to
the purchase agreement, the Company acquired all of PSC's outstanding common
and preferred shares for consideration aggregating to potentially $4.8 million.
Of the consideration $0.8 million was payable at closing and $1.2 million is
payable over the three subsequent years to closing. The remaining balance of
up to $2.8 million in consideration is contingent upon attainment of
performance objectives during the three years subsequent to closing, and will
be funded from the Company's cash flows from operations and credit facilities.
There was no contingent liability remaining as of December
48
<PAGE> 49
28, 1997. The acquisition has been accounted for as a purchase. The goodwill
associated with the purchase is being amortized over seven years.
HARRIS ADACOM NETWORK SERVICES, INC.
On March 1, 1995, the Company acquired substantially all of the assets and
certain liabilities of Harris Adacom Network Services, Inc. ("HANS"), including
all of the stock of its Canadian subsidiary, Harris Adacom Inc. for cash and
notes totaling $7.3 million. The assets acquired relate to HANS' service depot
facility, field service operations, systems integration business, and network
baselining and monitoring operations. HANS had 1994 revenues of approximately
$36.1 million. The purchase price was funded from the Company's cash flows
from operations and credit facilities and the acquisition has been accounted
for as a purchase. The goodwill associated with the purchase is being
amortized over ten years.
NOTE 14: SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands, except per share data)
QUARTER
-----------------------------------------------------------------------
1997 FIRST SECOND THIRD FOURTH
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES $ 96,345 $ 98,647 $ 102,689 $ 123,447
GROSS MARGIN 23,965 23,859 23,774 25,583
OPERATING INCOME 4,303 5,275 4,707 1,973
NET INCOME 2,517 2,843 2,286 212
EARNINGS PER SHARE - BASIC 0.23 0.26 0.21 0.02
EARNINGS PER SHARE - DILUTED 0.21 0.23 0.18 0.02
</TABLE>
<TABLE>
<CAPTION>
Quarter
-----------------------------------------------------------------------
1996 First Second Third Fourth
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 73,553 $ 69,139 $ 68,811 $ 91,755
Gross margin 17,307 15,159 16,521 21,982
Operating income (loss) 2,845 1,918 (5,616) 4,053
Income (loss) before extraordinary item 1,421 689 (2,229) 2,200
Net income (loss) 1,007 681 (2,229) 2,200
Earnings (loss) per share before
extraordinary item
Basic 0.13 0.06 (0.20) 0.20
Diluted 0.11 0.06 (0.20) 0.18
</TABLE>
49
<PAGE> 50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item is incorporated by reference from
Genicom Corporation's Proxy Statement for its 1998 annual meeting of
stockholders, to be filed pursuant to Regulation 14A not later than 120 days
after the close of the Company's fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item is incorporated by reference from
Genicom Corporation's Proxy Statement for its 1998 annual meeting of
stockholders, to be filed pursuant to Regulation 14A not later than 120 days
after the close of the Company's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item is incorporated by reference from
Genicom Corporation's Proxy Statement for its 1998 annual meeting of
stockholders, to be filed pursuant to Regulation 14A not later than 120 days
after the close of the Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item is incorporated by reference from
Genicom Corporation's Proxy Statement for its 1998 annual meeting of
stockholders, to be filed pursuant to Regulation 14A not later than 120 days
after the close of the Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
The financial statement schedule filed as part of this report is
listed in the Index to Financial Statements and Schedules on page F-1
immediately following the signatures to this report.
50
<PAGE> 51
Exhibits Included in Response to Item 601 of Regulation S-K
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
========= ========================================================================================================
<S> <C>
2.1 Texas Instruments Asset Purchase Agreement dated July 22, 1996, incorporated by reference to Exhibit
2.1 to Form 8-K (File No. 0-14865) filed with the Commission on October 15, 1996.
2.2 Amendment of Asset Purchase Agreement with Texas Instruments dated as of September 30, 1996,
incorporated by reference to Exhibit 2.2 to Form 8-K (File No. 0-14865) filed with the Commission on
October 15, 1996.
2.3 Asset Purchase Agreement dated November 14, 1997 among Genicom Corporation, Heller Financial, Inc.,
Novadyne Computer Systems, Inc. and Novadyne Acquisition Company, Inc., incorporated by reference to
Exhibit 2.1 to Form 8-K (File No. 0-14865) filed with the Commission on December 1, 1997.
2.4 Asset Purchase Agreement dated November 14, 1997 among Genicom Canada Inc., Novadyne Computer
Systems (Canada), Inc., Novadyne Computer Systems, Inc. and Heller Financial, Inc. incorporated by
reference to Exhibit 2.2 to Form 8-K (File No. 0-14865) filed with the Commission on December 1,
1997.
3.1 Restated Certificate of Incorporation effective as of June 15, 1992, incorporated by reference to
Form 8-A (File No. 0-14865) filed with the Commission on July 5, 1996.
3.2 Certificate of Amendment to Certificate of Incorporation effective as of July 17, 1995, incorporated
by reference to Exhibit 3.2 to Form 8-A (File No. 0-14865) filed with the Commission on July 5,
1996.
3.3 By-laws, dated June 1, 1983, as amended January 23, 1989 - incorporated by reference to Exhibit 3.2
to Form 10-K (File No. 0-14865) filed with the Commission on March 29, 1989.
4.1 Rights Agreement dated as of June 16, 1996 between the Registrant and First Union National Bank of
North Carolina, including Exhibit A thereto, Form of Rights Certificate, incorporated by reference
to Exhibit 4.1 to Form 8-A (File No. 0-14865) filed with the Commission July 5, 1996.
10.1* Cooperative Marketing, Support and Development Agreement between Genicom Corporation and Digital
Equipment Corporation dated August 10, 1997 incorporated by reference to Exhibit 2.3 to Form 8-K
(File No. 0-14865) filed with the Commission on August 25, 1997.
10.2 Amended and Restated Credit Agreement with NationsBank dated September 5, 1997, incorporated by
reference to Exhibit 10.1 to Form 8-K (File No. 0-14865) filed with the Commission on September 22,
1997.
</TABLE>
51
<PAGE> 52
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
========= ========================================================================================================
<S> <C>
10.3 First Amendment to Credit and Security Agreement with NationsBank dated as of October 31, 1997,
incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 0-14865) filed with the Commission
on December 1, 1997.
10.4 Second Amendment to Credit and Security Agreement with NationsBank dated as of March 12, 1998,
filed herewith.
10.5 Genicom Corporation 1997 Stock Option Plan incorporated by reference to Exhibit 4 to Form S-8 (File
No. 333-30153) filed with the Commission on June 27, 1997.
10.6# Stock Option Plan, as amended and restated, effective as of February 7, 1991- incorporated by
reference to Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q (File No. 0-14685) for the
quarter ended March 31, 1991 filed with the Commission on May 15, 1991.
10.7# First Amendment to the Registrant's Stock Option Plan, dated February 3, 1992 incorporated by
reference to Exhibit 4.2 to Form S-8 Registration Statement (No. 33-49472) filed with the Commission
on July 10, 1992.
10.8# Second Amendment to the Registrant's Stock Option Plan, dated January 17, 1994 incorporated by
reference to Exhibit 4 to Form S-8 Registration Statement (No. 33-53843) filed with the Commission
on May 27, 1994.
10.9# Third Amendment to the Registrant's Stock Option Plan dated February 13, 1995 incorporated by
reference to Exhibit 4 to Form S-8 Registration Statement (No. 333-01845) filed with the Commission
on March 21, 1996.
10.10# Amendment of Stock Option Plan, dated February 13, 1995 incorporated by reference to Exhibit 10.5
to Form 10-K (File No. 0-14865) filed with the Commission on March 27, 1997.
10.11# Amendment of Stock Option Plan, dated December 17, 1996, incorporated by reference to Exhibit 10.6
to Form 10-K (File No. 014865) filed with the Commission on March 27, 1997.
10.12# Deferred Compensation and Savings Plan, as amended and restated, effective as of January 2, 1989
incorporated by reference to Exhibit 10.8 to Form 10-K (File No. 0-14865) filed with the Commission
on March 29, 1991.
10.13# First Amendment to the Deferred Compensation and Savings Plan, dated as of November 1, 1993
incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 0-14865) filed with the Commission
on March 30, 1995.
10.14# Second Amendment to the Deferred Compensation and Savings Plan, dated as of January 20, 1994
incorporated by reference to Exhibit 10.2 to Form 8-K (File No. 0-14865) filed with the Commission
on March 30, 1995.
</TABLE>
52
<PAGE> 53
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
========= ========================================================================================================
<S> <C>
10.15# Fifth Amendment to the Deferred Compensation and Savings Plan, dated as of April 1, 1997
incorporated by reference to Exhibit 10.8 to Form 10K (File No. 0-14865) filed with the Commission
on March 27, 1997.
10.16# Incentive Compensation Plan, as amended - incorporated by reference to Exhibit 10.13 to Form S-1
(File No. 33-5458) filed with the Commission on June 25, 1986.
10.17# Incentive Compensation Plan for 1997 incorporated by reference to Exhibit 10.17 to Form 10-K (File
No. 0-14865) filed with the Commission on March 31, 1998 filed herewith.
10.18 Lease of McAllen, Texas facility, dated January 20, 1992 incorporated by reference to Exhibit 10.12
to Form 10-K (File No. 0-14865) filed with the Commission on March 24, 1992.
10.19 Sublease of McAllen, Texas facilities, dated December 18, 1995 incorporated by reference to Exhibit
10.16 to Form 10-K (File No. 0-14865) filed with the Commission on March 27, 1997.
10.20# Terms of employment of Paul T. Winn dated March 26, 1990 - incorporated by reference to Exhibit
10.15 to Form S-1 Registration Statement (No. 33-23007) filed with the Commission on May 17, 1990.
10.21* Agreement Between GENICOM Corporation and TOSHIBA Corporation Relating to Laser Printer G751, Laser
Printer G750 and Related Options, Supplies and Service Parts, dated March 31, 1992 - incorporated by
reference to Exhibit 10.17 to Form 10-K filed with the Commission on March 31, 1993.
10.22 Agreement with the General Electric Company regarding environmental matters at the Registrants'
Waynesboro, Virginia facility, dated December 9, 1993 - incorporated by reference to Exhibit 10.1 to
Form 8-K (File No. 0-14865) filed with the Commission on February 23, 1994.
10.23 Manufacturing agreement between GENICOM Corporation and Atlantic Design Company - incorporated by
reference to Exhibit 10.21 to Form 10-K (File No. 0-14865) filed with the Commission on March 28,
1996.
11 Statement regarding the Company's computation of earnings per share - filed herewith.
22 Subsidiaries of the Registrant - filed herewith.
23 Consent of Independent Accountants - filed herewith.
27 Financial Data Schedules - Filed only with EDGAR version.
</TABLE>
53
<PAGE> 54
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
========= ========================================================================================================
<S> <C>
(b) Reports on Form 8-K
The Company filed a Form 8-K/A on October 22, 1997 to report that it had acquired certain assets
from Digital Equipment Corporation ("DEC") in connection with a Cooperative Marketing, Support and
Development Agreement ("Marketing Agreement") it had recently entered into with DEC. The Company
determined that the acquisition and the Marketing Agreement did not require the production and
filing of any financial statements.
The Company filed a Form 8-K on December 1, 1997 to report that it had purchased certain assets and
had assumed certain liabilities of Novadyne Computer Systems, Inc. The Company also reported a
related amendment of its credit agreement with NationsBank. Financial statements, not available at
the time, were filed under cover of an amended Form 8-K on March 17, 1998.
</TABLE>
* Confidential treatment granted with respect to certain provisions
pursuant to 17 C.F.R. 200.80 (b) (4).
# Management contracts or compensatory plans.
54
<PAGE> 55
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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
BY: Paul T. Winn
------------------------------------
Paul T. Winn
President and Chief Executive Officer
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
================================== ================================================= =====================
<S> <C> <C>
\s\Don E. Ackerman Chairman of the Board and Director March 30, 1998
- ----------------------------------
Don E. Ackerman
\s\Paul T. Winn President and Chief Executive Officer March 30, 1998
- ---------------------------------- and Director (Principal Executive Officer)
Paul T. Winn
\s\James C. Gale Senior Vice President Finance and Chief March 30, 1998
- ---------------------------------- Financial Officer (Principal Financial Officer)
James C. Gale
\s\John Hill Director March 30, 1998
- ----------------------------------
John Hill
</TABLE>
55
<PAGE> 56
GENICOM CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
=========
<S> <C>
Independents Accountants' Report F-2
Financial Statement
Schedules:
Schedule II Valuation and Qualifying Accounts and Reserves F-3
</TABLE>
1. All other schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedules.
F - 1
<PAGE> 57
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors and Stockholders of GENICOM Corporation:
We have audited the accompanying consolidated balance sheets of GENICOM
Corporation and Subsidiaries (the "Company") as of December 28, 1997 and
December 29, 1996, and the related consolidated statements of income, changes
in stockholders' equity and cash flows for each of the three fiscal years in
the period ended December 28, 1997. We have also audited the financial
statement schedule listed in the index on page F-1 of this Form 10-K. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of GENICOM
Corporation and Subsidiaries as of December 28, 1997 and December 29, 1996, and
the consolidated results of their operations and their cash flows for each of
the three fiscal years in the period ended December 28, 1997, in conformity
with generally accepted accounting principles. In addition, in our opinion,
the financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
McLean, VA
January 29, 1998
F - 2
<PAGE> 58
GENICOM CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
DESCRIPTION BEGINNING CHARGED TO COSTS DEDUCTIONS BALANCE AT END
OF PERIOD AND EXPENSES FROM RESERVES OF PERIOD
===================================== =============== =================== ================ =================
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended:
DECEMBER 31, 1995 $ 1,479 $1,284(1) $1,147 $ 1,616
DECEMBER 29, 1996 $ 1,616 $1,985(1) $ 331 $ 3,270
DECEMBER 28, 1997 $ 3,270 $2,086(1) $ 886 $ 4,470
ALLOWANCE FOR INVENTORY
OBSOLESCENCE
Year ended:
DECEMBER 31, 1995 $ 6,158 $ 2,292(2) $ 305 $ 8,145
DECEMBER 29, 1996 $ 8,145 $ 6,761(2) $ 3,337 $ 11,569
DECEMBER 28, 1997 $ 11,569 $ 2,711(2) $ 3,481 $ 10,799
</TABLE>
1. "Additions" to the allowance for doubtful accounts include a foreign
currency translation adjustment of $129,$(48) and $46 in 1997, 1996
and 1995, respectively. Net bad debt expense for 1997, 1996 and 1995
was $2,215, $2,026 and $1,238, respectively.
2. Foreign currency translation adjustments were immaterial in 1997, 1996
and 1995. 1996 includes $4,666 of reserve from the Texas Instruments
acquisition.
F - 3
<PAGE> 59
GENICOM CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS TO FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
10.4 Seconded Amendment to Credit and Security Agreement with NationsBank E-2 - E-10
dated as of March 12, 1998.
10.17 Incentive Compensation Plan for 1997 E-11 - E-18
11 Statement regarding computation of per share earnings E-19
22 Subsidiaries of the Registrant E-20
23 Consent of Independent Accountants E-21
27 Financial Data Schedules Filed only with
EDGAR version
</TABLE>
E - 1
<PAGE> 1
EXHIBIT 10.4
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), dated as of March 12, 1998, is by and among Genicom Corporation
(the "Borrower"), the subsidiaries of the Borrower identified on the signature
pages hereto (the "Guarantors"), the several lenders identified on the
signature pages hereto (each a "Lender" and, collectively, the "Lenders") and
NationsBank of Texas, N.A., as agent for the Lenders (in such capacity, the
"Agent"). Capitalized terms used herein which are not defined herein and which
are defined in the Credit Agreement shall have the same meanings as therein
defined.
W I T N E S S E T H
WHEREAS, the Borrower, the Guarantors, the Lenders and the Agent
entered into that certain Amended and Restated Credit Agreement dated as of
September 5, 1997, as amended by that First Amendment to Amended and Restated
Credit Agreement dated October 31, 1997, (the "Existing Credit Agreement").
WHEREAS, the parties have agreed to amend the Existing Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the agreements hereinafter set
forth, and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:
PART I
DEFINITIONS
SUBPART I.1 Certain Definitions. Unless otherwise defined herein or
the context otherwise requires, the following terms used in this Amendment,
including its preamble and recitals, have the following meanings:
"Amended Credit Agreement" means the Existing Credit
Agreement as amended hereby.
"Amendment No. 2 Effective Date" is defined in Subpart III.1.
SUBPART I.2 Other Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Amendment, including its
preamble and recitals, have the meanings provided in the Amended Credit
Agreement.
<PAGE> 2
PART II
AMENDMENTS TO EXISTING CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Amendment No. 2
Effective Date, the Existing Credit Agreement is hereby amended in accordance
with this Part II. Except as so amended, the Existing Credit Agreement and all
other Credit Documents shall continue in full force and effect.
SUBPART II.1 Amendments to Section 1.1.
(a) The definition of Consolidated Net Income contained in
Section 1.1 of the Existing Credit Agreement is amended in its
entirety to read as follows:
"Consolidated Net Income" means, for any period, net income
(excluding extraordinary items) after taxes for such period of the
Borrower and its Subsidiaries on a consolidated basis, as determined
in accordance with GAAP; provided, however, that for purposes of
calculating the financial covenants contained in Section 7.11,
Consolidated Net Income shall be calculated to exclude up to
$1,739,000 in non-cash charges incurred during the fourth fiscal
quarter of 1997 in connection with the acquisition of certain assets
of the printer division of Digital Equipment Corporation.
(b) The definition of Consolidated Net Worth contained in
Section 1.1 of the Existing Credit Agreement is amended in its
entirety to read as follows:
"Consolidated Net Worth" means, at any time, total
shareholders' equity of the Borrower and its Subsidiaries on a
consolidated basis at such time, as determined in accordance with GAAP
(but excluding in any event foreign currency translation adjustments);
provided, however, that for the purpose of determining compliance with
the financial covenants contained in Sections 7.11(a) and 7.11(d),
Consolidated Net Worth shall be adjusted upward to reflect up to
$1,739,000 in non-cash charges incurred during the fourth fiscal
quarter of 1997 in connection with the acquisition of certain assets
of the printer division of Digital Equipment Corporation.
SUBPART II.2 New Section 7.16. A new Section 7.16 is hereby added to
the Existing Credit Agreement which reads as follows:
7.16 YEAR 2000 COMPATIBILITY.
The Borrower will and will cause each of its
Subsidiaries to take all action necessary to assure that its
computer based systems are able to operate and effectively
process data including dates on and after January 1, 2000,
and at the reasonable request of the Agent or the Required
Lenders provide evidence to the Lenders of such year 2000
compatibility.
PART III
<PAGE> 3
CONDITIONS TO EFFECTIVENESS
SUBPART III.1 Amendment No. 2 Effective Date. This Amendment
shall be and become effective as of the date hereof (the "Amendment No. 2
Effective Date") when all of the conditions set forth in this Subpart 3.1 shall
have been satisfied, and thereafter this Amendment shall be known, and may be
referred to, as "Amendment No. 2."
SUBPART III.1.1 Execution of Counterparts of Amendment. The
Agent shall have received counterparts (or other evidence of
execution, including telephonic message, satisfactory to the Agent) of
this Amendment, which collectively shall have been duly executed on
behalf of each of the Borrower, the Guarantors and the Required
Lenders.
SUBPART III.1.2 Material Adverse Change. Except as otherwise
previously disclosed in writing to the Lenders, no material adverse
change shall have occurred since December 29, 1996 in the condition
(financial or otherwise), business or management of the Borrower or of
the Borrower and its Subsidiaries taken as a whole.
SUBPART III.1.3 Other Items. The Agent shall have received
such other documents, agreements or information which may be
reasonably requested by the Agent.
PART IV
MISCELLANEOUS
SUBPART IV.1 Representations and Warranties. Borrower hereby
represents and warrants to the Agent and the Lenders that, after giving effect
to this Amendment, (a) no Default or Event of Default exists under the Credit
Agreement or any of the other Credit Documents and (b) the representations and
warranties set forth in Section 6 of the Existing Credit Agreement are, subject
to the limitations set forth therein, true and correct in all material respects
as of the date hereof (except for those which expressly relate to an earlier
date).
SUBPART IV.2 Cross-References. References in this Amendment to any
Part or Subpart are, unless otherwise specified, to such Part or Subpart of
this Amendment.
SUBPART IV.3 Instrument Pursuant to Existing Credit Agreement. This
Amendment is a Credit Document executed pursuant to the Existing Credit
Agreement and shall (unless otherwise expressly indicated therein) be
construed, administered and applied in accordance with the terms and provisions
of the Existing Credit Agreement.
SUBPART IV.4 References in Other Credit Documents. At such time as
this Amendment No. 2 shall become effective pursuant to the terms of Subpart
3.1, all references in the Credit Documents to the "Credit Agreement" shall be
deemed to refer to the Credit Agreement as amended by this Amendment No. 2.
<PAGE> 4
SUBPART IV.5 Counterparts. This Amendment may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.
SUBPART IV.6 Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE COMMONWEALTH OF
VIRGINIA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
SUBPART IV.7 Successors and Assigns. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
[The remainder of this page has been left blank intentionally]
<PAGE> 5
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be
duly executed on the date first above written.
BORROWER:
--------
GENICOM CORPORATION
By James C. Gale
Title: Senior Vice President and CFO
GUARANTORS:
----------
GENICOM INTERNATIONAL HOLDINGS
CORPORATION
By \s\James C. Gale
Title: Senior Vice President and CFO
GENICOM INTERNATIONAL SALES
CORPORATION
By \s\James C. Gale
Title: Senior Vice President and CFO
DELMARVA TECHNOLOGIES CORPORATION
By \s\James C. Gale
Title: Senior Vice President and CFO
RASTEK CORPORATION
By \s\James C. Gale
Title: Senior Vice President and CFO
[Signatures Continued]
<PAGE> 6
ENTERPRISING SERVICE SOLUTIONS CORPORATION
By \s\James C. Gale
Title: Senior Vice President and CFO
PRINTER SYSTEMS CORPORATION
By \s\ James C. Gale
Title: Senior Vice President and CFO
THE PRINTER CONNECTION, INC.
By \s\James C. Gale
Title: Senior Vice President and CFO
PRINTER SYSTEMS INTERNATIONAL, LTD.
By \s\James C. Gale
Title: Senior Vice President and CFO
[Signatures Continued]
<PAGE> 7
LENDERS:
-------
NATIONSBANK OF TEXAS, N.A.
By \s\Sharon Ellis
Title: Senior Vice President
CREDITANSTALT-BANKVEREIN
By \s\ Christina T. Schoen
Title: Senior Vice President
By \s\ Maura K. Conner
Title: Senior Associate
DEEPROCK & COMPANY
By: Eaton Vance Management,
as Investment Advisor
By \s\ Payson F. Swaffield
Title: Vice President
CRESTAR BANK
By \s\Nancy R. Petrash
Title: Senior Vice President
THE RIGGS NATIONAL BANK OF WASHINGTON, D.C.
By \s\Jeffrey P. White
Title: Vice President
[Signatures Continued]
<PAGE> 8
FLOATING RATE PORTFOLIO
By: Chancellor LGT Senior Secured
Management, Inc., as attorney-in-fact
By
-------------------------------------------
Title:
KZH HOLDING CORPORATION III
By
-------------------------------------------
Title:
MORGAN STANLEY SENIOR FUNDING, INC.
By
-------------------------------------------
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By \s\Payson F. Swaffield
Title: Vice President
CERES FINANCE LTD.
By \s\J.H. Culliare
Title: Director
AERIES FINANCE LTD.
By
-------------------------------------------
Title:
[Signatures Continued]
<PAGE> 9
BANK OF SCOTLAND
By \s\Annie Chin Tat
Title: Vice President
NATIONAL CITY BANK OF KENTUCKY
By \s\Glen E. Nord
Title: Vice President
AGENT:
NATIONSBANK OF TEXAS, N.A.,
as Agent
By \s\Sharon Ellis
Title: Senior Vice President
<PAGE> 1
Exhibit 10.17
[GENICOM LOGO] Corporation
1997 INCENTIVE COMPENSATION PLAN
RESTRICTED/COMPANY CONFIDENTIAL
APPROVED BY BOARD OF DIRECTORS MARCH 19, 1997
<PAGE> 2
1997 INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
PURPOSE
The purpose of the 1997 Incentive Compensation Plan is to reward key employees
for the achievement of GENICOM's growth and profitability objectives. In
addition, the Plan is intended to assist in the retention and motivation of
these employees.
EFFECTIVE PERIOD
The 1997 Incentive Compensation Plan will cover the fiscal year ending December
28, 1997.
ELIGIBILITY
Employees eligible to participate in the Plan shall include those who have
completed at least twelve months of continuous service by the end of the
applicable period and:
- - whose positions are evaluated at the end of the applicable half-year, or
at the end of their employment in the applicable period, as Director level
or above under GENICOM's salary structure or,
- - whose positions are in an affiliate and are evaluated as being equivalent
in responsibility to Director level or above at the end of the applicable
period, or at the end of their employment in the applicable half-year or,
- - having not completed twelve months of continuous service, but having been
specifically approved for participation by the Chairman of the Board and
President/Chief Executive Officer or,
- - whose positions do not meet the above level requirements, but whose
contributions merit special consideration, and are specifically approved
for participation by the Chairman of the Board and President/Chief
Executive Officer.
Employees eligible to participate in any other variable compensation plan (e.g.
Sales Incentive Plan) are not eligible to participate in this Plan.
CONDUCT
A cooperative and supportive team effort is a basic condition of employment for
all employees, but particularly for participants of the Incentive Compensation
Plan and other members of management. Proactive support of Corporate goals,
directions, and priorities including those outside of a participant's area of
responsibility is an implied requirement of Plan participants.
THRESHOLD
In order for an award to be available, the Corporation must achieve
satisfactory financial performance in each six-month period. This threshold
performance will be recommended by the President & Chief Executive Officer,
subject to review and approval of the Compensation Committee of the Board of
Directors. If the Corporation does not meet the threshold financial
performance, the President and Chief Executive Officer may recommend to the
Board payment of the Functional/Segment goals if objectives in this component
are met.
<PAGE> 3
1997 INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
AWARD POOL
An Award Pool will be established for 1997. Incentive compensation payments
will not exceed this pool size, unless specifically recommended by the
President and Chief Executive Officer and approved by the Board of Directors.
OBJECTIVES
Objectives will consist of both Corporate and Functional/Individual performance
measures. The weights of each category are:
<TABLE>
<CAPTION>
-----------------------------------------------------------
CATEGORY % OF TARGET INCENTIVE
(WEIGHT)
-----------------------------------------------------------
<S> <C>
Corporate Objectives 70%
-----------------------------------------------------------
Functional/Segment Objectives 30%
-----------------------------------------------------------
</TABLE>
Objectives will be established semi-annually, and performance will be measured
against the semi-annual targets.
CORPORATE OBJECTIVES
The following Corporate objectives have been established for 1997:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
CORPORATE OBJECTIVE TOTAL 1997 OR % OF CORPORATE
($000'S) 1ST HALF 1997 2ND HALF 1997 12/31/97 OBJECTIVES (WEIGHT)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue to Plan $197,303 $206,488 $403,791 25%
-----------------------------------------------------------------------------------------------------------
Operating Margin to Plan $6,270 $11,706 $17,976 25%
-----------------------------------------------------------------------------------------------------------
Inventory (year-end) $45,325 $44,996 $44,996 25%
-----------------------------------------------------------------------------------------------------------
ROI 12.2% 23.6% - 25%
-----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
1997 INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
FUNCTIONAL/SEGMENT OBJECTIVES
Staff executives will develop performance targets for the functions for which
they are responsible. The performance targets must support the 1997 Annual
Operating Plan and be approved by the President and Chief Executive Officer.
Functional/individual objectives should be:
- closely linked to GENICOM's strategic success
- clear and understandable
- objective
- measurable
- based on activities that can be controlled by the Plan participant
- few, yet comprehensive
Most important, targets must represent a true performance stretch, and reflect
achievement well beyond the normal scope of responsibilities. Failure to obtain
an objective will result in a weighted reduction from the total Incentive
Compensation pool.
Attachment A has been provided to document each participant's performance
objectives.
AWARD DETERMINATION
At the end of the applicable half-year period, the Board of Directors shall
select as participants from those in the following position in the Corporation
and determine the award payments to each such participant:
a. The employee occupying the position of President/Chief Executive Officer
and,
b. all other employees who are officers of the Corporation or employees whose
positions are in an affiliate and evaluated as being equivalent to an
officer position of the Corporation.
The Board of Directors has delegated authority to the officers of the
Corporation approved by the Chief Executive Officer to select as participants
employees in positions other than those covered above and to determine the
award amount to such participants. Individual awards are to be paid from the
Award Pool.
Payments to individual participants shall be determined on the basis of an
assessment of the participant's contribution to, and performance with, the
Corporation during the applicable period.
AWARD PAYMENT
Awards will be paid semi-annually as soon as is practical after the Board
approves the award amounts for the applicable period.
<PAGE> 5
1997 INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
RETIREMENT PLAN
Employee contributions to the Retirement Savings Plan 401(k) will be deducted
from the Incentive Compensation unless otherwise requesting (in writing) by the
participant prior to payment of Incentive Compensation.
FUTURE PARTICIPATION
The selection of an employee as a participant is not to be construed as an
assurance of an award for that half-year, or selection as a participant for any
future period.
REMOVALS
A participant whose employment with the Corporation is terminated because of
retirement or disability:
a. after the close of the applicable half-year, but prior to the actual
distribution of the award amount for such period, may be awarded the full
amount for that period,
b. after the beginning but prior to the end of the applicable half-year
period, may be awarded an amount based upon the actual period of
employment with the Corporation within the period.
DEATH
Management-initiated separation or voluntary separation constitutes removal
from this plan.
If a participant dies prior to payment of his/her award payment, the entire
award amount shall be paid to his/her estate, less any benefit plan deductions
and taxes required to be withheld.
MANAGEMENT RESERVATIONS
All payments of Incentive Compensation are subject to the discretion of the
Board of Directors and the Chief Executive Officer. This plan may be modified,
amended, or canceled at any time subject to the sole discretion of the Board of
Directors and the Chief Executive Officer.
<PAGE> 6
1997 INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
Attachment B
RETIREMENT SAVINGS PLAN WITHHOLDING DESIGNATION
AS IT PERTAINS TO INCENTIVE COMPENSATION
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------------------------
Social Security No.: Work Location: Work Phone:
- --------------------------------------------------------------------------------
Your Retirement Savings Plan contribution will automatically be withheld from
any incentive compensation disbursement you may receive, unless you designate
otherwise. Please indicate your election below and return with your Incentive
Compensation Plan receipt confirmation.
[ ] Yes, I want my normal Retirement Savings Plan contribution withheld from
any 1997 incentive compensation disbursement I may receive.
[ ] No, I do not want my normal Retirement Savings Plan contribution
withheld from any 1997 incentive compensation disbursement I may receive.
[ ] I do not participate in the Retirement Savings Plan.
Signature: Date:
----------------------------------- -----------------------
<PAGE> 7
1997 INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
Attachment C
I have received a copy of the GENICOM 1997 Incentive Compensation Plan and a
copy of my functional/individual objectives for 1997.
Attached is my completed Retirement Savings Plan contribution designation form.
Participant: Date:
-------------------------------- -----------------
<PAGE> 1
Exhibit 11
GENICOM Corporation and Subsidiaries
STATEMENT REGARDING THE COMPANY'S COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
------------------------------
DECEMBER 28, DECEMBER 29,
1997 1996
------------- -------------
<S> <C> <C>
SHARES USED IN THIS COMPUTATION:
Weighted average common shares outstanding 11,074 10,933
Shares applicable to stock options, net of shares
assumed to be purchased from proceeds at
average market 1,496 1,235
------------- -------------
TOTAL SHARES FOR EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENTS (DILUTED) 12,570 12,168
============= =============
</TABLE>
E-19
<PAGE> 1
Exhibit 22
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION
SUBSIDIARY OF INCORPORATION
======================================================== ===========================
<S> <C>
GENICOM International Holdings Corporation Delaware
GENICOM International Sales Corporation Delaware
Enterprising Service Solutions Corporation Delaware
Delmarva Technologies Corporation Delaware
Rastek Corporation Delaware
Rastek Japan Ltd. Japan
Printer Systems Corporation Virginia
Printer Connection, Inc. Virginia
Printer Systems International, Inc. Virginia
GENICOM Canada, Inc. Canada
GENICOM Foreign Sales Corporation U.S. Virgin Islands
GENICOM Euro Holdings B.V. The Netherlands
GENICOM Belgium Belgium
GENICOM International Limited England
GENICOM (No. 1) Limited England
GENICOM Ltd. England
GENICOM S.A.R.L. France
GENICOM S.A. France
GENICOM GmbH Germany
GENICOM S.p.A. Italy
GENICOM (Australia) PTY LTD. Australia
GENICOM Pty Limited Australia
GENICOM Sweden AB Sweden
</TABLE>
E-20
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
GENICOM Corporation and Subsidiaries on Form S-8 (FILE Nos. 33-29388, 33-41148,
33-49472, 33-53843 and 333-01845) of our report dated January 29, 1998, on our
audits of the consolidated financial statements and financial statement
schedule of GENICOM Corporation and Subsidiaries as of December 28, 1997 and
December 29, 1996 and for the three fiscal years in the period ended December
28, 1997, which report is included on page F-2 in this Annual Report on Form
10-K.
Coopers & Lybrand, L.L.P.
McLean, Virginia
March 30, 1998
E - 21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR
THE YEAR ENDED DECEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<CASH> 4,622
<SECURITIES> 0
<RECEIVABLES> 89,692
<ALLOWANCES> (4,472)
<INVENTORY> 67,553
<CURRENT-ASSETS> 173,509
<PP&E> 102,210
<DEPRECIATION> (66,064)
<TOTAL-ASSETS> 250,049
<CURRENT-LIABILITIES> 107,319
<BONDS> 0
0
0
<COMMON> 114
<OTHER-SE> 45,282
<TOTAL-LIABILITY-AND-EQUITY> 250,049
<SALES> 293,166
<TOTAL-REVENUES> 421,128
<CGS> 204,179
<TOTAL-COSTS> 323,947
<OTHER-EXPENSES> 80,923
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,092
<INCOME-PRETAX> 9,166
<INCOME-TAX> 1,308
<INCOME-CONTINUING> 7,858
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,858
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.63
</TABLE>
<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> 0.69
<EPS-DILUTED> 0.61
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> JUN-29-1997
<CASH> 4,389
<SECURITIES> 0
<RECEIVABLES> 65,111
<ALLOWANCES> (3,829)
<INVENTORY> 58,695
<CURRENT-ASSETS> 139,048
<PP&E> 93,962
<DEPRECIATION> (67,460)
<TOTAL-ASSETS> 195,985
<CURRENT-LIABILITIES> 81,425
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 42,717
<TOTAL-LIABILITY-AND-EQUITY> 195,985
<SALES> 135,202
<TOTAL-REVENUES> 194,992
<CGS> 91,915
<TOTAL-COSTS> 147,168
<OTHER-EXPENSES> 38,246
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,032
<INCOME-PRETAX> 6,546
<INCOME-TAX> 1,186
<INCOME-CONTINUING> 5,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,360
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.43
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 1,944
<SECURITIES> 0
<RECEIVABLES> 66,630
<ALLOWANCES> (3,265)
<INVENTORY> 52,778
<CURRENT-ASSETS> 9,495
<PP&E> 91,912
<DEPRECIATION> (66,679)
<TOTAL-ASSETS> 187,601
<CURRENT-LIABILITIES> 87,209
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 39,900
<TOTAL-LIABILITY-AND-EQUITY> 187,601
<SALES> 65,634
<TOTAL-REVENUES> 96,345
<CGS> 44,956
<TOTAL-COSTS> 72,380
<OTHER-EXPENSES> 19,712
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,373
<INCOME-PRETAX> 2,930
<INCOME-TAX> 413
<INCOME-CONTINUING> 2,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,517
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR
THE YEAR ENDED DECEMBER 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 5,688
<SECURITIES> 0
<RECEIVABLES> 65,404
<ALLOWANCES> (3,270)
<INVENTORY> 46,947
<CURRENT-ASSETS> 125,447
<PP&E> 92,658
<DEPRECIATION> (66,096)
<TOTAL-ASSETS> 186,079
<CURRENT-LIABILITIES> 89,356
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 37,481
<TOTAL-LIABILITY-AND-EQUITY> 186,079
<SALES> 182,707
<TOTAL-REVENUES> 303,258
<CGS> 127,678
<TOTAL-COSTS> 232,289
<OTHER-EXPENSES> 67,765
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,903
<INCOME-PRETAX> (1,577)
<INCOME-TAX> (3,658)
<INCOME-CONTINUING> 2,081
<DISCONTINUED> 0
<EXTRAORDINARY> (422)
<CHANGES> 0
<NET-INCOME> 1,659
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 13,969
<SECURITIES> 0
<RECEIVABLES> 56,571
<ALLOWANCES> (2,334)
<INVENTORY> 30,474
<CURRENT-ASSETS> 103,266
<PP&E> 90,357
<DEPRECIATION> (63,755)
<TOTAL-ASSETS> 157,612
<CURRENT-LIABILITIES> 63,954
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 34,037
<TOTAL-LIABILITY-AND-EQUITY> 157,612
<SALES> 122,190
<TOTAL-REVENUES> 211,503
<CGS> 84,727
<TOTAL-COSTS> 162,516
<OTHER-EXPENSES> 49,836
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,299
<INCOME-PRETAX> (3,995)
<INCOME-TAX> (3,876)
<INCOME-CONTINUING> (119)
<DISCONTINUED> 0
<EXTRAORDINARY> (422)
<CHANGES> 0
<NET-INCOME> (541)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,651
<SECURITIES> 0
<RECEIVABLES> 58,070
<ALLOWANCES> (1,781)
<INVENTORY> 31,743
<CURRENT-ASSETS> 95,952
<PP&E> 90,034
<DEPRECIATION> (62,624)
<TOTAL-ASSETS> 146,451
<CURRENT-LIABILITIES> 58,908
<BONDS> 0
0
0
<COMMON> 109
<OTHER-SE> 36,211
<TOTAL-LIABILITY-AND-EQUITY> 146,451
<SALES> 83,302
<TOTAL-REVENUES> 142,692
<CGS> 58,638
<TOTAL-COSTS> 110,226
<OTHER-EXPENSES> 25,291
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,252
<INCOME-PRETAX> 2,701
<INCOME-TAX> 591
<INCOME-CONTINUING> 2,110
<DISCONTINUED> 0
<EXTRAORDINARY> (422)
<CHANGES> 0
<NET-INCOME> 1,688
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,737
<SECURITIES> 0
<RECEIVABLES> 52,479
<ALLOWANCES> (1,739)
<INVENTORY> 34,268
<CURRENT-ASSETS> 96,360
<PP&E> 92,371
<DEPRECIATION> (61,680)
<TOTAL-ASSETS> 150,756
<CURRENT-LIABILITIES> 64,304
<BONDS> 0
0
0
<COMMON> 109
<OTHER-SE> 35,451
<TOTAL-LIABILITY-AND-EQUITY> 150,756
<SALES> 42,596
<TOTAL-REVENUES> 73,553
<CGS> 30,546
<TOTAL-COSTS> 56,246
<OTHER-EXPENSES> 12,441
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,152
<INCOME-PRETAX> 2,935
<INCOME-TAX> 362
<INCOME-CONTINUING> 1,421
<DISCONTINUED> 0
<EXTRAORDINARY> (414)
<CHANGES> 0
<NET-INCOME> 1,007
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,271
<SECURITIES> 0
<RECEIVABLES> 53,572
<ALLOWANCES> (1,616)
<INVENTORY> 43,079
<CURRENT-ASSETS> 106,121
<PP&E> 89,585
<DEPRECIATION> (58,689)
<TOTAL-ASSETS> 161,539
<CURRENT-LIABILITIES> 71,591
<BONDS> 44,474
0
0
<COMMON> 108
<OTHER-SE> 34,425
<TOTAL-LIABILITY-AND-EQUITY> 161,539
<SALES> 168,394
<TOTAL-REVENUES> 294,052
<CGS> 116,842
<TOTAL-COSTS> 217,613
<OTHER-EXPENSES> 61,261
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,741
<INCOME-PRETAX> 7,437
<INCOME-TAX> 1,285
<INCOME-CONTINUING> 6,152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,152
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.51
</TABLE>
