1 ================================================================================ FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 29, 1996 Commission File No.: 0-14685 GENICOM CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 51-0271821 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14800 CONFERENCE CENTER DRIVE SUITE 400, WESTFIELDS CHANTILLY, VIRGINIA 20151 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (703) 802-9200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YesX No - -- -- As of November 1, 1996, there were 10,975,039 shares of Common Stock of the Registrant outstanding. ================================================================================ 2 FORM 10-Q INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - September 29, 1996 and December 31, 1995 3 Consolidated Statements of Income - Three and Nine Months Ended September 29, 1996 and October 1, 1995 4 Consolidated Statements of Cash Flows - Nine Months Ended September 29, 1996 and October 1, 1995 5 Notes to Consolidated Financial Statements 6 - 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 3. Defaults Upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 Index to Exhibits E-1 PAGE 2 3 PART I. - FINANCIAL INFORMATION Item 1. Financial Statements GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 29, DECEMBER 31, (In thousands, except share data) 1996 1995 --------------- -------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 13,969 $ 4,271 Accounts receivable, less allowance for doubtful accounts of $2,334 and $1,616 53,422 53,572 Other receivables 3,149 3,767 Inventories 30,474 43,079 Prepaid expenses and other assets 2,252 1,432 --------------- -------------- TOTAL CURRENT ASSETS 103,266 106,121 Property, plant and equipment 26,602 30,896 Goodwill 18,914 21,632 Intangibles and other assets 8,830 2,890 --------------- -------------- $ 157,612 $ 161,539 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Debt maturing within one year $ 3,923 $ 7,865 Accounts payable and accrued expenses 47,706 52,115 Deferred income 12,325 11,611 --------------- -------------- TOTAL CURRENT LIABILITIES 63,954 71,591 Long-term debt, less current portion 47,013 44,474 Other non-current liabilities 12,498 10,941 --------------- -------------- TOTAL LIABILITIES 123,465 127,006 STOCKHOLDERS' EQUITY: Common stock, $0.01 par value; 18,000,000 shares authorized, 10,975,139 and 10,839,399 shares issued 110 108 Additional paid-in capital 26,173 26,023 Retained earnings 9,965 10,503 Foreign currency translation adjustment (1,331) (1,331) Pension liability adjustment (770) (770) --------------- -------------- TOTAL STOCKHOLDERS' EQUITY 34,147 34,533 --------------- -------------- $ 157,612 $ 161,539 =============== ============== The accompanying notes are an integral part of these financial statements. PAGE 3 4 GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) THREE MONTHS ENDED, NINE MONTHS ENDED, SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1, (In thousands, except per share data) 1996 1995 1996 1995 -------------- ----------- -------------- ------------ REVENUES, NET: Products $ 38,888 $ 41,462 $ 122,190 $ 123,497 Services 29,923 37,044 89,313 94,985 ------------ ------------ ------------ ------------ 68,811 78,506 211,503 218,482 ------------ ------------ ------------ ------------ OPERATING COSTS AND EXPENSES: Cost of revenues: Products 26,089 27,887 84,727 83,804 Services 26,201 30,645 77,789 76,622 Selling, general and administration 14,534 13,738 39,821 39,111 Engineering, research and product development 1,937 2,166 5,834 6,430 Gain on sale of investment in subsidiary (1,481) Environmental costs 1,479 1,479 Restructuring costs 4,183 4,183 Acquisition related costs 1,204 ------------ ------------ ------------ ------------ 74,423 74,436 212,352 207,171 ------------ ------------ ------------ ------------ OPERATING (LOSS) INCOME (5,612) 4,070 (849) 11,311 Interest expense, net 1,147 2,069 3,299 5,714 Other income (63) (153) ------------ ------------ ------------ ------------ (LOSS) INCOME BEFORE INCOME TAXES (6,696) 2,001 (3,995) 5,597 Income tax (benefit) expense (4,467) 298 (3,876) 1,034 ------------ ------------ ------------ ------------ (LOSS) INCOME BEFORE EXTRAORDINARY ITEM (2,229) 1,703 (119) 4,563 EXTRAORDINARY ITEM - LOSS ON EXTINGUISHMENT OF DEBT, NET OF $258 TAX (422) ------------ ------------ ------------ ------------ NET (LOSS) INCOME $ (2,229) $ 1,703 $ (541) $ 4,563 ============ ============ ============ ============ (Loss) earnings per common share and common share equivalent (primary and fully diluted) $ (0.20) $ 0.14 $ (0.05) $ 0.38 ============ ============ ============ ============ Weighted average number of common shares and common share equivalents outstanding Primary 10,968 12,212 10,918 11,977 ============ ============ ============ ============ Fully diluted 10,968 12,212 10,918 11,992 ============ ============ ============ ============ The accompanying notes are an integral part of these financial statements. PAGE 4 5 GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDED, SEPTEMBER 29, OCTOBER 1, (In thousands) 1996 1995 --------------- ------------- Cash flows from operating activities: Net (loss) income $ (541) $ 4,563 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 10,856 10,360 Amortization 2,505 3,292 Gain on sale of Genicom de Mexico (1,481) Environmental accrual 1,479 Restructuring charge 4,183 Effect of acquisition related costs 1,204 Changes in assets and liabilities net of effects from acquisitions: Accounts receivable 4,391 (7,989) Inventories 14,310 (5,008) Accounts payable and accrued expenses (13,290) (1,546) Deferred income 714 (571) Other (6,691) 1,984 --------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 16,435 6,289 --------------- ------------- Cash flows from investing activities: Payment for purchase of businesses, net of cash acquired (9,793) Sale of Genicom de Mexico 3,950 Additions to property, plant and equipment (8,811) (11,628) Other (259) (208) --------------- ------------- NET CASH USED IN INVESTING ACTIVITIES (5,120) (21,629) --------------- ------------- Cash flows from financing activities: Borrowings from long-term debt 63,806 27,867 Payments on long-term debt (63,934) (12,297) Financing costs and transactions (1,509) --------------- ------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,637) 15,570 --------------- ------------- Effect of exchange rate changes on cash and cash equivalents 20 (369) --------------- ------------- Net increase (decrease) in cash and cash equivalents 9,698 (139) Cash and cash equivalents at beginning of period 4,271 673 --------------- ------------- Cash and cash equivalents at end of period $ 13,969 $ 534 =============== ============= The accompanying notes are an integral part of these financial statements PAGE 5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. In the opinion of management, the accompanying unaudited consolidated financial statements of GENICOM Corporation and subsidiaries (the "Company" or "GENICOM") contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company's consolidated financial position as of September 29, 1996, and the results of operations and cash flows for the periods indicated. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1995 Annual Report. The results of operations for the three and nine months ended September 29, 1996, are not necessarily indicative of the operating results to be expected for the full year. Certain reclassifications have been made to the 1995 condensed financial statements in order to conform to the 1996 presentation. 2. Inventories are stated at the lower of cost, determined on the first-in, first-out method, or market. Inventories consist of, in thousands: SEPTEMBER 29, DECEMBER 31, 1996 1995 ============== ============= Raw Materials $ 1,378 $ 2,594 Work in process 2,989 4,899 Finished goods 26,107 23,327 Atlantic Design inventory 12,259 -------------- ------------- $ 30,474 $ 43,079 -------------- ------------- 3. Earnings per share are based upon the weighted average number of common shares and dilutive common share equivalents (using the treasury stock method) outstanding during the period. THREE MONTHS ENDED NINE MONTHS ENDED =================== =================== SEPT. 29, OCT. 1, SEPT. 29, OCT. 1, 1996 1995 1996 1995 ========= ======= ========== ======= SHARES USED IN COMPUTATION: Weighted average common shares outstanding 10,968 10,809 10,918 10,733 Shares applicable to stock options, net of shares assumed to be purchased from proceeds at average market price 1,403 1,244 --------- ------- -------- ------- Total shares for earnings per common share and common share equivalent (primary) 10,968 12,212 10,918 11,977 Shares applicable to stock options in addition to those used in primary computation due to the use of period-end market price when higher than average market price 15 --------- ------- -------- ------- Total fully diluted shares 10,968 12,212 10,918 11,992 ========= ======= ======== ======= PAGE 6 7 4. During the first quarter ended March 31, 1996 the Company adopted the provisions of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". The implementation of SFAS No. 121 did not have a material effect on the Company's financial condition or results of operations in 1996. 5. On January 12, 1996, the Company reached an agreement with NationsBank of Texas, N.A., as agent for a syndicate of banks, ("NationsBank") on $75 million of credit facilities. The Company used this new credit agreement with NationsBank to retire all the debt associated with its former credit agreement with CIT and to retire all of the Company's outstanding 12.5% Senior Subordinated Notes. As a result of the retirement of this debt the Company recognized a loss on the extinguishment of debt of $422,000, net of tax of $258,000. On September 30, 1996, the Company amended the credit facilities with NationsBank. This amendment redefined the financial covenants, the interest rates and the principal payments of the agreement. 6. Following the end of the quarter, as of September 30, 1996, the Company acquired certain assets of Texas Instruments worldwide printer and related supplies business for the purchase price of approximately $27 million. The acquisition was financed primarily through the Company's credit facility with NationsBank and a note to Texas Instruments payable over two years. During a scheduled transition period of approximately six months, Texas Instruments will manufacture on behalf of the Company the products relating to the business acquired. The Company has entered into an interim agreement with Atlantic Design Company, with whom the Company has an existing outsourcing manufacturing agreement, for the performance of manufacturing oversight and other functions during this period. In conjunction therewith, all manufacturing equipment acquired by the Company from Texas Instruments was transferred to Atlantic Design as of September 30, 1996. Under this interim agreement, and unlike the Company's existing agreement with Atlantic Design pursuant to which Atlantic Design owns all inventory until transfer to the Company as finished goods, the Company will own all inventory (raw materials, work in process and finished goods) during this period. The Company is negotiating to expand its existing, five year outsourcing agreement with Atlantic Design under which Atlantic Design would be the primary manufacturer of all value-added Genicom printer products, including those relating to the business acquired from Texas Instruments. The acquisition is being accounted for as a purchase and the allocation of the purchase price and related acquisition costs is subject to adjustment based upon refinements in the application of purchase method accounting and the final determination of the purchase price. PAGE 7 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition: RESULTS OF OPERATIONS ==================================================================================================================== THREE MONTHS ENDED NINE MONTHS ENDED ================================== =================================== (in millions) 3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR. 1996 CHANGE 1995 1996 CHANGE 1995 - -------------------------------------------------------------------------------------------------------------------- Revenues - Enterprising Service Solutions $ 29.9 $ (7.1) $ 37.0 $ 89.3 $ (5.7) $ 95.0 Revenues - Document Solutions 38.9 (2.6) 41.5 122.2 (1.3) 123.5 ------- ---------- ------- ------- ---------- ------- Total Revenues $ 68.8 $ (9.7) $ 78.5 $211.5 $ (7.0) $218.5 ------- ---------- ------- ------- ---------- ------- Percentage change (12.4)% (3.2)% ==================================================================================================================== Revenue in the third quarter of 1996 decreased 12.4% compared to the year-ago quarter primarily due to a revenue fall off in Enterprising Service Solutions. Enterprising Service Solutions ("ESS") revenue declined $7.1 million or 19.2% in the third quarter of 1996. The Multivendor Service revenue increased $0.2 million as a result of significant new business that has been partially offset by the decline in legacy business. Integrated Network Service revenue decreased $7.4 million over last year's third quarter due to unique customer opportunities the Company realized in Canada and with Nasdaq in 1995. During the initial growth phase and due to large contract values and long selling cycles associated with the Integrated Network Services, the Company anticipates that Integrated Network Services revenue may grow at an uneven rate. The Company is continuing to invest in the business directed at the fast growing network management market. Document Solutions ("DS") revenues during the third quarter of 1996 decreased $2.6 million from the same period last year. Printer sales declined 10.0% due to laser printer sales being 25.1% lower than the same period a year ago. Impact printer sales declined 6.6% for the third quarter of 1996 as compared to the third quarter of 1995. Supply and part sales decreased 6.0% from the third quarter of 1995. Relay revenues, which are included as part of Document Solutions, increased by $0.6 million or 21.1% in the third quarter of 1996 as compared to the prior year quarter. Revenues for the first nine months of 1996 decreased $7.0 million from the same period in 1995 primarily as a result of the decline in Integrated Network Service revenue and printer revenue which was partially offset by increased relay and multivendor service revenue. Revenues for Enterprising Service Solutions decreased $5.7 million for the period. This decrease is primarily related to the decline in Integrated Network Management revenues previously discussed. Document Solutions revenues were 1.1% lower for the first nine months of 1996 as compared to 1995. While printer revenues declined for both laser and impact printers, parts and supplies revenues increased 5.2% partially offsetting the decline in printer sales. Relay revenues increased 13.6%. ========================================================================================================== (in millions) 3RD QUARTER 4TH QUARTER 3RD QUARTER 1996 1995 1995 - ---------------------------------------------------------------------------------------------------------- Order backlog $ 39.5 $ 47.5 $ 49.3 Change: 3rd Quarter of 1996 compared to Amount (8.0) (9.8) Percentage (16.8)% (19.9)% ========================================================================================================== The decrease in order backlog from the 1995 fourth quarter and the third quarter of 1996 primarily reflects selected declining legacy business within ESS and the certain systems integration contracts that PAGE 8 9 were completed in 1995. In addition, new service contracts represent potential revenue versus firm commitments. The backlog reflects only fixed-price contracts for all orders associated with relays, service, systems integration, network monitoring 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. ============================================================================================================================== THREE MONTHS ENDED NINE MONTHS ENDED ================================= ================================ (in millions) 3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR. 1996 CHANGE 1995 1996 CHANGE 1995 - ------------------------------------------------------------------------------------------------------------------------------ Gross margin - Enterprising Service Solutions $ 3.7 $ (2.7) $ 6.4 $ 11.5 $ (6.9) $ 18.4 Gross margin - Document Solutions 12.8 (0.7) 13.5 37.5 (2.2) 39.7 --------- ---------- --------- --------- -------- -------- Total gross margin 16.5 (3.4) 19.9 49.0 (9.1) 58.1 --------- ---------- --------- --------- -------- -------- As a % of revenue 24.0 % 25.4 % 23.2 % 26.6 % ============================================================================================================================== Gross margin, as a percentage of revenue, decreased in the third quarter of 1996 as compared to the prior year quarter. This decrease is principally attributable to the fixed costs associated with the Massachusetts depot which has been affected by the decline in the legacy service business. The Company is restructuring its service business to better align costs to revenue. For the first nine months of 1996, gross margin also declined as a percentage of revenue when compared to 1995 principally due to the effect of the declining legacy service business, the consumption of inventory transferred to Atlantic Design pursuant to the outsourcing agreement, and increased costs associated with the extreme snow conditions which impacted the service depots in Virginia and Massachusetts for a full week of production in January 1996. =========================================================================================================================== THREE MONTHS ENDED NINE MONTHS ENDED ========================================= =========================================== (in millions) 3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR. 1996 CHANGE 1995 1996 CHANGE 1995 - --------------------------------------------------------------------------------------------------------------------------- Operating expenses: Selling, general and administrative $ 14.5 $ 0.8 $ 13.7 $ 39.8 $ 0.7 $ 39.1 Engineering, research and product development 2.0 (0.2) 2.2 5.8 (0.6) 6.4 --------- ---------- --------- ---------- --------- ---------- Total $ 16.5 $ 0.6 $ 15.9 $ 45.6 $ 0.1 $ 45.5 As a % of revenue 24.0 % 20.3 % 21.6 % 20.8 % =========================================================================================================================== Operating expenses increased in the third quarter of 1996 as compared to the year-ago period, due to a number of factors including employee costs and the outsourcing of the Company's MIS function. This outsourcing of the MIS function is directed at a long-term plan to upgrade systems and technology skills base which the Company believes is necessary for the Company to remain competitive. 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. Operating expenses were flat for year-to-date 1996 compared to the first nine months of 1995 primarily due to the management's focus on cost controls partially offset by MIS expenses and the Texas Instruments acquisition costs. In addition, in the third quarter of 1996, following Board of Directors review, the Company accrued $1.5 million associated with environmental charges and $4.2 million for restructuring the worldwide service business. The environmental charge is the Company's best estimate at the present time of the PAGE 9 10 remaining costs associated with certain environmental matters including $617,000 for pond closure and monitoring for ten years at the Company's Waynesboro, Virginia facility and $862,000 for litigation costs associated with the Linn-Faysville Aquifer in Texas. The restructuring charge for the service business involves 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 group. ====================================================================================================== THREE MONTHS ENDED NINE MONTHS ENDED ================================ ================================ (in millions) 3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR. 1996 CHANGE 1995 1996 CHANGE 1995 - ------------------------------------------------------------------------------------------------------ Interest expense, net $ 1.1 $ (1.0) $ 2.1 $ 3.3 $ (2.4) $ 5.7 Percentage change (47.6)% (42.1)% ====================================================================================================== The decrease in interest expense in the third quarter of 1996 as compared to the year-ago quarter and for the nine months ended is primarily due to the Company's retirement of its outstanding 12.5% senior subordinated notes in February 1996 and the refinancing of the Company's credit facility through NationsBank of Texas, N.A., as agent for a group of banks, in January 1996. ===================================================================================================== THREE MONTHS ENDED NINE MONTHS ENDED ================================== ====================================== (in millions) 3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR. 1996 CHANGE 1995 1996 CHANGE 1995 - ----------------------------------------------------------------------------------------------------- Income tax expense $ (4.5) $ (4.8) $ 0.3 $ (3.9) $ (4.9) $ 1.0 Effective tax rate -66.7% 14.9% -97.0% 18.5% ====================================================================================================== The Company's effective income tax rate for the third quarter of 1996 was a benefit of (66.7%) as compared to an expense of 14.9% for the year-ago period. The tax rate for the nine months ended September 29, 1996 was a benefit of (97.0%) as compared to an expense of 18.5% for the same period in 1995. In 1995, the rate was significantly affected by foreign income taxes and tax credits and the utilization of net operating losses. In the third quarter of 1996, the Company took a tax benefit of $2.8 million associated with the reversal of the deferred tax asset valuation allowance. Based on forecasts including the expected positive effect of the Texas Instruments acquisition, management estimates that these tax assets will be fully recoverable. LIQUIDITY AND CAPITAL RESOURCES ================================================================================================== NINE MONTHS ENDED ======================================== (in millions) 3RD QUARTER 3RD QUARTER 1996 1995 - -------------------------------------------------------------------------------------------------- Cash provided by operations $ 16.4 $ 6.3 Cash used in investing activities (5.1) (21.6) Cash (used in) provided by financing activities (1.6) 15.6 ================================================================================================== PAGE 10 11 ================================================================================================== (in millions) 3RD QUARTER 4TH QUARTER 1996 1995 - -------------------------------------------------------------------------------------------------- Working capital $ 37.8 $ 34.5 Inventories 30.5 43.1 Debt obligations 50.9 52.4 Debt to equity ratio 1.5 to 1 1.5 to 1 ================================================================================================== The Company's working capital increased $3.3 million as of September 29, 1996 as compared to December 31, 1995 due primarily to the reduction in current liabilities, as partially offset by a reduction in inventories. As of September 29, 1996, the Company's current debt consists of payments due within one year on its term notes with NationsBank and notes associated with the purchase of Harris Adacom and Printer Systems in 1995. The acquisition of Texas Instruments printer business was financed through facilities which did not increase required debt payments in the year immediately following the acquisition. On January 12, 1996, the Company reached an agreement with NationsBank of Texas, N.A., as agent for a syndicate of banks, ("NationsBank") on $75 million of credit facilities. Under the agreement, NationsBank is providing a $35 million revolving credit facility and two term loans totaling $40 million. 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 of 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's term loans. On September 30, 1996, the Company amended the credit facilities. This amendment redefined the financial covenants, adjusted the interest rates as well as the principal payments of the agreement. As of September 29, 1996, the Company had $15.0 million outstanding and $12.2 million available for borrowing on the revolving credit facility and $34.8 million outstanding in term loans. The Company used the new 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. As part of the refinancing, the Company recognized a loss on extinguishment of debt of $0.4 million net of tax. At the end of June 1996, the Company sold the stock of its Mexican subsidiary, whose principal asset was a building in Reynosa, Mexico, receiving net proceeds of $3.5 million and recognizing a gain of $1.5 million. Following the end of the quarter, as of September 30, 1996, the Company acquired certain assets of Texas Instruments worldwide printer and related supplies business for the purchase price of approximately $27 million. The acquisition was financed primarily through the Company's credit facility with NationsBank and a note to Texas Instruments payable over two years. During a scheduled transition period of approximately six months, Texas Instruments will manufacture on behalf of the Company the products relating to the business acquired. The Company has entered into an interim agreement with Atlantic Design Company, with whom the Company has an existing outsourcing manufacturing agreement, for the performance of manufacturing oversight and other functions during this period. In conjunction therewith, all manufacturing equipment acquired by the Company from Texas Instruments was transferred to Atlantic Design as of September 30, 1996. Under this interim agreement, and unlike the Company's existing agreement with Atlantic Design pursuant to which Atlantic Design owns all inventory until transfer to the Company as finished goods, the Company will own all inventory (raw materials, work in process and finished goods) during this period. The Company is negotiating to PAGE 11 12 expand its existing, five year outsourcing agreement with Atlantic Design under which Atlantic Design would be the primary manufacturer of all value-added Genicom printer products, including those relating to the business acquired from Texas Instruments. As a result of this acquisition, the Company anticipates that it will add scale, products and customers to its existing printer business. The printer business now includes Texas Instruments ticketing printer product line which is directed at the transportation industry. In addition to the ticketing printers, the Company acquired mid-range laser products, high-end serial products and the supplies related to each respective product line. This acquisition was driven by the Company's strategy of focusing on the mid-range printer market. The acquisition is being accounted for as a purchase and the allocation of the purchase price and related acquisition costs is subject to adjustment based upon refinements in the application of purchase method accounting and the final determination of the purchase price. GENICOM provides an array of services and products addressing different niches of the information processing industry, competing against a wide range of companies from large multinationals to small domestic entrepreneurs. Except for the historical information contained herein, the matters discussed in this 10Q include forward-looking statements that involve a number of risks and uncertainties. There are certain important factors and risks, including 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, selective service customers whose business is declining, seasonality in the buying cycles of certain of the Company's customers, the timing of product announcements, the release of new or enhanced products and services, the introduction of competitive products and services by existing or new competitors, access to and development of product rights and technologies, the management of growth, the integration of acquisitions, GENICOM's ability to retain highly skilled technical, managerial and sales and marketing personnel, possible litigation related to the Company's operations, including litigation arising under various environmental laws, and the other risks detailed from time to time in the Company's SEC reports, including reports on Form 10K, that could cause results to differ materially from those anticipated by the statements contained herein. PART II. - OTHER INFORMATION Item 1. Legal Proceedings: Not applicable. Item 2. Changes in Securities: Not applicable. Item. 3 Defaults Upon Senior Securities: Not applicable. Item 4. Submission of Matters to a Vote of Security Holders: Not applicable. Item 5. Other Information: Following the end of the quarter, as of September 30, 1996, the Company acquired certain assets of Texas Instruments worldwide printer and related supplies business for the purchase price of PAGE 12 13 approximately $27 million. The acquisition was financed primarily through the Company's credit facility with NationsBank and a note to Texas Instruments payable over two years. During a scheduled transition period of approximately six months, Texas Instruments will manufacture on behalf of the Company the products relating to the business acquired. The Company has entered into an interim agreement with Atlantic Design Company, with whom the Company has an existing outsourcing manufacturing agreement, for the performance of manufacturing oversight and other functions during this period. In conjunction therewith, all manufacturing equipment acquired by the Company from Texas Instruments was transferred to Atlantic Design as of September 30, 1996. Under this interim agreement, and unlike the Company's existing agreement with Atlantic Design pursuant to which Atlantic Design owns all inventory until transfer to the Company as finished goods, the Company will own all inventory (raw materials, work in process and finished goods) during this period. The Company is negotiating to expand its existing, five year outsourcing agreement with Atlantic Design under which Atlantic Design would be the primary manufacturer of all value-added Genicom printer products, including those relating to the business acquired from Texas Instruments. As a result of this acquisition, the Company anticipates that it will add scale, products and customers to its existing printer business. The printer business now includes Texas Instruments ticketing printer product line which is directed at the transportation industry. In addition to the ticketing printers, the Company acquired mid-range laser products, high-end serial products and the supplies related to each respective product line. This acquisition was driven by the Company's strategy of focusing on the mid-range printer market. The acquisition is being accounted for as a purchase and the allocation of the purchase price and related acquisition costs is subject to adjustment based upon refinements in the application of purchase method accounting and the final determination of the purchase price. Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits NUMBER DESCRIPTION =========== ======================================================================= 10.1 Credit Agreement dated as of January 12, 1996, Third Amendment to Credit Agreement and Security Agreement 27.1 Financial Data Schedule (b) Reports on Form 8-K: The Company filed a report on Form 8-K on October 15, 1996, which reported the Company's acquisition of the Texas Instruments printer business. A copy of the purchase agreement is included as Exhibit 2.1 to the form. PAGE 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENICOM Corporation ----------------------------------- Registrant Date: November 13, 1996 /s/ Harold L. McIlroy =================================== Signature Harold L. McIlroy Vice President, Quality & Customer Satisfaction, General Manager, Operations (Mr. McIlroy is a Corporate Vice President and has been duly authorized to sign on behalf of the Registrant) PAGE 14 15 GENICOM CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS TO FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1996 EXHIBIT NUMBER DESCRIPTION PAGE =========== ================================================================= ============================= 10.1 Credit Agreement dated as of January 12, 1996, Third Amendment to E-2 - E-27 Credit Agreement and Security Agreement 27.1 Financial Data Schedule Filed only with EDGAR version E - 1