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 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 November 5, 1997, there were 11,324,785 shares of common
stock outstanding.
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 II OTHER INFORMATION
Item 1 -Legal Proceedings......................15
Item 2 -Changes in Securities..................15
Item 3 -Defaults upon Senior Securities........15
Item 4 -Submission of Matters to a Vote of
Security Holders.......................15
Item 5 -Other Information......................15
Item 6 -Exhibits and Reports on Form 8-K.......15
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 (38,679) (39,432)
Cumulative translation adjustment (1,196) (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 ($41,221) $8,194
Net income/(loss) 2,542 (48,775)
Retained earnings/(Accumulated deficit),
end of period ($38,679) ($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)
Gain/(loss) on disposal of discontinued
operations, net of tax 407 (5,217)
Total gain/(loss) from discontinued
operations 571 (5,331)
Net income/(loss) $753 ($48,129)
NET INCOME/(LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Primary:
Continuing operations $0.02 ($4.16)
Discontinued operations 0.05 (0.52)
Net income/(loss) $0.07 ($4.68)
Fully diluted:
Continuing operations $0.01 ($4.16)
Discontinued operations 0.05 (0.52)
Net income/(loss) $0.06 ($4.68)
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING
Primary 11,472 10,274
Fully diluted 12,148 10,274
RETAINED EARNINGS/(ACCUMULATED DEFICIT):
Retained earnings/(Accumulated deficit)
beginning of period ($39,432) $7,548
Net income/(loss) 753 (48,129)
Retained earnings/(Accumulated
deficit), end of period ($38,679) ($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) $753 ($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
(Gain)/loss on disposition of
discontinued operations (407) 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 - 0.05
Net income $0.23 $ 0.07
Diluted EPS:
Continuing operations $0.21 $0.02
Discontinued operations - 0.05
Net income $0.21 $0.07
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 itemsand 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 gain of approximately $0.4
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 gain of approximately $0.4
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.
PART II: OTHER INFORMATION
Item 1: Legal Proceedings:
The descriptions of the Company's legal proceedings with
Symbol Technologies, Inc. ("Symbol"), set forth in Item 3 of
the Company's Annual Report on Form 10-K for the fiscal
period ended December 31, 1996 (the "Litigation") and in
Item 1 of the Company's Quarterly Report on Form 10-Q for
the quarter ended April 4, 1997 (the "Arbitration"), are
incorporated herein by reference. The Arbitration was held
during the week of July 21, 1997 and no decision has yet
been rendered.
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: None
(b) Reports on Form 8-K:
Report on Form 8-K, dated September 10, 1997
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: November 10, 1997 By: /s/Robert C.Strandberg
Robert C. Strandberg
President and Chief Executive Officer
DATE: November 10, 1997 By: /s/ William J. Woodard
William J. Woodard
Vice President and Chief Financial Officer
DATE: November 10, 1997 By: /s/ Michael J. Stachura
Michael J. Stachura
Vice President of Finance
(Principal Accounting Officer)
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