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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
OR
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-9919
PSC INC.
(Exact name of Registrant as Specified in Its Charter)
New York 16-0969362
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
675 Basket Road, Webster, New York 14580
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(716) 265-1600
--------------
(Registrant's telephone number, including area code)
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 12 months preceding (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
As of May 9, 2000, there were 12,214,366 shares of common stock outstanding.
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-1-
PSC INC. AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION
Item 1 Financial Statements Page Number
-----------
Consolidated Balance Sheets as of
March 31, 2000 (Unaudited) and December 31, 1999......................3-4
Consolidated Statements of Operations and Retained Earnings for the
three months ended:
March 31, 2000 (Unaudited) and April 2, 1999 (Unaudited) ...............5
Consolidated Statements of Cash Flows for the three months ended:
March 31, 2000 (Unaudited) and April 2, 1999 (Unaudited) ...............6
Notes to Consolidated Financial Statements (Unaudited) ..............7-12
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations ......................13-15
PART II: OTHER INFORMATION
Item 1 Legal Proceedings .....................................................16
Item 2 Changes in Securities ................................................16
Item 3 Defaults upon Senior Securities .......................................16
Item 4 Submission of Matters to a Vote of Security Holders ..................16
Item 5 Other Information ...................................................16
Item 6 Exhibits and Reports on Form 8-K .....................................16
-2-
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
PSC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except per share data)
Mar. 31, Dec. 31,
2000 1999
-------- --------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,077 $ 1,402
Accounts receivable, net of allowance for doubtful
accounts of $971 and $685, respectively 43,121 38,396
Inventories 27,515 23,343
Prepaid expenses and other 2,937 3,514
-------- --------
TOTAL CURRENT ASSETS 77,650 66,655
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of $25,184 and $23,614,
respectively 28,271 25,994
DEFERRED TAX ASSETS 21,954 20,762
INTANGIBLE AND OTHER ASSETS, net of accumulated
amortization of $30,235 and $27,476, respectively 98,351 53,330
-------- --------
TOTAL ASSETS $226,226 $166,741
======== ========
See accompanying notes to the Consolidated Financial Statements.
-3-
PSC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except per share data)
(Continued)
Mar. 31, Dec. 31,
2000 1999
-------- --------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 12,627 $ 16,281
Accounts payable 23,214 20,685
Accrued expenses 9,031 7,086
Accrued payroll and related employee benefits 4,559 5,758
--------- ---------
TOTAL CURRENT LIABILITIES 49,431 49,810
LONG-TERM DEBT, less current maturities 118,983 57,585
ACCRUED PROVISION FOR DISPUTED ROYALTIES 7,129 6,400
OTHER LONG-TERM LIABILITIES 1,806 1,613
SHAREHOLDERS' EQUITY:
Series A convertible preferred shares, par value $.01;
110 shares authorized, issued and outstanding
($11,000 aggregate liquidation value) 1 1
Series B preferred shares, par value $.01; 175
authorized, no shares issued and outstanding -- --
Undesignated preferred shares, par value $.01;
9,715 authorized, no shares issued and outstanding -- --
Common shares, par value $.01; 40,000 authorized
12,207 and 12,080 shares issued and outstanding 122 121
Additional paid-in capital 73,269 71,843
Retained earnings/(Accumulated deficit) (21,215) (18,065)
Accumulated other comprehensive income/(loss) (1,943) (1,210)
Less treasury stock repurchased at cost, 180 shares (1,357) (1,357)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 48,877 51,333
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 226,226 $ 166,741
========= =========
See accompanying notes to the Consolidated Financial Statements.
-4-
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(All amounts in thousands, except per share data)
(Unaudited)
Three Months Ended
-----------------------
March 31, April 2,
2000 1999
---------- ---------
(Unaudited) (Unaudited)
NET SALES $ 61,439 $ 59,145
COST OF SALES 37,869 33,540
-------- --------
Gross profit 23,570 25,605
OPERATING EXPENSES:
Engineering, research and development 5,822 4,128
Selling, general and administrative 14,414 12,360
Severance and other costs 1,974 2,103
Amortization of intangibles resulting from
business acquisitions 2,581 1,699
-------- --------
Income/(loss) from operations (1,221) 5,315
INTEREST AND OTHER INCOME/(EXPENSE):
Interest expense (3,423) (2,174)
Interest income 146 91
Other income/(expense) 9 (15)
-------- --------
(3,268) (2,098)
-------- --------
Income/(loss) before income tax provision/(benefit) (4,489) 3,217
Income tax provision/(benefit) (1,339) 1,126
-------- --------
Net income/(loss) ($ 3,150) $ 2,091
======== ========
NET INCOME/(LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Basic ($0.26) $0.18
Diluted ($0.26) $0.15
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Basic 12,022 11,895
Diluted 12,022 13,677
RETAINED EARNINGS/(ACCUMULATED DEFICIT):
Retained earnings/(Accumulated deficit),
beginning of period ($18,065) ($26,027)
Net income/(loss) (3,150) 2,091
--------- ---------
Retained earnings/(Accumulated deficit), end of period ($21,215) ($23,936)
========= =========
See accompanying notes to the Consolidated Financial Statements.
-5-
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Three Months Ended
----------------------------------
March 31, 2000 April 2, 1999
-------------- -------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) ($ 3,150) $ 2,091
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Depreciation and amortization 4,351 3,340
Deferred tax assets (1,170) (157)
(Increase) decrease in assets:
Accounts receivable 1,718 1,291
Inventories (152) (3,792)
Prepaid expenses and other 631 (179)
Increase (decrease) in liabilities:
Accounts payable (25) 1,225
Accrued expenses (1,137) 2,286
Accrued provision for disputed royalties 729 --
Accrued payroll and related employee benefits (1,281) (67)
Accrued acquisition related restructuring costs -- (258)
--------- ---------
Net cash provided by operating activities 514 5,780
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (1,295) (1,005)
Net cash paid for business (53,486) --
Additions to intangible and other assets (464) (2,037)
--------- ---------
Net cash used in investing activities (55,245) (3,042)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt 112,000 2,000
Payments of long-term debt (54,854) (5,594)
Additions to other long-term liabilities, net 188 63
Exercise of options and issuance of common shares 777 555
Tax benefit from exercise or disposition of stock options 28 --
--------- ---------
Net cash provided by (used in) financing activities 58,139 (2,976)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (733) (852)
--------- ---------
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 2,675 (1,090)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,402 6,180
--------- ---------
End of period $ 4,077 $ 5,090
========= =========
See accompanying notes to the Consolidated Financial Statements.
-6-
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
(All amounts in thousands, except per share data)
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared by
the Company without audit. In the opinion of management, these financial
statements include all adjustments necessary to present fairly the
Company's financial position as of March 31, 2000, the results of
operations for the three months ended March 31, 2000 and April 2, 1999 and
its cash flows for the three months ended March 31, 2000 and April 2,
1999. The results of operations for the three months ended March 31, 2000
are not necessarily indicative of the results to be expected for the full
year.
Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's December 31, 1999 annual report on
Form 10-K.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Inventory costs include material, direct labor and
overhead and consist of the following:
March 31, 2000 December 31, 1999
-------------- -----------------
Raw materials $15,873 $14,358
Work-in-process 5,078 5,238
Finished goods 6,564 3,747
------- -------
$27,515 $23,343
======= =======
(2) LONG-TERM DEBT
Long-term debt consists of the following:
March 31, 2000 December 31, 1999
-------------- -----------------
Senior term loan $ 72,500 $42,000
Revolving line of credit 27,000 --
Subordinated term loan 29,622 29,607
Subordinated promissory note 1,875 2,188
Other 613 71
-------- -------
131,610 73,866
Less: current maturities 12,627 16,281
-------- -------
$118,983 $57,585
======== =======
-7-
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
(All amounts in thousands, except per share data)
(Unaudited)
The Company borrowed an additional $58.0 million under its amended senior
term loan and revolving credit facilities to finance the acquisition of
Percon Incorporated (Percon). See Note 3 "Acquisition". The amended
revolving credit facilities provide for borrowings up to $50.0 million, of
which, $27.0 million was utilized toward the acquisition.
(3) ACQUISITION
On January 19, 2000, the Company acquired all of the outstanding shares of
Percon, a manufacturer of wireless and batch portable data terminals,
decoders, input devices and data management software, for approximately
$57.0 million. The acquisition was accounted for under the purchase method
of accounting and accordingly, the results of Percon's operations are
included in the 2000 consolidated statements of operations since the date
of acquisition. The excess purchase price over the fair value of net
assets acquired was approximately $46.0 million and is being amortized on
a straight-line basis over 10 years.
The following unaudited pro forma condensed results of operations combine
the operations of the Company with those of Percon as if the acquisition
was consummated on January 1, 1999. The pro forma information is presented
after giving effect to certain adjustments for amortization of goodwill,
incremental interest expense on acquisition financing and the related
income tax effects. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the
results that would have been achieved during the periods indicated and are
not intended to be indicative of future results.
Pro Forma Three Months Ended
------------------------------------
March 31, 2000 April 2, 1999
---------------- ---------------
Net sales $62,198 $67,053
Income/(loss) from operations (3,526) 5,164
Net income/(loss) (4,855) 1,000
Net income/(loss) per common and
common equivalent share:
Basic $(0.40) $0.08
Diluted $(0.40) $0.07
Weighted average number of common and
common equivalent shares outstanding:
Basic 12,022 11,895
Diluted 12,022 13,677
-8-
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
(All amounts in thousands, except per share data)
(Unaudited)
In connection with the acquisition, liabilities assumed and net cash paid
were as follows:
Fair value of assets acquired $67,611
Liabilities assumed 6,623
-------
Cash paid for business 60,988
Less: cash acquired 7,502
-------
Net cash paid for business $53,486
=======
(4) SEVERANCE AND OTHER COSTS
During the first quarter of 2000, the Company recorded a pretax charge of
$2.0 million for employee severance and benefit costs for the elimination
of approximately 35 positions resulting from integration activities
associated with the Percon acquisition and reorganization actions in
connection with the Company's sales force. As of March 31, 2000, the
amount of the severance accruals was approximately $1.6 million, which
relates to current contractual obligations. These costs reduced 2000
income/(loss) before income tax provision/(benefit), net income/(loss),
basic EPS and diluted EPS by $2.0 million, $1.3 million, $0.11 and $0.11,
respectively.
(5) SHAREHOLDERS' EQUITY
Comprehensive income, which includes net income/(loss), foreign currency
translation adjustments and unrealized gain/(loss) on securities, was
($3,884) and $926 for the three months ended March 31, 2000 and April 2,
1999, respectively.
During the three month period ended March 31, 2000, employees purchased
approximately 73 shares at $6.27 per share under the provisions of the
Company's Employee Stock Purchase Plan.
-9-
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
(All amounts in thousands, except per share data)
(Unaudited)
Changes in the status of options under the Company's stock option plans are
summarized as follows:
January 1, 2000 Weighted January 1, 1999 Weighted
to Average to Average
March 31, 2000 Price December 31, 1999 Price
--------------- -------- ----------------- --------
Options outstanding at
beginning of period 3,221 $7.84 3,027 $7.98
Options granted 175 6.70 432 7.28
Options exercised (52) 5.76 (82) 7.24
Options forfeited/canceled (101) 7.18 (156) 9.24
------ ------
Options outstanding at
end of period 3,243 $7.84 3,221 $7.84
====== ======
Number of options at end
of period:
Exercisable 2,010 $8.20 2,058 $8.13
Available for grant 567 693
During the three month period ended March 31, 2000, 52 forfeited options
were cancelled due to the expiration of the 1987 Stock Option Plan in
December 1997. These options are not available for future grants.
(6) NET INCOME/(LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Basic EPS was computed by dividing reported earnings available to common
shareholders by weighted average shares outstanding during the year.
Diluted EPS for the three months ended April 2, 1999 was determined on the
following assumptions: (1) Preferred Shares and related warrants issued in
connection with the private placement of equity were converted upon
issuance on January 1, 1999 and (2) warrants issued in connection with the
acquisition of Spectra were converted on January 1, 1999.
The following options and warrants were not included in the computation of
diluted EPS since the exercise prices were greater than the average market
price of Common Shares. Options to purchase 3,868 and 1,171 common shares
at an average price of $6.88 and $9.65 per share were outstanding for the
three months ended March 31, 2000 and April 2, 1999, respectively.
Warrants to purchase 1,155 common shares at an average price of $5.68 per
share were outstanding for the three months ended March 31, 2000.
-10-
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
(All amounts in thousands, except per share data)
(Unaudited)
Three Months Ended
----------------------------------------------------------------------------------
March 31, 2000 April 2, 1999
--------------------------------------- --------------------------------------
Per Per
Income Shares Share Income Shares Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic EPS:
Income available to common
shareholders ($3,150) 12,022 ($0.26) $2,091 11,895 $0.18
======= =====
Effect of dilutive securities:
Options -- -- -- 324
Warrants -- -- -- 83
Preferred Shares -- -- -- 1,375
-------- ------- ------ ------
Diluted EPS:
Income available to common
shareholders and assumed
conversions ($3,150) 12,022 ($0.26) $2,091 13,677 $0.15
======== ======= ======= ====== ====== =====
(7) DERIVATIVES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. As amended by Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133", SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000 and cannot be applied retroactively. The
Company has not yet quantified the impacts of adopting SFAS No. 133 on the
financial statements and has not determined the timing of or method of
adopting SFAS No. 133.
The Company monitors its exposure to interest rate and foreign currency
exchange risk. The Company has limited involvement with derivative
financial instruments and does not use them for trading purposes. The
Company uses derivative instruments solely to reduce the financial impact
of these risks. Cash flows from interest rate swap agreements and foreign
currency forward exchange contracts are classified in the same category as
the item being hedged.
-11-
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND APRIL 2, 1999
(All amounts in thousands, except per share data)
(Unaudited)
Interest Rate Risk:
The Company's exposure to interest rate changes relates to its long-term
debt. The Company has entered into interest rate swap agreements with its
senior lending banks in accordance with the terms of the senior credit
agreement. The Company uses these interest rate swap agreements to reduce
its exposure to interest rate changes. The differentials to be received or
paid under these interest rate swap agreements are recognized as a
component of interest expense in the consolidated statements of operations.
Foreign Currency Exchange Rate Risk:
The Company's exposure to foreign currency relates primarily to its
international subsidiaries. Sales to certain countries are denominated in
their local currency. The Company enters into foreign currency forward
exchange contracts to minimize the effect of foreign currency fluctuations
relating to these transactions and commitments denominated in foreign
currencies. The foreign exchange contracts generally have maturities of
approximately 30 days and require the Company to exchange foreign
currencies for U.S. dollars at maturity, at rates agreed to at the
inception of the contracts. Gains and losses on forward contracts are
offset against the foreign exchange gains and losses on the underlying
hedged items and are recorded in the consolidated statements of operations.
-12-
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
- -------
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
of the Company's December 31, 1999 annual report on Form 10-K.
Overview
- --------
On December 21, 1999, the Company acquired substantially all of the assets of
GAP Technologies, Inc. and GEO Labs, Inc. (GAP) for approximately $4.8 million.
GAP is a technology and research group that designs and manufactures miniature
laser scan engines and pen-based scanners. The Company recently introduced an
innovative consumer home shopping appliance, incorporating the miniature scan
engine technology developed by GAP. The home shopping system enables consumers
to create a shopping list by scanning product bar codes and then transmitting
the list online to the retailer.
On January 19, 2000, the Company acquired all of the outstanding shares of
Percon Incorporated (Percon), a manufacturer of wireless and batch portable data
terminals (PDTs), decoders, input devices and data management software, for
approximately $57.0 million. The acquisition of Percon significantly increased
the scope of the Company's product line, enhancing the Company's ability to
provide systems type solutions and to expand the Company into the PDT and
software/services categories of the AIDC market, which are growing rapidly.
Results of Operations: Three Months ended March 31, 2000 and April 2, 1999
- ---------------------------------------------------------------------------
Net Sales. Net sales during the three months ended March 31, 2000 increased $2.3
million or 4% compared with the same period in 1999. The increase in net sales
is attributed primarily to increased sales in U-Scan(R) Express Self-Checkout
Systems and inclusion of Percon product sales offset by a decline in sales of
retail fixed position products.
Gross Profit. Gross profit during the three months ended March 31, 2000
decreased $2.0 million or 8% compared with the same period in 1999. As a
percentage of sales, gross profit decreased from 43.3% to 38.4%. The decrease in
gross profit percentage is primarily due to a change in the Company's product
mix and the impact of unfavorable foreign currency exchange rates.
Engineering, Research and Development. Engineering, Research and Development
(ER&D) expenses increased $1.7 million or 41%, as compared to the same period in
1999. As a percentage of sales, ER&D was 9.5% in the first quarter of 2000
versus 7.0% of net sales in the first quarter of 1999. The increase in ER&D is
primarily attributable to additional investments in developing new products and
enhancing existing products, and the inclusion of GAP Technologies and Percon,
which were acquired in December 1999 and January 2000, respectively.
Selling, General and Administrative. Selling, General and Administrative (SG&A)
expenses increased $2.1 million or 16.6%, as compared to the first quarter of
1999. As a percentage of sales, SG&A was 23.5% in 2000 versus 20.9% in 1999. The
dollar and percentage increases are primarily due to the inclusion of Percon and
higher royalty expense recorded in connection with the February 8, 2000 decision
related to the Company's licensing agreements with Symbol Technologies, Inc. See
"Legal Proceedings."
-13-
Severance and Other Costs. During the first quarter of 2000, the Company
recorded a pretax charge of $2.0 million for employee severance and benefit
costs for the elimination of approximately 35 positions resulting from
integration activities associated with the acquisition of Percon and
reorganization actions in connection with the Company's sales force. As of March
31, 2000, the amount of the severance accruals was approximately $1.6 million,
which relates to current contractual obligations. These costs reduced 2000
income/(loss) before income tax provision/(benefit), net income/(loss), basic
EPS and diluted EPS by $2.0 million, $1.3 million, $0.11 and $0.11,
respectively.
Interest Expense. Interest expense increased $1.2 million versus the comparable
period in 1999. The increase is primarily due to additional borrowings of $58.0
million in January 2000 to finance the acquisition of Percon, and bank fees
incurred in connection with amendments and waivers obtained for the senior and
subordinated credit agreements.
Income Tax Provision/(Benefit). The Company's effective tax rate was 30% in 2000
versus 35% in 1999 due to the exclusion of goodwill amortization recorded in
connection with the Percon acquisition.
Liquidity and Capital Resources:
- -------------------------------
Current assets increased $11.0 million from December 31, 1999 primarily due the
inclusion of Percon. Current liabilities decreased $0.4 from December 31, 1999
primarily due to the decrease in current portion of long-term debt and accrued
payroll and commissions offset by the inclusion of Percon's accrued expenses. As
a result, working capital increased $11.4 million from December 31, 1999.
Property, plant and equipment expenditures totaled $1.3 million for the three
months ended March 31, 2000 compared with $1.0 million for the three months
ended April 2, 1999. The 2000 expenditures primarily related to new product
tooling, manufacturing equipment, and computer software and hardware.
The long-term debt to capital percentage was 71.1% at March 31, 2000 versus
52.9% at December 31, 1999 primarily due to $58.0 million of additional debt
borrowed to finance the acquisition of Percon. At March 31, 2000, liquidity
immediately available to the Company consisted of cash and cash equivalents of
$4.1 million. The Company has revolving credit facilities totaling $50.0
million, of which, $27.0 million was outstanding as of March 31, 2000. The
Company believes that its cash resources and available credit facilities, in
addition to its operating cash flows, are sufficient to meet its requirements
for the next 12 months.
Year 2000
- ---------
The Year 2000 problem is the result of many existing computer programs written
in two digits, rather than four, to define the applicable year. Accordingly,
date-sensitive software or hardware may not be able to distinguish between the
year 1900 and year 2000, and programs that perform arithmetic operations,
comparisons or sorting of date fields may begin yielding incorrect results. This
potentially could cause a system failure or miscalculations that could disrupt
operations, including, among other things, an inability to process transactions,
send invoices, or engage in normal business activities.
To mitigate the effects of the Company's or significant suppliers' potential
failure to remediate the Year 2000 issue in a timely manner, the Company will
execute its contingency plan and make arrangements for alternate suppliers and
utilize manual intervention to ensure the continuation of operations where
necessary. If it becomes necessary for the Company to take these corrective
actions, the Company does not believe that this would result in significant
delays in business operations or have a material adverse effect on the Company's
results of operations, financial position or cash flows.
-14-
The Company incurred approximately $0.6 million of incremental out-of-pocket
costs for its Year 2000 program to remediate existing computer software and
hardware. These costs do not include internal management time, which the Company
does not separately track, nor the deferral of other projects, the effects of
which were not material to the Company's results of operations or financial
condition. As of this time, the Company has not been made aware of any Year 2000
issues nor has the Year 2000 issue had a material adverse impact on results of
operations, financial position or cash flows.
Euro Conversion
- ---------------
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing legacy currencies and
the euro. The legacy currencies will remain in effect until July 1, 2002, at
which time, the legacy currencies will no longer be legal tender for any
transactions. The Company believes that the euro conversion will not have a
material adverse impact to results of operations, financial position or cash
flows.
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
- --------------------------------------------------------------------------------
Securities Litigation Reform Act of 1995
- ----------------------------------------
Certain statements contained in this Management's Discussion and Analysis may be
forward-looking in nature, or "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Management cautions that these
statements are estimates of future performance and are highly dependent upon a
variety of important factors, which could cause actual results to differ
materially from the estimate. These factors include the market acceptance of
products, competitive product offerings, the disposition of legal issues, the
ability of the Company to identify and address successfully the Year 2000 issues
in a timely manner and at costs that are reasonably in line with projections,
and the ability of the Company's vendors to identify and address successfully
their own Year 2000 issues in a timely manner. Profits also will be affected by
the Company's ability to control manufacturing and operating costs. Reference
should be made to filings with the Securities and Exchange Commission for
further discussion of factors that could affect the Company's future results.
-15-
PART II: OTHER INFORMATION
Item 1: Legal Proceedings:
The description of the Company's legal proceedings set forth in Item 3
of the Company's Annual Report on Form 10-K for the fiscal period ended December
31, 1999 is incorporated herein by reference. With respect to the the Eastern
District Action commenced by Symbol Technologies, Inc. ("Symbol"), Symbol
withdrew its motion for permission to file an oversized brief and refiled its
motion for an injunction pendente lite in accordance with the Court's rules. The
Court has scheduled a hearing on Symbol's motion commencing June 26, 2000. The
Company will vigorously oppose Sumbol's motion.
Item 2:Changes in Securities: None
Item 3:Defaults upon Senior Securities: None
Item 4:Submission of Matters of Shareholders to a Vote of Security Holders: None
Item 5:Other Information: None
Item 6:Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Amendment Nine and Consent and Waiver dated as of March 31, 2000 to
the Credit Agreement dated as of July 12, 1996 among PSC Scanning
Inc., as Borrower, PSC Inc., as Guarantor, the financial institutions
party thereto and Fleet Bank as initial Issuing Bank and
administrative agent................................................18
10.2 Amendment No. 6, and Consent dated March 31, 2000 to Securities
Purchase Agreements and Warrants among PSC Inc., PSC Scanning Inc.,
and the Purchasers named in the Securities Purchase Agreements......34
10.3 Employment Agreement between the Company and George A. Plesko dated as
of December 21, 1999................................................55
10.4 Noncompetition and Confidentiality Agreement between the Company and
George A. Plesko dated as of December 21, 1999......................72
10.5 Employment Agreement between the Company and Andy J. Storment dated as
of January 19, 2000.................................................77
10.6 Noncompetition Agreement between the Company and Andy J. Storment
dated as of January 19, 2000........................................91
(b) Reports on Form 8-K: None
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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.
PSC Inc.
DATE: May 12, 2000 By:/s/ Robert C. Strandberg
-----------------------------------------
Robert C. Strandberg
President and Chief Executive Officer
DATE: May 12, 2000 By:/s/ William J. Woodard
-----------------------------------------
William J. Woodard
Vice President and
Chief Financial Officer
DATE: May 12, 2000 By:/s/ Michael J. Stachura
-----------------------------------------
Michael J. Stachura
Vice President of Finance
(Principal Accounting Officer)
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