SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q/A Amendment No.1 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 3, 1997 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 February 2, 1998, there were 11,498,753 shares of common stock outstanding. =============================================================================== Explanatory Note: The undersigned registrant hereby amends Item 1 (Financial Statements) and Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operations) in their entirety to correct an error in the computation of the loss on the sale of the Company's TxCOM subsidiary during the second quarter of 1997. PSC Inc. AND SUBSIDIARIES INDEX PAGE NUMBER PART I FINANCIAL INFORMATION Item 1 -Financial Statements Consolidated Balance Sheets as of October 3, 1997 (Unaudited) and December 31, 1996.................................3 - 4 Consolidated Statements of Operations and Retained Earnings for the three and nine months ended: October 3, 1997 (Unaudited) and September 27, 1996 (Unaudited) ...................5 - 6 Consolidated Statements of Cash Flows for the nine months ended: October 3, 1997 (Unaudited) and September 27, 1996 (Unaudited) .......................7 Notes to Consolidated Financial Statements (Unaudited) ..........................8 - 11 Item 2 -Management's Discussion and Analysis of Financial Condition and Results of Operations .....................................12 - 14 PART I - FINANCIAL INFORMATION Item 1: Financial Statements PSC Inc. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (All amounts in thousands) October 3, 1997 December 31, 1996 --------------- ----------------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,843 $ 10,838 Accounts receivable, net of allowance for doubtful accounts of $1,476 and $1,101, respectively 32,307 29,501 Inventories 18,670 18,306 Prepaid expenses and other 1,906 1,244 ----------- ---------- TOTAL CURRENT ASSETS 56,726 59,889 PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $11,580 and $8,225, respectively 36,243 35,612 DEFERRED TAX ASSETS 23,696 24,773 INTANGIBLE AND OTHER ASSETS, net of accumulated amortization of $11,377 and $6,238, respectively 58,997 63,087 ---------- ---------- TOTAL ASSETS $175,662 $183,361 ========= ========= SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. PSC Inc. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (All amounts in thousands) (Continued) October 3, 1997 December 31, 1996 --------------- ----------------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 11,904 $ 9,459 Accounts payable 17,627 15,681 Accrued expenses 8,774 11,448 Accrued payroll and related employee benefits 4,548 7,509 Accrued acquisition related restructuring costs 1,778 4,009 ----------- --------- TOTAL CURRENT LIABILITIES 44,631 48,106 LONG-TERM DEBT, less current maturities 102,765 117,994 OTHER LONG-TERM LIABILITIES 2,499 1,960 SHAREHOLDERS' EQUITY Preferred shares, par value $.01; 10,000 authorized, 110 and 0 shares issued and outstanding. $11,000 aggregate liquidation value 1 - Common shares, par value $.01; 40,000 authorized, 11,273 and 11,161 shares issued and outstanding 112 112 Additional paid-in capital 65,766 54,891 Retained earnings (39,351) (39,432) Cumulative translation adjustment (524) (33) Less treasury stock, 39 shares repurchased, at cost (237) (237) ----------- ---------- TOTAL SHAREHOLDERS' EQUITY 25,767 15,301 --------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $175,662 $183,361 ======== ======== SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. PSC Inc. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (All amounts in thousands, except per share data) (Unaudited) Three Months Ended October 3, September 27, 1997 1996 ---- ---- NET SALES $53,191 $46,486 COST OF SALES 31,024 26,203 --------- --------- Gross profit 22,167 20,283 OPERATING EXPENSES Engineering, research and development 3,108 3,655 Selling, general and administrative 10,377 11,430 Amortization of intangibles resulting from business acquisitions 1,674 1,447 Acquisition related restructuring and other costs - 70,068 ----------- -------- Income/(loss) from operations 7,008 (66,317) INTEREST AND OTHER INCOME /(EXPENSE): Interest expense (3,039) (2,577) Interest income 91 131 Other income/(expense) (25) (196) ----------- ----------- (2,973) (2,642) --------- ---------- Income/(loss) from continuing operations before income tax provision/(benefit) 4,035 (68,959) Income tax provision/(benefit) 1,493 (25,515) -------- ---------- Income/(loss) from continuing operations 2,542 (43,444) Discontinued operations: Loss from discontinued operations, net of tax - (114) Loss on disposal of discontinued operations, net of tax - (5,217) ----------- ----------- Total loss from discontinued operations - (5,331) ----------- ----------- Net income/(loss) $2,542 ($48,775) ====== ======== NET INCOME/(LOSS) PER COMMON AND COMMON EQUIVALENT SHARE Primary: Continuing operations $0.21 ($3.99) Discontinued operations - (0.49) ------------- --------- Net income/(loss) $0.21 ($4.48) ========= ======= Fully diluted: Continuing operations $0.20 ($3.99) Discontinued operations - (0.49) ------------ ------ Net income/(loss) $0.20 ($4.48) ========= ======= WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Primary 11,838 10,895 Fully diluted 12,426 10,895 RETAINED EARNINGS/(ACCUMULATED DEFICIT): Retained earnings/(Accumulated deficit) beginning of period ($41,893) $8,194 Net income/(loss) 2,542 (48,775) ---------- -------- Retained earnings/(Accumulated deficit), end of period ($39,351) ($40,581) ========= ======== SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. PSC Inc. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (All amounts in thousands, except per share data) (Unaudited) Nine Months Ended October 3, September 27, 1997 1996 ---- ---- NET SALES $154,728 $90,037 COST OF SALES 91,947 52,034 ------- -------- Gross profit 62,781 38,003 OPERATING EXPENSES: Engineering, research and development 9,996 7,046 Selling, general and administrative 33,917 24,456 Severance and other costs 4,191 - Amortization of intangibles resulting from business acquisitions 5,022 1,893 Acquisition related restructuring and other costs - 70,068 --------- ------ Income/(loss) from operations 9,655 (65,460) INTEREST AND OTHER INCOME /(EXPENSE): Interest expense (9,793) (2,603) Interest income 342 368 Other income/(expense) 83 (238) ----------- ------------ (9,368) (2,473) --------- ----------- Income/(loss) from continuing operations before income tax provision/(benefit) 287 (67,933) Income tax provision/(benefit) 105 (25,135) Income/(loss) from continuing operations 182 (42,798) Discontinued operations: Gain/(loss) from discontinued operations, net of tax 164 (114) Loss on disposal of discontinued operations, net of tax (265) (5,217) ----------- ----------- Total loss from discontinued operations (101) (5,331) ---------- ----------- Net income/(loss) $ 81 ($48,129) ========= ======== NET INCOME/(LOSS) PER COMMON AND COMMON EQUIVALENT SHARE: Continuing operations $0.02 ($4.16) Discontinued operations (0.01) (0.52) ------------ ----------- Net income/(loss) $0.01 ($4.68) ========= ========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 12,148 10,274 RETAINED EARNINGS/(ACCUMULATED DEFICIT): Retained earnings/(Accumulated deficit) beginning of period ($39,432) $7,548 Net income/(loss) 81 (48,129) ----------- ---------- Retained earnings/(Accumulated deficit), end of period ($39,351) ($40,581) ========= ========= SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. PSC INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (All amounts in thousands) (Unaudited) Nine Months Ended October 3, September 27, 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income /(loss) $81 ($48,129) Adjustments to reconcile net income/(loss) to net cash provided by (used in) operating activities: Depreciation and amortization 10,466 5,612 Loss on disposition of assets 109 3,860 Acquired research and development write-off - 60,100 Loss on disposition of discontinued operations 265 5,217 Deferred tax assets 1,077 (21,046) Decrease (increase) in assets: Accounts receivable (3,918) 2,065 Inventories (366) (2,318) Prepaid expenses and other (218) (5,281) Increase (decrease) in liabilities: Accounts payable 2,094 2,314 Accrued expenses (2,973) 4,085 Accrued payroll and commissions (2,983) (86) Accrued acquisition related restructuring costs (3,090) 5,812 -------- ------ Net cash provided by operating activities 544 12,205 --------- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (5,887) (2,376) Additions to intangible and other assets (63) (2,005) Cash paid for acquisition of business - (7,134) Proceeds from sale of investments - 4,167 ------------ --------- Net cash used in investing activities (5,950) (7,348) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Additions to debt 5,000 - Additions to long-term liabilities 1,938 67 Principal repayments of long-term debt (17,784) (83) Payment of other long-term liabilities (456) (38) Issuance of preferred stock, net 10,212 - Exercise of stock options and sale of common stock 664 1,746 Tax benefit from exercise or early disposition of certain stock options - 70 ---------- ----------- Net cash (used in) provided by financing activities (426) 1,762 --------- --------- FOREIGN CURRENCY TRANSLATION (1,163) (188) NET (DECREASE)/INCREASE IN CASH _____ ----------- AND CASH EQUIVALENTS (6,995) 6,431 CASH AND CASH EQUIVALENTS: Beginning of period 10,838 5,538 -------- --------- End of period $ 3,843 $11,969 ======== ======= SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. PSC Inc. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED October 3, 1997 and September 27, 1996 (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 October 3, 1997, the results of operations for the three and nine months ended October 3, 1997 and September 27, 1996 and its cash flows for the nine months ended October 3, 1997 and September 27, 1996. The results of operations for the three and nine months ended October 3, 1997 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, 1996 annual report on Form 10-K. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE The Company accounts for net income per common and common equivalent share in accordance with the provisions of Accounting Principles Board Opinion No. 15 (APB No. 15). In March 1997, Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings per Share" was issued. SFAS No. 128 replaces primary Earnings Per Share (EPS) with basic EPS. Basic EPS is computed by dividing reported earnings available to common stockholders by weighted average shares outstanding. No dilution for common share equivalents is included. Fully diluted EPS, now called diluted EPS, is still required. The Company is required to adopt SFAS No. 128 retroactively for periods ending after December 15, 1997. On a pro forma basis, basic EPS and diluted EPS were as follows: Three Months Ended Nine Months Ended October 3, 1997 October 3, 1997 --------------- ---------------- Basic EPS: Continuing operations $0.23 $0.02 Discontinued operations - (0.01) ------- -------- Net income $0.23 $ 0.01 ===== ====== Diluted EPS: Continuing operations $0.22 $0.02 Discontinued operations - (0.01) -------- ------- Net income $0.22 $0.01 ===== ===== 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: October 3, 1997 December 31, 1996 Raw materials $10,338 $10,688 Work-in-process 4,101 3,547 Finished goods 4,231 4,071 --------- --------- $18,670 $18,306 ======= ======= PSC Inc. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED October 3, 1997 and September 27, 1996 (All amounts in thousands, except per share data) (Unaudited) (2) LONG-TERM DEBT Long-term debt consists of the following: October 3, 1997 December 31, 1996 --------------- ----------------- Senior Term Loan A $49,000 $55,000 Senior Term Loan B 24,250 25,000 Senior revolving credit 6,530 12,500 Subordinated term loan 29,472 29,428 Subordinated promissory note 5,000 5,000 Other 417 525 -------- ----------- 114,669 127,453 Less: current maturities 11,904 9,459 --------- --------- $102,765 $117,994 ======== ======== (3) SHAREHOLDERS' EQUITY In September 1997, the Company completed a private placement of equity with Hydra Investissements S.A., a Luxembourg corporation (the Purchaser). The Company issued 110 shares of Series A Convertible Preferred Shares. The Series A Preferred Shares are convertible at anytime and at the option of the holders of the Series A Preferred, into Common Shares of the Company. The conversion price is $8.00 per Common Share or one share of Series A Preferred for 12.5 Common Shares. As a result, the Purchaser beneficially owns 1,375 Common Shares of the Company. The net proceeds to the Company from the offering were $10.2 million. The Company used the proceeds for working capital purposes and to repay a portion of its senior revolving credit facility. In connection with the issuance of preferred stock, a warrant evidencing the right to purchase an aggregate of 180 Common Shares of the Company was issued to the Purchaser. This warrant has an exercise price of $8.00 per share and may be exercised between September 10, 1997 and September 10, 2001. During the nine month period ended October 3, 1997, employees purchased approximately 67 shares at $5.81 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, 1997 Weighted January 1, 1996 Weighted to Average to Average October 3, 1997 Price Dec. 31, 1996 Price --------------- ----- ------------- ----- Options outstanding at beginning of period 2,818 $8.33 2,138 $8.41 Options granted 1,004 6.68 953 7.78 Options exercised (45) 6.08 (173) 6.27 Options forfeited/canceled (622) 9.03 (100) 8.06 ------- ----- Options outstanding at end of period 3,155 7.70 2,818 8.33 Number of options at end of period: Exercisable 1,607 1,630 Available for grant 399 784 PSC Inc. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED October 3, 1997 and September 27, 1996 (All amounts in thousands, except per share data) (Unaudited) (4) PRO FORMA RESULTS OF OPERATIONS The following unaudited pro forma condensed results of operations combine the operations of the Company with those of PSC Scanning, Inc. (formerly Spectra-Physics Scanning Systems, Inc.), TxCOM S.A. and related businesses ("Spectra") as adjusted for the acquisition on July 12, 1996 by the Company of certain of the assets and liabilities of Spectra. The pro forma results of operations are presented as if the acquisition was consummated on January 1, 1996. The pro forma information is presented after giving effect to certain adjustments for depreciation, amortization, interest expense and related income tax effects. The pro forma results do not purport to be indicative of the results that actually would have been achieved during the periods indicated and are not intended to be indicative of future results. Pro Forma Three Months Ended Pro Forma Nine Months Ended September 27, 1996 September 27, 1996 ------------------ ------------------ Net sales $50,443 $154,947 Loss from operations (66,119) (57,100) Loss from continuing operations (43,441) (41,425) Total loss from discontinued operations (5,331) (5,331) Net loss (48,772) (46,756) Net loss per common and common equivalent share: Continuing operations ($3.94) ($3.77) Discontinued operations (0.48) (0.49) ---------- -------- Net loss ($4.42) ($4.26) ========= ====== Weighted average shares outstanding 11,026 10,974 (5) DERIVATIVES 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. Interest Rate Risk: The Company has entered into interest rate swap agreements with its senior lending banks in accordance with the terms of the senior loans. The Company uses these interest rate swap agreements to reduce its exposure to variable rates. The differentials to be received or paid under these interest rate swap agreements are recognized as a component of interest expense in the consolidated income statement. Foreign Currency Exchange Rate Risk: The Company enters into forward foreign exchange contracts as a hedge against currency fluctuations relating to net foreign 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 or losses on the underlying hedged items and are recorded as a component of Selling, General and Administrative expenses in the consolidated income statement. 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, 1996 annual report on Form 10-K. Results of Operations: Three Months ended October 3, 1997 and September 27, 1996 - -------------------------------------------------------------------------------- Net Sales. Consolidated net sales during the three months ended October 3, 1997 increased $6.7 million or 14% compared with the same period in 1996. The increase is due to the full quarter effect of Spectra product sales and increased sales volumes of the Company's QuickScan handheld scanner products. International net sales increased 20% primarily due to the Spectra acquisition and represented approximately 45% of net sales in the third quarter of 1997 versus 41% of net sales in the third quarter of 1996. Gross Profit. Consolidated gross profit during the three months ended October 3, 1997 increased $1.9 million or 9% compared with the same period in 1996. The increased dollar amount is primarily due to the acquisition of Spectra and a change in the sales mix of the Company's handheld and fixed position scanner products. As a percentage of sales, gross profit decreased from 43.6% to 41.7% due to lower average selling prices in the handheld and fixed position product lines. Engineering, Research and Development. Engineering, Research and Development (ER&D) expenses decreased $0.5 million or 15%, as compared to the same period in 1996. As a percentage of sales, ER&D was 5.8% in the third quarter of 1997 versus 7.9% of net sales in the third quarter of 1996. As a result of efficiencies developed due to the integration of Spectra, the Company has reduced its ER&D expenses as a percentage of sales. Selling, General and Administrative. Selling, General and Administrative (SG&A) expenses decreased $1.1 million or 9%, as compared to the same period in 1996. As a percentage of sales, SG&A was 19.5% in 1997 versus 24.6% in 1996. As a result of efficiencies developed due to the integration of Spectra, the Company has reduced its general and administrative expenses as a percentage of sales. In addition, the Company is now operating under the Symbol-Spectra license agreement which has reduced royalty expenses as a percentage of sales. Acquisition Related Restructuring and Other Costs. During the 1994 fourth quarter, the Company recorded a one-time pretax 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 October 3, 1997, all positions targeted in the restructuring program have been eliminated. The amount of the restructuring accrual at October 3, 1997 was approximately $0.2 million. Restructuring actions will be substantially completed by December 31, 1997. There have been no reallocations or reestimates to date. During the third quarter of 1996, the Company recorded a one-time, pretax charge of $10.0 million for the cost of restructuring its existing operations with those of Spectra which was acquired in July 1996. The restructuring program in part, provided for employee severance and benefit costs for the elimination of certain positions. As of October 3, 1997, all positions targeted in the restructuring program have been eliminated. The amount of the restructuring accrual at October 3, 1997 was approximately $1.7 million. Restructuring actions will be substantially completed by December 31, 1997. There have been no reallocations or reestimates to date. Interest Expense. Interest expense increased $0.5 million versus the comparable period in 1996. The interest expense relates to the debt incurred in connection with the acquisition of Spectra in July 1996. Provision for Income Taxes. The Company recorded a $1.5 million tax provision in 1997 primarily due to an increase in pretax income. The Company's effective tax rate was 37% in both 1997 and 1996. The Company expects to record income tax expense at or about the combined federal and state statutory tax rate in 1997. Discontinued Operations. During the third quarter of 1996, the Company adopted a plan to dispose of its TxCOM subsidiary. TxCOM was acquired as part of the Spectra acquisition. During the second quarter of 1997, the Company completed the sale of TxCOM for approximately $1.0 million. A loss of approximately $0.3 million, net of tax, was recorded. Results of Operations: Nine Months ended October 3, 1997 and September 27, 1996 - -------------------------------------------------------------------------------- Net Sales. Consolidated net sales during the nine months ended October 3, 1997 increased $64.7 million or 72% compared with the same period in 1996. The increase is due to the inclusion of Spectra product sales and increased sales volumes of the Company's QuickScan handheld scanner products. International net sales increased 132% primarily due to the Spectra acquisition and represented approximately 45% of net sales in the nine months of 1997 versus 32% of net sales in the first nine months of 1996. Gross Profit. Consolidated gross profit during the nine months ended October 3, 1997 increased $24.8 million or 65% compared with the same period in 1996. The increased dollar amount is primarily due to the acquisition of Spectra and a change in the sales mix of the company's handheld and fixed position scanner products. As a percentage of sales, gross profit decreased from 42.2% to 40.6% due to lower average selling prices in the handheld and fixed position product lines. Engineering, Research and Development. Engineering, Research and Development (ER&D) expenses increased $3.0 million or 42%, as compared to the same period in 1996. The increased dollar amount is primarily due to the inclusion of Spectra. As a percentage of sales, ER&D was 6.5% in 1997 versus 7.8% in 1996. As a result of efficiencies developed due to the integration of Spectra, the Company has reduced its ER&D expenses as a percentage of sales. Selling, General and Administrative. Selling, General and Administrative (SG&A) expenses increased $9.5 million or 39%, as compared to the same period in 1996. The increased dollar amount is primarily due to the inclusion of Spectra. As a percentage of sales, SG&A was 21.9% in 1997 versus 27.2% in 1996. As a result of efficiencies developed due to the integration of Spectra, the Company has reduced its general and administrative expenses as a percentage of sales. In addition, the Company is now operating under the Symbol-Spectra license agreement which has reduced royalty expenses as a percentage of sales. Severance and Other Costs. During the second quarter of 1997, the Company recorded a one-time pretax charge of $4.2 million for severance and other costs. Of the total charge, approximately $2.3 million was associated with the Severance Agreement with the former CEO, $1.2 million was for employee severance and benefit costs for the elimination of approximately 30 positions including several senior executives, and $0.7 million for the centralization of research and development efforts and the relocation of manufacturing or certain product lines between its two manufacturing facilities. Interest Expense. Interest expense increased $7.2 million versus the comparable period in 1996. The interest expense relates to the debt incurred in connection with the acquisition of Spectra in July 1996. Provision for Income Taxes. The Company recorded a $0.1 million tax provision in 1997 primarily due to an increase in pretax income. The Company's effective tax rate was 37% in both 1997 and 1996. The Company expects to record income tax expense at or about the combined federal and state statutory tax rate in 1997. Discontinued Operations. During the third quarter of 1996, the Company adopted a plan to dispose of its TxCOM subsidiary. TxCOM was acquired as part of the Spectra acquisition. During the second quarter of 1997, the Company completed the sale of TxCOM for approximately $1.0 million. A loss of approximately $0.3 million, net of tax, was recorded. Liquidity and Capital Resources: Current assets decreased $3.2 million from December 31, 1996 due to a decrease in cash offset in part by an increase to accounts receivable. Current liabilities decreased $3.5 million primarily due to a reduction in accrued expenses offset in part by an increase in accounts payable. As a result, working capital increased $0.3 million from December 31, 1996. Property, plant and equipment expenditures totaled $5.9 million for the nine months ended October 3, 1997 compared with $2.4 million for the nine months ended September 27, 1996. The 1997 expenditures primarily related to manufacturing equipment and new product tooling. The long-term debt to capital percentage was 80.0% at October 3, 1997 versus 88.5% at December 31, 1996. At October 3, 1997, liquidity immediately available to the Company consisted of cash and cash equivalents of $3.8 million. In connection with the acquisition of Spectra during 1996, the Company obtained new credit facilities totaling $130.0 million. The Company has $13.5 million available on these facilities. During the third quarter of 1997, the preferred stock investment was utilized for working capital purposes and to reduce a portion of the senior revolving credit facility, thus, resulting in a decrease to the long-term debt to capital percentage. 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 twelve months. 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: February 5, 1998 By: /s/ Robert C. Strandberg -------------------- Robert C. Strandberg President and Chief Executive Officer DATE: February 5, 1998 By: /s/ William J. Woodard ------------------ William J. Woodard Vice President and Chief Financial Officer DATE: February 5, 1998 By: /s/ Michael J. Stachura ------------------- Michael J. Stachura Vice President of Finance (Principal Accounting Officer)