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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20459
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 0-9919
PSC INC.
Incorporated pursuant to the Laws of New York State
Internal Revenue Service -- Employer Identification No. 16-0969362
675 Basket Road, Webster, New York 14580
(716) 265-1600
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 7, 1996 there were 10,006,999 shares of common stock outstanding.
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2
PSC Inc. AND SUBSIDIARIES
INDEX
PAGE NUMBER
PART I FINANCIAL INFORMATION
Item 1 -Financial Statements
Consolidated Balance Sheets as of
March 31, 1996 (Unaudited) and
December 31, 1995....................................3 - 4
Consolidated Statements of Operations and
Retained Earnings for the three
months ended:
March 31, 1996 (Unaudited) and
March 31, 1995 (Unaudited) ..............................5
Consolidated Statements of Cash Flows
for the three months ended:
March 31, 1996 (Unaudited) and
March 31, 1995 (Unaudited) ..............................6
Notes to Consolidated Financial
Statements (Unaudited) ..............................7 - 8
Item 2 -Management's Discussion and Analysis of
Financial Condition and Results of
Operations .........................................9 - 10
PART II OTHER INFORMATION
Item 1 -Legal Proceedings ....................................11
Item 2 -Changes in Securities ................................11
Item 3 -Defaults upon Senior Securities ......................11
Item 4 - Submission of Matters to a Vote of
Security Holders.....................................11
Item 5 -Other Information.....................................11
Item 6 - Exhibits and Reports on Form 8-K.....................11
3
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
PSC Inc. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands)
March 31, 1996 December 31, 1995
-------------- -----------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and short-term investments ...................... $ 8,731 $ 5,538
Marketable securities - 4,204
Accounts receivable, net of allowance
for doubtful accounts of $401
and $387, respectively ............................ 15,197 15,897
Inventories .......................................... 11,377 10,440
Prepaid expenses and other ........................... 711 623
------- --------
TOTAL CURRENT ASSETS .................................. 36,016 36,702
PROPERTY, PLANT AND EQUIPMENT, net
of accumulated depreciation of $4,789
and $4,112, respectively ............................. 22,007 22,157
DEFERRED TAX ASSETS .......................................... 1,484 1,506
INTANGIBLE ASSETS, net of accumulated
amortization of $2,838 and $2,376 respectively ............. 10,870 10,872
------- --------
TOTAL ASSETS ................................................. $ 70,377 $ 71,237
======== ========
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
4
PSC Inc. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands)
(Continued)
March 31, 1996 December 31, 1995
-------------- -----------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt ..... $ 134 $ 131
Accounts payable ...................... 7,018 8,397
Accrued expenses ...................... 7,103 6,202
Accrued payroll and commissions ....... 793 1,237
Accrued acquisition related
restructuring costs ................ 259 338
------- --------
TOTAL CURRENT LIABILITIES ........... 15,307 16,305
LONG-TERM DEBT, less current maturities ...... 467 492
OTHER LONG-TERM LIABILITIES .................. 756 1,113
SHAREHOLDERS' EQUITY
Common stock, par value $.01;
25,000 authorized,10,001 and 9,985
shares issued and outstanding ...... 100 100
Additional paid-in capital ............ 45,999 45,881
Retained earnings ..................... 7,983 7,548
Cumulative translation adjustment ..... 2 35
Less treasury stock, 39 shares
repurchased, at cost ................. (237) (237)
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TOTAL SHAREHOLDERS' EQUITY .......... 53,847 53,327
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TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY .................................. $70,377 $ 71,237
======= =========
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
5
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
---------------------------
1996 1995
---- ----
NET SALES ................................................ $21,499 $ 22,263
COST OF SALES ............................................ 12,343 11,761
------- -------
Gross profit .................................... 9,156 10,502
OPERATING EXPENSES
Engineering, research and development ........... 1,780 1,085
Selling, general and administrative ............. 6,746 6,224
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Income from operations ..................... 630 3,193
INTEREST AND OTHER INCOME (EXPENSE) ...................... 61 (159)
------- --------
Income before provision for income taxes ... 691 3,034
INCOME TAX PROVISION ..................................... 256 1,153
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NET INCOME ............................................... $ 435 $ 1,881
======= ========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE ................................. $ .04 $ .22
======= ========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Common shares ................................... 9,961 7,643
Common equivalent shares ........................ 243 772
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10,204 8,415
======= ========
RETAINED EARNINGS:
Retained earnings, beginning of period .......... $ 7,548 $ 2,099
Net income ...................................... 435 1,881
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Retained earnings, end of period ................ $ 7,983 $ 3,980
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SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
6
PSC INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Three Months Ended March 31
---------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .................................................. $ 435 $ 1,881
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization .......................... 1,139 603
Loss on disposition of assets .......................... 37 --
Deferred tax assets .................................... 64 144
Decrease (increase) in assets:
Accounts receivable ................................ 668 (1,405)
Inventories ........................................ (937) (717)
Prepaid expenses and other ......................... (130) 259
Increase (decrease) in liabilities:
Accounts payable ................................... (1,379) (241)
Accrued expenses ................................... 757 2,209
Accrued payroll and commissions .................... (444) 10
Accrued acquisition related restructuring costs .... (292) (238)
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Net cash (used in) provided by
operating activities ......................... (82) 2,505
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net ................................... (519) (3,208)
Additions to intangible assets .............................. (428) (244)
Proceeds from sale of investments 4,167 --
------ -------
Net cash provided by
(used in) investing activities ................ 3,220 (3,452)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt ................................. -- 1,199
Principal repayments of long-term debt ...................... (30) (14,216)
Exercise of stock options and sale of common stock .......... 118 20,881
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Net cash provided by financing activities ....... 88 7,864
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FOREIGN CURRENCY TRANSLATION .................................... (33) (8)
NET INCREASE IN CASH
------- -------
AND SHORT-TERM INVESTMENTS ............................. 3,193 6,909
CASH AND SHORT-TERM INVESTMENTS:
Beginning of period .................................... 5,538 2,720
------ -------
End of period .......................................... $8,731 $ 9,629
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SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
7
PSC Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED March 31, 1996 and 1995
(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, 1996, and the results of
operations and its cash flows for the three months ended March 31, 1996
and 1995. The results of operations for the three months ended March 31,
1996 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, 1995 annual report on
Form 10-K.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is based on the weighted
average number of common and common equivalent shares (stock options
determined under the treasury stock method) outstanding during the period.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method)
or market. Elements of cost include materials, labor, and overhead and
consist of the following:
March 31, 1996 Dec. 31, 1995
-------------- -------------
Raw materials ............... $ 7,365 $ 6,914
Work-in-process ............. 2,288 2,090
Finished goods .............. 1,724 1,436
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$ 11,377 $ 10,440
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(2) LONG-TERM DEBT
Long-term debt consists of the following:
March 31, 1996 Dec. 31, 1995
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Capital lease obligations ....... $ 534 $ 553
Other ........................... 67 70
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601 623
Less: current maturities ....... 134 131
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$ 467 $ 492
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8
PSC Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED March 31, 1996 and 1995
(All amounts in thousands, except per share data)
(Unaudited)
(3) SHAREHOLDERS' EQUITY
During the three month period ended March 31, 1996, employees purchased
approximately 13 shares at $7.86 per share under the provisions of the
Company's Employee Stock Purchase Plan.
Changes in the status of options under the Company's stock option plans
are summarized as follows:
January 1, 1996 January 1, 1995
to to
March 31, 1996 December 31, 1995
-------------- -----------------
Options outstanding at
beginning of period ............... 2,138 2,299
Options granted ..................... 282 105
Options exercised ................... (3) (200)
Options forfeited/canceled .......... (10) (66)
----- -----
Options outstanding at
end of period ..................... 2,407 2,138
===== =====
Number of options at end of period:
Exercisable ...................... 1,627 1,575
Available for grant .............. 1,365 1,637
Average price of options:
Outstanding at end of period ...... $8.35 $8.41
Exercised ......................... $6.53 $6.52
9
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, 1995 annual report on Form 10-K.
Results of Operations:
Net Sales. Consolidated net sales during the three months ended March 31, 1996
decreased $0.8 million or 3% compared with the same period in 1995. The decrease
is primarily due to decreased sales volume of the Company's scan engines
associated with the production delays of the new DI-1000 products.
Geographically, domestic net sales decreased by 6% and international net sales
increased by approximately 6%. International net sales represented approximately
22% of net sales in the first quarter of 1996 versus 20% of net sales in the
first quarter of 1995.
Gross Profit. Consolidated gross profit during the three months ended March 31,
1996 decreased $1.3 million or 13% compared with the same period in 1995. As a
percentage of sales, gross profit decreased from 47.2% to 42.6%. The decrease in
gross profit percentage is primarily due to the decreased sales volume discussed
above, lower average selling prices for its handheld products and scan engines
and production start-up delays associated with its new DI-1000 products.
Engineering, Research and Development. Engineering, Research and Development
(ER&D) expenses increased $695 or 64%, as compared to the same period in 1995.
As a percentage of sales, ER&D was 8.3% in the first quarter of 1996 versus 4.9%
in the first quarter of 1995. The dollar increases were primarily related to the
Company's new product development for its handheld laser scanner products and
its LazerData product line's fixed position scanners.
Selling, General and Administrative. Selling, General and Administrative (SG&A)
expenses increased $0.5 million or 8%, as compared to the same period in 1995.
As a percentage of sales, SG&A was 31.4% in 1996 and 28.0% in 1995. The
increased dollar amount is primarily due to start-up costs associated with the
Company's new South American subsidiary and increased marketing related
expenses.
Acquisition Related Restructuring and Other Costs . During the 1994 fourth
quarter, the Company recognized a one-time pre-tax restructuring charge of $3.0
million. The charge related to the integration of the Company's existing fixed
position scanner product lines with those of LazerData, which was acquired in
December 1994. The restructuring program in part, provided for employee
severance and benefit costs for the elimination of approximately 12
manufacturing and engineering support positions. As of March 31, 1996, all
positions targeted in the restructuring program have been eliminated. The amount
of the restructuring accrual at March 31, 1996 was approximately $0.5 million.
Restructuring actions are substantially complete as of March 31, 1996. There
have been no re-allocations and/or re-estimates to date.
10
Provision for Income Taxes. Provision for income tax dollar amounts was down
$0.9 million due to the reduction in pre-tax net income. The Company's effective
tax rate was 37.0% in 1996, compared with 38.0% in 1995. The Company expects to
record income tax expense at or about the combined federal and state statutory
tax rate in 1996.
Liquidity and Capital Resources:
The Company utilizes a number of measures of liquidity, including the following:
March 31, 1996 Dec. 31, 1995
-------------- -------------
Cash (used in) provided by operations ($82) $ 2,897
Working capital $20,709 $20,397
Long-term debt to capital
(Long-term debt to long-term debt plus equity) 0.9% 0.9%
Cash provided by operations decreased $2.6 million versus the first quarter of
1995 primarily due to the decreased net income. Working capital increased $0.3
million from December 31, 1995 primarily due to a reduction in current
liabilities ($1.0 million) offset by a smaller reduction in current assets ($0.6
million).
Property, plant and equipment expenditures totaled $0.5 million for the three
months ended March 31, 1996 compared with $3.2 million for the three months
ended March 31, 1995. The 1995 expenditures primarily related to the
construction costs of the Company's headquarters, manufacturing and engineering
facility.
The long-term debt to capital percentage was 0.9% at both March 31, 1996 and
December 31, 1995.
At March 31, 1996, liquidity immediately available to the Company consisted of
cash and short-term investments of approximately $8.7 million. In addition, the
Company has a revolving loan agreement with Manufacturers and Traders Trust
Company pursuant to which the bank has agreed to provide a line of credit
totaling $20.0 million. The agreement expires in September 2000. As of March 31,
1996, the Company had no outstanding borrowings under this agreement. The
Company believes that it has adequate liquidity for the next twelve months to
meet its current and anticipated operating needs from the results of its
operations, existing credit facilities and working capital. As part of its
overall business strategy, the Company may from time to time evaluate other
acquisition opportunities. The funding for these future transactions, if any,
may require the Company to obtain additional sources of financing.
11
Part II: OTHER INFORMATION
Item 1: Legal Proceedings:
On or about April 1, 1996, PSC filed suit in the United States
District Court for the Western District of New York located in Rochester,
New York, against Symbol Technologies, Inc. ("Symbol") for violation of the
antitrust laws, unfair trade practices and for declaration of
noninfringement and/or invalidity of about 32 Symbol patents. On or about
the same effective date Symbol sued PSC for patent infringement in the
United States District Court for the Southern District of New York in
Manhattan, alleging infringement of about 19 patents, as well as suing
PSC's customer, Data General. Symbol has also alleged breaches of the
Symbol-PSC License Agreements of 1991 and 1995 and violation of a 1991
Consent Judgment. Symbol has also moved for a preliminary injunction in
that proceeding on four patents. Presently before the Southern District
Court is a motion by PSC to transfer the Southern District action to
Rochester. There is no date set for a pre-motion conference as required
under the Court's rules, as to Symbol's request to perfect filing of its
preliminary injunction motion.
Other legal proceedings incorporated by reference to Item 3 of the
Annual Report on Form 10K for the fiscal period ended December 31, 1995.
Item 2: Changes in Securities: None
Item 3: Defaults upon Senior Securities: None
Item 4: Submission of Matters to a Vote of Security Holders: None
Item 5: Other Information: None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits: Page
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10.1 Lease Agreement between Klute Corporation and PSC S.A., Inc. dated
February 5, 1996......................................................13
10.2 Restated PSC Inc. 401(k) Profit Sharing Plan as of January 1, 1995 ...36
10.3 Restated PSC Inc. 401(k) Profit Sharing Plan as of October 1, 1995....56
(b) Reports on Form 8-K: None
12
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 8, 1996 By: /s/ L. Michael Hone
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L. Michael Hone, Chairman,
Chief Executive Officer, and President
DATE: May 8, 1996 By: /s/ William J. Woodard
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William J. Woodard
Vice President, Finance and Treasurer
(Principal Financial Officer)
DATE: May 8, 1996 By: /s/ Scott D. Deverell
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Scott D. Deverell
(Principal Accounting Officer)