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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 January 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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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
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As of January 29, 1999, there were 11,609,083 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
$27,571,572 based upon the closing price of the shares in the NASDAQ
over-the-counter market on January 29, 1999.
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 19, 1999: Part III
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GENICOM CORPORATION AND SUBSIDIARIES
FORM 10-K INDEX
PART I
<TABLE>
<S> <C>
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 11
Executive Officers of the Registrant. 11
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 44
PART III
Item 10. Directors and Executive Officers of the Registrant 44
Item 11. Executive Compensation 44
Item 12. Security Ownership of Certain Beneficial Owners and Management 44
Item 13. Certain Relationships and Related Transactions 44
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 44
Signatures 49
Index to Financial Statements and Schedules F-1
Index to Exhibits E-1
</TABLE>
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ITEM 1. BUSINESS
GENERAL
GENICOM Corporation ("GENICOM" or the "Company"), has two operating companies,
enterprise printers and enterprise service, which focus on the midrange
client/server market. The Company printer business develops, manufactures, and
distributes high performance printers, supplies, and related products.
GENICOM's service business provides integrated network solutions that include
professional services (consulting, network integration and support),
maintenance (onsite) repair, and logistics and depot repair (offsite). With the
acquisition of certain assets of Novadyne Computer Systems on November 14,
1997, GENICOM 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 branded printer products, giving GENICOM access to certain distribution
channels to which the Company did not have access previously. In 1998, Compaq
Computer Corporation purchased DEC and affirmed the DEC agreements. 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 as 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 in footnote 12 to the financial
statements included in this Form 10-K. This information includes sales and
service revenues, operating income and identifiable assets for the years ended
January 3, 1999 and December 28, 1997.
Operation of the Company's subsidiaries in Australia, Hong Kong, Canada, and
Europe is subject to various risks associated with political and economic
developments in such regions, 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 ("ESSC")
GENERAL
GENICOM performs a wide range of service related activities through its
Enterprising Service Solutions company. ESSC provides customer services and
support to assist in the performance of networked business systems. ESSC's
services are classified as follows:
- Professional Services
- Maintenance Services
- Logistics and Repair Services
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PROFESSIONAL SERVICES
Professional Services provides management services for the enterprise
information system including design, operation and monitoring of its
performance. These services are offered to telecommunications companies, systems
integrators and original equipment manufacturers (OEMs) as well as end users. In
1998, ESSC further expanded its product offerings to include Sun Microsystems'
enterprise solutions consisting of hardware, software, networks and support
services.
Professional Services offers the following products:
Consulting Services provides technology assessment, planning, implementation and
performance analysis of LANS and WANs including internet/intranet
configurations. ESSC also performs staff augmentation services whereby it
assigns skilled IT professionals on a project basis at the customer site.
Internetworking Services offers service and support of the network lifecycle
from design to on-going maintenance. These services include evaluation and
selection as well as integration and deployment of hardware and software to
enhance the performance of the customer's information technology (IT)
infrastructure.
Support Services provides help desk support for a variety of operating systems
and desktop platforms including NT, UNIX and Windows/Windows 98/NT Workstations.
ESSC also performs remote network monitoring and LAN administration services,
which are available 24 hours a day, 7 days a week. These network services
proactively detect and repair most network problems before they become serious
enough to impair a customer's IT operation. ESSC performs these services at
three specialized support centers located in Waynesboro, VA, Carrollton, TX and
Irvine, CA.
MAINTENANCE SERVICES
Maintenance Services (formerly called On-Site Services) addresses customer
equipment and system life-cycle needs, including installations and upgrades,
remedial and preventive maintenance and warranty administration. ESSC supports a
variety of midrange equipment, including desktop computers (PCs) and servers
(such as AST, IBM, and Compaq), printers (such as GENICOM, HP, Lexmark and
Kyocera), copiers (such as Canon) and internetworking devices (such as 3Com,
Motorola, and Cisco). All required services are performed at the customer site
or remotely utilizing our technical support organization.
In 1998, ESSC restructured its field maintenance organization to strengthen its
national presence and manpower utilization. ESSC currently employs field
engineers (FE's) in 42 major metropolitan areas in the United States, where the
majority of maintenance services are performed. To produce more efficient
utilization of human resources in remote locations, ESSC expanded its National
Authorized Service Provider (NASP) program. The expansion involved outsourcing
selected directly employed FE's who were based in these outlying locations. The
combination of ESSC field engineering professionals along with the national
authorized service partners enables ESSC to provide comprehensive North American
service coverage, seven days a week, 24 hours a day, with next day, same day and
custom response times.
Also in 1998, ESSC implemented RealVISION, its state-of-the-art,
customer-centered, relational database system within the Maintenance Services
operations function. RealVISION automates call management, project tracking and
task-specific matching of skills to a particular service event. ESSC believes
that the new system is a key market differentiator that enhances its service
performance with faster response and restoral times, while providing customers
with real-time information on their service calls.
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Maintenance Services offers the following products:
Installations & Upgrades Services provides the physical installation and/or
upgrade of software, equipment or systems, rendering them fully operational at
the customer site, in either a stand-alone or networked configuration. This
service also includes equipment moves, adds and changes.
Remedial Maintenance Services furnishes the technical diagnosis and repair of
defective equipment and mission-critical systems.
Preventive Maintenance Services offers proactive equipment and systems analysis
through regularly scheduled maintenance actions that are designed to prevent
unscheduled down time.
Warranty Administration Services provides equipment repair, parts stocking and
the administration and maintenance of records on warranty processed equipment.
LOGISTICS AND REPAIR SERVICES
Logistics and Repair Services provides logistics management, depot repair and
value added services to original equipment manufacturers (OEMs) of notebook and
desktop computers, printers, and monitors among others. The majority of these
services are performed at ESSC's Louisville, Kentucky Logistics Control and
Repair Center.
Logistics and Repair Services offers the following products:
Logistics Services provides parts management, including inventory planning,
parts procurement, warehousing and distribution in support of ESSC's field
operation as well as those of other OEMs.
Depot Repair Services offers repair, remanufacture, advanced exchange (whole
unit or component swaps) and channel returns of Information Technology (IT)
equipment from the whole unit to component level.
High Volume Staging Services provides an economical method of handling large
scale rollouts of similar systems.
Warranty Administration Services offers repair and administrative fulfillment,
including stocking replacement parts, performing repairs, and processing
warranties.
Asset Re-utilization Services provides end-of-life equipment services such as
disassembly, parts breakdown, and scrapping to simplify asset management.
COMPETITION
ESSC's domestic market size is forecast to be approximately $90 billion in 1999.
This forecast is based on the following market segmentation projections: $60
billion for the Professional Services market, $25 billion for the Maintenance
Services market and $1.9 billion for the Logistics and Repair Services market.
Within these segments, ESSC focuses on core technologies where it excels in
service delivery. These segment market projections focus on each product line's
core technologies. Professional Services' core technologies include servers,
internetworking/devices, desktop computers, legacy systems migration (McDonnell
Douglas, Harris Adacom) and Sun software support. Maintenance Services' core
technologies include desktop computers, printers, internetworking devices and
copiers. Logistics and Repair Services' core technologies include monitors,
printers and notebook computers.
ESSC primarily competes with consulting organizations, third-party service
providers, systems integrators and in-house OEM repair centers. The Company
considers some of ESSC's Professional and Maintenance Services
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primary competitors to be IBM Global Services, Wang Laboratories, Decision One,
and Unisys. Some of the Logistics and Repair Services primary competitors
include PC Service Source, EFTC Services and Cerplex.
ESSC competes principally on the basis of quality of service delivery, scope of
service offerings, geographic coverage, technical expertise and competitive
pricing. Focus on this mix provides customers with a comprehensive, flexible and
responsive service solution.
SALES AND MARKETING
ESSC increased both its sales and marketing resources during 1998. The marketing
organization's additional resources have been channeled into three specific
areas reflecting our primary service offerings; Professional Services,
Maintenance Services and Logistics and Repair Services. The growth in the sales
force has provided not only increased geographic coverage, but has allowed
greater focus into our target markets of manufacturers, system integrators and
telecommunications related companies
DOCUMENT SOLUTIONS ("DSC")
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.
These agreements have been assumed by Compaq Computer Corporation as a result of
their acquisition of DEC. In addition, Compaq has extended the original
agreement to include new laser printer product offerings.
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.
PRODUCTS
The following is a summary of certain performance features of GENICOM's
principal printer products.
Line matrix printers are heavy-duty printers for high-volume data processing,
warehousing, industrial, and mailhouse applications and are offered in print
speeds of 400, 800 and 1400 lines per minute. List prices range from $5,995 to
$12,995.
Serial matrix printers are designed for medium or heavy-duty business class
printing. They are available as 9-, 18- or 24-wire models with print speeds from
300 to 900 characters per second. List prices range from $550 to $3,995.
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Monochrome laser printers for desktop, network and multiuser environments have
print speed from 17 to 40 pages per minute. The Company also has a 4 page per
minute color laser printer. List prices for the laser printers range from $1,195
to $17,999.
A selection of printer products for the travel industry use impact, thermal
transfer and direct thermal technologies. These products include ticket
printers, gate readers and bag tag printers. Prices range from $1,736 to $7,094.
GENICOM also offers the following selection of Compaq and Digital Equipment
branded enterprise printers:
- Line matrix printers with speeds of 500, 900 and 1400 lines per minute,
prices from $5,295 to $11,895
- 24-wire serial matrix printers with speeds of 300 to 600 characters per
second, prices from $679 to $2,976
- Monochrome and color laser printers with speeds of 4 to 40 pages per
minute, prices from $1,249 to $17,999.
MANUFACTURING
Certain 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.
In August 1997, ADC filed a Demand for Arbitration with the American Arbitration
Association seeking a legal interpretation of the pricing provisions in the
agreement between ADC and the Company. The Company filed a counterclaim against
ADC. Ogden Services Corporation and ADC then filed a counterclaim against the
Company. On July 4, 1998, the Company, ADC and Ogden Services Corporation
settled the arbitration. Primary settlement terms included settlement of all
claims and counterclaims in the arbitration, a $2.1 million payment to ADC for
which the Company was fully reserved, a price increase effective for shipments
after August 15, 1998, and a guarantee of orders for one year. ADC is continuing
as a supplier for the Company.
SALES AND MARKETING
The major portion of printer 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 large end user customers of printers generally require the customer to
provide GENICOM with continuously updated forecasts of its requirements.
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 end users, 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
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models are customized for end users using GENICOM's engineering design
capabilities. No customer accounted for more than 10% of GENICOM's total sales
in 1998.
GENICOM maintains international sales and marketing subsidiaries in Australia,
Hong Kong, 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 IBM,
Lexmark and HP for non-impact printers and Okidata, Printronix and Tally for
impact printers. Travel Industry Products competitors include IER, Dassault and
Datasouth. In addition, there are a number of independent printer manufacturers
producing impact 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.
As the printer market shifts to shared-resource, application-specific
environments, the Company is narrowing its focus to niche markets and channeling
resources to markets where growth potential is greatest. New midrange monochrome
and color laser printers were introduced to address printing in desktop, network
and multiuser environments. 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. Travel-related
products provide 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. Revenue from the DEC agreements was
lower than expected in 1998 due to the uncertainity caused by Compaq Computer
Corporation's acquisition of DEC. However, GENICOM and Compaq reached an
agreement to introduce two new Compaq-branded laser printers in 1999.
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. The Company's relays 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% and
4.5% in 1997 and 1996, 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."
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BACKLOG; SEASONALITY
The Company's order backlog at January 3, 1999 was approximately $40.6 million,
compared with approximately $44.9 million at December 28, 1997. The principal
cause of the backlog decline was supplies and spare parts sales reductions in
DSC. 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 1999. The Company normally experiences lower sales
each year in its third quarter due to European holidays.
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 $16.5 million, $13.8 million, and $8.5 million in 1998, 1997
and 1996, respectively. In 1998, 1997, and 1996 the Company expended 5.5%, 4.7%,
and 4.7%, of products revenue, respectively, in engineering, research and
product development. The 1998 increase in this expense related to the travel
printers and development costs to support the DEC agreements.
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, the
printer related assets of Ekco Group, Inc. (formerly Centronics Data Computer
Corporation, "Centronics") in 1987, and Harris Adacom Network Services, Inc. and
Printer Systems Corporation in 1995, as well as Texas Instruments' printer
business 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 in 1997. GENICOM continues to patent certain
developments, holds certain patents pending and retains numerous patents
expiring at various times between 1999 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", "ESSC", 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. Along with a Service Agreement with AST
Research, Inc., GENICOM was granted the right to use AST's registered trademark
for refurbished equipment packaging. Any corporate names, trademarks, brands or
other intellectual properties used throughout this Form 10-K which are not the
property of GENICOM are the properties of their respective companies.
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.
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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 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 acceptable and does not anticipate any
disruption in the supply of these products.
In 1998, GENICOM procured approximately 29% of its total inventory purchases
pursuant to its December 1995 agreement with ADC. No other supplier accounted
for a significant portion of GENICOM's total 1998 purchases. In 1997, GENICOM
purchased approximately 28% 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 January 3, 1999, the Company and its subsidiaries employed 1,511
employees. The Company believes its relations with its employees are
satisfactory.
The Company's 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. The number of
these employees was substantially reduced by the relocation of the Waynesboro
depot to Louisville, Kentucky and the sale of the relay product line in 1997.
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 January 3, 1999:
<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 2003
Waynesboro, VA Service, Manufacturing, Office 377,000 Owned --
Louisville, KY Service 320,000 Leased 2007
Temple, TX Manufacturing 44,000 Leased 2001
Carrollton, TX Service 105,000 Leased 2002
</TABLE>
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 yet formally responded to the report,
although the EPA has stated informally that it may require additional
investigative work. Although not required by the Order, the Company has agreed
to install and operate an interim ground water stabilization system, subject to
EPA approval
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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 the EPA under which they will undertake a remedial investigation and
feasibility study which is currently underway.
In August 1997, ADC filed a Demand for Arbitration with the American Arbitration
Association seeking a legal interpretation of the pricing provisions in the
agreement between ADC and the Company. The Company filed a counterclaim against
ADC. Ogden Services Corporation and ADC then filed a counterclaim against the
Company. On July 4, 1998, the Company, ADC and Ogden Services Corporation
settled the arbitration. Primary settlement terms included settlement of all
claims and counterclaims in the arbitration, a $2.1 million payment to ADC for
which the Company was fully reserved, a price increase effective for shipments
after August 15, 1998, and a guarantee of orders for one year. ADC is continuing
as a supplier for the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the Company's
executive officers as of January 3, 1999:
<TABLE>
<CAPTION>
NAME AGE TITLE
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<S> <C> <C>
Paul T. Winn 54 Director, President and Chief Executive Officer
James C. Gale 56 Senior Vice President Finance and Chief Financial Officer
Raymond D. Stapleton 59 Senior Vice President of ESSC Market Development
Karen M. Morinelli 43 Vice President, Human Resources
B. Garrett Buttner 50 Vice President and General Manager, Annuities
Joseph Costabile 43 Chief Operating Officer, Enterprising Service Solutions
Harold L. McIlroy 60 Chief Operating Officer, Document Solutions
</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. Previously Mr. Gale was employed by General Foods
Corporation.
Mr. Stapleton has served the Company and its predecessor, G.E., in various
capacities for over 30 years. Currently, he serves as Senior Vice President for
Market Development for Enterprising Service Solutions.
Ms. Morinelli was appointed Vice President, Human Resources in December 1996.
Previously Ms. Morinelli was employed by Brown and Williamson for two years.
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<PAGE> 12
Mr. Buttner was appointed Vice President and General Manager, Supplies Business
in April 1993. He has served the Company and its predecessor, G.E., in various
capacities.
Mr. Costabile was appointed Chief Operating Officer, Enterprising Service
Solutions in June 1998 after joining the Company. He had previously been Vice
President of the Americas for CVSI, Inc.
Mr. McIlroy was appointed Chief Operating Officer, Document Solutions in April
1998 after joining the Company October 1991 and serving in various operations
management capacities. Mr. McIlroy had previously been employed by IBM
Corporation.
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 29, 1999 there were approximately 649 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>
1998 1997
------------------------------- --------------------------------
High Low High Low
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
First Quarter $ 12.938 $ 8.500 $ 5.500 $ 3.563
Second Quarter 12.750 3.469 6.313 4.375
Third Quarter 5.063 2.125 13.750 6.688
Fourth Quarter 3.313 2.063 15.375 10.500
</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. In April 1999, the Company issued 1 million
callable stock warrants with a price of $1.94 to NationsBank of Texas, N.A., as
agent for a group of banks (see "Banking Arrangements", Management's Discussion
and Analysis).
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<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The information is set forth below:
GENICOM CORPORATION AND SUBSIDIARIES
FIVE YEAR FINANCIAL HISTORY
<TABLE>
<CAPTION>
Fiscal year, (1) 1998 1997 1996 1995 1994
------------ ------------- ------------ ------------ ------------
(In thousands, except per share and other data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $ 452,540 $ 421,128 $ 303,258 $ 294,052 $ 233,797
Operating costs and expenses (2) 464,518 404,870 300,054 278,874 224,629
------------ ------------- ------------ ------------ ------------
Operating (loss) income (11,978) 16,258 3,204 15,178 9,168
Interest expense, net 11,115 7,092 4,903 7,741 7,458
Other income (3) 122 1,908
------------ ------------- ------------ ------------ ------------
(Loss) income before income taxes and
extraordinary item (23,093) 9,166 (1,577) 7,437 3,618
Income tax (benefit) expense (1,034) 1,308 (3,658) 1,285 1,048
------------ ------------- ------------ ------------ ------------
(Loss) income before extraordinary item (22,059) 7,858 2,081 6,152 2,570
Extraordinary loss (4) (422)
------------ ------------- ------------ ------------ ------------
Net (loss) income $ (22,059) $ 7,858 $ 1,659 $ 6,152 $ 2,570
============ ============= ============ ============ ============
(Loss) earnings per share (diluted)
(Loss) income before extraordinary item $ (1.91) $ 0.63 $ 0.17 $ 0.51 $ 0.23
Extraordinary loss (0.03)
------------ ------------- ------------ ------------ ------------
Net (loss) income $ (1.91) $ 0.63 $ 0.14 $ 0.51 $ 0.23
============ ============= ============ ============ ============
Weighted average shares (diluted) 11,540 12,570 12,168 12,056 11,416
============ ============= ============ ============ ============
BALANCE SHEET DATA:
Working capital $ 75,406 $ 66,190 $ 36,091 $ 34,530 $ 40,780
Total assets 229,977 250,049 186,079 161,539 127,267
Total debt obligations 112,936 93,463 54,553 51,544 47,563
Stockholders' equity 24,617 45,396 37,591 34,533 28,083
OTHER DATA (UNAUDITED):
Employees (5) 1,511 1,749 1,671 1,638 2,382
Price range per common share:
Low $ 2.063 $ 3.563 $ 3.375 $ 2.000 $ 1.000
High 12.938 15.375 7.125 5.875 3.250
</TABLE>
(1) The Company's fiscal year ends on the Sunday nearest December 31.
Accordingly, the Company is reporting for 52-weeks for 1994-1997 and
53-weeks for 1998.
(2) 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. In 1997, the Company recorded $2.5 million for a loss on
relays and DEC contract costs. In 1998, the Company wroteoff $15 million
of goodwill.
(3) The Company recognized a gain of $0.9 million from the sale of its
investment in a Belgian printer development and manufacturing company in
1994. The Company also recognized a gain of $1.0 million on the early
extinguishment of $9.2 million principal amount of its Senior
Subordinated Notes in 1994.
(4) In 1996, the Company recognized an extraordinary loss on the
extinguishment of the balance of its Senior Subordinated 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> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
GENICOM Corporation ("GENICOM" or the "Company") operated through two distinct
segments. The Company printer business (Document Solutions company) develops,
manufactures, and distributes high performance printers, supplies, and related
products. GENICOM's service business (Enterprising Service Solutions company)
provides integrated network solutions that include professional services
(consulting, network integration and support), maintenance (onsite) repair, and
logistics and depot repair (offsite). In November 1997, the Company sold its
relay product line. 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.
NET REVENUE
For 1998, revenues were $452.5 million, an increase of 7.5% from 1997. The
increase in revenue was primarily the result of the Company's agreements with
Digital Equipment Corporation ("DEC") entered into in August 1997 and the
acquisition of certain assets and selected liabilities of Novadyne Computer
Systems, Inc. in November 1997. The Documents Solutions company ("DSC") had
revenue totaling $300.7 million in 1998, an increase of 7.8% from 1997,
excluding relay revenue, principally attributable to the DEC agreements.
Enterprising Service Solutions company ("ESSC") revenue increased $23.9 million
to $151.9 million. This 18.7% increase primarily resulted from the Novadyne
acquisition increasing field service revenue $11.7 million from 1997 and
increased integration business in Canada where revenue increased $5.4 million
from 1997.
The consolidated revenue was $421.1 million and $303.3 million for the fiscal
years ended December 28, 1997 and December 29, 1996. For the fiscal year ended
December 28, 1997, revenue was 38.9% higher than for the fiscal year ended
December 29, 1996. The increase in revenue for 1997 was primarily attributable
to the Texas Instruments acquisition and the DEC agreements. Relay revenues were
$14.3 million for 1997 and $13.6 million for 1996.
ORDER BACKLOG
Order backlog was $40.6 million at January 3, 1999, a decrease of $4.3 million
or 9.6% from December 28, 1997. Order backlog decreased $11.8 million or 20.8%
at year end 1997 as compared with 1996. The decrease in order backlog in 1998 is
primarily attributable to decreased level of orders for supplies and spare parts
in DSC. In 1997, the order backlog decreased principally due to the sale of the
relay product line. The 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'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 to 21.9% in 1998, as compared
to 23.1% 1997, primarily due to the change in the sales mix in DSC. Partially
offsetting this decline, ESSC's gross margin, as a percent of revenue, increased
principally due to cost reduction. In 1997 gross margin decreased as compared to
1996 due to the several factors including lower margins associated with DEC
products, foreign exchange and start up costs related to the Louisville depot.
OPERATING EXPENSES
Operating expenses in 1998 increased in actual dollars and as a percentage of
revenue over 1997. As a percentage of revenue, operating expenses increased to
21.2%, excluding a $15 million write-off of goodwill, compared to
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<PAGE> 15
19.2% in 1997. The absolute dollar increase in operating expense primarily
related to elevated levels of spending needed to support the higher revenue
including revenue from the product lines associated with the DEC agreements,
increased compensation and benefits expense and engineering expense for
development costs related to new travel and nonimpact printer products.
During the second quarter of 1998, based upon review of long-lived assets, the
Company determined that the value of goodwill associated with the acquisition of
Centronics, Printer Systems Corporation and Harris Adacom was impaired. In
accordance with FAS 121, during the second fiscal quarter of 1998, the Company
took a pre-tax charge associated with this impairment of approximately $15
million.
Operating expenses in 1997 were 19.2% of revenue, as compared with 22.3% 1996.
In total dollars, operating expenses increased in 1997 as compared to 1996 due
to elevated levels of spending needed to support higher revenue from the Texas
Instruments acquisition and the DEC agreements, increased compensation and
benefits and engineering expense for development costs related to the travel
products acquired through Texas Instruments and product development under the
DEC agreements.
OPERATING INCOME
The Company's operating income decreased $13.2 million, excluding the $15
million write-off of goodwill, in 1998 as compared to 1997 as a result of lower
margins in DSC described above and the underutilization of the Louisville depot.
Operating income increased $13.1 million in 1997 as compared to 1996 as a result
of increased revenue from the Texas Instruments acquisition and the DEC
agreements, which were partially offset by DEC agreement costs and the loss
associated with the sale of the Relays product line.
INTEREST EXPENSE
Interest expense increased 56.7% or $4.0 million in 1998, as compared to 1997,
as a result of the higher level of borrowing needed to support the working
capital needs of the business, higher development costs associated with new
product introductions and capital expenditures for new business systems. In
addition, with the new amendment to the credit agreement in July 1998, the
Company paid a slightly higher interest rate for its debt than in 1997.
The increase in interest expense in 1997 of $2.2 million from 1996 was a result
a higher level of debt needed to support the working capital needs of the
business and the DEC agreements.
INCOME TAX
The Company's effective income tax rate for fiscal year 1998 was (4.5)% which
differs from the statutory rate due to nondeductible goodwill write-offs and
increases to the valuation allowance. The valuation allowance at January 3, 1999
relates primarily to the tax benefit of foreign net operating loss carryforwards
(primarily Italy, Australia, and Canada) and domestic long term deferred tax
assets. During the fourth quarter of 1998, the Company increased the valuation
allowance by $4.0 million on domestic long term deferred tax assets due to
uncertainties regarding their ultimate recoverability. Realization of deferred
tax assets is dependent upon sufficient future taxable income during the period
that temporary differences are expected to be available to reduce taxable
income. The allowance reduces deferred tax assets to an amount that is more
likely than not to be realized. At January 3, 1999, the Company has net
operating loss carryforwards to reduce future taxable income in the United
States of approximately $4.3 million.
The effective tax rate for 1997 was 14.3% and (232.0)% for 1996. The rates in
1997 and 1996 were affected by reversals of valuation allowances associated with
the Company's deferred tax assets. 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 were
expected to be recoverable through future earnings or reversals of temporary
differences.
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<PAGE> 16
During 1997 and 1996, the Company recorded deferred tax benefits of
approximately $2.4 million 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $75.4 million in 1998 from $66.2
million in 1997. The 1998 increase was primarily the result of a decrease in
accounts payable and an increase in prepaid expenses, as partially offset by
accounts receivable and inventory decreases. The decrease in payables and
inventory was the result of a plan to lower inventory, increase inventory turns
and control operating expenses. The Company's current ratio was 1.9 to 1 at the
end of fiscal year 1998, compared to 1.6 to 1 at the end of fiscal year 1997.
Cash and cash equivalents increased $0.3 million from December 28, 1997 to
January 3, 1999.
Net cash provided by operations was $6.6 million during 1998. The major sources
of cash were decreases in accounts receivable and inventory. As stated above,
the Company has a plan in place to reduce inventory. Net cash used by operations
was $4.1 million in 1997, as compared to $33.0 million of cash generated by
operations in 1996. The 1997 increased usage was primarily the result of
increases in working capital to support higher levels of revenue primarily as a
result of the DEC agreements and Novadyne acquisition.
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 the service business, the Company spent approximately $5.6 million
in cash in 1997.
Earnings before interest, taxes, depreciation and amortization, excluding the
$15 million write-off of goodwill, were $24.3 million, $36.5 million and $16.1
million in 1998, 1997, and 1996, respectively for DSC. The corresponding numbers
for ESSC, were $0.8 million, $(1.3) million and $5.1 million in 1998, 1997, and
1996, respectively. Of the $15 million of goodwill written off in 1998, $6.8
million related to DSC and $8.2 million related to ESSC.
The Company's fiscal 1999 operating plan calls for a reduction to current
inventory and accounts receivable levels, improvement to gross margins, selling,
general and administrative expense reductions, increased productivity, reduced
capital expenditures, introduction of new product lines, increased consumable
sales, and a return to profitability. The current debt facilities or similar
levels of replacement financing are required in order to execute the fiscal 1999
operating plan, which has the Company in compliance with all covenants of the
current credit facilities as amended on April 2, 1999 (see "Banking
Arrangements" below).
The Company is subject to the risk that it will not achieve the objectives of
its fiscal 1999 operating plan and therefore, not comply with the amended
covenants of its debt facilities. If the Company is unable to comply with the
amended covenants, obtain waivers or obtain adequate replacement financing it
will have a material adverse effect on the Company.
BANKING ARRANGEMENTS
On January 12, 1996, the Company reached an agreement with NationsBank of Texas,
N.A., as agent for a group of banks, ("NationsBank") on $75 million of credit
facilities. Under the agreement, NationsBank provided a $35 million revolving
credit facility and two term loans totaling $40 million. The Company initially
used borrowing under this credit agreement to retire all the debt associated
with its former credit agreement with CIT and to retire all of the Company's
outstanding senior subordinated notes. In a separate transaction, the Company
entered into an interest rate swap arrangement with NationsBank which fixes the
interest rate for five years on a substantial portion of the debt. The fixed
rate at the time the agreement was executed averaged 8.25%. In May 1996, the
Company renegotiated the term of the interest rate swap, decreasing the term
from five to three years. As a result 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
16
<PAGE> 17
NationsBank amended the credit facilities. This amendment redefined the
financial covenants and adjusted the interest rates as well as the principal
payments under the agreement. On July 3, 1997, the Company and NationsBank
further amended the credit agreement to increase the Company's revolving credit
line from $35 million to $40 million. Other terms and conditions of the credit
agreement generally remained unchanged.
On September 5, 1997, the Company again amended and restated its credit
agreement with NationsBank, increasing its total credit facility to $110 million
from $80 million. The Company used part of the proceeds from the credit
facilities to repay a $9 million note to Texas Instruments. The term notes
totaled $55 million with maturities of 5 and 7 years and the revolving credit
line was increased from $40 million to $55 million. The financial covenants for
the facility were redefined. The Company entered into a new interest rate swap
which fixed the interest rate on $37.5 million of debt for a term of three
years. The fixed rate at the time the amendment was executed was approximately
8.5%. The revolving credit facility was increased to $70 million in October 1997
when commitments from additional lenders were received thereby increasing the
total credit facilities to $125 million. The facility is collateralized by
substantially all of the Company's assets. The revolving credit facility matures
September 5, 2002.
At the end of the first fiscal quarter of 1998, the Company fell short of
meeting the Consolidated Funded Debt Coverage Ratio and the Consolidated Fixed
Charges Coverage Ratio as required by the credit agreement due principally to
higher levels of capital expenditures in ESSC and low earnings. NationsBank
waived the requirement for that quarter.
On July 2, 1998, the Company and NationsBank amended the credit agreement. The
amendment adjusted the Company's required financial covenants until the end of
1998, limited capital expenditures to a maximum of $27 million for 1998,
adjusted the borrowing base percentages until the end of 1998 (allowing the
Company increased borrowing ability) and adjusted the interest rate upwards
1.50% on the incremental increased borrowing against the higher base.
On November 12, 1998, the credit agreement was again amended. The amendment
extended the increased borrowing base percentages through February 15, 1999 and
adjusted the financial covenants for the fourth quarter of 1998.
On February 11, 1999, a further amendment to the credit agreement took effect.
This amendment retained the increased borrowing base though April 5, 1999 and
pledged 65% of the shares in the Company's Canadian subsidiary as additional
collateral.
On April 2, 1999, an additional amendment (Amendment 7) to the credit agreement
extended the increased borrowing base until June 2000 and changed the financial
covenants to 1) minimum earnings before charges for interest, state, federal and
municipal income taxes, depreciation, and amortization, 2) minimum net worth
requirements, and 3) limits 1999 capital expenditures to approximately $19
million. In addition, the Company will be able to borrow $10 million for short
term liquidity, which can be repaid on September 30, 1999 or extended on a
quarterly basis with consideration of 0.5% of the liquidity facility
outstanding. The interest rate on the revolver and the additional $10 million is
3.5% above LIBOR on Eurodollar loans.
In exchange for Amendment 7, the Company agreed to pay an amendment fee of $1.2
million upon the earlier of the payment in full of the credit facilities and
cancellation of all commitments or the acceleration by NationsBank of the
Company's obligations. The Company has further agreed to pay a continuation fee
on the last day of each fiscal quarter beginning with the fourth quarter of
fiscal year 1999 until the obligations are paid. The continuation fee shall
equal 0.5% of all obligations outstanding on the last day of such fiscal
quarter. NationsBank will receive the rights to purchase warrants for one
million shares of GENICOM common stock at $1.94 per share. The warrants have
callable rights through March 31, 2000. Amendment 7 reduces NationsBank
revolving credit commitment to $62 million at the end of the first fiscal
quarter of 1999, $61 million at the end of the second fiscal quarter of 1999,
$58 million at the end of the third fiscal of 1999, and $52 million at the end
of fiscal 1999. The amount of the revolver outstanding at January 3, 1999 was
$59 million.
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<PAGE> 18
It is the Company's goal to replace its current credit agreement with other
financing more suited to its cash and business needs.
ENVIRONMENTAL MATTERS
The Company and the former owner of its Waynesboro, Virginia facility, General
Electric Company ("G.E."), have generated and managed hazardous wastes at the
facility for many years as a result of their use of certain materials in
manufacturing processes. The Company and the United States Environmental
Protection Agency ("EPA") have agreed to a corrective action consent order (the
"Order"), which became effective on September 14, 1990. The Order requires the
Company to undertake an investigation of solid waste management units at its
Waynesboro, Virginia facility and to conduct a study of any necessary corrective
measures that may be required. The investigative work under the Order was
completed in December 1997 and the Company submitted a final investigative
report to the EPA. The EPA has not yet formally responded to the report,
although the EPA has stated informally that it may require additional
investigative work. Although not required by the Order, the Company has agreed
to install and operate an interim ground water stabilization system, subject to
EPA approval of the system design. The interim groundwater stabilization program
may be chosen as the final remedy for the site, or additional corrective
measures may eventually be required. It is not possible to reliably estimate the
costs that any such possible additional corrective measures would entail.
However, if additional corrective measures are required, the Company expects
that it will enter into discussion with the EPA concerning their scope and a
further order for that purpose.
The Company has been notified by the EPA that it is one of 700 potentially
responsible parties ("PRPs") under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, for necessary corrective action at a
hazardous waste disposal site in Greer, South Carolina. In prior years, the
Company arranged for the transportation of wastes to the site for treatment or
disposal. During 1995, the PRPs entered into an administrative consent order
with EPA under which they 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.
OTHER MATTERS
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.
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.
In August 1997, ADC filed a Demand for Arbitration with the American Arbitration
Association seeking a legal interpretation of the pricing provisions in the
agreement between ADC and the Company. The Company filed a counterclaim against
ADC. Ogden Services Corporation and ADC then filed a counterclaim against the
Company. On July 4, 1998, the Company, ADC and Ogden Services Corporation
settled the arbitration. Primary settlement terms included settlement of all
claims and counterclaims in the arbitration, a $2.1 million payment to ADC for
which the Company was fully reserved, a price increase effective for shipments
after August 15, 1998, and a guarantee of orders for one year. ADC is continuing
as a supplier for the Company.
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<PAGE> 19
YEAR 2000
GENICOM is taking an active approach to address computer issues associated with
the onset of the new Millennium - specifically, the impact of the possible
failure of computer systems and computer driven equipment due to the digit
rollover to the year 2000. The Year 2000 problem is pervasive and complex as
virtually every IT and non-IT system could be affected in some way by the
rollover of the two-digit year value from 99 to 00. The issue is whether
computer systems or embedded technology will properly recognize date sensitive
information when the year changes to 2000. IT and non-IT systems that do not
properly recognize such information could generate erroneous data or cause
failures.
If not properly addressed, the Year 2000 problem could result in failures in
Company computer systems or items with embedded systems, or the computer systems
or equipment of third parties with whom the Company deals worldwide. Any such
failures of the Company's and/or third parties' IT and non-IT systems could have
a material impact on the Company's ability to conduct business.
Since 1996, the Company has been identifying and seeking to minimize its
exposure to the Year 2000 problem. In 1996, the Company began expending
significant funds under contracts with EDS to replace the majority of its
internal computer system. During this process, the Company has required third
party vendors to make representations that the components of the new systems and
related software are Year 2000 compliant. The replacement equipment is scheduled
to be completely installed and tested by the end of the third quarter of 1999.
As a result, the Company does not anticipate Year 2000 problems with its
internal systems. The approximately $20 million cost of the replacement system
is being capitalized by the Company. The Company has incurred approximately
$15.3 million through January 3, 1999 associated with this replacement system.
Management has also considered whether the Year 2000 problem will affect the
products or services provided by the Company to its customers. Because the
Company's printer products do not contain date sensitive embedded software and
do not manipulate, calculate, convert, compare, sequence or present any date
data, these products should not present Year 2000 compliance issues. The Company
does, through its Enterprising Service Solutions company, resell and install
computer software that could be susceptible to Year 2000 problems. The Company's
practice is to disclaim responsibility for Year 2000 compliance relating to
third party software.
At this time, GENICOM is actively working to ensure that foreseeable Year 2000
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 is currently reviewing vendor and customer compliance as well as
items that may be affected by embedded systems such as manufacturing and
telephone equipment. This review is expected to be completed by May 1999. The
review includes inquiries of vendors and customers related to their Year 2000
compliance. The cost of implementing the plan or the financial impact of
customers, vendors, or embedded systems that are not compliant has yet to be
determined. Once the Company has sufficient information available to do so, it
intends to analyze its most reasonably likely worst case scenario and develop
contingency plans.
The Company cannot estimate or predict the potential adverse consequences, if
any, that could result from a third party failure to effectively address this
issue or failure of certain equipment and is unable to predict if those parties'
noncompliance or equipment failure will have a material adverse effect on
earnings.
EURO CONVERSION
On January 1, 1999, the exchange rates of eleven countries (Germany, France, the
Netherlands, Austria, Italy, Spain, Finland, Ireland, Belgium, Portugal, and
Luxembourg) were fixed amongst one another and became the currencies of the
EURO. The currencies of the eleven countries will remain in circulation until
mid-2002. The
19
<PAGE> 20
EURO currency will be introduced on January 1, 2002. The Company does not expect
future balance sheets and statements of earnings and cash flows to materially
impacted by the EURO conversion.
This annual report on Form 10-K for the year ended January 3, 1999, 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, changes in the costs of production of the Company's products and
services, the management of growth, the Company's cash needs, the Company's
performance under the DEC agreements, the Company's ability to reach an
appropriate level of operating efficiency in the services group, Year 2000
issues, 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.
ITEM 7A. MARKET RISK
The Company is exposed to the impact of interest rate and foreign currency risk.
In the normal course of business, the Company employs established policies and
procedures to manage its exposure to changes in interest rates and fluctuations
in the value of foreign currencies using a variety of financial instruments.
The Company's objective in managing its exposure to interest rate changes is to
limit the impact of interest rate changes to earnings and cash flows and to
lower its overall borrowings costs. To achieve its objectives, the Company
primarily uses an interest rate swap to manage net exposure to interest rate
changes related to its credit facility.
International revenues from the Company's foreign subsidiaries were
approximately 34% of total revenue. International sales are made mostly from the
Company's foreign subsidiaries in their respective countries and are typically
denominated in the local currency of each country. These subsidiaries also incur
most of their expenses in the local currency. Accordingly, all foreign
subsidiaries use the local currency as their functional currency.
The Company's international business is subject to risks typical of an
international business including, but not limited to differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
the Company's future results could be materially adversely impacted by changes
in these or other factors.
The Company's exposure to foreign exchange rate fluctuations arises in part from
intercompany accounts in which costs incurred in the United States are charged
to the Company's foreign subsidiaries. The Company is also exposed to foreign
exchange rate fluctuations as the financial results of foreign subsidiaries are
translated into U.S. dollars in consolidation. As exchange rates vary, those
results, when translated, may vary from expectations and adversely impact
overall expected profitability.
20
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
JANUARY 3, December 28, December 29,
Year Ended, 1999 1997 1996
(In thousands, except per share data) ---------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES, NET:
Products $ 300,666 $ 293,166 $ 182,707
Services 151,874 127,962 120,551
---------------- ---------------- ----------------
452,540 421,128 303,258
---------------- ---------------- ----------------
OPERATING COSTS AND EXPENSES:
Cost of revenues:
Products 215,442 204,179 127,678
Services 138,153 119,768 104,611
Selling, general and administration 79,468 64,651 55,079
Engineering, research and product development 16,455 13,779 8,505
Unusual items 15,000 2,493 4,181
---------------- ---------------- ----------------
464,518 404,870 300,054
---------------- ---------------- ----------------
OPERATING (LOSS) INCOME (11,978) 16,258 3,204
Interest expense, net 11,115 7,092 4,903
Other income 122
---------------- ---------------- ----------------
(LOSS) INCOME BEFORE INCOME TAXES (23,093) 9,166 (1,577)
Income tax (benefit) expense (1,034) 1,308 (3,658)
---------------- ---------------- ----------------
NET (LOSS) INCOME BEFORE EXTRAORDINARY ITEM (22,059) 7,858 2,081
Extraordinary item - Loss on extinguishment of
debt, net of taxes of $258 (422)
---------------- ---------------- ----------------
NET (LOSS) INCOME $ (22,059) $ 7,858 $ 1,659
================ ================ ================
(LOSS) EARNINGS PER COMMON SHARE, BASIC:
(Loss) income before extraordinary item $ (1.91) $ 0.71 $ 0.19
Extraordinary item (0.04)
---------------- ---------------- ----------------
Net (loss) income $ (1.91) $ 0.71 $ 0.15
================ ================ ================
(LOSS) EARNINGS PER COMMON SHARE ASSUMING DILUTION:
(Loss) income before extraordinary item $ (1.91) $ 0.63 $ 0.17
Extraordinary item (0.03)
---------------- ---------------- ----------------
Net (loss) income $ (1.91) $ 0.63 $ 0.14
================ ================ ================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (BASIC) 11,540 11,074 10,933
---------------- ---------------- ----------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
DILUTIVE SHARES (DILUTED) 11,540 12,570 12,168
---------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE> 22
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 3, December 28,
(In thousands, except share data) 1999 1997
------------------- -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,894 $ 4,622
Accounts receivable, less allowance for
doubtful accounts of $5,716 and $4,470, respectively 83,893 89,692
Other receivables 2,714 3,252
Inventories 59,617 67,553
Prepaid expenses and other assets 12,664 8,390
------------------- -------------------
TOTAL CURRENT ASSETS 163,782 173,509
Property, plant and equipment, net 45,459 36,146
Goodwill 15,965 33,800
Intangible assets 4,581 6,049
Other assets 190 545
------------------- -------------------
TOTAL ASSETS $ 229,977 $ 250,049
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,936 $ 6,391
Accounts payable and accrued expenses 67,096 84,578
Deferred income 13,344 16,350
------------------- -------------------
TOTAL CURRENT LIABILITIES 88,376 107,319
Long-term debt, less current portion 105,000 87,072
Other non-current liabilities 11,984 10,262
------------------- -------------------
TOTAL LIABILITIES 205,360 204,653
------------------- -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 18,000,000 shares authorized,
11,581,668 and 11,365,750 shares issued and outstanding, respectively 116 114
Additional paid-in capital 29,216 26,959
Retained earnings (2,039) 20,020
Accumulated other comprehensive loss (2,676) (1,697)
------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 24,617 45,396
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 229,977 $ 250,049
=================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 23
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended, JANUARY 3, December 28, December 29,
(In thousands) 1999 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (22,059) $ 7,858 $ 1,659
Adjustments to reconcile net (loss) income to cash
provided by (used in) operating activities:
Depreciation 14,401 13,664 14,166
Amortization 7,679 5,303 3,706
Loss on early extinguishment of notes 422
Gain on sale of Genicom de Mexico (1,481)
Loss on Relays sale 754
Write-off of goodwill 15,000
Restructuring accrual (5,637) 4,183
Environmental accrual 1,479
Deferred tax benefit 534 364 (7,186)
Changes in assets and liabilities, net of assets acquired and
liabilities assumed
Accounts receivable 4,837 (21,050) 1,544
Inventories 6,656 (23,925) 10,916
Accounts payable and accrued expenses (15,275) 17,687 3,489
Other (5,128) 845 69
--------------- --------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 6,645 (4,137) 32,966
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for businesses, net of cash acquired (14,131) (18,233)
Additions to property, plant and equipment (20,523) (20,329) (11,809)
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
Other investing activities (2,995) (932) (259)
--------------- --------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (23,518) (33,617) (26,351)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt 35,262 77,349 70,609
Payments on long-term debt (15,789) (38,439) (76,120)
Bank overdraft (2,172) (435) 2,607
Stock option exercises 312 523 165
Other financing activities (308) (1,595) (2,372)
--------------- --------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 17,305 37,403 (5,111)
Effect of exchange rate changes on cash and cash equivalents (160) (893) 91
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 272 (1,244) 1,595
Cash and cash equivalents at beginning of year 4,622 5,866 4,271
--------------- --------------- ---------------
Cash and cash equivalents at end of year $ 4,894 $ 4,622 $ 5,866
=============== =============== ===============
Cash paid (received) during the year for:
Income taxes $ (925) $ 1,727 $ 2,724
Interest 10,805 5,398 6,349
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 24
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended January 3, 1999, December 28, 1997, and December 29, 1996
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------------------ Paid-in
Shares Amount Capital
----------------- ----------------- -----------------
<S> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1995 10,839 $ 108 $ 26,023
Exercise of stock options 144 2 417
Net income
Cumulative translation adjustment
Pension liability adjustment
Total comprehensive income
----------------- ----------------- -----------------
BALANCE AS OF DECEMBER 29, 1996 10,983 110 26,440
Exercise of stock options 383 4 519
Net income
Cumulative translation adjustment
Total comprehensive income
----------------- ----------------- -----------------
BALANCE AS OF DECEMBER 28, 1997 11,366 114 26,959
Exercise of stock options/stock purchase plan 216 2 2,257
Net loss
Cumulative translation adjustment
Pension liability adjustment
Total comprehensive loss
----------------- ----------------- -----------------
BALANCE AS OF JANUARY 3, 1999 11,582 $ 116 $ 29,216
----------------- ----------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Income (Loss)
----------------------------------
Foreign Additional
Retained Exchange Pension
Earnings Translation Liability Total
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1995 $ 10,503 $ (1,331) $ (770) $ 34,533
Exercise of stock options 419
Net income 1,659
Cumulative translation adjustment 210
Pension liability adjustment 770
Total comprehensive income 2,639
--------------- -------------- --------------- --------------
BALANCE AS OF DECEMBER 29, 1996 12,162 (1,121) - 37,591
Exercise of stock options 523
Net income 7,858
Cumulative translation adjustment (576)
Total comprehensive income 7,282
--------------- -------------- --------------- --------------
BALANCE AS OF DECEMBER 28, 1997 20,020 (1,697) - 45,396
Exercise of stock options/stock purchase plan 2,259
Net loss (22,059)
Cumulative translation adjustment (185)
Pension liability adjustment (794)
Total comprehensive loss (23,038)
--------------- -------------- --------------- --------------
BALANCE AS OF JANUARY 3, 1999 $ (2,039) $ (1,882) $ (794) $ 24,617
--------------- -------------- --------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 25
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 GENICOM branded 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 and
travel industry 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 53-week period ended January 3, 1999 and the
52-week periods ended December 28, 1997 and December 29, 1996, referred to as
1998, 1997, and 1996, respectively.
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 systems.
Amortization of these costs are recorded over their estimated economic life of
60 to 72 months.
Significant improvements are capitalized, while repairs and maintenance costs
are charged to operations.
25
<PAGE> 26
Goodwill and Intangibles
Goodwill includes the excess of acquisition costs over the fair value of net
assets of acquired businesses and is amortized on a straight-line basis over 5
to 7 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 (see "Note 3"). The aggregate
amount of accumulated amortization for goodwill and intangibles was $18.3
million and $24.1 million at January 3, 1999 and December 28, 1997,
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 $0.6 million and $0.4 million in 1998
and 1997, respectively. The related amortization expense was $0.3 million, $0.1
million and $0.4 million in 1998, 1997, and 1996, respectively. As of January 3,
1999 and December 28, 1997, capitalized software, net of amortization, was $0.7
million and $0.4 million, respectively.
Income Taxes
The Company accounts for income taxes under the liability method. Certain
expenses are recognized in different periods for financial reporting than for
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 $60.9
million and $31.3 million as of January 3, 1999, respectively, and $73.8 million
and $32.8 million as of December 28, 1997, respectively. The net effects of
foreign currency transactions reflected in operations were immaterial in fiscal
years 1998, 1997, and 1996.
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 the results of operations are translated using the average exchange
rates prevailing throughout the periods.
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 $5.8 million and $5.3 million of forward exchange contracts outstanding as
of January 3, 1999 and
26
<PAGE> 27
December 28, 1997, respectively. The Company had a recognized loss of $153,000
associated with these contracts at January 3, 1999. The deferred gain associated
with these contracts was $0.2 million for December 28, 1997.
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 1998 and 1997, GENICOM procured 29% and 28%, respectively, of its total
inventory purchases from Atlantic Design Corporation ("ADC") pursuant to the
agreement (see Note 11). No other supplier accounted for a significant portion
of GENICOM's total 1998 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. In 1998, 1997 and 1996,
there were no customers who accounted for 10% or more of external sales.
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.
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 dates of the financial statements
and the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Comprehensive Income
Effective December 29, 1997, the Company adopted the provisions of Financial
Accounting Standards Board ("FASB") Statement No. 130, "Reporting Comprehensive
Income". This statement establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income consists of net
income, foreign currency translation adjustments, and pension liability
adjustments and is presented in the Consolidated Statement of Stockholders'
Equity.
Recent Accounting Pronouncements
In 1998, the Company implemented Financial Accounting Standards Board Statements
of Financial Accounting Nos. 131 and 132, "Disclosures about Segments of an
Enterprise and Related Information" and "Employers' Disclosures about Pensions
and Other Postretirement Benefits", respectively.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This Statement requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The Company will be required to adopt this new
accounting standard by January 3, 2000. Management does not anticipate early
adoption. The Company believes that the effect of adoption of SFAS No. 133 will
not be material.
27
<PAGE> 28
NOTE 2: NET (LOSS) INCOME PER SHARE
Net (loss)/income per common share is computed by dividing net (loss)/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.
The weighted average number of shares issuable upon the exercise of outstanding
stock options assumes that the applicable proceeds from such exercise are used
to acquire treasury shares at the average price during the period.
<TABLE>
<CAPTION>
(in thousands except for per share amounts)
-----------------------------------------------------------------------
FOR YEAR ENDED JANUARY 3, 1999
-----------------------------------------------------------------------
Loss Shares Per Share
-------------------- -------------------- --------------------
<S> <C> <C> <C>
BASIC EPS
Loss available to shareholders $ (22,059) 11,540 $ (1.91)
-------------------- -------------------- --------------------
Weighted shares from stock options -
--------------------
DILUTED EPS $ (22,059) 11,540 $ (1.91)
==================== ==================== ====================
<CAPTION>
-----------------------------------------------------------------------
For Year Ended December 28, 1997
-----------------------------------------------------------------------
Income Shares Per Share
-------------------- -------------------- --------------------
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
==================== ==================== ====================
<CAPTION>
-----------------------------------------------------------------------
For Year Ended December 29, 1996
-----------------------------------------------------------------------
BASIC EPS Income Shares Per Share
-------------------- -------------------- --------------------
Income available to shareholders
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
Income available to shareholders $ 1,659 10,933 $ 0.15
-------------------- -------------------- --------------------
Weighted shares from stock options 1,235
--------------------
DILUTED EPS $ 1,659 12,168 $ 0.14
==================== ==================== ====================
</TABLE>
28
<PAGE> 29
NOTE 3: UNUSUAL ITEMS
Based upon a second quarter 1998 review of certain long-lived assets, the
Company determined that the value of goodwill associated with the acquisitions
of Centronics, Printer Systems Corporation and Harris Adacom was impaired. In
accordance with FAS 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of", during the second fiscal quarter of
1998, the Company took a pre-tax charge associated with this impairment of
approximately $15 million. By segment, Enterprising Service Solutions' pre-tax
charge was $8.2 million and Document Solutions' pre-tax charge was $6.8 million.
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 4: BALANCE SHEET INFORMATION
Inventories consist of:
<TABLE>
<CAPTION>
JAN. 3, Dec. 28,
(in thousands) 1999 1997
-------------------- ---------------------
<S> <C> <C>
Raw materials $ 4,086 $ 9,295
Work in process 930 1,994
Finished goods 54,601 56,264
-------------------- ---------------------
$ 59,617 $ 67,553
==================== =====================
</TABLE>
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
JAN. 3, Dec. 28,
(in thousands) 1999 1997
-------------------- ---------------------
<S> <C> <C>
Land $ 580 $ 580
Buildings 7,146 7,153
Machinery and equipment 81,332 82,320
Construction in progress 22,074 12,157
-------------------- ---------------------
111,132 102,210
Less: Accumulated depreciation 65,673 66,064
-------------------- ---------------------
$ 45,459 $ 36,146
==================== =====================
</TABLE>
Construction in progress consists primarily of unclassified equipment and the
Company's new business systems.
29
<PAGE> 30
Accounts payable and accrued expenses consist of:
<TABLE>
<CAPTION>
JAN. 3, Dec. 28,
(in thousands) 1999 1997
--------------------- ---------------------
<S> <C> <C>
Trade accounts payable $ 49,793 $ 60,585
Accrued liabilities: Accrued compensation and benefits 6,463 9,768
Interest 117 706
Other 10,723 13,519
--------------------- ---------------------
$ 67,096 $ 84,578
===================== =====================
</TABLE>
NOTE 5: 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>
The amount accrued for property, plant and equipment additions at year end
1998 was $3,454,000.
NOTE 6: DEBT OBLIGATIONS
Long term debt consists of:
<TABLE>
<CAPTION>
JAN. 3, Dec. 28,
(in thousands) 1999 1997
--------------------- ---------------------
<S> <C> <C>
Revolving credit facilities $ 59,000 $ 39,000
Term loans 50,000 54,000
Other 3,936 463
--------------------- ---------------------
112,936 93,463
Less: Current portion 7,936 6,391
--------------------- ---------------------
$ 105,000 $ 87,072
--------------------- ---------------------
</TABLE>
The carrying value of the debt approximates its market value. At January 3,
1999, future minimum principal payments on long term debt were $7.9 million for
1999, $4.0 million for 2000, $4.0 million for 2001, $7.4 million for 2002 and
$17.5 million for 2003. At January 3, 1999, the Company had $159,000 available
for borrowing under its credit agreement.
30
<PAGE> 31
On January 12, 1996, the Company reached an agreement with NationsBank of Texas,
N.A., as agent for a group of banks, ("NationsBank") on $75 million of credit
facilities. Under the agreement, NationsBank provided a $35 million revolving
credit facility and two term loans totaling $40 million. The Company initially
used borrowing under this credit agreement to retire all the debt associated
with its former credit agreement with CIT and to retire all of the Company's
outstanding senior subordinated notes. In a separate transaction, the Company
entered into an interest rate swap arrangement with NationsBank which fixes the
interest rate for five years on a substantial portion of the debt. The fixed
rate at the time the agreement was executed averaged 8.25%. In May 1996, the
Company renegotiated the term of the interest rate swap, decreasing the term
from five to three years. As a result of the term change, the Company received a
payment of $530,000 resulting in a gain which is being amortized to income over
the remaining life of the Company term loans. On September 30, 1996, the Company
and NationsBank amended the credit facilities. This amendment redefined the
financial covenants and adjusted the interest rates as well as the principal
payments under the agreement. On July 3, 1997, the Company and NationsBank
further amended the credit agreement to increase the Company's revolving credit
line from $35 million to $40 million. Other terms and conditions of the credit
agreement generally remained unchanged.
On September 5, 1997, the Company again amended and restated its credit
agreement with NationsBank, increasing its total credit facility to $110 million
from $80 million. The Company used part of the proceeds from the credit
facilities to repay a $9 million note to Texas Instruments. The term notes
totaled $55 million with maturities of 5 and 7 years and the revolving credit
line was increased from $40 million to $55 million. The financial covenants for
the facility were redefined. The Company entered into a new interest rate swap
which fixed the interest rate on $37.5 million of debt for a term of three
years. The fixed rate at the time the amendment was executed was approximately
8.5%. The revolving credit facility was increased to $70 million in October 1997
when commitments from additional lenders were received thereby increasing the
total credit facilities to $125 million. The facility is collateralized by
substantially all of the Company's assets. The revolving credit facility matures
September 5, 2002.
At the end of the first fiscal quarter of 1998, the Company fell short of
meeting the Consolidated Funded Debt Coverage Ratio and the Consolidated Fixed
Charges Coverage Ratio as required by the credit agreement due principally to
higher levels of capital expenditures in ESSC and low earnings. NationsBank
waived the requirement for that quarter.
On July 2, 1998, the Company and NationsBank amended the credit agreement. The
amendment adjusted the Company's required financial covenants until the end of
1998, limited capital expenditures to a maximum of $27 million for 1998,
adjusted the borrowing base percentages until the end of 1998 (allowing the
Company increased borrowing ability) and adjusted the interest rate upwards
1.50% on the incremental increased borrowing against the higher base.
On November 12, 1998, the credit agreement was again amended. The amendment
extended the increased borrowing base percentages through February 15, 1999 and
adjusted the financial covenants for the fourth quarter of 1998.
On February 11, 1999, a further amendment to the credit agreement took effect.
This amendment retained the increased borrowing base though April 5, 1999 and
pledged 65% of the shares in the Company's Canadian subsidiary as additional
collateral.
On April 2, 1999, an additional amendment (Amendment 7) to the credit agreement
extended the increased borrowing base until June 2000 and changed the financial
covenants to 1) minimum earnings before charges for interest, state, federal and
municipal income taxes, depreciation, and amortization, 2) minimum net worth
requirements, and 3) limits 1999 capital expenditures to approximately $19
million. In addition, the Company will be able to borrow $10 million for short
term liquidity, which can be repaid on September 30, 1999 or extended on a
quarterly basis with consideration of 0.5% of the liquidity facility
outstanding. The interest rate on the revolver and the additional $10 million is
3.5% above LIBOR on Eurodollar loans.
31
<PAGE> 32
In exchange for Amendment 7, the Company agreed to pay an amendment fee of $1.2
million upon the earlier of the payment in full of the credit facilities and
cancellation of all commitments or the acceleration by NationsBank of the
Company's obligations. The Company has further agreed to pay a continuation fee
on the last day of each fiscal quarter beginning with the fourth quarter of
fiscal year 1999 until the obligations are paid. The continuation fee shall
equal 0.5% of all obligations outstanding on the last day of such fiscal
quarter. NationsBank will receive the rights to purchase warrants for one
million shares of GENICOM common stock at $1.94 per share. The warrants have
callable rights through March 31, 2000. Amendment 7 reduces NationsBank
revolving credit commitment to $62 million at the end of the first fiscal
quarter of 1999, $61 million at the end of the second fiscal quarter of 1999,
$58 million at the end of the third fiscal of 1999, and $52 million at the end
of fiscal 1999. The amount of the revolver outstanding at January 3, 1999 was
$59 million.
The Company's fiscal 1999 operating plan calls for a reduction to current
inventory and accounts receivable levels, improvement to gross margins, selling,
general and administrative expense reductions, increased productivity, reduced
capital expenditures, introduction of new product lines, increased consumable
sales, and a return to profitability. The current debt facilities or similar
levels of replacement financing are required in order to execute the fiscal
1999 operating plan, which has the Company in compliance with all covenants of
the current credit facilities as amended on April 2, 1999.
The Company is subject to the risk that it will not achieve the objectives of
its fiscal 1999 operating plan and therefore, not comply with the amended
covenants of its debt facilities. If the Company is unable to comply with the
amended covenants, obtain waivers or obtain adequate replacement financing it
will have a material adverse effect on the Company.
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.
NOTE 7: 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.
The postretirement medical coverage is contributory, while the life insurance
coverage is noncontributory.
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.
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 had no expense under the
Savings Plan in 1998 and $0.9 million and $0.8 million of expense in 1997 and
1996, respectively.
32
<PAGE> 33
Components of periodic pension and other retirement benefit (credit)/costs were:
<TABLE>
<CAPTION>
OTHER RETIREMENT
PENSION PLAN BENEFITS
---------------------------------------- ----------------------------------------
JAN. 3, Dec. 28, Dec. 29, JAN. 3, Dec. 28, Dec. 29,
(in thousands) 1999 1997 1996 1999 1997 1996
----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 100 $ 328 $ 416 $ 259 $ 349 $ 363
Interest cost 1,097 1,023 896 1,039 1,177 1,090
Expected return on plan assets (1,292) (1,148) (932)
Amortization of transition obligation 17 45 45 761 761 761
Amortization of gain (207) (108) (136)
----------- ----------- ---------- ---------- ---------- ----------
Net periodic benefit (credit) cost $ (78) $ 248 $ 425 $ 1,852 $ 2,179 $ 2,078
=========== =========== ========== ========== ========== ==========
</TABLE>
The following table reconciles the benefit obligation balance and the fair value
of the plan assets for both the pension and other retirement benefits. In
addition, it gives the funded status of the pension plan. Postretirement
benefits are funded as actually incurred.
<TABLE>
<CAPTION>
OTHER RETIREMENT
PENSION PLAN BENEFITS
------------------------------- --------------------------------
JAN. 3, DEC. 28, JAN. 3, DEC. 28,
(in thousands) 1999 1997 1999 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1. Projected benefit obligation at end of prior year $ 14,830 $ 12,758 $ 14,388 $ 15,630
Service cost 100 328 259 349
Interest cost 1,097 1,023 1,039 1,177
Plan participants' contribution - 714 - -
Actuarial net (gain)/loss 1,319 1,140 1,546 (1,583)
Benefits paid (1,180) (1,133) (1,540) (1,185)
------------- ------------- ------------- -------------
Projected benefit obligation at end of year 16,166 14,830 15,692 14,388
------------- ------------- ------------- -------------
2. Fair value of plan assets at end of prior year 14,640 13,056
Actual return on plan assets 1,808 2,632
Plan participant contributions 22 85
Benefits paid (1,180) (1,133)
------------- -------------
Fair value of plan assets at end of year 15,290 14,640
------------- -------------
3. Funded status (876) (190) (15,692) (14,388)
Unrecognized transition asset 52 69 10,658 11,419
Unrecognized net (gain)/loss 1,210 427 (2,794) (4,547)
------------- ------------- ------------- -------------
Prepaid pension cost (liability) at year end $ 386 $ 306 $ (7,828) $ (7,516)
------------- ------------- ------------- -------------
</TABLE>
Included in Total Comprehensive Income for 1998 is $794,000 of additional
pension liability related to the defined benefit pension plan.
33
<PAGE> 34
The following is the accumulated benefit obligation in excess of plan assets:
<TABLE>
<CAPTION>
FOR FISCAL YEAR
-----------------------------------------
(in thousands) 1998 1997
------------------ ------------------
<S> <C> <C>
Projected benefit obligation $ 16,166 $ 14,830
Accumulated benefit obligation 15,749 14,023
Fair value of plan assets 15,290 14,640
</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 in 1997. The curtailment expense for the depot
consolidation was charged against the restructuring reserve and, for the relay
sale, the curtailment expense was approximately $0.6 million.
For measurement purposes, 6.5% and 8.5% annual rates of increase in the per
capita cost of covered health care benefits were assumed for 1999 and 1998,
respectively, Both rates were assumed to decrease gradually to 5.5% within 2
years. If the health care cost trend rate was to increase 1.0%, the accumulated
postretirement benefit obligation as of January 3, 1999 and December 28, 1997
would have increased by 8.4% and 8.2%, respectively. If the health care cost
trend rate was to decrease 1.0%, the accumulated postretirement benefit
obligation as of January 3, 1999 and December 28, 1997 would have decreased by
7.1% and 6.9%, respectively. The effect of this change on the aggregate service
and interest costs for 1998 and 1997 would be increases of 14.1% and 15.6%,
respectively. The weighted-average discount rates used in determining the
accumulated postretirement benefit obligation were 6.85% and 7.5% in 1998 and
1997, respectively.
The Company's assumptions used in determining the pension cost and pension
liability shown above were as follows:
<TABLE>
<CAPTION>
JAN. 3, Dec. 28, Dec. 29,
1999 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Discount rate 6.85 7.50 7.75
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.
The Company makes contributions to various employee benefit plans for certain of
its foreign subsidiaries. The expense for these plans was not material in fiscal
years 1998, 1997 and 1996.
34
<PAGE> 35
NOTE 8: STOCK OPTIONS
Under the Company's stock option plans, 2,391,650 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,
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 1.00-7.50 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
Granted 763,429 2.25-8.625 4.57
Exercised (84,267) 1.00-4.50 2.05
Cancelled (223,119) 1.00-12.063 2.32
====================== ====================== ======================
OUTSTANDING,
JANUARY 3, 1999 2,108,198 $ 1.00-11.50 $ 3.01
====================== ====================== ======================
OPTIONS EXERCISABLE
JANUARY 3, 1999 886,613 $ 1.00-11.50 $ 1.70
====================== ====================== ======================
OPTIONS AVAILABLE FOR
FUTURE GRANTS 283,452
======================
</TABLE>
35
<PAGE> 36
The following table summarizes information about stock options outstanding at
January 3, 1999.
<TABLE>
<CAPTION>
Exercise Number Years for Options Number
Price Outstanding Outstanding Exercisable
---------------------- ---------------------- ----------------------- -------------------
<S> <C> <C> <C>
$1.00 609,489 1.17-5.17 561,689
$1.25-$1.75 257,720 2.25-6.25 187,200
$2.00-$2.75 178,103 2.50-10.00 15,700
$2.28 377,500 10 -
$3.13-$3.87 345,444 7.08-9.92 81,624
$4.00-$4.75 69,900 7.83-9.57 18,800
$7.88-$8.63 166,042 8.58-9.42 800
$11.50 104,000 9 20,800
---------------------- -------------------
2,108,198 886,613
====================== ===================
</TABLE>
As of January 3, 1999, the Company had two active stock option plans, one for
employees and one for non-employee directors. 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 (loss)/income and (loss)/earnings per share
would have been (increased)/reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ------------------ -------------------
<S> <C> <C> <C>
Net income in thousands
As reported ($22,059) $7,858 $1,659
Pro forma ($24,027) $6,419 $1,109
Basic earnings per share
As reported ($1.91) $0.71 $0.15
Pro forma ($2.08) $0.58 $0.10
Diluted earnings per share
As reported ($1.91) $0.63 $0.14
Pro forma ($2.08) $0.51 $0.09
</TABLE>
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. In 1997, the non-employee
members of the Board of Directors were granted additional stock options of
10,000 shares each. In 1998, the shareholders approved a Non-employee Director
Stock Option Plan. In 1998, the non-employee members of the Board of Directors
were granted additional stock options of 10,000 and 20,000 shares for Mr.
Ackerman and Mr. Hill, respectively. These options become exercisable at a rate
of 20% per year. As of January 3, 1999, total grants outstanding to these
Directors were 40,000 shares. The Chairman of the Board, Don Ackerman, exercised
options for 100,000 shares in early 1998.
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 1998, 1997 and
1996 was $4.57, $6.79 and $4.55, respectively.
36
<PAGE> 37
The fair value of each option is estimated on the date of grant using a type of
Black-Scholes option pricing model which utilizes the following weighted-average
assumptions used for grants during the years ended January 3, 1999 December 28,
1997, and December 29, 1996 respectively: dividend yield of 0%, expected
volatility 83.0%, 83.5%, and 83.5%, risk free interest rate of 5.43%, 6.18%, and
5.64% for 1998, 1997, and 1996, respectively, on the grant date with the
maturity equal to the expected term of 6 years.
On December 14, 1998, the Board of Directors repriced stock options with a price
greater than $5.00 for certain employees. Options were not repriced for any
officers or members of the Board of Directors. These options had been issued at
prices from $7.875 to $14.25 and were repriced at $2.25.
As of January 3, 1999, the weighted average remaining contractual life of all
options is 6.77 years. As of January 3, 1999, December 28, 1997,and December 29,
1996, the pro forma tax effects of the salary expense associated with the
options at a 34% tax rate under SFAS 109 are $1.0 million for 1998 and 1997 and
$0.4 million for 1996.
NOTE 9: INCOME TAXES
The components of (loss) income before income taxes were as follows:
<TABLE>
<CAPTION>
(in thousands) JAN. 3, Dec. 28, Dec. 29,
1999 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Domestic $ (18,939) $ 5,622 $ (1,225)
Foreign (4,154) 3,544 (352)
----------------- ----------------- -----------------
$ (23,093) $ 9,166 $ (1,577)
================= ================= =================
</TABLE>
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
(in thousands) JAN. 3, Dec. 28, Dec. 29,
1999 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Current
Federal $ (2,074) $ 1,423 $ 2,103
State (633) 414 800
Foreign 1,139 1,278 625
------------------ ------------------ ------------------
(1,568) 3,115 3,528
------------------ ------------------ ------------------
Deferred
Federal 1,070 289 (6,226)
State 311 75
Foreign (847) (2,171) (960)
------------------ ------------------ ------------------
534 (1,807) (7,186)
------------------ ------------------ ------------------
$ (1,034) $ 1,308 $ (3,658)
================== ================== ==================
</TABLE>
37
<PAGE> 38
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) JAN. 3, Dec. 28, Dec. 29,
1999 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate $ (7,852) $ 3,116 $ (536)
(Decrease) increase related to:
State income taxes, net of
Federal tax benefit (213) 323 (106)
Foreign income taxes 169 (1,061) 323
Foreign operating losses generating
no current tax benefit 120
Non-deductible goodwill write-off 2,753
(Increase) reduction in valuation allowance 6,186 (1,037) (3,570)
Other, net (2,077) (33) 111
----------------- ----------------- -----------------
$ (1,034) $ 1,308 $ (3,658)
================= ================= =================
</TABLE>
The major components of the Company's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
(in thousands) JAN. 3, Dec. 28,
1999 1997
----------------------- --------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 10,296 $ 7,668
Inventory valuation 3,596 3,976
Vacation accrual 686 1,051
Bad debt reserve 1,288 1,129
Employee benefits 2,844 2,875
Restructuring reserve 380 -
Depreciation 2,320 303
Warranty reserve 990 1,021
Environmental reserve 247 234
Deferred maintenance contracts 979 982
Other intangible assets 3,826 398
Other 1,385 436
Valuation allowance (14,636) (8,450)
----------------------- --------------------
Total deferred tax assets $ 14,201 $ 11,623
======================= ====================
DEFERRED TAX LIABILITIES:
Other long term liabilities $ 5,928 $ 3,162
----------------------- --------------------
</TABLE>
The Company's effective income tax rate for fiscal year 1998 was (4.5)% which
differs from the statutory rate due to nondeductible goodwill write-offs and
increases to the valuation allowance. The valuation allowance at January 3, 1999
relates primarily to the tax benefit of foreign net operating loss carryforwards
(primarily Italy, Australia, and Canada) and domestic long term deferred tax
assets. During the fourth quarter of 1998, the Company increased the valuation
allowance by $4.0 million on domestic long term deferred tax assets due to
uncertainties regarding their ultimate recoverability. Realization of deferred
tax assets is dependent upon sufficient future taxable income during the period
that temporary differences are expected to be available to reduce taxable
income. The allowance reduces deferred tax assets to an amount that is more
likely than not to be realized. At January 3, 1999, the Company has net
operating loss carryforwards to reduce future taxable income in the United
States of approximately $4.3 million.
38
<PAGE> 39
The effective tax rate for 1997 was 14.3% and (232.0)% for 1996. The rates in
1997 and 1996 were affected by reversals of valuation allowances associated with
the Company's deferred tax assets. 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 were
expected to be recoverable through future earnings or reversals of temporary
differences.
The cumulative amount of undistributed earnings of foreign subsidiaries which
the Company intends to permanently invest and for which no deferred U.S. income
taxes have been provided is $11.7 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 $0.6 million.
NOTE 10: 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 included
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 11: COMMITMENTS AND CONTINGENT LIABILITIES
Leasing arrangements:
As lessee:
The Company leases certain manufacturing and warehousing properties. Rent
expense amounted to $7.8 million, $6.4 million, and $6.7 million in 1998, 1997,
and 1996, respectively.
Minimum future lease commitments for operating leases as of January 3, 1999, are
as follows: 1999 - $6.0 million, 2000 - $4.9 million, 2001 - $3.9 million, 2002
- - $3.2 million, 2003 - $2.1 million and $5.8 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 $2.0 million,
$3.1 million, and $3.2 million for 1998, 1997, and 1996, respectively.
On January 3, 1999 and December 28, 1997, the cost of equipment leased was $0.7
million and $3.1 million, respectively, which is included in property, plant and
equipment, net of accumulated depreciation of $0.5 million and $2.4 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 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
39
<PAGE> 40
investigative work under the Order was completed in December 1997 and the
Company submitted a final investigative report to the EPA. The EPA has not yet
formally responded to the report, although the EPA has stated informally that it
may require additional investigative work. Although not required by the Order,
the Company has agreed to install and operate an interim ground water
stabilization system, subject to EPA approval of the system design. The interim
groundwater stabilization program may be chosen as the final remedy for the
site, or additional corrective measures may eventually be required. It is not
possible to reliably estimate the costs that any such possible additional
corrective measures would entail. However, if additional corrective measures are
required, the Company expects that it will enter into discussion with the EPA
concerning their scope and a further order for that purpose.
The Company has been notified by the EPA that it is one of 700 potentially
responsible parties ("PRPs") under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, for necessary corrective action at a
hazardous waste disposal site in Greer, South Carolina. In prior years, the
Company arranged for the transportation of wastes to the site for treatment or
disposal. During 1995, the PRPs entered into an administrative consent order
with EPA under which they would undertake a remedial investigation and
feasibility study. That study is currently underway. The Company has not had and
does not anticipate any material expenditures in connection with this matter.
Atlantic Design Company:
In December 1995, the Company entered into a five year agreement which was
extended an additional year in June 1996 (renewable annually after 6 years) with
Atlantic Design Company, a subsidiary of Ogden Services Corporation, pursuant to
which ADC acquired the Company's manufacturing operations in McAllen, Texas and
Reynosa, Mexico. Under the agreement, ADC is committed to manufacturing a
significant part of the Company's impact printer products, printed circuit
boards, related supplies and spare parts, while the Company retains design,
intellectual and distribution rights with respect thereto.
In August 1997, ADC filed a Demand for Arbitration with the American Arbitration
Association seeking a legal interpretation of the pricing provisions in the
agreement between ADC and the Company. The Company filed a counterclaim against
ADC. Ogden Services Corporation and ADC then filed a counterclaim against the
Company. On July 4, 1998, the Company, ADC and Ogden Services Corporation
settled the arbitration. Primary settlement terms included settlement of all
claims and counterclaims in the arbitration, a $2.1 million payment to ADC (for
which the Company was fully reserved), a price increase effective for shipments
after August 15, 1998, and a guarantee of orders for one year. ADC is continuing
as a supplier for the Company.
Other matters:
In 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 12: SEGMENT AND GEOGRAPHIC INFORMATION
Industry Segments
The Company operates in the serial, line and page printer business where it
designs, manufactures, and markets printers as well as in the related supplies
and spare parts (Document Solutions company). The Company's
40
<PAGE> 41
operation in services provides integrated network solutions that include
professional services, maintenance (onsite) repair and logistics and depot
(offsite) repair (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 for 1997
and 1996. Revenue between industry segments are not material.
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
REVENUES
Document Solutions* $ 300,666 $ 293,166 $ 182,707
Enterprising Service Solutions 151,874 127,962 120,551
------------------ ------------------ ------------------
$ 452,540 $ 421,128 $ 303,258
------------------ ------------------ ------------------
OPERATING (LOSS) INCOME
Document Solutions+# $ 10,063 $ 29,675 $ 11,954
Enterprising Service Solutions# (22,041) (13,417) (8,750)
------------------ ------------------ ------------------
$ (11,978) $ 16,258 $ 3,204
------------------ ------------------ ------------------
DEPRECIATION AND AMORTIZATION
Document Solutions $ 6,278 $ 5,851 $ 3,146
Enterprising Service Solutions 14,159 11,741 13,239
Corporate and other 1,643 1,375 1,487
------------------ ------------------ ------------------
$ 22,080 $ 18,967 $ 17,872
------------------ ------------------ ------------------
ASSETS
Document Solutions $ 113,146 $ 145,467 $ 96,147
Enterprising Service Solutions 82,893 85,387 53,248
Corporate and other 33,938 19,195 36,684
------------------ ------------------ ------------------
$ 229,977 $ 250,049 $ 186,079
------------------ ------------------ ------------------
CAPITAL EXPENDITURES
Document Solutions $ 3,639 $ 3,440 $ 2,493
Enterprising Service Solutions 10,743 10,469 8,961
Corporate and other 9,595 6,420 355
------------------ ------------------ ------------------
$ 23,977 $ 20,329 $ 11,809
------------------ ------------------ ------------------
</TABLE>
*Includes relay revenues of $14,342 and $13,651 for 1997and 1996, respectively.
+Includes relay operating income (loss) of $1,236 and $(807) for 1997and 1996,
respectively.
#Includes restruturing accrual of $4,183 included with Enterprising Services and
environmental accrual of $1,479 for Document Solutions in 1996. 1997 includes
$0.8 million loss on sale of relays and $1.7 million for DEC agreements for
Document Solutions. 1998 includes $6.8 million and $8.2 million for goodwill
write-off for Document Solutions and Enterprising Services, respectively
41
<PAGE> 42
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.
Financial information by geographic area:
<TABLE>
<CAPTION>
(in thousands) United States
FISCAL YEAR 1998 and Canada Europe Eliminations Consolidated
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 336,986 $ 115,554 $ $ 452,540
Transfers between geographic areas 57,141 (57,141) -
----------------- ----------------- ----------------- -----------------
Total sales $ 394,127 $ 115,554 $ (57,141) $ 452,540
----------------- ----------------- ----------------- -----------------
Operating loss $ (10,298) $ (1,680) $ $ (11,978)
----------------- ----------------- ----------------- -----------------
Identifiable assets $ 132,545 $ 97,432 $ $ 229,977
================= ================= ================= =================
<CAPTION>
United States
FISCAL YEAR 1997 and Canada Europe Eliminations Consolidated
----------------- ----------------- ----------------- -----------------
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 $ 12,061 $ 4,197 $ $ 16,258
----------------- ----------------- ----------------- -----------------
Identifiable assets $ 130,634 $ 119,415 $ $ 250,049
================= ================= ================= =================
<CAPTION>
United States
FISCAL YEAR 1996 and Canada Europe Eliminations Consolidated
----------------- ----------------- ----------------- -----------------
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>
Total sales to customers outside the United States amounted to $149.8 million,
$139.0 million, and $94.2 million for 1998, 1997, and 1996, respectively; these
amounts include export sales from the United States of $0.9 million, $2.3
million, and $1.0 million in 1998, 1997 and 1996, 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.
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.
42
<PAGE> 43
DIGITAL EQUIPMENT CORPORATION AGREEMENTS
On August 10, 1997, the Company entered into agreements with Digital Equipment
Corporation and became Digital's exclusive supplier of Digital-branded printer
products. The multi-year agreement also established a cooperative alliance under
which 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 of each other's capabilities, products and
services.
During the fourth quarter of 1997 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.
NOTE 14: SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands, except per share data)
QUARTER
---------------------------------------------------------------------------------
1998 FIRST SECOND THIRD FOURTH
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
REVENUES $ 122,110 $ 112,050 $ 109,080 $ 109,300
GROSS MARGIN 27,414 23,342 24,703 23,486
OPERATING INCOME (LOSS) 2,818 (17,539) 2,053 690
NET INCOME (LOSS) 169 (14,806) (609) (6,813)
EARNINGS (LOSS) PER SHARE - BASIC 0.01 (1.28) (0.05) (0.59)
EARNINGS (LOSS) PER SHARE - DILUTED 0.01 (1.28) (0.05) (0.59)
<CAPTION>
Quarter
---------------------------------------------------------------------------------
1997 First Second Third Fourth
----------------- ----------------- ----------------- -----------------
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>
43
<PAGE> 44
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 concerning the directors of the Company called for by this Item
is incorporated by reference from Genicom Corporation's Proxy Statement for its
1999 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.
Information concerning the executive officers of the Company is set forth under
the heading "Executive Officers of the Registrant" at the end of Part I of this
Report.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item is incorporated by reference from
Genicom Corporation's Proxy Statement for its 1999 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 1999 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
N.A.
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.
44
<PAGE> 45
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.
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, incorporated by reference to Exhibit 10.4 to Form
10-K (File No. 0-14865) filed with the Commission on March 30, 1998.
10.5 Third Amendment to the Credit and Security Agreement and Waiver with
NationsBank dated as of May 7, 1998, incorporated by reference to Exhibit
10.1 to Form 10-Q (File No. 0-14865) filed with the Commission on August
10, 1998.
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------
<S> <C>
10.6 Fourth Amendment to the Credit and Security Agreement with NationsBank
dated as of July 1, 1998, incorporated by reference to Exhibit 10.2 to
Form 10-Q (File No. 0-14865) filed with the Commission on August 10,
1998.
10.7 Fifth Amendment to the Credit and Security Agreement with NationsBank
dated as of October 30, 1998, incorporated by reference to Exhibit 10.1
to Form 10-Q (File No. 0-14865) filed with the Commission on November 12,
1998.
10.8 Sixth Amendment to the Credit and Security Agreement with NationsBank
dated as of February 11, 1999 filed herewith.
10.9 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.
10.10# 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.
10.11# 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.
10.12# 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.
10.13# 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.
10.14# 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.
10.15# 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.
10.16# Amendment of 1997 Stock Option Plan, dated December 14, 1997,
incorporated by reference to Exhibit 99 to Form S-8 (File No. 333-56825)
filed with the Commission on June 15, 1998.
10.17# GENICOM Corporation 1998 Non-Employee Directors Stock Option Plan,
incorporated by reference to Exhibit B to GENICOM Corporation Proxy
Statement for Annual Meeting held May 20, 1998.
10.18# Incentive Compensation Plan for 1998 filed herewith.
10.19 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.
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- ------------------------------------------------------------------------------------
<S> <C>
10.20 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.
10.21 Lease between GENICOM Corporation and Gault Riverport, LLC dated January
31, 1997, incorporated by reference to Exhibit 10.1 to Form 10-Q (File
No. 0-14865) filed with the Commission on May 13, 1998.
10.22# 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.
10.23# GENICOM Corporation Retirement Income Agreement with Paul T. Winn,
incorporated by reference to Exhibit 10.4 to Form 10-Q (File No. 0-14865)
filed with the Commission on August 10, 1998.
10.24+ 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.
10.25 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.
10.26 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.
10.27 Amendment to Services Agreement with Atlantic Design Company, Inc. dated
May 29, 1996, incorporated by reference to Exhibit 10.2 to Form 10-Q
(File No. 0-14865) filed with the Commission on May 10, 1998.
10.28+ Amendment to Services Agreement with Atlantic Design Company, Inc.
dated May 29, 1996, incorporated by reference to Exhibit 10.3 to Form
10-Q (File No. 0-14865) filed with the Commission on May 10, 1998.
10.29 Settlement Agreement between GENICOM Corporation, Atlantic Design
Company, Inc. and Ogden Services Corporation dated July 4, 1998,
incorporated by reference to Exhibit 10.3 to Form 10-Q (File No. 0-14865)
filed with the Commission on August 10, 1998.
22 Subsidiaries of the Registrant - filed herewith.
23 Consent of Independent Accountants - filed herewith.
27 Financial Data Schedules - Filed only with EDGAR version.
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ---------- ----------------------------------------------------------------------------------
<S> <C>
(b) Reports on Form 8-K
Not applicable.
</TABLE>
+ Confidential treatment granted with respect to certain provisions
pursuant to 17 C.F.R. 200.80(b)(4).
# Management contracts or compensatory plans.
48
<PAGE> 49
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: \s\ 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 April 5, 1999
- ------------------------------------------
Don E. Ackerman
\s\ Paul T. Winn President and Chief Executive Officer April 5, 1999
- ------------------------------------------ and Director (Principal Executive Officer)
Paul T. Winn
\s\ James C. Gale Senior Vice President Finance and Chief April 5, 1999
- ------------------------------------------ Financial Officer (Principal Financial Officer)
James C. Gale
\s\ John Hill Director April 5, 1999
- ------------------------------------------
John Hill
</TABLE>
49
<PAGE> 50
GENICOM CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Audited Financial Statements 21-43
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> 51
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders and Board of Directors of
GENICOM Corporation:
In our opinion, the accompanying consolidated financial statements listed on
page F-1 and the financial data schedule listed on page E-1 of this Form 10-K
present fairly, in all material respects, the consolidated financial position of
GENICOM Corporation and subsidiaries at January 3, 1999 and December 28, 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended January 3, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
\s\ PricewaterhouseCoopers LLP
McLean, Virginia
February 5, 1999, except as to Note 6
for which the date is April 2, 1999
F-2
<PAGE> 52
GENICOM CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO COSTS DEDUCTIONS BALANCE AT END
DESCRIPTION OF PERIOD AND EXPENSES FROM RESERVES OF PERIOD
- -------------------------------------- ---------------- --------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended:
DECEMBER 29, 1996 $ 1,616 $1,985(1) $ 331 $ 3,270
DECEMBER 28, 1997 $ 3,270 $2,086(1) $ 886 $ 4,470
JANUARY 3, 1999 $ 4,470 $2,993(1) $1,747 $5,716
ALLOWANCE FOR INVENTORY
OBSOLESCENCE
Year ended:
DECEMBER 29, 1996 $ 8,145 $ 6,761(2) $ 3,337 $ 11,569
DECEMBER 28, 1997 $ 11,569 $ 2,711(2) $ 3,481 $ 10,799
JANUARY 3, 1999 $ 10,799 $ 3,035(2) $ 4,995 $ 8,839
</TABLE>
1. "Additions" to the allowance for doubtful accounts include a foreign
currency translation adjustment of $8, $129, and $(48) in 1998, 1997 and
1996, respectively. Net bad debt expense for 1998, 1997 and 1996 was
$2,985, $2,215 and $2,026, respectively.
2. Foreign currency translation adjustments were immaterial in 1998, 1997
and 1996. 1996 includes $4,666 of reserve from the Texas Instruments
acquisition.
F-3
<PAGE> 53
<PAGE> 54
GENICOM CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS TO FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 3, 1999
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.8 Sixth Amendment to Credit and Security Agreement with NationsBank dated as
of February 11, 1999. E-2 - E-12
10.19 Incentive Compensation Plan for 1998 E-13 - E-22
22 Subsidiaries of the Registrant E-23
23 Consent of Independent Accountants E-24
27 Financial Data Schedules E-25
</TABLE>
E - 1
<PAGE> 1
EXHIBIT 10.8
SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), dated as of February 11, 1999, 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,
N.A., as agent for the Lenders (in such capacity, the "Agent").
WITNESSETH
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 as of October 31, 1997, as amended by that Second Amendment to
Amended and Restated Credit Agreement dated as of March 12, 1998, as amended by
that letter agreement dated May 5, 1998, as amended by that Fourth Amendment to
Amended and Restated Credit Agreement and Waiver dated as of July 2, 1998, and
as amended by that Fifth Amendment to Amended and Restated Credit Agreement
dated as of October 30, 1998 (as so amended, the "Existing Credit Agreement").
WHEREAS, the Borrower, the Guarantors and the Agent entered into that
certain Amended and Restated Pledge Agreement dated as of September 5, 1997 (the
"Pledge Agreement").
WHEREAS, the parties have agreed to amend the Existing Credit Agreement
and the Pledge 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
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. 6 Effective Date" is defined in Part IV.
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. 6
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.
1. Amendment to Section 1.1. The following definition appearing in
Section 1.1 of the Existing Credit Agreement is amended in its entirety to read
as follows:
"Borrowing Base" means (i) as of any day prior to April 5, 1999,
the sum of (a) 85% of Eligible Receivables and (b) 55% of Eligible Inventory, in
each case as set forth in the most recent Borrowing Base Report delivered to the
Agent and the Lenders in accordance with the terms of Section 7.1(e); provided,
however, that the amount determined pursuant to clause (b) above shall not
exceed 50% of the total Borrowing Base, and (ii) as of any day on or after April
5, 1999, the Original Borrowing Base.
2. Amendment to Section 7.10. Section 7.10 of the Existing Credit
Agreement is hereby amended in its entirety to read as follows:
7.10 Audits/Inspections.
Upon reasonable notice and during normal business hours, the
Borrower will, and will cause each of its Subsidiaries to, permit
representatives appointed by the Agent, including, without limitation,
independent accountants, consultants, agents, attorneys, and appraisers
to visit and inspect its property, including its books and records, its
accounts receivable and inventory, its facilities and its other business
assets, and to make photocopies or photographs thereof and to write down
and record any information such representative obtains and shall permit
the Agent and its representatives to investigate and verify the accuracy
of information provided to the Lenders and to discuss all such matters
and such other matters as the Agent and its representatives shall
request, including without limitation, its operations, projections and
business plans, with the officers, employees, representatives, auditors,
and consultants of such Person; provided, however, that any costs or
expenses incurred by or at the request of the Agent or any of the Lenders
in connection with any of the foregoing shall not be for the Borrower's
account. Each of the Credit Parties agrees that the Agent, and its
representatives, may conduct an annual audit of the Collateral, at the
expense of the Borrower.
PART III
AMENDMENTS TO PLEDGE AGREEMENT
Effective on (and subject to the occurrence of) the Amendment No. 6
Effective Date, the Pledge Agreement is hereby amended in accordance with this
Part III. Except as so amended, the Pledge Agreement and all other Credit
Documents shall continue in full force and effect.
2
<PAGE> 3
1. Amendment to Section 2(a). Section 2(a) of the Pledge Agreement is
hereby amended in its entirety to read as follows:
(a) Pledged Shares. (i) All of the issued and outstanding
shares of capital stock of the Domestic Subsidiaries of such Pledgor set
forth on Schedule 1 attached hereto and (ii) sixty-five percent (65%) of
the issued and outstanding shares of capital stock of the Foreign
Subsidiaries of such Pledgor set forth on Schedule 1 attached hereto (all
certificates representing such shares and all options and other rights,
contractual or otherwise, with respect thereto, collectively the "Pledged
Shares"). Nothing in this Section 2, Section 4(b) or any other provision
of this Pledge Agreement shall require that Pledgor pledge, and in no
event shall Pledgor be deemed to have pledged, more than 65% of the total
combined voting power of all classes of capital stock of any Foreign
Subsidiary.
2. Amendment to Section 5(e). The last sentence in Section 5(e) of
the Pledge Agreement is hereby amended in its entirety to read as follows:
Except as set forth in this Section 5(e), no action is necessary to
perfect or otherwise protect such security interest; provided however,
with respect to the Pledged Shares issued by Genicom Canada Inc., a
financing statement must be submitted for registration pursuant to the
Personal Property Security Act (Ontario) disclosing Genicom Corporation
as the debtor and the Agent as the secured party.
3. Amendment to Schedule 1. All references in the Pledge Agreement to
"Schedule 1" are hereby deemed to refer to the "Schedule 1" attached hereto as
Annex A.
PART IV
CONDITIONS TO EFFECTIVENESS
1. Amendment No. 6 Effective Date. This Amendment shall be and become
effective as of the date hereof (the "Amendment No. 6 Effective Date") when all
of the conditions set forth in this Part IV shall have been satisfied, and
thereafter this Amendment shall be known, and may be referred to, as "Amendment
No. 6."
2. 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.
3. Officer's Certificate. The Agent shall have received a certificate
executed by the chief financial officer of the Borrower as of the Amendment No.
6 Effective Date stating that, immediately after giving effect to this Amendment
and the transactions contemplated hereby, (i) each of the Credit Parties is
Solvent, (ii) no Default or Event of Default exists and (iii) the
representations and warranties set forth in the Existing Credit Agreement are
true and correct in all material respects.
3
<PAGE> 4
4. Delivery of Pledged Stock. The Agent shall have received original
stock certificates of the Pledged Shares (as defined in the Pledge Agreement, as
amended hereby) of Genicom Canada Inc., along with stock powers executed in
blank.
5. 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.
6. Fees and Expenses. All out-of-pocket fees and expenses of Agent or
any Lender in connection with the Credit Documents, including this Amendment,
including legal and other professional fees and expenses incurred on or prior to
the date of this Amendment, including, without limitation, the fees and expenses
of Winstead Sechrest & Minick P.C, shall have been paid.
7. Other Items. The Agent shall have received such other documents,
agreements or information which may be reasonably requested by the Agent.
PART V
CONDITIONS SUBSEQUENT
As conditions subsequent to the effectiveness of this Amendment, the
Borrower will deliver, or cause to be delivered, on or before March 1, 1999 the
following items and if such items are not delivered to the Agent on or before
such date, then Section 1 of Part II of this Amendment will be null and void and
of no force and effect whatsoever:
(a) Legal Opinion. An opinion with respect to the Genicom
Canada Inc. and the pledge of the shares addressed to Agent and the
Lenders, of Canadian legal counsel to Borrower, such opinion to be
satisfactory to Agent and the Lenders; and
(b) PPSA Filings. Applicable Canadian and provincial personal
property filings evidencing the security interest of the Agent, for the
benefit of itself and the Lenders, in the stock certificates of Genicom
Canada Inc.
PART VI
MISCELLANEOUS
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 which has not been waived 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).
2. Releases. In consideration of Lenders' agreements herein and
certain other good and valuable consideration, the Borrower and each Guarantor
hereby expressly acknowledge and agree
4
<PAGE> 5
that none of them has any setoffs, counterclaims, adjustments, recoupments,
defenses, claims or actions of any character, whether contingent,
non-contingent, liquidated, unliquidated, fixed, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured, known or unknown, against
any Lender or the Agent or any grounds or cause for reduction, modification or
subordination of the obligations of Borrower or any Guarantor under the Credit
Documents or any liens or security interests of any Lender or the Agent in each
case which arose on or prior to the date hereof. To the extent Borrower or any
Guarantor may possess any such setoffs, counterclaims, adjustments, recoupments,
claims, actions, grounds or causes, each of the Borrower and Guarantors hereby
waives, and hereby releases each Lender and Agent from, any and all of such
setoffs, counterclaims, adjustments, recoupments, claims, actions, grounds and
causes, such waiver and release being with full knowledge and understanding of
the circumstances and effects of such waiver and release and after having
consulted counsel with respect thereto.
3. Cross-References. References in this Amendment to any Part are,
unless otherwise specified, to such Part of this Amendment.
4. 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.
5. References in Other Credit Documents. At such time as this
Amendment No. 6 shall become effective pursuant to the terms of Part IV, 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. 6.
6. 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.
7. 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.
8. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
[Remainder of Page Intentionally Left Blank]
5
<PAGE> 6
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be
duly executed on the date first above written.
BORROWER:
GENICOM CORPORATION
By \s\ James C. Gale
Title: Senior Vice President
GUARANTORS:
GENICOM INTERNATIONAL HOLDINGS
CORPORATION
By \s\ James C. Gale
Title: President
GENICOM INTERNATIONAL SALES
CORPORATION
By \s\ James C. Gale
Title: President
RASTEK CORPORATION
By \s\ James C. Gale
Title: President and Treasurer
ENTERPRISING SERVICE SOLUTIONS
CORPORATION
By \s\ James C. Gale
Title: Vice President
<PAGE> 7
PRINTER SYSTEMS CORPORATION
By \s\ James C. Gale
Title: Vice President
THE PRINTER CONNECTION, INC.
By \s\ James C. Gale
Title: Vice President
PRINTER SYSTEMS INTERNATIONAL, LTD.
By \s\ James C. Gale
Title: Vice President
LENDERS:
NATIONSBANK, N.A. (formerly NationsBank of
Texas, N.A.), individually as a Leader and in its
capacity as Agent
By \s\ Jay T. Wampler
Title: Senior Vice President
BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE, INC. (as successor in interest to
CREDITANSTALT CORPORATE FINANCE, INC.)
By \s\ Jane Orndahl
Title: Vice President
By \s\ Andrew Russell
Title: Vice President
<PAGE> 8
DEEPROCK & COMPANY
By: Eaton Vance Management, as Investment
Advisor
By \s\ Scott H. Page
Title: Vice President
CRESTAR BANK
By \s\ C.B. Bohannon
Title: Senior Vice President
THE RIGGS NATIONAL BANK OF
WASHINGTON, D.C.
By \s\ Alfred Serafino
Title: Executive Vice President
FLOATING RATE PORTFOLIO
By: Invesco Senior Secured Management, Inc., as
attorney-in-fact
By \s\ Anne M. McCarthy
Title: Authorized Signatory
KZH III LLC
By \s\ Virginia Conway
Title: Authorized Agent
<PAGE> 9
TORONTO DOMINION (TEXAS), INC.
By
---------------------------------
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By \s\ Scott H. Page
Title: Vice President
CERES FINANCE LTD.
By \s\ John H. Cullinane
Title: Director
AERIES FINANCE LTD.
By \s\ Ian David Moores
Title: Director
BANK OF SCOTLAND
By \s\ Annie Chin Tat
Title: Senior Vice President
NATIONAL CITY BANK OF KENTUCKY
By \s\ Gerrol Z. Miles
Title: Senior Vice President
<PAGE> 10
ANNEX A
SCHEDULE 1 TO PLEDGE AGREEMENT
[See Attached]
<PAGE> 11
Schedule 1
to Pledge Agreement
NAME OF PLEDGOR: PRINTER SYSTEMS CORPORATION
<TABLE>
<CAPTION>
========================================================================
Name of Domestic Subsidiary Number of Shares Certificate Number
- --------------------------- ---------------- ------------------
- ------------------------------------------------------------------------
<S> <C> <C>
The Printer Connection, Inc. 10 2
- ------------------------------------------------------------------------
Printer Systems
International, Ltd. 2,500 1
========================================================================
</TABLE>
NAME OF PLEDGOR: GENICOM CORPORATION
<TABLE>
<CAPTION>
=============================================================================
Name of Domestic Subsidiary Number of Shares Certificate Number
- --------------------------- ---------------- ------------------
- -----------------------------------------------------------------------------
<S> <C> <C>
Genicom International
Holdings Corporation 5,000 1
- -----------------------------------------------------------------------------
Genicom International Sales
Corporation 2,500 1
- -----------------------------------------------------------------------------
Rastek Corporation 1,000 2
- -----------------------------------------------------------------------------
Enterprising Service
Solutions Corporation 100 1
- -----------------------------------------------------------------------------
9,900,000 40
Printer Systems Corporation 6,250 (preferred) 2
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
===============================================================================
Name of Foreign Subsidiary Number of Shares Certificate Number
- -------------------------- ---------------- ------------------
- -------------------------------------------------------------------------------
<S> <C> <C>
6,502 C-1
Genicom Canada Inc. 6,061,387( preferred) P-3
===============================================================================
</TABLE>
<PAGE> 1
Exhibit 10.19
[GENICOM LOGO] CORPORATION
INCENTIVE COMPENSATION PLAN
RESTRICTED/COMPANY CONFIDENTIAL
APPROVED BY BOARD OF DIRECTORS ____(DATE)___________
<PAGE> 2
GENICOM CORPORATION INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
PURPOSE
The purpose of GENICOM's Incentive Compensation Plan ("Plan") is to reward key
employees for the achievement of the company's growth and profitability
objectives. In addition, the Plan is intended to assist in the retention and
motivation of these employees.
EFFECTIVE PERIOD
The Plan will cover the two six-month periods comprising a fiscal year: 1)
January through June, and 2) July through December.
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.
In addition, Plan participants are expected to demonstrate exceptional
leadership skills through the following behaviors:
- - Proactively coaching employees
- - Designing operational processes with measurements
- - Facilitating automation of processes
- - Demonstrating continuous improvement towards strategic targets.
These behaviors are not only a condition of participation in the Incentive Plan,
but also a condition of employment.
Page 1
<PAGE> 3
GENICOM CORPORATION INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
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/Individual goals if objectives in this component are met.
AWARD POOL
An Award Pool will be established annually. 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. Corporate objectives, established semi-annually, are provided in
Attachment A.
Functional/Individual performance targets, also established semi-annually, will
be developed by staff executives for the functions for which they are
responsible. The performance targets must support the 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.
Functional/Individual objectives, established semi-annually, are provided in
Attachments B and C.
Page 2
<PAGE> 4
GENICOM CORPORATION INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
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.
RETIREMENT SAVINGS 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. (Complete Attachment E
and forward to Human Resources.)
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.
Page 3
<PAGE> 5
GENICOM CORPORATION INCENTIVE COMPENSATION 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 4
<PAGE> 6
GENICOM CORPORATION INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
Attachment A
[GENICOM LOGO] CORPORATION
INCENTIVE COMPENSATION PLAN
1998 CORPORATE OBJECTIVES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CATEGORY % OF TARGET INCENTIVE
(WEIGHT)
- --------------------------------------------------------------------------------
<S> <C>
Corporate Objectives 70%
- --------------------------------------------------------------------------------
Functional/Individual Objectives 30%
- --------------------------------------------------------------------------------
</TABLE>
The 1998 Corporate Objectives (70%) are:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
CORPORATE OBJECTIVE 1ST HALF 2ND HALF TOTAL 1998 % OF
1998 1998 OR 12/31/98 CORPORATE
OBJECTIVES
($000'S) (WEIGHT)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue to Plan 20%
- -----------------------------------------------------------------------------------------------------
Gross Margin to Plan 15%
- -----------------------------------------------------------------------------------------------------
Operating Margin to Plan 50%
- -----------------------------------------------------------------------------------------------------
Inventory/DSO/Individual Objectives 15%
- -----------------------------------------------------------------------------------------------------
Total 100%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Page 5
<PAGE> 7
GENICOM CORPORATION INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
Attachment B
[GENICOM LOGO] CORPORATION
INCENTIVE COMPENSATION PLAN
1998 FUNCTIONAL/INDIVIDUAL OBJECTIVES
GROUP NAME: _________________________________
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CATEGORY % OF TARGET INCENTIVE
(WEIGHT)
- --------------------------------------------------------------------------------
<S> <C>
Corporate Objectives 70%
- --------------------------------------------------------------------------------
Functional/Individual Objectives 30%
- --------------------------------------------------------------------------------
</TABLE>
The 1998 Functional/Individual Objectives (30%) are:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
FUNCTIONAL/INDIVIDUAL 1ST HALF 2ND HALF TOTAL 1998 % OF
OBJECTIVE 1998 1998 OR 12/31/98 FUNCTIONAL/
INDIVIDUAL
OBJECTIVES
($000'S) (WEIGHT)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue to Plan 20%
- -----------------------------------------------------------------------------------------------------
Gross Margin to Plan 15%
- -----------------------------------------------------------------------------------------------------
Operating Margin to Plan 50%
- -----------------------------------------------------------------------------------------------------
Inventory/DSO/Individual Objectives 15%
- -----------------------------------------------------------------------------------------------------
Total 100%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Page 6
<PAGE> 8
GENICOM CORPORATION INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
Attachment C
[GENICOM LOGO] CORPORATION
INCENTIVE COMPENSATION PLAN
1998 INDIVIDUAL PERFORMANCE OBJECTIVES
GROUP NAME: _____________________________
PARTICIPANT NAME: __________________________
Page 7
<PAGE> 9
GENICOM CORPORATION INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
Attachment D
I have received a copy of the GENICOM Corporation Incentive Compensation Plan
and a copy of my Functional/Individual objectives for 1998.
Attached is my completed Retirement Savings Plan contribution designation form.
Participant:_____________________________ Date:________________
Page 8
<PAGE> 10
GENICOM CORPORATION INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
Attachment E
RETIREMENT SAVINGS PLAN
1998 WITHHOLDING DESIGNATION
AS IT PERTAINS TO INCENTIVE COMPENSATION
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------------------------
Social Security No.: Work Location: Work Phone:
- --------------------------------------------------------------------------------
</TABLE>
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 1998 incentive compensation disbursement I may receive.
[ ] No, I do not want my normal Retirement Savings Plan contribution withheld
from any 1998 incentive compensation disbursement I may receive.
[ ] I do not participate in the Retirement Savings Plan.
Signature:___________________________________ Date:______________________
Page 9
<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-22
<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, 333-01845, 333-56827, 333-56825, 333-56853, and 333-30153)
of our report dated February 5, 1999, except as to Note 6 for which the date is
April 5, 1999 on our audits of the consolidated financial statements and
financial statement schedule of GENICOM Corporation and Subsidiaries as of
January 3, 1999 and December 28, 1997 and for the three fiscal years in the
period ended January 3, 1999, which report is included on page F-2 in this
Annual Report on Form10-K.
PricewaterhouseCoopers LLP
McLean, Virginia
April 5, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS 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> JAN-3-1999
<PERIOD-START> DEC-28-1997
<PERIOD-END> JAN-3-1999
<CASH> 4,894
<SECURITIES> 0
<RECEIVABLES> 89,609
<ALLOWANCES> (5,716)
<INVENTORY> 59,617
<CURRENT-ASSETS> 163,782
<PP&E> 111,151
<DEPRECIATION> (65,692)
<TOTAL-ASSETS> 229,977
<CURRENT-LIABILITIES> 88,376
<BONDS> 0
0
0
<COMMON> 116
<OTHER-SE> 24,501
<TOTAL-LIABILITY-AND-EQUITY> 229,977
<SALES> 300,666
<TOTAL-REVENUES> 452,540
<CGS> 215,442
<TOTAL-COSTS> 353,595
<OTHER-EXPENSES> 110,923
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,115
<INCOME-PRETAX> (23,093)
<INCOME-TAX> (1,034)
<INCOME-CONTINUING> (22,059)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,059)
<EPS-PRIMARY> (1.91)
<EPS-DILUTED> (1.91)
</TABLE>
