FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to____
Commission file number 0-9919
PSC Inc.
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Exact name of registrant as specified in its charter
New York 16-0969362
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State or other jurisdiction of IRS Employer ID No.
incorporation or organization
675 Basket Road, Webster, New York 14580
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Address of principal executive offices zip code
Registrant's telephone number, including area code: 716-265-1600
Securities registered pursuant to Section 12(b)of the Act:
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None
Securities registered pursuant to Section 12(g)of the Act:
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Common Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
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As of March 24, 1997 the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $66,828,938 (Assumes
officers, directors and any shareholder holding 5% of the outstanding shares are
affiliates.)
As of March 24, 1997, there were outstanding 11,178,725 shares of Common Stock.
Documents incorporated by reference:
Portions of PSC Inc.'s Proxy Statement for the Annual Meeting of
Shareholders to be held on May 6, 1997 are incorporated into Part III
of this Form 10-K.
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TABLE OF CONTENTS
PART I PAGE
Item 1: Business................................................. 4
Item 2: Properties............................................... 17
Item 3: Legal Proceedings........................................ 18
Item 4: Submission of Matters to a Vote of Security Holders...... 18
Executive Officers of Registrant...................... 19
PART II
Item 5: Market for Registrant's Common Equity and Related
Security Holder Matters............................... 22
Item 6: Selected Financial Data.................................. 23
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 24
Item 8: Financial Statements and Supplementary Data.............. 28
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ 28
PART III
Item 10: Directors and Executive Officers of the Registrant....... 28
Item 11: Executive Compensation................................... 28
Item 12: Security Ownership of Certain Beneficial Owners and
Management............................................ 28
Item 13: Certain Relationships and Related Transactions........... 28
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................... 29
<PAGE>
PART I
ITEM 1: BUSINESS
COMPANY OVERVIEW
PSC Inc., together with its subsidiaries, (the Company) was
incorporated in the State of New York in 1969. The Company manufactures the
world's broadest line of laser based handheld and fixed position bar code
readers, verifiers and integrated sortation and point-of-sale (POS) scanning
systems for the worldwide Automatic Identification and Data Capture (AIDC)
market. The Company's products serve as the "front end" of terminals or host
computers and are used to identify, capture, process and transmit data. The
Company has developed products for AIDC at every stage of the product supply
chain from raw material, manufacturing and warehousing, to logistics,
transportation, inventory management and POS. The Company's products are used
throughout the world in food and general retail, healthcare, government and
other industries.
The Company has positioned itself within the AIDC industry by selling
both domestically and internationally. International sales accounted for
approximately 38% of the Company's 1996 total sales. The Company has a
diversified customer base composed of original equipment manufacturers (OEMs),
third-party resellers and end users. The Company's distribution relationships
have enabled it to introduce its products (generally under non-PSC labels) to
new vertical markets, and have fostered the development of strategic
relationships with leading AIDC participants and end users. The Company operates
within one industry segment:
automatic identification and data capture.
The Company's corporate headquarters are located in the Rochester, New
York suburb of Webster. The Company designs, manufactures, sells, distributes
and services its products from world-class manufacturing facilities in Webster,
New York and Eugene, Oregon. The Company has sales and service operations in the
Americas, Europe, Asia and Australia.
RECENT DEVELOPMENT
On July 12, 1996, the Company completed its purchase agreement with
Spectra-Physics AB of Sweden to acquire Spectra-Physics Scanning Systems Inc.,
TxCOM S.A. and related businesses (Spectra). Spectra, which is headquartered in
Eugene, Oregon, is one of the world's leading manufacturers of countertop and
in-counter fixed position bar code scanners for retail point-of-sale
applications. The purchase price was approximately $140 million. The purchase
was funded by $125 million cash, $10 million in PSC common shares and a $5
million subordinated promissory note. The $125 million cash portion was funded
by a combination of the Company's cash, senior debt ($92.5 million) and
subordinated debt ($30 million). The acquisition was accounted for as a purchase
and is included in the 1996 Consolidated Financial Statements since the date of
acquisition. The Company allocated $60.1 million of the purchase price to
acquired in-process research and development as required by generally accepted
accounting principles, resulting in a one-time charge to the Company's earnings
in the third quarter. In connection with the acquisition, the Company recorded a
pretax charge of $10.0 million for the costs of restructuring its existing
operations with those of Spectra. The acquisition related restructuring and
other costs reduced 1996 income before income taxes, net income and net income
per share by $70.1 million, $44.2 million and $4.21, respectively.
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MARKETS
The Company currently focuses on retail and commercial and industrial
applications for the AIDC market.
Retail
The retail segment consists of many applications of bar code scanning
devices used to track the flow of goods, equipment, employees and customers
throughout the retail environment. The most traditional and identifiable
application of bar code scanners and scanning systems is in front end checkout
applications, such as in grocery stores, in which an employee uses a stationary
or handheld scanner to read product identifiers encoded in a bar code. The
retail segment has, however, expanded beyond this base with regard to both the
types of retail stores employing scanners and scanning systems, and the uses to
which these stores put the scanners and scanning systems. Discount, drug,
do-it-yourself, convenience, department and specialty retail stores now use
scanners in such diverse ways as price verification, shelf stocking, inventory
tracking and replenishment, receiving, coupon redemption,
promotion/merchandising and frequent shopper programs.
The Company is currently active in most retail applications and sells
its countertop and in-counter bar code scanners to customers in most retail
segments. In addition, the Company has begun to target systems-oriented and
segment-specific products. One such product currently being marketed by the
Company is U-Scan Express(TM), an automated grocery store self-checkout system
developed and licensed to the Company by Optimal Robotics Corporation. U-Scan
Express(TM), which is currently being pilot tested by several major retailers,
is designed to permit supermarket customers to scan, bag and pay for purchases
with little or no assistance from store personnel.
Commercial and Industrial
The commercial and industrial segment is comprised of commercial,
manufacturing, warehousing and distribution applications of bar code systems
within retail, service, manufacturing, logistics, healthcare and transportation
businesses and organizations. These industries have adopted bar code standards
and installed bar code systems in order to increase productivity and increase
the reliability of data transactions. Automated data collection and
communication is now used, for example, to track insurance forms and financial
documents, record quality levels of manufactured items, sort parcels, mail and
airline baggage, prepare shipping manifests and catalog blood and plasma
inventories. Automatic dimensioning of cartons allows shippers to maximize loads
and more accurately invoice shipping costs. The Company is currently active in
several of these applications across a variety of market segments.
COMPANY PRODUCTS AND SERVICES
The Company offers a wide range of laser based bar code scanning
products such as scan engines, handheld, countertop, in-counter and fixed
position scanners for use by business, industry and government in multiple
application areas. In addition, the Company markets a full line of accessories,
software and supplies to support its products. This line includes such items as
cables, stands, printers, mounts, electronic article surveillance antennas, AC
power supplies, product documentation and software configurations, carrying
cases, batteries and battery chargers. An early entrant in the AIDC industry,
the Company is committed to ongoing innovation in product design, manufacturing,
product performance and customer satisfaction.
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The Company's products include:
Fixed Position Scanners: Retail
360 Degree Scanner and Scanner/Scale (Magellan(R)). The Company sells the
Magellan(R), the industry's first 360 degree scanner and scanner/scale and the
Company's highest performing in-counter scanner. Magellan(R) is capable of
simultaneously reading the bottom and all four sides of grocery store items, a
full 360 degrees, thereby increasing productivity and improving ergonomics by
reducing the need for checkers to twist, turn or lift items for scanning.
Magellan(R) is available with an integrated, 30 pound capacity scale which
allows retailers to combine the scanner and scale functions into a single unit.
Both the scanner and scanner/scale are designed for easy installation into new
and existing checkstands. An integrated electronic article surveillance
deactivation antenna is also available for use in deactivating RF-based security
tags. Magellan(R) autodiscriminates UPC/EAN and up to three industrial bar
codes, and is available with advanced Edge(TM) decoding software that enables
the scanner to read torn and disfigured labels. Magellan(R) also reads UPC/EAN
and Code 128 supplemental codes, such as those found on books, periodicals and
coupons.
High Performance Horizontal Scanner (HS1250). The Company sells the HS1250, a
compact, high performance horizontal scanner for grocery, drug, discount and
home improvement store applications. The HS1250 reads UPC/EAN and industrial bar
codes and features advanced Edge(TM) decoding software. It is also available
with an integrated electronic article surveillance antenna for use in
deactivating RF based security tags. The scanner includes an integrated mount to
simplify installation. A sleep mode, which turns off the motor and laser after
periods of inactivity, reduces power consumption and prolongs the life of the
scanner.
High Performance Vertical Scanners (VS1000 and VS1200). The Company sells the
VS1000 and VS1200 compact vertical scanners which include scan geometry
optimized for vertical scanning applications in limited space areas such as
pharmacies, variety and convenience stores. These products permit bar codes to
be read whether the handler is presenting the bar code to the scanner or
sweeping the bar code across the scanner in a continuous movement. The VS1000
autodiscriminates up to four bar code types and reads UPC/EAN and industrial bar
codes. The VS1200, in addition to the above features, also incorporates the
Company's advanced Edge(TM) decoding software. The VS1200 is well suited for
performance demanding applications in supermarkets and hypermarkets. Both the
VS1000 and VS1200 are available with an optional integrated electronic article
surveillance antenna for use in deactivating RF-based security tags.
Compact Scanners (SP*ACE(TM) and PS1500). SP*ACE(TM) is the Company's smallest
fixed position scanner. Because of its compact size and multi-position scan
head, the SP*ACE(TM) scanner adapts easily to a variety of retail and industrial
countertop or wall-mounted applications where space and/or routing opportunities
are limited. SP*ACE(TM) reads bar codes up to eight inches away and
autodiscriminates between up to four different bar code types.
The PS1500, introduced in 1995, is a high performance, omni-directional, bar
code projection scanner ideal for retail point-of-sale and small item material
handling applications. Its small footprint and well defined field of view make
it ideal for environments with limited counter space. The PS1500 is typically
used for hands free scanning. Items can be swept quickly past the reader without
concern for the orientation of the bar code label. To read bar codes on larger
items, the PS1500 can be manually removed from its stand and repositioned.
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Retail Automation Systems
The Company is currently marketing the U-Scan Express(TM) system, a
stand-alone self-checkout system, to supermarkets in the U.S. Designed and
licensed to the Company by Optimal Robotics Corporation, a Montreal based
company, the system is targeted for supermarket express lanes and incorporates
scanning, interactive video, security system and money tendering (cash, credit
or debit) into a complete stand-alone unit. The U-Scan Express(TM) is designed
to permit customers to scan, bag and pay for their own purchases with little or
no assistance from store personnel, thereby speeding checkout and improving
store productivity. To date, the U-Scan Express(TM) system has been installed in
a number of stores and discussions are underway for future installations with
several large food and non-food retailers.
Handheld Scanners
Light Industrial/Commercial Scanners (5300 HP). The Company's high performance
5300 HP handheld scanners are based on its 5301 scan engine platform. The 5300
HP series was designed for the light industrial, commercial and special retail
environments where performance is critical. These high performance scanners
provide snappy scanning of "real world" bar code labels. Depending on the size
and quality of bar codes, one model in the Series can read bar codes having bars
or spaces with a dimension as narrow as 2 millimeters (.002 inches). A 2
millimeter dimension bar code is common on small jewelry items or on the side of
a printed circuit board which can then be tracked through a manufacturing
process. A higher powered laser in the 5300 HP series permits bar code reading
in bright sunlight, thereby allowing the operator to read through a windshield
for vehicle identification or through a glass showcase to read price tags.
Ruggedized Industrial Scanners (5300 IP). Like the 5300 HP, the Company's high
performance 5300 IP handheld scanners are based on its 5301 scan engine
platform. The 5300 IP series scanners were designed for extreme durability and
performance for jobs in demanding environments. They are ideal for use in
warehouses, distribution centers, automotive plants, utilities, in cold storage
warehouses and at chemical plants. They can withstand rugged conditions such as
multiple six-foot drops to concrete and temperatures as low as -22oF (-30oC) as
are encountered in walk-in freezers. The IP products can be manufactured and
certified intrinsically safe for use under hazardous conditions such as
explosive environments found in coal mines or in volatile chemical environments.
5300 series scanners are designed with an open slot in the scanner handle that
accommodates circuit boards with additional capabilities such as decode,
interface and optional memory, thus enabling the Company to offer
custom-manufactured scanners that OEMs then sell under their private labels. The
Company's lifetime warranty on the scanning mechanism in each model of the 5300
series reflects the Company's confidence in the quality of these products.
Retail, POS Service and Commercial Scanners (Quick Scan and SP400). The QUICK
SCAN(TM) is a full feature, full function, full performance scanner
incorporating the Company's smaller scan engine platforms. The QUICK SCAN GP(TM)
provides general performance scanning in lower volume POS, point-of-service and
commercial applications with consistent bar code placement and location. The
QUICK SCAN HP(TM) addresses the scanning requirements for higher volume retail
and commercial applications where handling mixed and inconsistently marked items
requires greater depth-of-field and enhanced scanning performance. The QUICK
SCAN EP(TM) provides extended performance and longer range scanning applications
up to five feet. In 1996, the QUICK SCAN(TM) 6000 was introduced. This model was
designed specifically for the retail POS and features an unprecedented
combination: the superior performance and rugged design of a high end POS
scanner, priced affordably. Its advanced ergonomic design was developed with
operator comfort in mind -- a critical factor that ensures prolonged operator
productivity. The QUICK SCAN(TM) family is positioned as an affordable scanning
alternative for the retail POS market and other price sensitive markets such as
those in Europe and Latin America. The size and shape of QUICK SCAN(TM) makes it
comfortable to hold independent of handedness and hand size.
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The SP400 offers higher performance levels by combining a visible laser diode
light source, patented signal processing technology, long depth-of-field and
wide angle reading. The SP400 family includes a variety of models for retail and
industrial applications.
Specialty Handheld Scanners (538X Series). These specialty scanners offer custom
form factors and optics for unique applications. Included in this line are the
5380 Back-of-the-Hand Scanner, the 5381 Palm Top Scanner and the 5387
SCANDLE(TM).
The 5380 Back-of-the-Hand Scanner has a small profile and weighs only three
ounces, making it particularly suitable for "picking" applications in
distribution centers and other hands-free operations. This scanner, which allows
for hands-free scanning, attaches to a comfortable glove that can be worn on
either hand and can be actuated manually with a trigger or automatically by
PSC's Autosense(R) feature. Hands-free scanning allows an operator to use both
hands to select items from shelves or racks and transmit data regarding those
items to a data terminal.
The 5381 Palm Top Scanner, compactly designed and weighing 4.8 ounces, is about
the size of a TV remote control. It can be used in either hand and can be
slipped into a shirt pocket or attached to clothing with a Velcro(R) patch when
not in use. The 5381 is the appropriate choice for POS and industrial
applications where size, weight and accessibility are key factors. Top and side
triggers have been provided to allow for ease of scanning either vertical or
horizontal bar codes by left or right handed operators.
The 5387 SCANDLE(TM) has the approximate size, weight and shape of a telephone
handset. When snapped into place on a small portable computer, such as those
carried by telephone line workers, it functions as the computer's carrying
handle.
Fixed Position Scanners: Commercial and Industrial
Miniature Scanners. The 9000 scanner is a compact, versatile, industrial line
scanner intended primarily for high-speed automated sorting or identification in
the demanding environments of the manufacturing and material handling markets.
Through the use of advanced digital signal processors, this scanner can provide
scan rates of between 200 and 1500 scans per second. Both the scan engine and
the decoder may be contained in a single unit. Because the scanner can be
programmed either locally or from the host computer, it provides the user with
maximum flexibility.
High-End Line Scanners. The series 8000 and 8000LX provide a line of
high-powered, high-speed, adjustable rastering line scanners for demanding
applications, such as airline baggage handling, overnight package delivery
sortation and other high-speed sortation. It can read bar code labels moving at
speeds of up to 400 feet per minute. Features include auto-focusing and TIME
SLICE DECODING(TM) (TSD) which allows the scanner to read only a small portion
of a code on each of several successive scans and reconstruct the entire bar
code. By multiplexing (interconnecting two or more of these scanners having
varying scanning ranges), a system can be configured to simultaneously read and
track bar codes as they move past the scanners at different distances.
Omnidirectional Scanners. The model 990 SURESCAN (R) is a high-speed modular,
omnidirectional scanner for use in large volume distribution centers. It may be
equipped with TSD software to read randomly oriented bar codes as, for example,
labels on packages tumbling down a chute at speeds up to 540 feet per minute at
a distance of 30 inches. The model 990 can also be configured with up to four
multiplexed scanners.
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Specialty Scanners. The model 3800 tube scanner, designed primarily for
industries such as the textile and fiber industries, employs a unique scan
pattern that permits the scanning of a bar code on the inside circumference of a
cylinder without having to stop or spin the cylinder. The series 7000 AVI is
designed for automatic vehicle identification. It reads special reflective
labels on vehicles passing within six feet of the scanner. With a weatherproof
housing, it is designed for such uses as toll booths, garages, freightyards and
railyards.
Carton Dimensioning System. The SureCube(TM) is an automated carton dimensioning
system which measures the volume of cartons over conveyors or in-motion scales
for material handling systems. The system can be supplied with a bar code
scanner for identifying and dimensioning or integrated with an in-motion scale
to provide a completely automated system for identifying, sizing, weighing and
sorting of cartons. It captures the carton data regardless of the location,
orientation or angle of the carton. This is especially useful in large
warehouses, package delivery services and other shipping companies.
Scan Engines
The Company's scan engines are self-contained bar code reading
components which OEMs build into a variety of products. The Company's scan
engines incorporate all of the electronic, optical and mechanical components
required for laser scanning in a single package which can be easily integrated.
The various models manufactured by the Company are based on either its 5301
"large" platform, the smaller 5303 version or the miniaturized Minuet(TM)
DI-1000(TM) family. Introduced in 1991, the 5301 platform is about the size of a
deck of playing cards and occupies a volume of 10 cubic inches. In response to
industry demands for a smaller scanning platform, in 1993, the Company
introduced the 5303 scan engine which is about half the footprint of the 5301
and occupies 3.5 cubic inches. In 1995, the Company introduced an even smaller
scan engine, the Minuet(TM) DI-1000(TM) DIRECT ILLUMINATION(TM) bar code engine.
This miniature engine has a volume of only 1.2 cubic inches. In a DIRECT
ILLUMINATION(TM) bar code engine system, there are no reflective optics; the
laser is mechanically swept to directly illuminate the bar code. The Minuet(TM)
DI-1000(TM) can significantly enhance bar code reading performance in a variety
of OEM products such as portable data collection devices; laptop, handheld and
palmtop computers; diagnostic and test equipment; and ticket issuing machines.
Quick Check(TM) Verifiers
The Company's line of Quick Check(TM) verifiers is designed to ensure
that the customer is producing, using and receiving quality bar code symbols.
Quick Check(TM) verifiers can display a simple pass/fail report or provide a
detailed quality analysis. These verifiers are sold as handheld, desktop, PC
based or printer/labeler mounted on-line models. They analyze bar codes for
traditional print quality such as wide to narrow ratio, print contrast, bar
growth or loss, dimensions and formats, or analyze based upon quality parameters
found in the American National Standards Institute (ANSI) and European Committee
for Standardisation (CEN) guidelines such as edge determination, reflectance
minimum, symbol contrast, modulation, decodability and edge contrast minimum.
When mounted on-line, the Quick Check(TM) verifier results can automatically
control the user's system and cause it to pause, reprint, shutdown or activate
an alarm. All Quick Check(TM) verifiers are designed and manufactured to meet
national, international and industry specified standards (such as those created
by the Uniform Code Council and the Automatic Identification Manufacturers,
Inc.) and provide traceability to the National Institute of Standards and
Technology (NIST) for compliance to ISO 9000 and QS 9000 requirements.
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SALES AND MARKETING
The Company sells its products domestically and internationally through
a diversified customer base composed of OEMs, third party resellers and end
users. International sales increased from approximately $11.2 million, or 19% of
net sales, in 1994 to approximately $55.2 million, or 38% of net sales, in 1996.
Management believes that the international markets for bar code products are
less developed and intends to broaden its international sales and provide
additional sales and marketing support to its international operations.
The Company's OEM customers and third party resellers serve various
vertical markets and submarkets and a wide variety of end users. They introduce
the Company's products to their end users through their established sales and
distribution networks, thus sparing the Company the expense of supporting a
large in-house sales force. By forming strategic relationships with major OEM
customers, the Company has been able to conduct joint development and design
customer-specific products and applications and thereby further expand its
market presence and broaden its distribution network.
In addition to its sales and marketing staff in Webster, New York and
Eugene, Oregon, the Company has regional sales representatives in the United
States and sales offices throughout Europe and the Asia/Pacific area that
provide sales, service and support to the Company's domestic and international
customers.
Foreign sales of the Company's products are subject to the normal risks
of foreign operations, such as currency fluctuations, protective tariffs,
export/import controls and transportation delays and interruptions. Because the
Company's products are manufactured in the United States, the Company's sales
and results of operations could be affected by fluctuations in the value of the
U.S. dollar.
The Company's marketing operations include product management, market
management, new business development and marketing communications. Marketing
personnel identify new business opportunities, develop business plans, identify
new product and market requirements, manage product positioning/introduction and
provide tactical sales support activities. They interact regularly with external
parties such as OEMs, VARs, distributors, systems integrators and end users,
technical partners and standards committees. The marketing personnel also, in
conjunction with outside vendors, conduct customer surveys and coordinate
advertising and public relations. This group creates advertising, brochures and
documentation, manages trade show exhibits and places articles highlighting
applications of the Company's products in trade and industry publications.
CUSTOMER SUPPORT AND SERVICE
The Company is dedicated to providing consistently high customer
service on a national and international basis. The Company maintains a highly
responsive customer support and service organization that bridges the Company's
marketing, engineering and manufacturing functions. The customer support and
service personnel receive extensive training in all of the Company's products
and assist customers with ordering, product scheduling, coordinating service
repairs, procuring replacement parts and managing warranties and service
contracts. The Company's Eugene, Oregon customer service and support
organization has met ISO 9000 quality registration levels. In 1995, the Company
was recognized for customer commitment by the New York State Governor's
Excelsior Awards Program. The Company received an Excelsior Exemplary Practices
Citation for Customer Satisfaction.
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CUSTOMERS
The Company sells its products to OEMs, VARs, distributors, systems
integrators and end users. During 1996, no individual customer accounted for
greater than 10% of net sales. During 1995 and 1994, Telxon Corporation
accounted for 17% and 22%, respectively. During 1994, Intermec, a division of
Western Atlas, accounted for 10% of net sales. No other customers were
responsible for greater than 10% of net sales in 1996, 1995 or 1994. The
Company's arrangements with major customers are generally nonexclusive.
ENGINEERING, RESEARCH AND PRODUCT DEVELOPMENT
The Company's engineering research and product development (ER&D)
programs are aimed at applying its technology to develop new products, improve
its existing products' reliability, ergonomics and performance and reduce
manufacturing and related support costs. Current programs focus on new advances
in bar code scanning, retail applications such as retail self-checkout systems
and new generations of portable data terminals. The Company also carries on
significant development programs in electronics design, bar code acquisition and
decoding, RF communications, optical signal detection, software, network
architectures, advanced mechanical structures and automated manufacturing
methods. Computer-aided design and computer-aided manufacturing tools assist the
Company's research and development efforts by permitting computer simulation of
proposed products. These tools include electronics circuit modeling, optics
analysis and three-dimensional mechanical product modeling.
Substantially all of the Company's research and development is performed by its
own staff. The Company believes its technical strengths are in the specialty
disciplines of lasers, electro-optics, video imaging, signal processing,
decoding, portable/fixed computers and software development.
The Company's ER&D expenses were approximately $11.1 million, $5.0 million, and
$3.8 million in 1996, 1995, and 1994, respectively. Such amounts do not include
expenditures by the Company for manufacturing engineering activities.
MANUFACTURING AND SUPPLIERS
The Company designs, engineers and manufactures substantially all of
its scanning products at its Webster, New York headquarters or its Eugene,
Oregon facility. Employees build in groups within modular workstations, and each
employee is trained in the work of the preceding and subsequent workstations as
well as the employee's own workstation. The Company's design and process
approach allows end-of-line configuration of generic modules to meet a multitude
of specific customer needs. Statistical methods are used throughout the factory
and with critical suppliers in order to control important processes. The Company
makes extensive use of computer integrated systems and software for purposes of
resource planning, such as material requirements, assembly planning and
scheduling and order management.
The Company seeks to design and manufacture products that optimize performance,
quality, reliability, durability and versatility. These designs facilitate
cost-efficient materials sourcing and assembly methods with high standards of
workmanship. The Company has invested and will continue to invest in capital
equipment such as printed circuit board surface mount machines that automate
production, increase capacity and reduce direct labor costs. Computer operated
equipment is used for testing at all levels of production to assure repeatable,
reliable performance and accurate data collection. The Company has designed many
of its own tools, fixtures and test equipment. The Quick Check(TM) product is
manufactured by an independent third party. The Company believes its
relationship with this manufacturer to be good, and the loss of this
manufacturer would not have a material effect on the Company.
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The Company does not have long-term supply contracts with its vendors. The
Company currently relies on single suppliers, some of whom manufacture at a
number of locations, for some key components of its products. The Company
believes that maintaining ongoing relationships with single suppliers who have
proven that they are capable of meeting the Company's standards of quality,
on-time delivery and cost containment has enabled it to increase the value of
its product to its customers. Although the Company maintains 30 to 60 day
inventories of key components and alternative sources of key materials are
available, the Company could incur set-up costs and delays in manufacturing
should it become necessary to replace key vendors due to work stoppages,
shipping delays, financial difficulty or other factors, and under certain
circumstances, these costs and delays could have a material adverse effect on
the Company's operations.
COMPETITION
The AIDC industry is highly competitive with rapid technological change
and intellectual property developments being key competitive factors. The
Company also competes on the basis of innovative design, high quality
manufacturing, technical expertise in scanning and wireless RF systems, level of
sales and support services, price and overall product functionality and fitness
for use. Failure to keep pace with product and technological advances could
negatively affect the Company's competitive position and prospects for growth.
Many firms manufacture and market bar code reading equipment utilizing laser
technology. In addition, the Company's bar code reading equipment also competes
with devices which utilize technologies other than laser scanners such as CCDs
and optical wands. The Company faces competitive pressures from various
companies in each of its product categories. Many of the Company's competitors
have substantially greater financial, manufacturing, research and development
and marketing resources than the Company. The Company believes its principal
competitors for its handheld bar code scanner products are Symbol Technologies,
Inc. (Symbol), and Metrologic Instruments Inc. (Metrologic). The Company's
principal competitor in the fixed position scanner market is Accu-Sort Systems,
Inc. (Accu-Sort). The Company believes its principal competitors for its line of
in-counter and on-counter scanner products are NCR Corporation, Fujitsu Ltd.,
Symbol, Scantech B.V. and Metrologic. The principal competitors for its line of
verifiers is Bar Code Systems and RJS Inc. The Company's principal competitor
for POS self-checkout systems is Productivity Solutions, Inc.
No assurance can be given that the Company will be able to compete
successfully against current and future competitors or that the competitive
factors faced by the Company will not have a material adverse effect on the
Company's operations.
INTELLECTUAL PROPERTY
The Company believes that certain of its products are proprietary and
consequently relies on a combination of patent, trade secret, copyright and
trademark law to establish and protect its proprietary rights. The Company
currently holds more than 100 United States patents and also has certain foreign
patents pertaining to various technologies associated with its products. These
patents expire on various dates between 2001 and 2014. The Company currently has
a number of patent applications pending in the United States and in a number of
foreign countries. In addition, the Company expects that its continuing research
and development efforts will result in the creation of new proprietary rights
for which it will seek patent protection.
The Company maintains an active program to obtain patents and otherwise
protect its intellectual property. Nevertheless, its competitors could develop
technology or know-how or obtain patents that could limit the Company's ability
to compete in the future. Similarly, others could challenge the validity of the
Company's patents or assert that the Company is infringing on their proprietary
rights. The Company believes that its patents are valid and enforceable and does
<PAGE>
not believe that it is infringing on the proprietary rights of others. While the
Company believes that its patents provide it with competitive advantages with
respect to the products they cover, the Company relies primarily upon the
technical know-how, competence, innovative skills and marketing abilities of its
engineers and other employees.
The Company currently holds certain trademarks that are registered with
the United States Patent and Trademark Office and a number of common law
trademarks and valuable trade secrets. It also has certain foreign trademarks
and has numerous domestic and foreign trademark registrations pending.
EMPLOYEES
As of March 1, 1997, the Company had approximately 1,200 full-time
employees. In addition, the Company, at various times, makes use of temporary
labor in its manufacturing operations. Approximately 7% of the work force is
located outside the United States, based in offices throughout Europe and the
Pacific regions. The Company believes that its future success will depend in
part on its ability to recruit and maintain highly qualified management,
marketing, technical and administrative personnel. None of the Company's
employees is represented by a labor union. Management believes that its
relationship with employees is good.
GOVERNMENT REGULATION
Certain products of the Company must comply with regulations
promulgated by the United States Food and Drug Administration's Center for
Devices and Radiological Health (CDRH), the Federal Communications Commission
(FCC), as well as the Canadian Standard Association, the European Community
Standards (CE) and TUV Rheinland (Europe), which are corresponding agencies for
certain foreign countries. The regulations are in the areas of laser light
emissions, intentional or non-intentional RF energy emissions, standards for
weighing instruments and European electromagnetic compatibility (EMC)
directives. The regulations mandate, among other items, warning labels, safety
features, and establish certain levels for laser power, weight measuring,
voltage and electromagnetic fields. The Company's operations are also subject to
certain federal, state and local requirements relating to environmental, waste
management, health and safety regulations. Management believes that the
Company's business is operated in compliance with applicable government,
environmental, waste management, health and safety regulations. There can be no
assurance that future regulations will not require the Company to modify its
products to meet revised energy output or other requirements. Failure to comply
with future regulations could result in a material adverse effect on the
Company's results of operations.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER SECURITIES LITIGATION REFORM
ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS
From time to time, the Company or its representatives have made or may
make forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by the Company with the Securities and Exchange Commission.
The words or phases "will likely result," "are expected to," "will continue,"
"is anticipated," "estimate," "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the Reform Act). The Company wishes to
ensure that such statements are accompanied by meaningful cautionary statements,
so as to maximize to the fullest extent possible the protections of the safe
harbor established in the Reform Act. Accordingly, such statements are qualified
in their entirety by reference to and are accompanied by the following
discussion of certain important factors that could cause actual results to
differ materially from such forward-looking statements.
<PAGE>
The risks included here are not exhaustive. Furthermore, reference is also made
to other sections of this report which include additional factors which could
adversely impact the Company's business and financial performance. Moreover, the
Company operates in a very competitive and rapidly changing environment. New
risk factors emerge from time to time and it is not possible for management to
predict all of such risk factors, nor can it assess the impact of all of such
risk factors on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Accordingly, forward-looking
statements should not be relied upon as a prediction of actual results.
Shareholders should be aware that while the Company does, from time to time,
communicate with securities analysts, it is against the Company's policy to
disclose to such analysts any material non-public information or other
confidential commercial information. Accordingly, shareholders should not assume
that the Company agrees with any statement or report issued by any analyst
irrespective of the content of such statement or report. Accordingly, to the
extent that reports issued by securities analysts contain any projections,
forecasts or opinions, such reports are not the responsibility of the Company.
Spectra Acquisition/Debt Service. The Company incurred substantial indebtedness
($127.5 million) in connection with the acquisition of Spectra-Physics Scanning
Systems, Inc., TxCOM S.A. and related businesses (Spectra). The indebtedness
could have important consequences, including the following: (i) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of interest on the indebtedness, thereby
reducing the funds available to the Company for other purposes; (iii) the
agreements governing the Company's long-term indebtedness contain certain
restrictive financial and operating covenants; (iv) certain indebtedness under
the senior debt will be at variable rates of interest which would cause the
Company to be vulnerable to increases in interest rates; (v) all of the
indebtedness outstanding under the senior debt is secured by substantially all
the assets of the Company; (vi) the Company is substantially more leveraged than
certain of its competitors which might place the Company at a competitive
disadvantage; (vii) the Company may be hindered in its ability to adjust rapidly
to changing market conditions and (viii) the Company's substantial degree of
leverage could make it more vulnerable in the event of a downturn in general
economic conditions or its business.
As a result of the indebtedness incurred in connection with the acquisition of
Spectra, a substantial portion of the Company's cash flow will be devoted to
debt service. The ability of the Company to continue making payments of
principal and interest will be largely dependent upon its future financial
performance.
Technological Change. The market for the Company's products is characterized by
rapidly changing technology, evolving industry standards and changing customer
needs. The Company's future success will depend on its ability to enhance its
current products, to develop new products on a timely and cost-effective basis
and to respond to changing customer needs and technological developments.
Certain of the Company's competitors spend larger amounts on research and
development efforts than the Company. Any failure by the Company to anticipate
or respond adequately to changes in technology and customer preferences, or any
significant delay in product development or introduction, could have a material
adverse effect on the Company's financial condition and results of operations.
There can be no assurance that the Company will be successful in developing new
products or enhancing its existing products on a timely or cost-effective basis,
or that such new products or product enhancements will achieve market
acceptance.
<PAGE>
Intellectual Property; Pending Litigation. The Company's success is dependent in
part on its ability to obtain patent protection for its products, maintain trade
secret protection and operate without infringing the proprietary rights of
others. The Company currently owns over 100 U.S. patents having expirations from
the year 2001 to the year 2014 and also has certain foreign patents. The Company
has filed, and intends to file, applications for additional patents covering its
products. There can be no assurance that any of these patent applications will
be granted, or that the Company will develop additional products that are
patentable and do not infringe upon the patents of others, or that the patents
issued to or licensed by the Company will provide the Company with a competitive
advantage or adequate protection for its products. In addition, there can be no
assurance that the Company's competitors will not develop technology or
know-how, to obtain patents, that could limit the Company's ability to compete
in the future or that patents issued to or licensed by the Company will not be
challenged, invalidated or circumvented by others.
The AIDC industry is characterized by substantial litigation regarding
patent and other intellectual property rights. The Company aggressively defends
its patents and other proprietary rights.
The Company has also commenced an action against Symbol for violation
of the antitrust laws and unfair trade practices and for declaration of
noninfringement and/or invalidity of certain of Symbol's patents. In that
action, Symbol has counterclaimed alleging patent infringement and alleging
breaches of certain Symbol-PSC License Agreements. The Company has informed
Symbol that subsequent to the Spectra acquisition it has been operating under
certain Symbol-Spectra License Agreements rather than under the Symbol-PSC
License Agreements. Although the Company maintains that Symbol's patents are
invalid, that the Company has not infringed the patents, or both, and that the
Symbol-Spectra License Agreements rather than the Symbol-PSC License Agreements
are controlling, there can be no assurance that the actions will be decided or
settled in the Company's favor. There can be no assurance that others will not
assert claims against the Company that result in litigation. Any such litigation
could result in significant expense, adversely impact the Company's marketing,
give rise to certain indemnity rights on the part of customers and divert the
Company's attention from other matters. If any of the Company's products were
found to infringe a third-party patent, the third party could be entitled to
injunctive relief, which would prevent the Company from selling any such
infringing products. In addition, the Company could be required to pay monetary
damages. Although the Company could seek a license to sell products determined
to infringe a third-party patent, there can be no assurance that a license would
be available on terms acceptable to the Company. The Company could also attempt
to redesign any infringing products so as to avoid infringement, although any
effort to do so could be expensive and time consuming and there can be no
assurance the effort would be successful. See "Business-Intellectual Property."
Competition. The AIDC industry is highly competitive with rapid technological
change, product improvements, new product introduction and intellectual property
developments representing key competitive factors. The Company also competes on
the basis of innovative design, high quality manufacturing, technical expertise
in scanning, level of sales and support services, price and overall product
functionality and fitness for use. Failure to keep pace with product and
technological advances could negatively affect the Company's competitive
position and prospects for growth. Several of the Company's competitors have
substantially greater financial and other resources than the Company. In
addition, other larger corporations could enter the AIDC industry. No assurance
can be given that the Company will be able to compete successfully against
current and future competitors or that the competitive factors faced by the
Company will not adversely affect its business, financial condition or results
of operations. See "Business--Competition."
<PAGE>
Dependence on Sales by Third Parties: Significant Customers. A significant
portion of the Company's net sales are dependent upon the ability of its OEM,
value-added reseller (VAR), distributor and systems integrator customers to
develop and sell products that incorporate the Company's scanning products.
Factors, including economic conditions, patent positions, inventory positions,
the ability to sell the Company's products to end users, regulatory requirements
and other marketing restrictions that adversely affect the operations of the
Company's OEM, VAR, distributor and systems integrator customers can have a
substantial impact upon the Company's financial results. No assurances can be
given that the Company's OEM, VAR, distributor and systems integrator customers
will not experience financial or other difficulties that could adversely affect
their operations and, in turn, the results of operations of the Company. During
1996, no individual customer accounted for more than 10% of net sales. During
1995 and 1994, Telxon Corporation accounted for 17% and 22%, respectively of the
Company's net sales. In 1994, net sales to Intermec, a division of Western
Atlas, accounted for 10% of net sales. See "Business--Sales and Marketing" and
"--Customer Support and Services."
Risks Associated with International Operations. The Company's sales to
international customers increased from $11.2 million or 19% of total net sales
in 1994 to $55.2 million or 38% of net sales in 1996. The Company intends to
continue to expand its operations outside of the United States and to enter
additional international markets, which will require significant management
attention and financial resources and which will result in a significant portion
of the Company's net sales being subject to the normal risks associated with
international sales. Such risks include changes in regulatory requirements,
compliance costs associated with quality control standards, special standards
requirements, tariffs and other barriers, difficulties in staffing and managing
international subsidiary operations, potentially adverse tax consequences,
country-specific product requirements and political and regulatory
uncertainties. The majority of the Company's sales in Europe and the Pacific Rim
are billed in foreign currencies and are subject to currency exchange
fluctuations. Since the Company's products are manufactured in the United
States, sales and results of operations could be impacted by fluctuations in the
U.S. dollar. There can be no assurance that these factors will not have an
adverse impact on the Company's ability to increase or maintain its
international sales or results of operations. See "Business--Sales and
Marketing."
Dependence on Key Vendors. The Company's ability to produce and ship its
products on schedule is highly dependent on timely receipt of an adequate supply
of components and materials from its key vendors. The Company currently relies
on single suppliers, some of whom manufacture at a number of locations, for some
of the key components of its products. The Company could incur significant
set-up costs and experience delays in manufacturing should it be necessary to
replace key vendors due to work stoppages, shipping delays, quality problems,
financial difficulties or other factors. There can be no assurance that these
potential costs and delays would not have a material adverse impact on the
Company's business or results of operations. See "Business--Manufacturing and
Suppliers."
Product Transitions. The Company is dependent upon the introduction of new and
improved products. The Company's financial performance is dependent upon the
successful introduction of these products. The success will be dependent, among
other things, upon the ability of the Company to complete development of certain
products, customer acceptance of and demand for these products and the ability
of the Company to efficiently manufacture these products and to meet delivery
schedules. The introduction of new and enhanced products requires the Company to
manage the transition from older products in order to minimize disruption in
customer ordering patterns, avoid excess levels of older material inventories
and ensure that adequate supplies of new product can be delivered to meet
customer demand. There can be no assurance that the Company will successfully
manage the transition to selling new products. The failure to do so could have a
material adverse effect on the Company's business and results of operations.
<PAGE>
Fluctuations in Operating Results. Historically, the Company has experienced
variability in its quarterly results. Large orders can cause favorable or
unfavorable variations in quarterly comparisons. The volume and timing of orders
received during a quarter are difficult to forecast. Since customers generally
order products for delivery within 30 to 45 days, backlog is not a reliable
predictor of future financial performance beyond the current quarter. In
addition, the Company's results may vary significantly from quarter to quarter
depending on other factors such as the level of development, sales and marketing
expense incurred in anticipation of future revenues, and the timing of new
product and application announcements and releases by the Company and its
competitors. Many of these factors are beyond the Company's control. The Company
believes that quarterly period-to-period comparisons of its financial results
are not necessarily meaningful and should not be relied upon as an indication of
future performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Government Regulation. The Company's products and operations are subject to
regulation by federal, state and local agencies in the United States and its
products are subject to regulation in certain foreign countries where the
Company's products are sold. While the Company believes that its products and
operations comply with all applicable regulations, there can be no assurance of
continued compliance if these regulations were to change. Noncompliance with
respect to these regulations could have a material adverse impact on the
Company's results of operations. See "Business--Government Regulation."
ITEM 2: PROPERTIES
The Company's principal manufacturing, engineering, and administrative facility
consists of an approximately 132,000 square foot Company-owned building in
Webster, New York, a suburb of Rochester, New York. This facility, completed in
1995, was custom-designed to serve the Company's operations and to permit a
relatively rapid 45,000 square foot manufacturing addition. An adjacent 20 acre
parcel of land owned by the Company is also available for expansion. The Company
leases approximately 28,000 square feet of offsite storage and shop space
immediately adjacent to its principal facility. This lease expires January 2,
2000.
The Company also owns a 32 acre site in Eugene, Oregon. Engineering,
marketing and administrative functions are contained in a fifteen year old
54,000 square foot facility. Manufacturing and warehousing are contained in a
separate ten year old 56,000 square foot building. In addition, the Company
leases 9,000 square feet of offsite storage and shop space approximately two
miles from the manufacturing facility. This lease expires June 30, 1998.
The Company leases a 35,000 square foot building in an industrial park
in Sanford, Florida, a suburb of Orlando, Florida. This lease expires May 31,
1999. This facility formerly housed the manufacturing and engineering functions
of the Company's industrial fixed position product line. Currently, efforts are
being made to sublease this property.
Domestically, the Company maintains offices under short-term leases for
individual sales and support personnel in or near Dallas, Texas; Dayton, Ohio;
Raleigh, North Carolina; Denver, Colorado; San Jose, California; Miami, Florida
and Skaneateles, New York in order to serve North, Central and South America.
Internationally, the Company maintains offices in or near Tokyo, Beijing,
Sydney, Hong Kong, London, Manchester, Paris, Milan, Frankfurt, Brussels and
Madrid. These offices house from one to 15 people in 300 to 3,000 square foot
facilities under short-term leases.
All of the Company's locations are in good condition and management
believes that the Company has sufficient manufacturing capacity for the
foreseeable future.
<PAGE>
ITEM 3: LEGAL PROCEEDINGS
On April 1, 1996, the Company commenced 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 certain Symbol patents. On or about the same effective date,
Symbol sued the Company for patent infringement in the United States District
Court for the Southern District of New York in Manhattan, alleging infringement
of certain Symbol patents. Symbol also alleged breaches of two license
agreements between Symbol and the Company. In addition, Symbol sued the
Company's customer, Data General Corporation (Data General), for infringement of
the same patents. The Company has assumed the responsibility of defending the
action on behalf of Data General.
On June 19, 1996, the United States District Court for the Southern
District of New York granted the Company's motion and transferred Symbol's suit
in that district to the Western District. Symbol's action has since been
consolidated with the Company's pending action against Symbol, with the effect
that the cases will be conducted together through discovery and trial.
The litigation is in the early stages of discovery. On October 9, 1996,
the Court determined that there would be a non-jury hearing as to all of
Symbol's patents in suit which, as agreed by the parties, are now limited to
nine patents. This hearing will be solely related to claim construction of the
patent claims alleged by Symbol to be infringed and is expected to be heard in
July 1997. Thereafter, it is expected there will be a jury trial on the issues
of infringement and validity. The separate litigation by Symbol against Data
General has been consolidated and will be litigated in parallel. All the
Company's assertions as to antitrust, unfair competition, breach of contract by
Symbol and related matters have been stayed pending a determination on the nine
patents of Symbol.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the period ended December 31, 1996.
<PAGE>
EXECUTIVE OFFICERS OF REGISTRANT
The Company's executive officers as of December 31, 1996, were as follows.
Name Age Officer/Position
L. Michael Hone 47.......Chairman of the Board and Chief Executive
Officer
Robert C. Strandberg 39.......Executive Vice President
Dr. Jay M. Eastman 48.......Senior Vice President, Strategic Planning
Charles E. Biss 44 ......Vice President, Verification
Cecil F. Bowes 54 ......Vice President, North American Sales -
Retail Products
Scott D. Deverell 31.......Controller, Principal Accounting Officer
Dr. Dean Faklis 34.......Vice President, Engineering and Product
Development
Mary A. Gallahan 49.......Vice President, Human Resources
Stuart M. Itkin 46.......Vice President, Marketing
Joseph F. Murphy 31.......Vice President, Intellectual Property, Corporate
Counsel and Assistant Secretary
John C. Nugent 53 ......Vice President, International Sales
William L. Parnell 41.......Vice President, Operations
Brad R. Reddersen 44.......Vice President, Engineering and Product
Development
Richard N. Stathes 50.......Vice President, North American Sales -
Commercial and Industrial Products
Benny R. Tafoya 59 ......Vice President, Industrial Product Development
Roger D. Tedford 43.......Vice President, Chief Information Officer
William J. Woodard 45.......Vice President, Treasurer and Chief Financial
Officer
L. Michael Hone has served as Chairman of the Board of Directors since July
1992, as a director of the Company since December 1987, as Chief Executive
Officer since April 1989 and as President from 1987 until 1996. Mr. Hone has
held various other sales and management positions with the Company since 1981.
Mr. Hone is an inventor on five United States patents owned by the Company. Mr.
Hone is also a director of Verax Systems, Inc., and Rochester Healthcare
Information Group, Inc., both of Rochester, New York. In addition, Mr. Hone is
President of AIM (Automatic Identification Manufacturers) International and a
director and past chairman of AIM, USA.
<PAGE>
Robert C. Strandberg has served as Executive Vice President since November 1996.
Prior to joining the Company, he was Chairman of the Board of Directors,
President and Chief Executive Officer of Datamax International Corporation
(1991-1996). Mr. Strandberg has an MBA degree from Harvard Graduate School of
Business Administration and a BS degree in Operations Research and Industrial
Engineering from Cornell University.
Dr. Jay M. Eastman has served as a director of the Company since April
1996. He has served as Senior Vice President, Strategic Planning since January
1996 and as Executive Vice President of the Company from December 1987 until
December 1995. He joined the Company in 1986 when the Company acquired Optel
Systems, Inc., a corporation which he co-founded and for which he served as
Chairman, President and Chief Executive Officer from its formation in 1981. Dr.
Eastman is also President, Chief Executive Officer and major shareholder of
Lucid Technologies, Inc. (LTI), Rochester, New York, a corporation he founded in
November 1991. LTI designs and manufactures custom electro-optical
instrumentation for application in fields such as desk top publishing and
medical diagnosis. Until January 1983, Dr. Eastman was Director of the
University of Rochester's Laboratory for Laser Energetics. Dr. Eastman holds
Ph.D. and Bachelor's degrees in Optics from the University of Rochester and is
an inventor on 18 United States patents owned by the Company. Dr. Eastman is
also a director of Electric Fuel Corporation, an Israel-based company.
Charles E. Biss has served as Vice President, Verification Products since
January 1996, as General Manager, Verification Products (1995- 1996) and as
Product and Technical Support Manager (1985- 1995). Mr. Biss has served the
Company in a variety of technical and production related roles since 1973. Mr.
Biss represents the Company on a number of National and International standards
creating committees relating to bar codes and the automatic identification and
data capture industry. He received his BS Degree in Photographic Science and
Engineering from Rochester Institute of Technology.
Cecil F. Bowes has served as Vice President, North American Sales - Retail
Products since December 1996. Prior thereto, he was Group Director, North
America for Spectra from November 1990 until December 1996. Mr. Bowes holds a BS
degree in Education from the University of Dayton.
Scott D. Deverell has served as Controller since May 1990. Mr. Deverell, a
certified public accountant, received a BS in Accounting from SUNY at Geneseo
and an MBA from Rochester Institute of Technology.
Dr. Dean Faklis has served as Vice President, Engineering and Product
Development since August 1995. Prior to joining the Company, he was Vice
President and a founder of Rochester Photonics Corporation (1989 - 1995) and on
the faculty of The Institute of Optics, University of Rochester (1990 - 1995).
Dr. Faklis holds a BS degree in Physics from Loyola University of Chicago and
Ph.D. and MS degrees in Optics from The Institute of Optics, University of
Rochester.
Mary A. Gallahan has served as Vice President, Human Resources since May
1993. She joined the Company in July 1992 as Director of Human Resources. Prior
to joining the Company, she was Manager of Employment and Benefits, Nalge
(Sybron) Company (1990 - 1992). Mrs. Gallahan holds an Associates Degree in
Business Administration from SUNY at Cobleskill.
Stuart M. Itkin has served as Vice President, Marketing since March 1995.
Prior to joining the Company, he was Vice President Marketing, Stores Automated
Systems (1994-1995) and Senior Director of Marketing, Symbol Technologies, Inc.
(1989-1994). Mr. Itkin holds a BA in Mathematics and Computer Science and an MA
degree in Applied Statistics and Quantitative Methods in Psychology from the
University of Illinois at Urbana-Champaign.
<PAGE>
Joseph F. Murphy has served as Vice President, Intellectual Property and
Corporate Counsel since October 1996, as Corporate Counsel and Patent Attorney
from December 1992 until October 1996 and as Assistant Secretary since May 1995.
Mr. Murphy is admitted to practice as an attorney in New York, Massachusetts and
before the United States Patent and Trademark Office. Mr. Murphy holds a BS
degree in Electrical Engineering from Marquette University and a JD degree from
Franklin Pierce Law Center.
John C. Nugent has served as Vice President International Sales since
January 1995. He joined the Company in February 1992 as European General Sales
Manager. He was appointed as Managing Director of PSC Bar Code Ltd., the UK
based wholly owned subsidiary of PSC Inc. in July 1994. Prior to joining the
Company he was European Sales Manager of Welch Allyn Inc. of Skaneateles Falls,
New York.
William L. Parnell has served as Vice President, Operations since October
1996. Prior thereto, he was Vice President-Operations of Spectra from November
1990 until October 1996. Mr. Parnell received a BS in Physics from Utah State
University and an MBA from the University of Washington.
Brad R. Reddersen has served as Vice President, Engineering and Product
Development since December 1996. Prior thereto, he was Vice President, New
Products of Spectra from October 1993 until December 1996. From 1985 until
October 1993 he served Spectra's predecessor in a variety of roles including
Acting Vice President, Research and Development and Product Marketing Manager.
Mr. Reddersen received a BS in Physics and an MS in Optical Engineering from the
University of Rochester.
Richard N. Stathes has served as Vice President, North American
Sales-Commercial and Industrial Products since January 1995. He joined the
Company in January 1992 as Vice President of Sales for Bar Code Equipment and
became Vice President, Sales in January 1994. Prior to joining the Company, he
was Director of Sales for Computer Products Inc. of Pompano Beach, Florida
(1991). Mr. Stathes holds a BSBA degree from Syracuse University.
Benny R. Tafoya has served as Vice President, Industrial Product
Development since January 1993 when the Company acquired BRT Corporation, a
company in which Mr. Tafoya had been the major shareholder and Chief Executive
Officer (1983 - 1993). Mr. Tafoya holds a BS degree in Mechanical Engineering
from Penn State University and a BSAA degree from George Washington University.
Roger D. Tedford has served as Vice President, Chief Information Officer
since November 1996. Prior thereto, he was Vice President, Treasurer and
Secretary of Spectra from November 1990 until November 1996. Mr. Tedford
received a BA in Accounting/Finance and an MBA from California University at
Fullerton.
William J. Woodard has served as Vice President, Treasurer and Chief
Financial Officer since October 1996. Prior to that, he served as Vice
President, Finance and Treasurer since August 1994. Previously, he was Vice
President and Chief Financial Officer, Champion Products (1987 - 1994). Mr.
Woodard, a certified public accountant, attended St. Bonaventure University
where he received a BBA degree in Accounting.
<PAGE>
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS
The Company's Common Shares are traded on the Nasdaq National Market Tier
of the Nasdaq Stock Market under the symbol PSCX. The following table sets
forth, for the periods indicated, the high and low sale prices for the common
shares.
High Low
1996
Fourth Quarter............ $ 9.63 $6.88
Third Quarter............. $10.00 $7.00
Second Quarter............ $13.50 $7.13
First Quarter............. $ 9.75 $7.63
1995
Fourth Quarter............ $13.00 $ 8.63
Third Quarter............. $15.75 $11.50
Second Quarter............ $14.75 $11.00
First Quarter............. $15.50 $10.50
As of December 31, 1996, there were approximately 1,400 holders of record
of common shares.
The Company has not paid any cash dividends since 1979 and does not
anticipate paying cash dividends in the foreseeable future. The Company's senior
debt and subordinated term loan agreements restrict payment of dividends.
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
(All amounts in thousands, except per share data)
The selected consolidated financial data presented below for each of
the five years in the period ended December 31, 1996 have been derived from the
Company's consolidated financial statements, which statements have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports thereon. The selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales .......................... $ 146,051 $ 87,516 $ 60,447 $ 38,894 $ 35,912
Cost of sales ...................... 83,675 50,634 32,198 20,256 17,734
----------------------------------------------------------
Grosss profit .................... 62,376 36,882 28,249 18,638 18,178
Operating expenses:
Engineering, research and
development ................... 11,069 4,962 3,810 3,754 2,248
Selling, general and
administrative ................ 37,855 23,024 16,031 11,826 8,502
Write-off of intangible assets .. -- -- -- 167 957
Acquisition related restructuring
and other costs ............... 70,068(1) -- 6,894 (2) -- --
Amortization of intangibles from
business acquisitions ........ 3,564 877 485 220 135
----------------------------------------------------------
Income/(loss) from operations ..... (60,180) 8,019 1,029 2,671 6,336
Interest and other income/(expense). (5,747) 676 110 45 (70)
Income/(loss) from continuing
operations before income tax
provision/(benefit) ............. (65,927)(1) 8,695 1,139 (2) 2,716 6,266
Income tax provision/(benefit) ..... (24,393) 3,246 527 865 1,920
----------------------------------------------------------
Income/(loss) from continuing
operations ...................... (41,534) 5,449 612 1,851 4,346
Loss from discontinued operations .. (5,446) -- -- -- --
----------------------------------------------------------
Net income/(loss) .................. ($46,980)(1) 5,449 $612 (2)$ 1,851 $ 4,346
===========================================================
Net income/(loss) per common and
common equivalent share:
Continuing operations............. ($ 3.96) $0.54 $ 0.08 $ 0.25 $ 0.59
Discontinued operations........... (0.52) -- -- -- --
----------------------------------------------------------
Net income/(loss)................... ($4.48) (1) $0.54 $ 0.08 (2) $ 0.25 $ 0.59
===========================================================
Weighted average number of common
and common equivalent shares...... 10,490 10,013 7,617 7,476 7,350
</TABLE>
(1) The acquisition related restructuring and other costs reduced 1996
income before income tax, net income and net income per share by $70.1
million, $44.2 million and $4.21, respectively.
(2) The acquisition related restructuring and other costs reduced 1994
income before income tax, net income and net income per share by $6.9
million, $4.5 million and $0.56, respectively.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ................ $10,838 $5,538 $2,720 $9,120 $11,535
Working capital .......................... 11,783 20,397 8,014 11,779 14,125
Total assets ............................. 183,361 71,237 52,763 32,063 24,992
Long-term debt, including current
maturities ............................. 127,453 623 13,609 1,806 1,931
Total shareholders' equity ............... 15,301 53,327 22,233 21,265 18,532
</TABLE>
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto appearing elsewhere in
this report.
Results of Operations
The following table sets forth, for the years indicated, certain
consolidated financial data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1996 1995 1994
----------------------- ---------------------- ----------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales .................................. $146,051 100.0% $87,516 100.0% $60,447 100.0%
Cost of sales .............................. 83,675 57.3 50,634 57.9 32,198 53.3
----------- --------- ---------- --------- --------- ---------
Gross profit ............................. 62,376 42.7 36,882 42.1 28,249 46.7
Operating expenses:
Engineering, research and development .... 11,069 7.6 4,962 5.7 3,810 6.3
Selling, general and administrative ...... 37,855 25.9 23,024 26.3 16,031 26.5
Acquisition related restructuring
and other costs ...................... 70,068 (1) 48.0 -- -- 6,894 (2) 11.4
Amortization of intangibles from business
acquisitions .......................... 3,564 2.4 877 1.0 485 0.8
----------- --------- ---------- --------- --------- ---------
Income/(loss) from operations ............. (60,180) (41.2) 8,019 9.1 1,029 1.7
Interest and other income/(expense) ........ (5,747) (3.9) 676 0.8 110 0.2
----------- --------- ---------- --------- --------- ---------
Income/(loss) from continuing operations
before income tax provision/(benefit) ...... (65,927) (1) (45.1) 8,695 9.9 1,139 (2) 1.9
Income tax provision/(benefit) ............. (24,393) (16.7) 3,246 3.7 527 0.9
----------- --------- ---------- --------- --------- ---------
Income/(loss) from continuing operations ... (41,534) (28.4) 5,449 6.2 612 1.0
Loss from discontinued operations .......... (5,446) (3.7) -- -- -- --
=========== ========= ========== ========= ========= =========
Net income/(loss) .......................... ($46,980) (1) (32.1%) $5,449 6.2 $612 (2) 1.0%
=========== ========= ========== ========= ========= =========
</TABLE>
(1) The acquisition related restructuring and other costs reduced 1996
income before income taxes and net income by $70.1 million and $44.2
million, respectively.
(2) The acquisition related restructuring and other costs reduced 1994
income before income taxes and net income by $6.9 million and $4.5
million, respectively.
<PAGE>
On July 12, 1996, the Company completed its purchase agreement with
Spectra-Physics AB of Sweden to acquire Spectra-Physics Scanning Systems Inc.,
TxCOM S.A. and related businesses (Spectra). Spectra, which is headquartered in
Eugene, Oregon, is one of the world's leading manufacturers of countertop and
in-counter fixed position bar code scanners for retail point-of-sale
applications. The purchase price was approximately $140 million. The purchase
was funded by $125 million cash, $10 million in PSC common shares and a $5
million subordinated promissory note. The $125 million cash portion was funded
by a combination of the Company's cash, senior debt ($92.5 million) and
subordinated debt ($30 million). The acquisition was accounted for as a purchase
and is included in the 1996 Consolidated Financial Statements since the date of
acquisition. The Company allocated $60.1 million of the purchase price to
acquired in-process research and development as required by generally accepted
accounting principles, resulting in a one-time charge to the Company's earnings
in the third quarter. In connection with the acquisition, the Company recorded a
pretax charge of $10.0 million for the costs of restructuring its existing
operations with those of Spectra. The acquisition related restructuring and
other costs reduced 1996 income before income taxes, net income and net income
per share by $70.1 million, $44.2 million and $4.21, respectively.
In December 1994, the Company acquired, for $9.25 million in
cash, all of the outstanding stock of LazerData Corporation. The transaction was
accounted for as a purchase and is included in the Consolidated Financial
Statements since the date of acquisition. In connection with the acquisition,
the Company recorded a pretax charge of $3.0 million for the costs of
restructuring its existing fixed position scanner product lines with those of
LazerData. In addition, in the fourth quarter of 1994, the Company allocated
$3.9 million of the purchase price to acquired in-process research and
development as required by generally accepted accounting principles, resulting
in a one-time charge to the Company's earnings in the fourth quarter. The
acquisition related restructuring and other costs reduced 1994 income before
income taxes, net income and net income per share by $6.9 million, $4.5 million
and $0.56, respectively.
Net sales. Net sales increased $58.5 million, or 67% from 1995 to 1996
and $27.1 million, or 45% from 1994 to 1995. The sales increase in 1996 is due
to the inclusion of Spectra product sales offset, in part, by lower sales
volumes of the Company's scan engine products. The sales increase in 1995 was
primarily due to increased sales volume of the Company's handheld products, scan
engine assemblies and the inclusion of LazerData's product line of fixed
position scanners acquired in December 1994. International net sales increased
185% in 1996 primarily due to the Spectra acquisition and represented 38% of
sales versus 22% in 1995 and 19% in 1994.
Gross profit. Gross profit as a percentage of sales was 42.7% in 1996,
42.1% in 1995 and 46.7% in 1994. The increase in gross profit percentage is
primarily due to the inclusion of Spectra products. The decrease in the 1995
gross profit margin versus 1994 was due to a change in the sales mix of the
Company's handheld products, lower scan engine average selling prices associated
with competitive pricing pressure and the inclusion of the LazerData product
line.
Engineering, research and development. Engineering, research and
development (ER&D) expenses increased $6.1 million, or 123% in 1996 and $1.2
million, or 30% in 1995. As a percentage of sales, ER&D was 7.6% in 1996 versus
5.7% in 1995 and 6.3% in 1994. The 1996 dollar increase was primarily due to the
inclusion of Spectra. In addition, there were increased expenses related to the
Company's new product development of its handheld and industrial fixed position
scanner products. The 1995 dollar increase was primarily related to the
Company's new product development of its handheld and industrial fixed position
scanner products.
<PAGE>
Selling, general and administrative. Selling, general and
administrative (SG&A) expenses increased $14.8 million, or 64% in 1996 and $7.0
million, or 44% in 1995. As a percentage of sales, SG&A was 25.9% in 1996 versus
26.3% in 1995 and 26.5% in 1994. The 1996 dollar increase was primarily related
to the inclusion of Spectra, start-up costs associated with the Company's new
subsidiary responsible for sales and support in South and Central America and
increased patent related expenses. The increase in patent related expenses is
due to an increase in litigation expenses related to the Company's patent
infringement lawsuit with Symbol Technologies, Inc. The 1995 dollar increase was
primarily due to higher patent related expenses, higher royalty expenses and
increased promotion and advertising expenses.
Acquisition related restructuring and other costs. 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. Of the total restructuring charge,
approximately $5.0 million was associated with the closing of the Company's
Sanford, Florida manufacturing facility and relocating those operations to its
Webster, New York facility, $3.6 million was related to the write-off of
previously existing intangible and tangible assets and $1.4 million was recorded
for employee severance and benefit costs for the elimination of seven positions.
As of December 31, 1996, all positions targeted in the restructuring program
have been eliminated. Restructuring actions are expected to be substantially
completed by the end of 1997. The restructuring accrual as of December 31, 1996
was approximately $4.7 million of which $0.7 million related to long-term
contractual obligations. There have been no reallocations or reestimates to
date.
In addition, in the third quarter of 1996, the Company allocated $60.1
million of the Spectra purchase price to acquired in-process research and
development projects, which represents the estimated fair values related to
these projects determined by an independent appraisal. Proven valuation
procedures and techniques were utilized in determining the fair market value of
each intangible asset. The development technologies were evaluated to determine
that there were no alternative future uses. Such evaluation consisted of a
specific review of the efforts, including the overall objectives of the project,
progress toward the objectives and uniqueness of developments toward these
objectives. To bring these projects to fruition, high risk developmental issues
need to be resolved which will require substantial additional effort and
testing. Therefore, technological feasibility of these new products has not yet
been achieved. As these projects have not reached technological feasibility and
alternative future use of these developmental technologies, apart from the
objectives of the individual projects, does not exist, these costs were expensed
as of the acquisition date. The acquisition related restructuring and other
costs reduced 1996 income before income taxes, net income and net income per
share by $70.1 million, $44.2 million and $4.21, respectively.
In the fourth quarter of 1994, the Company provided a pretax charge of
approximately $3.0 million for the costs of restructuring its existing fixed
position scanner product lines with those of LazerData Corporation which was
acquired in December 1994. Of the total pretax charge, approximately $1.6
million was to recognize anticipated costs associated with the consolidation of
manufacturing and office facilities, $0.7 million was related to write-offs of
previously existing intangible assets and $0.7 million was provided for employee
severance and benefit costs for the elimination of approximately 12
manufacturing and engineering support positions. As of December 31, 1996, all
positions targeted in the restructuring program have been eliminated.
Restructuring actions are substantially completed as of December 31, 1996. The
restructuring accrual as of December 31, 1996 was approximately $0.4 million.
There have been no reallocations or reestimates to date.
In addition, in the fourth quarter of 1994, the Company allocated $3.9
million of the LazerData purchase price to acquired in-process research and
development projects. The acquisition related restructuring and other costs
reduced 1994 income before income taxes, net income and net income per share by
$6.9 million, $4.5 million, and $0.56, respectively.
<PAGE>
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. The net loss of the TxCOM operation from July 12, 1996
to December 31, 1996 was $229. The loss on disposal of discontinued operations
of $5,217 includes the write-down of the assets to their net realizable value
and the estimated costs of disposing of this subsidiary, net of expected tax
benefits applicable.
Income tax provision. The Company had a $24.4 million income tax
benefit due to the restructuring and other charges discussed above. The
Company's effective tax rate was 37.0% in 1996, 37.3% in 1995 and 46.3% in 1994.
The 1994 effective tax rate increased as a result of the non-tax deductible
goodwill write-off included in the 1994 restructuring charge. The Company
expects to record income tax expense at or about the combined federal and state
statutory tax rate in 1997.
Liquidity and Capital Resources
Current assets increased $23.2 million from December 31, 1995 primarily
due to increased accounts receivable and inventories due to the acquisition of
Spectra. Current liabilities increased $31.8 million from December 31, 1995
primarily due to accrued acquisition costs, restructuring costs and increased
accounts payable to support higher operating levels. As a result, working
capital decreased $8.6 million from December 31, 1995.
Current assets increased $13.2 million during 1995 primarily due to
increased accounts receivable and inventory levels related to higher operating
volume levels. Current liabilities increased $0.8 million during 1995. As a
result, working capital increased $12.4 million in 1995.
Property, plant and equipment expenditures totaled $4.8 million in 1996
compared with $7.4 million in 1995. The 1996 expenditures primarily related to
manufacturing equipment and new product tooling and the 1995 expenditures
primarily related to the construction costs of the Company's headquarters,
manufacturing and engineering facility.
During the year ended December 31, 1995, the Company completed a
secondary stock offering. The Company sold 2.3 million common shares at a price
of $11.00 per share. The net proceeds to the Company from the offering were
approximately $23.6 million. The Company used approximately $7.2 million of the
net proceeds from the offering to repay in full the outstanding indebtedness
under the Company's construction loan used to finance its new headquarters,
manufacturing and engineering facility. The Company also used approximately $6.8
million of the net proceeds from the offering to repay in full the outstanding
indebtedness under the Company's term loan that was used to finance the
acquisition of LazerData in December 1994.
The long-term debt-to-capital percentage was 88.5% at December 31, 1996
versus 0.9% at December 31, 1995 due to the Spectra acquisition. At December 31,
1996, liquidity immediately available to the Company consisted of cash and cash
equivalents of approximately $10.8 million. On July 12, 1996, in connection with
the acquisition of Spectra, the Company terminated its existing revolving credit
facility and simultaneously replaced it with new credit facilities. The new
facilities provide credit totaling $130 million. They consist of senior term
loans of $80 million, a senior revolving credit facility of $20 million and a
subordinated term loan of $30 million. The Company borrowed, and has
outstanding, $122.5 million on these facilities. 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.
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This item is submitted as a separate section of this report. See Exhibits
in Part IV.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial disclosure
matters.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is presented under the caption
entitled "Election of Directors Information Concerning Nominees for Directors
and Other Incumbent Members of the Board of Directors" contained in the
definitive proxy statement issued in connection with the Annual Meeting of
Shareholders to be held May 6, 1997 and is incorporated in this report by
reference thereto. The information regarding Executive Officers of the
Registrant is found in Part I of this report.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this item is presented under the caption
entitled "Executive Officer Compensation" contained in the definitive proxy
statement issued in connection with the Annual Meeting of Shareholders to be
held May 6, 1997 and is incorporated in this report by reference thereto,
except, however, the sections entitled "Performance Graph" and the "Report of
the Compensation Committee of the Board of Directors" are not incorporated in
this report by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is presented under the caption
entitled "Security Ownership of Certain Beneficial Owners and Management"
contained in the definitive proxy statement issued in connection with the Annual
Meeting of Shareholders to be held May 6, 1997 and is incorporated in this
report by reference thereto.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is presented under the caption
"Executive Officer Compensation - Interest of Directors and Management in
Certain Transactions" contained in the definitive proxy statement issued in
connection with the Annual Meeting of Shareholders to be held May 6, 1997 and is
incorporated in this report by reference thereto.
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1 Financial Statements Page
Report of Independent Public Accountants................. 34
Consolidated Financial Statements........................ 35
Notes to Consolidated Financial Statements............... 39
(a) 2 Financial Statement Schedules:
Included in Part IV of this report:
Schedule II Valuation and Qualifying Accounts...... 54
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in
the consolidated financial statements or notes thereto.
(a) 3 Exhibits:
2.1 Stock Purchase Agreement among BTR Dunlop Inc., Electro Corporation and
LazerData Holdings, Inc. dated December 21, 1994 (incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K dated December
21, 1994 ("the 1994 8-K")).
2.2 Asset and Stock Purchase Agreement among PSC Inc., Spectra-Physics, Inc.
and Spectra-Physics Holdings, S.A. dated May 20, 1996, as amended by letter
dated July 12, 1996 (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated July 29, 1996 ("The 1996 8-K")).
3.1 Restated Certificate of Incorporation of the Company and amendments thereto
(incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report
on Form 10-Q for the Quarter ended June 30, 1996 (the "June 30, 1996 Form
10-Q")).
3.2 Bylaws of the Company as currently in effect, (incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994 (the "September 30, 1994 Form 10-Q")).
4.1 Form of Certificate for Common Shares of the Company (incorporated by
reference to Exhibit 4.3 to the Company's Registration Statement on Form
S-3, effective March 24, 1995 (No. 33-89178) (the "1995 S-3 Registration
Statement")).
4.2 Form of the 11.25% Senior Subordinated Note of SpectraScan, Inc., due June
30, 2006 (Notes were issued to seven Purchasers in the aggregate principal
amount of $30,000,000) (incorporated by reference to Exhibit 4.1 of the
1996 8-K).
4.3 Form of Note Guarantee dated July 12, 1996 made by PSC Inc. and each of the
domestic subsidiaries of PSC Inc. to each of the purchasers of the Senior
Subordinated Notes (incorporated by reference to Exhibit 4.2 of the 1996
8-K).
<PAGE>
4.4 Form of Warrant issued to the Purchasers named in the Securities Purchase
Agreements dated July 12, 1996 (Warrants were issued to seven Purchasers
for an aggregate of 975,000 common shares of the Company) (incorporated by
reference to Exhibit 4.3 of the 1996 8-K).
4.5 Subordinated Installment Promissory Note of PSC Acquisition, Inc. issued to
Spectra-Physics, Inc. on July 12, 1996 in the principal amount of
$5,000,000 (incorporated by reference to Exhibit 4.4 of the 1996 8-K).
4.6 Note Guarantee dated July 12, 1996 made by PSC Inc. to Spectra-Physics,
Inc. (incorporated by reference to Exhibit 4.5 of the 1996 8-K).
10.1*Amended and Restated Employment Agreement between the Company and L.
Michael Hone, as of September 14, 1995 (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 (the "September 30, 1995 Form
10-Q"))
10.2*Consulting Agreement between the Company and Robert S. Ehrlich as of
January 2, 1995 (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (the
"June 30, 1995 Form 10-Q")).
10.3*Form of Change-in-Control/Severance Agreement between the Company and
certain of its executive officers .......................................55
10.4*Form of third party severance letter between Spectra-Physics Scanning
Systems, Inc. and certain executive officers ............................61
10.5*Employment Agreement between the Company and John F. O'Brien, as of July
12, 1996 ................................................................65
10.6*Consulting Agreement between the Company and John F. O'Brien, as of
January 13, 1997 ........................................................68
10.7*Employment Agreement between the Company and Benny R. Tafoya, as of
January 21, 1993 (incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1992 (the December 31, 1992 Form 10-K")).
10.8*Non-competition Agreement among the Company, A.D. Data Systems Corp. and
Benny R. Tafoya dated January 21, 1993 (incorporated by reference to
Exhibit 10.19 to the December 31, 1992 Form 10-K).
10.9*Form of Indemnification Agreement between the Company and its Directors
and Officers (incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1991, (the "December 31, 1991 Form 10-K")).
10.10* Plan for Deferral of Directors' Fees dated as of March 4, 1992
(incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1992 (the "June 30, 1992 Form 10-Q")).
10.11* Amended and Restated 1987 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994 (the "June 30, 1994 Form 10-Q")).
10.12*1994 Stock Option Plan (incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-8 dated June 20, 1995 No.
33-60389).
10.13* 1995 Employee Stock Purchase Plan (incorporated by reference to Exhibit
4.1 of the Company's Registration Statement on Form S-8 dated June 19, 1995
No. 33-60343).
10.14* Management Incentive Plan (incorporated by reference to exhibit 10.15 to
the December 31, 1992 Form 10-K).
<PAGE>
10.15* Employee Profit Sharing Plan (incorporated by reference to Exhibit 10.16
to the December 31, 1992 Form 10-K).
10.16* Restated PSC Inc. 401(K) Profit Sharing Plan, as of October 1, 1995
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996 (the "March 31,
1996 Form 10-Q")).
10.17Agreement between Symbol Technologies, Inc. and Photographic Sciences
Corporation dated March 6, 1991 (incorporated by reference to Exhibit 10.5
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
10.18Standard Warehouse Lease between Owens & Minor, Inc. and LazerData
Corporation dated January 22, 1996 (incorporated by reference to Exhibit
10.28 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (the "December 31, 1995 Form 10-K")).
10.19Credit Agreement dated July 12, 1996 among PSC Acquisition, Inc., as
Borrower, PSC Inc. and Guarantor, the Initial Lenders named therein and
Fleet Bank as Initial Issuing Bank and Administrative Agent, together with
Form of Term A Note, Form of Term B Note and Form of Working Capital Note
(incorporated by reference to Exhibit 10.2 of the 1996 8-K).
10.20First Amendment dated as of September 27, 1996 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 (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter
ended September 27, 1996 (the "September 27, 1996 10-Q")).
10.21Securities Purchase Agreement dated July 12, 1996 among PSC Inc.,
SpectraScan, Inc. and Equitable Life Assurance Society of the United States
(separate but identical Securities Purchase Agreements were addressed to
each of the Other Purchasers of the Senior Subordinated Notes)
(incorporated by reference to Exhibit 10.1 of the 1996 8-K).
10.22Amendment No. 1 dated October 10, 1996 to Securities Purchase Agreements
among PSC Inc., PSC Scanning Inc., and Equitable Life Assurance Society of
the United States (separate but identical amendments were addressed to each
of the other purchasers of the Senior Subordinated Notes) (incorporated by
reference to exhibit 10.2 of the September 27, 1996 10-Q).
22.1 Subsidiaries of Registrant..........................................69
24.1 Consent of Independent Public Accountant, dated March 28, 1997......70
(b): Reports on Form 8-K:
None.
* Management contract or compensatory plan or arrangement
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 28, 1997 PSC Inc.
/s/ L. Michael Hone
L. Michael Hone
Chairman, Chief Executive Officer,
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 Principal Executive Officer
/s/ L. Michael Hone
L. Michael Hone
Chairman,
Chief Executive Officer,
and Director
Date: March 28, 1997 Chief Financial Officer
/s/ William J. Woodard
William J. Woodard
Vice President, Treasurer
and Chief Financial Officer
Date: March 28, 1997 Principal Accounting Officer
/s/ Scott D. Deverell
Scott D. Deverell
Controller, Principal
Accounting Officer
<PAGE>
Date: March 28, 1997 /s/ Jay M. Eastman
------------------
Jay M. Eastman
Director
Date: March 28, 1997 /s/ Robert S. Ehrlich
---------------------
Robert S. Ehrlich
Director
Date: March 28, 1997 /s/ James Henry
---------------
James Henry
Director
Date: March 28, 1997 /s/ Donald K. Hess
------------------
Donald K. Hess
Director
Date: March 28, 1997 /s/ Thomas J. Morgan
--------------------
Thomas J. Morgan
Director
Date: March 28, 1997 /s/ James O'Shea
----------------
James O'Shea
Director
Date: March 28, 1997 /s/ Jack Rosenfeld
------------------
Jack Rosenfeld
Director
Date: March 28, 1997 /s/ Justin L. Vigdor
--------------------
Justin L. Vigdor
Director
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PSC Inc.:
We have audited the accompanying consolidated balance sheets of PSC Inc. (a New
York corporation) and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements and schedule referred to below are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PSC Inc. and subsidiaries as of
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14(a)2 is
presented for purposes of complying with the Securities and exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen
Rochester, New York,
January 31, 1997
<PAGE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except per share data)
<TABLE>
ASSETS
<CAPTION>
December 31,
---------------------------------
1996 1995
--------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................................... $10,838 $ 5,538
Marketable securities ........................................ -- 4,204
Accounts receivable, net of allowance for doubtful accounts
of $1,101 in 1996 and $387 in 1995 ......................... 29,501 15,897
Inventories 18,306 10,440
Prepaid expenses and other ................................... 1,244 623
--------------- -------------
Total current assets ...................................... 59,889 36,702
Property, Plant and Equipment, net 35,612 22,157
Deferred Tax Assets ............................................ 24,773 1,506
Intangible and Other Assets, net ............................... 63,087 10,872
=============== =============
Total assets .............................................. $183,361 $71,237
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ............................ $9,459 $ 131
Accounts payable ............................................. 15,681 8,397
Accrued expenses ............................................. 11,448 6,202
Accrued payroll and related employee benefits ................ 7,509 1,237
Accrued acquisition related restructuring costs .............. 4,009 338
--------------- -------------
Total current liabilities ................................. 48,106 16,305
Long-Term Debt, less current maturities ........................ 117,994 492
Other Long-Term Liabilities .................................... 1,960 1,113
Commitments and Contingencies
Shareholders' Equity:
Preferred shares, par value $.01; 10,000 shares authorized,
none issued ............................................... -- --
Common shares, par value $.01; 40,000 shares authorized, 11,161
and 9,985 shares issued at December 31, 1996
and 1995, respectively .................................... 112 100
Additional paid-in capital .................................. 54,891 45,881
Retained earnings/(Accumulated deficit) ..................... (39,432) 7,548
Cumulative translation adjustment ........................... (33) 35
Less -- 39 treasury shares, repurchased at cost ............. (237) (237)
--------------- -------------
Total shareholders' equity ............................... 15,301 53,327
=============== =============
Total liabilities and shareholders' equity ............... $183,361 $71,237
=============== =============
See accompanying notes to the Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1995 1994
--------- ------------ -------------
<S> <C> <C> <C>
Net Sales .............................................. $ 146,051 $ 87,516 $ 60,447
Cost of Sales .......................................... 83,675 50,634 32,198
--------- --------- ---------
Gross profit ...................................... 62,376 36,882 28,249
Operating Expenses:
Engineering, research and development ............. 11,069 4,962 3,810
Selling, general and administrative ............... 37,855 23,024 16,031
Amortization of intangibles resulting from business
acquisitions ............................... 3,564 877 485
Acquisition related restructuring and other costs . 70,068 -- 6,894
--------- --------- ---------
Income/(loss) from operations ............... (60,180) 8,019 1,029
Interest and Other Income/(Expense):
Interest expense .................................. (5,835) (306) (97)
Interest income ................................... 568 594 394
Other income/(expense) ............................ (480) 388 (187)
--------- --------- ---------
(5,747) 676 110
--------- --------- ---------
Income/(Loss) from Continuing Operations Before
Income Tax Provision/(Benefit) .................... (65,927) 8,695 1,139
Income Tax Provision/(Benefit) ......................... (24,393) 3,246 527
--------- --------- ---------
Income/(Loss) from Continuing Operations ............... (41,534) 5,449 612
Discontinued Operations:
Loss from discontinued operations, net of tax .... (229) -- --
Loss on disposal of discontinued operations,
net of tax ................................... (5,217) -- --
--------- --------- ---------
Total Loss from Discontinued Operations ................ (5,446) -- --
--------- --------- ---------
Net Income/(Loss) ...................................... ($ 46,980) $ 5,449 $ 612
========= ========= =========
Net Income/(Loss) Per Common and
Common Equivalent Share:
Continuing operations ............................. ($ 3.96) $ 0.54 $ 0.08
Discontinued operations ........................... (0.52) -- --
--------- --------- ---------
Net income/(loss) ................................. ($ 4.48) $ 0.54 $ 0.08
========= ========= =========
Weighted Average Number of Common
and Common Equivalent Shares Outstanding .......... 10,490 10,013 7,617
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
<PAGE>
<TABLE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(All amounts in thousands)
<CAPTION>
Retained
Common Stock Additional Cumulative Earnings/
--------------------- Paid-In Translation Treasury (Accumulated
Shares Amount Capital Adjustment Stock Deficit)
--------- ---------- ------------- --------------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 ....... 7,239 $ 73 $ 19,890 $ 6 ($ 191) $ 1,487
Issuance of shares according to
Employee Stock Purchase Plan . 13 -- 66 -- -- --
Exercise of options .............. 189 2 332 -- -- --
Purchase of treasury shares ...... (8) -- -- -- (46) --
Foreign currency translation ..... -- -- -- 2 -- --
Net income ....................... -- -- -- -- -- 612
-------- -------- -------- -------- -------- --------
Balance, December 31, 1994 ....... 7,433 75 20,288 8 (237) 2,099
Issuance of shares according to
Employee Stock Purchase Plan . 9 -- 87 -- -- --
Exercise of options .............. 194 2 1,269 -- -- --
Tax benefit from exercise or early
disposition of certain stock
options ...................... -- -- 685 -- -- --
Issuance of stock, net ........... 2,310 23 23,552 -- -- --
Foreign currency translation ..... -- -- -- 27 -- --
Net income ....................... -- -- -- -- -- 5,449
-------- -------- -------- -------- -------- --------
Balance, December 31, 1995 ....... 9,946 100 45,881 35 (237) 7,548
Issuance of shares according to
Employee Stock Purchase Plan 26 -- 201 -- -- --
Exercise of options .............. 173 2 1,079 -- -- --
Issuance of warrants ............. -- -- 600 -- -- --
Tax benefit from exercise or early
disposition of certain stock
options .................... -- -- 140 -- -- --
Issuance of stock, net ........... 977 10 6,990 -- -- --
Foreign currency translation ..... -- -- -- (68) -- --
Net loss ......................... -- -- -- -- -- (46,980)
======== ======== ======== ======== ======== ========
Balance, December 31, 1996 ....... 11,122 $ 112 $ 54,891 ($ 33) ($ 237) ($39,432)
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
<PAGE>
<TABLE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
<CAPTION>
Year Ended December 31,
-------------------------------------------
1996 1995 1994
-------------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) ........................................... ($46,980) $5,449 $612
Adjustments to reconcile net income/(loss) to
net cash provided by operating activities:
Depreciation and amortization ....................... 9,169 2,784 2,018
(Gain)/loss on disposition of assets ................ 3,860 (161) 1,169
Acquired research and development write-off ......... 60,100 -- 3,930
Loss on disposal of discontinued operations ......... 5,217 -- --
Deferred tax assets ................................. (23,033) 668 (1,950)
(Increase) decrease in assets:
Accounts receivable, net .......................... 1,760 (2,669) (5,051)
Inventories ....................................... (1,199) (4,031) 151
Prepaid expenses and other ........................ (147) 301 (793)
Increase (decrease) in liabilities:
Accounts payable .................................. 1,461 699 1,213
Accrued expenses .................................. (5,535) 1,297 1,028
Accrued payroll and related employee benefits ..... 6,272 (333) 592
Accrued acquisition related restructuring costs ... 4,278 (1,107) 1,892
-------------- ----------- -----------
Net cash provided by operating activities ....... 15,223 2,897 4,811
-------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................ (4,843) (7,418) (10,905)
Cash paid for acquisition of business ....................... (10,124) -- (2,450)
Additions to intangible and other assets .................... (1,238) (4,443) (40)
Issuance of notes for stock option activity ................. (382) (593) --
Purchase of marketable securities, net ...................... -- -- (1,335)
Proceeds from sale of marketable securities ................. 4,167 -- --
-------------- ----------- -----------
Net cash used in investing activities ........... (12,420) (12,454) (14,730)
-------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt ................................. --- 1,046 6,219
Additions to other long-term liabilities .................... 648 230 17
Principal repayments of long-term debt ...................... (105) (14,126) (174)
Payment of other long-term liabilities ....................... -- (420) --
Exercise of stock options and the issuance of stock and
warants .................................................... 1,882 24,933 400
Purchase of treasury shares .................................. -- -- (46)
Tax benefit from exercise or early disposition of
certain stock options ....................................... 140 685 --
-------------- ----------- -----------
Net cash provided by financing activities ....... 2,565 12,348 6,416
-------------- ----------- -----------
Foreign currency translation ................................ (68) 27 2
-------------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents ........ 5,300 2,818 (3,501)
CASH AND CASH EQUIVALENTS:
Beginning of year .......................... 5,538 2,720 6,221
-------------- ----------- -----------
End of year ................................ $10,838 $5,538 $2,720
============== =========== ===========
Supplemental disclosures of cash flow information:
Interest paid ............................................ $3,994 $ 306 $ 550
Income taxes paid ........................................ $ 833 $ 3,009 $ 2,450
Capital leases ........................................... $ 35 $ 131 $ 586
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
1. DESCRIPTION OF BUSINESS
PSC (the Company) manufactures the world's broadest line of handheld
and fixed position bar code readers, verifiers and integrated sortation and
point-of-sale scanning systems. The Company has developed products for automatic
data collection at every stage of the product supply chain from raw material,
manufacturing and warehousing, to logistics, transportation, inventory
management and point-of-sale. These products are used throughout the world in
food and general retail, healthcare, government and other industries.
The Company's corporate headquarters are located in the Rochester, New
York suburb of Webster. The Company designs, manufactures, sells, distributes
and services its products from world-class manufacturing facilities in Webster,
New York and Eugene, Oregon. These products are sold through original equipment
manufacturers, value-added resellers, distributors, systems integrators and a
professional sales force world wide. The Company has sales and service
operations in the Americas, Europe, Asia and Australia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of PSC Inc.
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less. The cost of the cash equivalents
approximates fair market value.
Marketable Securities
Marketable securities are accounted for in accordance with Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" and are stated at current market value. Realized
gains and losses are included in earnings and are derived using the specific
identification method for determining the cost of securities.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and includes certain
capitalized leases. For financial reporting purposes, depreciation and
amortization are computed using the straight-line method over the following
estimated useful lives:
Building and improvements ..................... 10-45 years
Office furniture and equipment ................ 3-7 years
Production equipment .......................... 3-8 years
Leasehold improvements ........................ 3-15 years
Equipment under capital leases and leasehold improvements are amortized using
the straight-line method over the shorter of the estimated useful lives of the
assets or the lease term.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
Intangibles Resulting from Business Acquisitions
Intangibles resulting from business acquisitions represent the excess
purchase price over the fair value of net assets acquired and are amortized
using the straight-line method over five to ten years, their current estimated
useful lives.
During 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-lived
Assets and Long-lived Assets to be Disposed of." The effect of adoption was not
material. This statement requires the Company to review long-lived assets,
including certain intangibles and goodwill, for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If such events or changes in circumstances are present, a loss
is recognized to the extent the carrying value of the asset is in excess of the
sum of the undiscounted cash flows expected to result from the use of the asset
and its eventual disposition.
Other Intangibles
Other intangibles, which consist of technology and license agreements,
patents and trademarks, are recorded at cost. Amortization is calculated on a
straight-line basis over periods ranging from two to ten years, their current
estimated useful lives.
Income Taxes
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109) "Accounting for Income
Taxes." SFAS No. 109 requires an asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for temporary differences between financial statement
and income tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using tax rates expected to apply to taxable income in
the years that the temporary differences are expected to be realized. In
addition, the amount of any future tax benefits is reduced by a valuation
allowance until it is more likely than not that such benefits will be realized.
Net Income per Common and Common Equivalent Share
Primary and fully diluted net income per common and common equivalent
share are based on the weighted average number of shares of common stock and
common stock equivalents (options and warrants) outstanding during the period,
computed in accordance with the treasury stock method. The effect of considering
common stock equivalents for fully diluted net income per share was not
significant in 1995 and 1994. Fully diluted net income per share is not
applicable for loss periods.
Foreign Currency Translation
The financial statements of foreign operations are translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52
"Foreign Currency Translation." Accordingly, all assets and liabilities are
translated at year-end exchange rates. The gains and losses that result from
this process are shown in the cumulative translation adjustment account in the
shareholders' equity section of the balance sheet. Operating transactions are
translated at weighted average rates during the year. Transaction gains and
losses are reflected in net income and were not material.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
Derivatives
In September 1996, the Company entered into four interest rate swaps
with its senior lending banks in accordance with the terms of the senior loans.
These swaps commence in January 1997 and expire in September 1998. They cover
only the senior loans and convert the variable rate senior debt, on an
amortizing basis, into fixed rate debt, through the expiration date. The
differentials to be received or paid under these agreements are recognized as an
adjustment to interest expense. The fair value of interest rate swap agreements
is estimated based on quotes from the market makers of these instruments and
represents the estimated amounts that the Company would expect to receive or pay
to terminate these agreements. The Company has no other interest rate
derivatives outstanding and, as a matter of policy, does not enter into
derivative agreements other than straight interest rate swaps designed to cancel
variable rate exposures.
Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments is the
following at December 31:
<TABLE>
<CAPTION>
1996 1995
--------------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and cash equivalents ................ $10,838 $10,838 $5,538 $5,538
Marketable securities .................... -- -- $4,204 $4,204
Long-term debt, including current portion $127,453 $127,453 $623 $623
</TABLE>
The fair values of the Company's financial instruments were determined
as follows:
Cash and cash equivalents: The carrying amount approximates fair value
because of the short maturity of these instruments.
Marketable securities: The fair value is based on quoted market prices
for these or similar instruments. Accordingly, the carrying amount of marketable
securities approximates fair value.
Long-term debt, including current portion: The fair value of the
long-term debt is estimated based on quoted market prices currently available on
similar debt. Accordingly, the carrying amount of long-term debt approximates
fair value.
Product Warranty
The Company's products have a warranty period of 12 to 30 months.
Estimated warranty costs are provided at the time of sale. The Company maintains
an accrual for warranty claims and adjusts this accrual periodically based on
historical experience and known warranty claims.
Research and Development Costs
All research and development costs are expensed as incurred.
Revenue Recognition
Revenue from sales of the Company's products is recognized upon
shipment. In conjunction with these sales, field service maintenance agreements
are entered into for certain products. Maintenance revenues are deferred and
recognized ratably over the term of the related maintenance period, which is
typically one to three years.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassification
Certain amounts in prior years have been reclassified to conform to the
1996 presentation.
3. ACQUISITIONS AND DISPOSITIONS
On July 12, 1996, the Company completed its purchase agreement with
Spectra-Physics AB of Sweden to acquire Spectra-Physics Scanning Systems, Inc.,
TxCOM S.A. and related businesses (Spectra). Spectra, which is headquartered in
Eugene, Oregon, is one of the world's leading manufacturers of countertop and
in-counter fixed position bar code scanners for retail point-of-sale
applications. The purchase price was approximately $140 million. The purchase
was funded by $125 million in cash, $10 million in the Company's common shares
less a $3 million discount as the shares are unregistered and a $5 million
subordinated promissory note. The $125 million cash portion was funded by a
combination of the Company's cash, senior debt ($92.5 million) and subordinated
debt ($30 million). The acquisition was accounted for as a purchase and is
included in the 1996 Consolidated Financial Statements since the date of
acquisition. The Company allocated $60.1 million of the purchase price to
acquired in-process research and development as required by generally accepted
accounting principles, resulting in a one-time charge to the Company's earnings
in the third quarter. The remaining excess of the purchase price over the fair
value of net assets acquired is approximately $58 million and will be amortized
on a straight-line basis over 10 years.
The following table sets forth the unaudited pro forma results of
operations of the Company for the years ended December 31, 1996 and 1995. The
unaudited pro forma results of operations assume that the operations of the
Company were combined with those of Spectra as if the acquisition occurred on
January 1, 1995. The unaudited pro forma results of operations are presented
after giving effect to certain adjustments for depreciation, amortization of
goodwill, interest expense on the acquisition financing and related income tax
effects. The unaudited pro forma results of operations are based upon currently
available information and upon certain assumptions that the Company believes are
reasonable. The unaudited 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
Twelve Months Ended
---------------------------
12/31/96 12/31/95
-------- --------
Net sales .................................... $210,961 $189,143
Income/(loss) from operations ................ (51,800) 15,444
Income/(loss) from continuing operations ..... (40,148) 1,931
Total loss from discontinued operations ...... (5,446) --
Net income/(loss) ............................ (45,594) 1,931
Net income/(loss) per common and common
equivalent share:
Continuing operations ..................... ($3.65) $0.17
Discontinued operations ................... (0.49) --
------ -------
Net income/(loss) ......................... ($4.14) $0.17
======= =====
Weighted average shares outstanding .......... 11,008 11,216
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
In connection with the acquisition, liabilities assumed and cash paid
were as follows:
Fair value assets acquired .......... $161,162
Liabilities assumed ................. 17,138
Total consideration paid .......... 144,024
Less issuance of stock .............. 7,000
Less amounts borrowed ............... 126,900
-------
Net cash paid for acquisition ..... $10,124
In April 1995, the Company completed the sale of substantially all of
the assets related to its image products business. This resulted in a gain of
approximately $161 which was included in other income in 1995.
On December 21, 1994, the Company acquired, for $9.25 million in cash,
all of the outstanding stock of LazerData Corporation. LazerData is a leading
manufacturer of fixed position, high speed line, rastering and omnidirectional
bar code scanners. The Company allocated $3.9 million of the purchase price to
acquired in-process research and development as required by generally accepted
accounting principles and, accordingly, it was written off as of the purchase
date. The remaining excess of the purchase price over the fair value of the net
assets acquired of approximately $5.1 million is amortized on a straight-line
basis over 10 years. The transaction was accounted for as a purchase and is
included in the Consolidated Financial Statements since the date of acquisition.
The following unaudited pro forma condensed consolidated results of
operations assume the operations of the Company were combined with those of
LazerData Corporation at the beginning of 1994. The unaudited pro forma
information is presented after giving effect to certain adjustments for
depreciation, amortization, interest expense and related income tax effects. The
unaudited pro forma results do not purport to be indicative of the results that
actually would have been achieved during the period indicated and are not
intended to be indicative of future results.
Pro Forma
Twelve Months Ended
-------------------
12/31/94
--------
Net sales .................................................. $70,789
Acquisition related restructuring and other costs .......... 6,894
Loss from operations ....................................... (181)
Net loss ................................................... (822)
Net loss per common and common equivalent share ............ ($.11)
In connection with the acquisition, liabilities assumed and cash paid
were as follows:
1994
----
Fair value assets acquired ....... $12,436
Liabilities assumed .............. 3,186
Cash paid ...................... 9,250
Less amounts borrowed ............ 6,800
---------
Net cash paid for acquisition ..$ 2,450
========
4. MARKETABLE SECURITIES
At December 31, 1995, the Company's marketable securities were
classified as available for sale and these securities were recorded at fair
market value. During 1996, these securities were sold at a net loss of $37.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
5. INVENTORY
Inventory consists of the following at December 31:
1996 1995
-------------- ------------
Raw materials .................... $10,688 $6,914
Work-in-process .................. 3,547 2,090
Finished goods ................... 4,071 1,436
-------- -------
$18,306 $10,440
======= =======
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of the following at
December 31:
1996 1995
------------ ------------
Land ..................................... $2,304 $ 812
Building and improvements ................ 17,569 10,516
Office furniture and equipment ........... 8,356 4,333
Production equipment ..................... 12,073 10,109
Leasehold improvements ................... 3,535 499
------------ ------------
43,837 26,269
Less: accumulated depreciation
and amortization ................ 8,225 4,112
------------ ------------
$35,612 $22,157
============ ============
The Company capitalized interest costs of $453 in 1994 related to the
construction of its new office and manufacturing facility. There was no
capitalized interest in 1996 or 1995.
Depreciation expense for 1996, 1995 and 1994 amounted to $4,947,
$1,673 and $1,407, respectively. Amortization of capital lease assets is
included in depreciation expense.
7. INTANGIBLE AND OTHER ASSET
Intangible and other assets consist of the following at December 31:
1996 1995
---------- ----------
Intangibles resulting from business acquisitions . $65,750 $8,016
Other intangibles ................................ 2,234 3,050
Other assets ..................................... 1,341 2,182
----------- ------------
69,325 13,248
Less: accumulated amortization ............... 6,238 2,376
------------ ------------
$63,087 $10,872
============ ============
Amortization expense for 1996, 1995 and 1994 amounted to $4,222, $1,111 and
$611, respectively.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
8. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
1996 1995
------------ ------------
Accrued warranty cost ......... $3,178 $1,550
Accrued royalty ............... 1,261 1,715
Accrued technology licenses ... -- 1,620
Accrued interest .............. 1,687 --
Accrued relocation ............ 1,185 --
Other expenses ................ 4,137 1,317
----------- -----------
$11,448 $6,202
============ ============
9. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1996 1995
-------------- -----------
Senior term loan A .................... $55,000 $ --
Senior term loan B .................... 25,000 --
Senior revolving credit ............... 12,500 --
Subordinated term loan ................ 29,428 --
Subordinated promissory note .......... 5,000 --
Other ................................. 525 623
-------------- -----------
127,453 623
Less: current maturities ........... 9,459 131
-------------- -----------
$117,994 $492
============== ===========
During 1996, the Company negotiated a series of debt agreements in
connection with the funding of its acquisition of Spectra. Term loan A is a
senior loan with five lenders, having a final maturity in June 2001, at a
current floating interest rate of 8.6% and a swapped fixed rate of 9.4% starting
in 1997. Term loan B is a senior loan with four lenders, having a final maturity
in December 2002, at a current floating interest rate of 9.2% and a swapped
fixed rate of 9.9% starting in 1997. The swaps for both loans expire on
September 30, 1998.
The revolving credit is with the term loan lenders, matures in 2001 and
has a current floating interest rate of 8.4%. The total revolving credit
facility is $20.0 million, of which $12.5 million is used and outstanding at
December 31, 1996. The unused portion of the revolving credit facility is
subject to a commitment fee of between 0.375% and 0.5%. The senior debt
facilities have collateral in all of the assets of the Company.
The subordinated term loan is from five lenders, at a fixed rate of
11.25%, with principal payments starting in June 2003 and a final maturity in
June 2006. This debt, which also contains warrants to purchase 975 shares of the
Company's stock at $9.48 a share, has an associated unamortized discount of $572
which has been netted against the total outstanding balance of $30.0 million.
The subordinated promissory note matures in 2001 and has a current
floating interest rate of 9.25%. The subordinated term loan and promissory note
are unsecured.
The other debt is principally composed of capital lease obligations.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
The senior debt and subordinated term loan agreements restrict payment
of dividends, limit stock repurchases and require the maintenance of certain
financial ratios. The Company was in compliance with all of these covenants and
ratios as of December 31, 1996.
During 1995, the Company repaid and terminated its term loan facility
from which it partially financed its acquisition of LazerData Corporation in
December 1994. During 1995, the Company also repaid and terminated its
construction and permanent loan agreement which was used to partially fund the
construction of the Company's new headquarters, manufacturing and engineering
facility.
Long-term debt maturities are as follows for years ending December 31:
1997 .............. $ 9,459
1998 .............. 12,406
1999 .............. 14,402
2000 .............. 16,281
2001 .............. 34,949
Thereafter ........ 39,956
----------------
$127,453
================
The Company is a guarantor under a mortgage agreement through February
2001 relating to its former principal manufacturing facility up to $500.
10. INCOME TAXES
The provision for (benefit from) income taxes consisted of the following for the
years ended December 31:
1996 1995 1994
-------------- ----------- ----------
Current:
Federal ................... ($1,589) $1,686 $2,230
State ..................... 65 341 534
Foreign ................... 164 551 171
Deferred:
Federal ................... (21,176) 585 (2,138)
State ..................... (1,857) 83 (270)
============== =========== ==========
Total ................. ($24,393) $3,246 $527
============== =========== ==========
A reconciliation between the statutory U.S. federal income tax rate and
the Company's effective tax rate is as follows for the years ended December 31:
1996 1995 1994
---------- --------- ---------
Computed "expected" tax expense ............... 34.0% 34.0% 34.0%
Tax benefit - net operating loss carryforward . -- -- (35.1%)
Write-off of intangible assets ................ -- -- 18.2%
Change in valuation reserve ................... 2.3% (4.7%) (10.2%)
State income taxes, net of
federal income tax benefit .................. 1.8% 3.2% 31.0%
Goodwill amortization ......................... 0.2% 1.4% 14.5%
Miscellaneous items, net ...................... (1.3%) 3.4% (6.1%)
---------- --------- ---------
37.0% 37.3% 46.3%
========== ========= =========
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
The deferred tax assets/(liabilities) are comprised of the following at
December 31:
1996 1995
------------ ------------
Receivables ...................................... $327 $145
Inventory ........................................ 1,405 386
Warranty reserves ................................ 1,175 578
Acquisition related restructuring and other costs 1,828 293
Acquired in-process research and development costs 22,226 1,360
Property, plant & equipment ...................... (688) (531)
Other, net ....................................... 636 130
------------ ------------
26,909 2,361
Less: valuation allowance ....................... (2,136) (621)
============ ============
Net deferred tax asset ........................... $24,773 $1,740
============ ============
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Management considers among other
things, the scheduled reversal of deferred tax liabilities, projected future
taxable income, tax planning strategies and positions taken by taxing
authorities on various issues related to the deductibility of certain costs in
making this assessment. The Company has recorded a valuation allowance to
reflect the estimated realizable amount of deferred tax assets.
11. COMMITMENTS AND CONTINGENCIES
Operating Lease Agreements
Certain equipment and properties are rented under noncancelable
operating leases that expire at various dates through 2001. Total rental expense
under operating leases was approximately $1,214, $786 and $379, for the years
ended December 31, 1996, 1995 and 1994, respectively.
Future minimum lease payments required under these agreements are as
follows for the years ending December 31:
1997 .............. $1,480
1998 .............. 1,124
1999 .............. 677
2000 .............. 294
2001 .............. 214
==========
$3,789
==========
Employment Agreements
The Company has an employment contract with the Chairman and Chief
Executive Officer which expires on December 31, 1999 and for which the Company
has a minimum commitment aggregating approximately $1,444 at December 31, 1996.
The commitment is payable ratably over the term of the contract.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
Royalty Agreements
The Company currently has cross-license agreements with certain
industry competitors. Under these agreements, royalties are paid by the Company
on sales of certain licensed products. Royalty expense under these agreements
was included in selling, general and administrative expense in 1996, 1995 and
1994.
Legal Matters
The automatic identification and data capture industry is characterized
by substantial litigation regarding patent and other intellectual property
rights. The Company aggressively defends its patents and other proprietary
rights, and is currently a plaintiff in two lawsuits alleging patent
infringements on the part of others, and these proceedings involve counterclaims
against the Company. In addition, there is litigation pending in the United
States District Court for the Western District of New York between the Company
and one of its customers, on the one hand, and Symbol Technologies, Inc.
(Symbol) on the other, involving certain of Symbol's patents. In that action,
the Company has also alleged violation of the antitrust laws and unfair
practices by Symbol and Symbol has alleged breaches of certain license
agreements between the Company and Symbol. The litigation is in the early stages
of discovery. The Company has also assumed the responsibility of defending the
action on behalf of its customer and has provided certain rights of
indemnification to its customer. The Company intends to defend itself and its
customer vigorously. Although the Company maintains that Symbol's patents are
invalid, that the Company has not infringed the patents, or both, and that the
Company has not, as was alleged, breached the Symbol license, there can be no
assurance that this or any other action will be decided or settled in the
Company's favor. There can be no assurance that others will not assert claims
against the Company that result in litigation. Any such litigation could result
in significant expense, adversely impact the Company's marketing, give rise to
certain indemnity rights on the part of customers and divert the Company's
attention from other matters. If any of the Company's products were found to
infringe a third-party patent, the third party could be entitled to injunctive
relief, which would prevent the Company from selling any such infringing
products. In addition, the Company could be required to pay monetary damages.
Although the Company could seek a license to sell products determined to
infringe a third-party patent, there can be no assurance that a license would be
available on terms acceptable to the Company. The Company could also attempt to
redesign any infringing products so as to avoid infringement, although any
effort to do so could be expensive and time-consuming, and there can be no
assurance the effect would be successful.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
12. SHAREHOLDERS' EQUITY
In March 1995, the Company completed a secondary stock offering. The
Company sold approximately 2.3 million shares at a price of $11.00 per share.
The net proceeds to the Company from the offering were approximately $23.6
million. The Company used approximately $7.2 million of the net proceeds from
the offering to repay in full the outstanding indebtedness under the Company's
construction loan used to finance its new headquarters, manufacturing and
engineering facility. The Company also used approximately $6.8 million of the
net proceeds from the offering to repay in full the outstanding indebtedness
under the Company's term loan that was used to finance a portion of its
acquisition of LazerData Corporation in December 1994.
In 1987, the Company adopted the 1987 Stock Option Plan (1987 SOP).
Options under the 1987 SOP may be granted to employees, consultants, directors
and officers. Under the 1987 SOP, all options vest over a period of years
following the date of grant. In 1994, the Company adopted the 1994 Stock Option
Plan (1994 SOP). Options outstanding under prior stock option plans continue in
effect according to their original terms. Under the 1994 SOP, the Company may
grant stock options to employees, consultants, directors and officers. The 1994
SOP provides that options may vest over time or based upon the performance of
the Company's stock, or both, at the discretion of the Board of Directors.
Options under both plans must be issued at an exercise price not less than fair
market value on date of grant. Options issued under both plans expire five to
ten years from date of grant unless employment is terminated or death occurs
earlier.
In accordance with the provisions of the Plans, the Company may make
loans to participants to finance the exercise price and related income taxes
upon the exercise of an option. During 1996, the Company granted two loans to
the Chairman and Chief Executive Officer, totaling $382. Each loan is a
five-year loan at an interest rate of 9.50% and is secured by the shares
purchased with the proceeds of the loan. During 1995, the Company granted two
loans to participants, both of whom are members of the Board of Directors of the
Company, totaling $593. Each loan is a five-year loan at an interest rate of
7.34% and is secured by the shares purchased with the proceeds of the loan.
The Company accounts for its Stock Option Plans and Employee Stock
Purchase Plan under APB Opinion No. 25, "Accounting for Stock Issued to
Employees," under which no compensation cost has been recognized. In October
1995, Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation," was issued. This statement
encourages, but does not require, companies to use the fair value based method
to measure compensation cost, which is then recognized over the service period
(usually the vesting period). The Company continues to measure compensation cost
using the intrinsic value method as prescribed by APB Opinion No. 25. Had
compensation cost for these plans been determined based on the fair value at the
grant dates for awards consistent with SFAS No. 123, the Company's pro forma
amounts for net income and earnings per share would have been as follows:
1996 1995
---- ----
Net income/(loss) as reported .......... ($46,980) $5,449
Net income/(loss) pro forma ............ ($48,501) $5,325
Net income/(loss) per common and common
equivalent share as reported ....... ($4.48) $0.54
Net income/(loss) per common and
common equivalent share pro forma .. ($4.62) $0.53
SFAS No. 123 has only been applied to options granted, warrants issued
and Employee Stock Purchase Plan purchases after January 1, 1995. As a result,
the pro forma compensation expense may not be representative of that to be
expected in future years.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1995:
1996 1995
---- ----
Risk free interest rate ............. 5.95% 6.66%
Expected dividend yield ............. 0% 0%
Expected lives ...................... 4 years 4 years
Expected volatility ................. 45% 45%
Fair value of options granted ....... $3.31 $5.45
The following is a summary of the activity in the Company's stock
option plans for the years ended December 31:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
1996 Price 1995 Price 1994 Price
----------- ----- ------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
period .................................. 2,138 $8.41 2,299 $8.02 1,320 $7.14
Options granted ............................. 953 7.78 105 12.54 1,354 8.02
Options exercised ........................... (173) 6.27 (200) 6.52 (226) 1.77
Options forfeited/canceled .................. (100) 8.06 (66) 6.84 (149) 7.69
----------- ----------
=========
Options outstanding at end of period ........ 2,818 $8.33 2,138 $8.41 2,299 $8.02
=========== ========== =========
Number of options at end of period:
Exercisable .............................. 1,630 1,575 1,133
Available for grant ...................... 784 1,637 1,676
</TABLE>
The Company was able to realize an income tax benefit in 1996 and 1995
from the exercise or early disposition of certain stock options. For financial
reporting purposes, this benefit resulted in a decrease in current income taxes
payable and an increase in additional paid-in capital.
Warrants
The acquisition of Spectra was financed, in part, by senior
subordinated notes. In connection with the subordinated term loan, warrants
(Warrants) evidencing rights to purchase an aggregate of 975 Common shares of
the Company were issued and sold to the purchasers of the subordinated debt.
These Warrants have an exercise price of $9.48 per share and may be exercised
between July 12, 1997 and July 12, 2006. The holders of the Warrants have
certain rights relating to registration and to the repurchase by the Company of
the Warrants and the shares issued upon the exercise of the Warrants under
certain circumstances.
The fair value of the warrants issued is estimated on the date of
issuance using the Black-Scholes option pricing model with the following
weighted average assumptions used for issues in 1996 and 1995:
1996 1995
---- ----
Risk free interest rate ....... 6.55% n/a
Expected dividend yield ....... 0% n/a
Expected lives ................ 4 years n/a
Expected volatility ........... 45% n/a
Fair value of warrants issued . $4.22 n/a
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
Employee Stock Purchase Plan
The Company has a Stock Purchase Plan (the Plan) under which 250 shares
of its common stock can be issued. Under the terms of the Plan, eligible
employees may purchase shares of the Company's common stock semi-annually on
approximately January 1 and July 1 through payroll deductions. The purchase
price is the lower of 85% of the fair market value of the stock on the first or
last day of each six month offering period. Employees purchased approximately 26
shares at an average price of $7.82 per share, 9 shares at an average price of
$9.16 per share and 13 shares at an average price of $5.16 per share during
1996, 1995 and 1994, respectively. The Plan expires on December 31, 2000.
The fair value of each option grant is estimated on the first day of
the offering period using the Black-Scholes option pricing model with the
following weighted average assumptions for grants in 1996 and 1995:
1996 1995
---- ----
Risk free interest rate .......... 5.89% 6.10%
Expected dividend yield .......... 0% 0%
Expected lives ................... 6 mos. 6 mos.
Expected volatility .............. 45% 45%
Fair value of options granted .... $2.54 $3.78
Other Agreements
During 1993, the Company's Board of Directors authorized a plan, which
was terminated in 1995, under which the Company's management could repurchase
its common shares in the open market. The plan authorized the repurchase of up
to 500 shares which will be held as treasury shares. No shares were repurchased
in 1996 or 1995. The Company repurchased eight shares in 1994 at a cost of $46.
13. 401(K) PLANS
The Company currently has two 401(k) plans. The first plan is available
to U.S. employees meeting certain service and eligibility requirements, except
for employees who work for the former Spectra group. The Company pays a monthly
matching contribution equal to 50% of the employees' contributions up to a
maximum of 5% of their compensation. Plan expense was $210, $193 and $143 for
1996, 1995 and 1994, respectively.
The second plan is available to U.S. employees who work for the former
Spectra group and meet certain service and eligibility requirements. The Company
pays a monthly matching contribution equal to 50% of the employees'
contributions up to a maximum of 6% of their compensation. Plan expense was $167
for 1996.
The Company intends on merging these two plans in 1997.
14. ACQUISITION RELATED RESTRUCTURING AND OTHER COSTS
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. Of the total
restructuring charge, approximately $5.0 million was associated with the closing
of the Company's Sanford, Florida manufacturing facility and relocating those
operations to its Webster, New York facility, $3.6 million was related to the
write-off of previously existing intangible and tangible assets and $1.4 million
was recorded for employee severance and benefit costs for the elimination of
seven positions. As of December 31, 1996, all positions targeted in the
restructuring program have been eliminated. Restructuring actions are expected
to be substantially completed by the end of 1997. The restructuring accrual as
of December 31, 1996 was approximately $4.7 million of which $0.7 million
relates to long-term contractual obligations. There have been no reallocations
or reestimates to date.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
In addition, in the third quarter of 1996, the Company allocated $60.1
million of the Spectra purchase price to acquired in-process research and
development projects, which represents the estimated fair values related to
these projects determined by an independent appraisal. Proven valuation
procedures and techniques were utilized in determining the fair market value of
each intangible asset. The development technologies were evaluated to determine
that there were no alternative future uses. Such evaluation consisted of a
specific review of the efforts, including the overall objectives of the project,
progress toward the objectives and uniqueness of developments toward these
objectives. To bring these projects to fruition, high risk developmental issues
need to be resolved which will require substantial additional effort and
testing. Therefore, technological feasibility of these new products has not yet
been achieved. As these projects have not reached technological feasibility and
alternative future use of these developmental technologies, apart from the
objectives of the individual projects, does not exist, these costs were expensed
as of the acquisition date. The acquisition related restructuring and other
costs reduced 1996 income before income taxes, net income and net income per
share by $70.1 million, $44.2 million and $4.21, respectively.
In the fourth quarter of 1994, the Company provided a pretax charge of
approximately $3.0 million for the costs of restructuring its existing fixed
position scanner product lines with those of LazerData Corporation which was
acquired in December 1994. Of the total pretax charge, approximately $1.6
million was to recognize anticipated costs associated with the consolidation of
manufacturing and office facilities, $0.7 million related to write-offs of
previously existing intangible assets and $0.7 million was provided for employee
severance and benefit costs for the elimination of approximately 12
manufacturing and engineering support positions. As of December 31, 1996, all
positions targeted in the restructuring program have been eliminated.
Restructuring actions are substantially completed as of December 31, 1996. The
restructuring accrual as of December 31, 1996 was approximately $0.4 million.
There have been no reallocations or reestimates to date.
In addition, in the fourth quarter of 1994, the Company allocated $3.9
million of the LazerData purchase price to acquired in-process research and
development projects, which represented the estimated fair values related to
these projects determined by an independent appraisal. Proven valuation
procedures and techniques were utilized in determining the fair market value of
each intangible asset. The development technologies were evaluated to determine
that there were no alternative future uses. As these projects have not reached
technological feasibility and alternative future uses of these developmental
technologies do not exist, these costs were expensed as of the acquisition date.
The acquisition related restructuring and other costs reduced 1994 income before
income taxes, net income and net income per share by $6.9 million, $4.5 million
and $0.56, respectively.
15. 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.
The net loss of the TxCOM operation from July 12, 1996 to December 31, 1996 was
$229 and is included in the Consolidated Statement of Operations under
"Discontinued Operations." Net sales for TxCOM for this period were $1,615. The
loss on disposal of discontinued operations reflected in the Consolidated
Statement of Operations of $5,217 includes the write-down of the assets to their
net realizable value and the estimated costs of disposing of this division, net
of expected tax benefits applicable.
16. SIGNIFICANT CUSTOMER INFORMATION
The Company sells its products principally to original equipment
manufacturers, value-added resellers, distributors and systems integrators.
During 1996, no individual customer accounted for greater than 10% of net sales.
During 1995 and 1994, net sales to the Company's largest customer accounted for
approximately 17% and 22%, respectively. During 1994, the Company's second
largest customer accounted for approximately 10% of net sales. No other
customers were responsible for greater than 10% of net sales in 1995 or 1994.
The Company's arrangements with major customers are generally nonexclusive.
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(All amounts in thousands, except per share data)
17. INTERNATIONAL SALES
International sales by geographic area are as follows for the years
ended December 31:
1996 1995 1994
------------- --------- ----------
Europe ........................... $31,985 $11,004 $5,588
Pacific Rim ...................... 11,667 5,377 3,484
North America,
excluding the United States ... 5,426 2,003 1,295
Other ............................ 6,079 954 871
------------- --------- ----------
$55,157 $19,338 $11,238
============= ========== ===========
18. SELECTED QUARTERLY FINANCIAL DATA: (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
- -----------------------------
Net sales ........................... $21,499 $22,052 $46,486 $56,014
Gross profit ........................ 9,156 8,564 20,283 24,373
Income (loss) from continuing
operations ...................... 435 211 (43,444) 1,264
Loss from discontinued operations ... -- -- (5,331) (115)
Net Income (loss) ................... 435 211 (48,775) 1,149
Net income (loss) per common
and common equivalent share:
Continuing operations ............... $0.04 $0.02 ($3.99) $0.11
Discontinued operations ............. -- -- (0.49) (0.01)
------ ------ ------ ------
Net Income (loss) ................... $0.04 $0.02 ($4.48) $0.10
===== ===== ======= =====
Year Ended December 31, 1995
- -----------------------------------
Net sales ........................... $22,263 $21,315 $22,483 $21,456
Gross profit ........................ 10,502 9,308 8,895 8,177
Net income .......................... 1,881 1,734 1,566 268
Net income per common
and common equivalent share ..... $.22 $.16 $.15 $.03
</TABLE>
<PAGE>
PSC INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(All amounts in thousands)
1996 1995 1994
---- ---- ----
Accounts Receivable Reserve-
BALANCE, at beginning of year ......... $387 $576 $183
Provision for doubtful accounts ..... 168 (134) 230
Write-offs of doubtful accounts,
net of recoveries ................ (200) (55) (12)
Other ............................... 746 (1) - 175 (2)
------ ------- -----
BALANCE, at end of year ...............$1,101 $387 $576
====== ==== ====
(1) Amount represents the reserve recorded in connection with the acquisition of
Spectra.
(2) Amount represents the reserve recorded in connection with the acquisition of
LazerData Corporation.
CHANGE-IN-CONTROL/SEVERANCE AGREEMENT
AGREEMENT, dated as of , 1996, by and between PSC Inc., a New York
corporation (the "Company") and the undersigned, an officer of the Company (the
"Executive").
WHEREAS, in order to enhance Executive's continued service to the
Company in an effective manner without distraction by reason of the possibility
of a termination of employment by the Company or a change in control of the
Company and in order to assure both the Company and the Executive of continuity
of management in the event of any actual or threatened change in control of the
Company, the Company wishes to provide in this agreement for severance benefits
to the Executive in the event of a termination of employment by the Company or a
change in control of the Company.
NOW, THEREFORE, in consideration of the premises and of Executive
agreeing to continue to serve as an employee of the Company, the parties hereto
agree as follows:
1. Severance Payment.
(a) Termination of Employment - In General. In the event of
the termination of employment of Executive by the Company for any reason other
than Termination for Cause (as hereinafter defined), death, disability, or a
Change in Control (as hereinafter defined), the Company will continue to pay the
Executive for a period of one year following such termination an amount equal to
the Executive's salary at the annual rate then in effect. Such amount shall be
payable bi-weekly. In addition, the Company will provide Executive with
Executive's then current health, dental, life and accidental death and
dismemberment insurance benefits for a period of one year following such
termination. In the event of Executive's death while receiving severance
payments hreunder, all remaining severance installment payments otherwise
payable to Executive hereunder will be paid in the same amounts and in the same
manner to Executive's heirs and legal representatives. All payments made to
Executive hereunder will be subject to all applicable employment and withholding
taxes.
(b) Termination of Employment - Change in Control. In the
event of the termination of employment of Executive within the two year period
following a Change in Control (as hereinafter defined) of the Company, and such
termination is (i) by the Company for any reason other than Termination for
Cause (as hereinafter defined), death or disability, or (ii) by the Executive
for "Good Reason" (as hereinafter defined), the Company will pay the Executive
in a lump sum cash payment an amount equal to the product of the sum of (x)
Executive's salary at the annual rate then in effect and (y) the highest annual
bonus paid to Executive under the Company's current Management Incentive Plan or
any successor plan in the three full fiscal years preceding termination
multiplied by two. In addition, Executive will be immediately vested in any
retirement, incentive, or option plans then in effect and the Company will
continue to provide Executive with Executive's then current health, dental, life
and accidental death and dismemberment insurance benefits for a period of three
years. All payments made to Executive hereunder will be subject to all
applicable employment and withholding taxes.
<PAGE>
2. Limitations. Notwithstanding anything in this Agreement to the
contrary, the maximum amount of cash and other benefits payable (whether on a
current or deferred basis and whether or not includible in income for income tax
purposes) under Section 1 of this Agreement (the "Severance Benefits") shall be
limited to the extent necessary to avoid causing any portion of such Severance
Benefits, or any other payment in the nature of compensation to the Executive,
to be treated as a "parachute payment" within the meaning of Section 280G(b)(2)
of the Internal Revenue Code of 1986, as amended. Any adjustment required to
satisfy the limitation described in the preceding sentence shall be accomplished
first by reducing any cash payments that would otherwise be made to the
Executive and then, if further reductions are necessary, by adjusting other
benefits as determined by the Company.
3. Certain Definitions.
(a) Change in Control. A "Change in Control" shall be deemed
to have occurred (i) on the date that any person or group deemed a person under
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, other than
the Company, in a transaction or series of transactions, has become the
beneficial owner, directly or indirectly (with beneficial ownership as
determined as provided in Rule 13d-3, or any successor rule under such Act), of
30% or more of the outstanding voting securities of the Company; or (ii) on the
date on which one third or more of the members of the Board of Directors shall
consist of persons other than Current Directors (for these purposes, as "Current
Director" shall mean any member of the Board of Directors elected at or
continuing in office after, the 1996 Annual Meeting of Shareholders, any
successor of a Current Director who has been approved by a majority of the
Current Directors then on the Board, and any other person who has been approved
by a majority of the Current Directors then on the Board); or (iii) on the date
of approval of (x) the merger or consolidation of the Company with another
corporation where the shareholders of the Company, immediately prior to the
merger or consolidation, would not beneficially own, immediately after the
merger or consolidation, shares entitling such shareholders to 50% or more of
all votes (without consideration of the rights of any class of stock to elect
directors by a separate class vote) to which all shareholders of the corporation
would be entitled in the election of directors or where the members of the Board
of Directors of the Company, immediately prior to the merger or consolidation,
would not immediately after the merger or consolidation, constitute a majority
of the Board of Directors of the corporation issuing cash or securities in the
merger or consolidation or (y) on the date of approval of the sale or other
disposition of all or substantially all the assets of the Company.
<PAGE>
(b) Termination for Cause. The Company shall have the right to
terminate the services of Executive at any time without further liability or
obligations to Executive if: (i) Executive has failed or refused to perform such
services as may reasonably be delegated or assigned to Executive consistent with
the Executive's position, by the Chief Executive Officer or by the Board of
Directors, (ii) Executive has been grossly negligent in connection with the
performance of Executive's duties, (iii) Executive has committed acts involving
dishonesty, willful misconduct, breach of fiduciary duty, fraud, or any similar
offense which materially affects Executive's ability to perform Executive's
duties for the Company or may materially adversely affect the Company, or (iv)
Executive has been convicted of a felony.
Termination of the services of Executive for Cause shall not be
effective unless and until acted upon by the Board of Directors and unless and
until written notice shall have been given to Executive which notice shall
include identification with specificity of each and every factual basis or
incident upon which the termination is based.
(c) Good Reason. Good Reason shall mean the occurrence or
existence of any of the following with respect to Executive: (i) Executive's
annual rate of salary is reduced from the annual rate then currently in effect
or Executive's other employee benefits are in the aggregate materially reduced
from those then currently in effect (unless such reduction of employee benefits
applies to employees of the Company generally), or (ii) Executive's place of
employment is moved more than 25 miles from its then current location, or (iii)
Executive is assigned duties that are demeaning or are otherwise materially
inconsistent with the duties then currently performed by Executive.
Before Executive may terminate Executive's employment for Good Reason,
Executive must notify the Company in writing of Execution's intention to
terminate and the Company shall have 15 days after receiving such written notice
to remedy the situation, if possible.
4. Right to Employment. Nothing contained herein shall confer upon
Executive any right to be continued in the employment of the Company or
interfere in any way with the right of the Company to terminate Executive's
employment at any time for any reason. Executive hereby acknowledges that
Executive is and will remain an employee-at-will of the Company, terminable with
or without Cause.
<PAGE>
5. Notices. All notice given in connection with this Agreement shall be
in writing and shall be delivered either by personal delivery, by telegram,
telex, telecopy or similar facsimile means, by certified or registered mail,
return receipt requested, or by express courier or delivery services, addressed
to the parties hereto at the following addresses:
To Executive: To PSC:
PSC Inc.
675 Basket Road
Webster, NY 14580
Attn: Chief Executive Officer
FAX: (716) 265-6406
or at such other address and number as either party shall have previously
designated by written notice given to the other party in the manner hereinabove
set forth. Notice shall be deemed given when received, if sent by telegram,
telex, telecopy or similar facsimile means (confirmation of such receipt by
confirmed facsimile transmission being deemed receipt of communications sent by
telex, telecopy or other facsimile means); and when delivered and receipted for
(or upon the date of attempted delivery where delivery is refused), if
hand-delivered, sent by express courier or delivery services, or sent by
certified or registered mail, return receipt requested.
6. Waiver. Any waiver of a breach of any of the terms of this
Agreement shall not operate as a waiver of any other breach of such terms or of
any other terms, nor shall failure to enforce any term hereof operate as a
waiver of any such term or of any other term.
<PAGE>
7. Severability. If any term of this Agreement or the
application thereof is held invalid or unenforceable, the validity or
unenforceability shall not effect any other term of this Agreement which can be
given effect without the invalid or unenforceable term.
8. Governing Law; Venue. This Agreement shall be construed and enforced
in accordance with and governed by the internal laws of the State of New York,
without reference to conflict of law principles of any jurisdiction (including
without limitation New York) which would result in the application of the
domestic substantive laws of any other jurisdiction. The parties consent to the
exclusive jurisdiction of the Supreme Court of New York, Monroe County or of the
United States District Court of the Western District of New York for any legal
action instituted by any party against any other with respect to the subject
matter hereof.
9. Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof. This Agreement
may not be amended or changed except by a writing signed by both parties.
10. Successors and Assigns. This Agreement shall bind and inure
to the benefit of the parties hereto and their respective successors and
assigns.
<PAGE>
IN WITNESS WHEREOF, Executive has executed this Agreement and the
Company has caused this Agreement to be executed as of the date set forth above.
PSC Inc.
By:
L. Michael Hone
Its: Chief Executive Officer
EXECUTIVE
SPECTRA-PHYSICS SCANNING SYSTEMS, INC.
959 Terry Street
Eugene, OR 97402-9120
March ___, 1996
Dear_________:
As you know, at the present time, Spectra-Physics Scanning Systems,
Inc. (the "Company") is considering making an initial public offering of all or
a portion of its stock in a firm underwritten offering to the public (an "IPO").
Nevertheless, it is also possible that Spectra-Physics, Inc. ("Spectra-Physics")
could determine that it would be more appropriate to sell the Company to a third
party. For the purposes of this letter, a "Transaction" means the sale, in a
single transaction or a series of related transactions, by Spectra-Physics of:
(i) a majority of the then outstanding shares of the Company's common stock,
(ii) a majority of the combined voting power of the then outstanding securities
of the Company or (iii) a majority of the fair market value of the Company's
assets. In the event that Spectra-Physics determines to pursue a Transaction to
sell the Company, your importance to this continued success of the Company
becomes even more critical. In recognition of the significant extra work, time
and effort you would expend during a Transaction process and to create an
additional incentive for you to ensure your continued commitment and support for
the Company through the completion of a Transaction, the Company wishes to
provide the severance benefits described in this Third Party Severance Letter
Agreement. Accordingly, you and we agree as set forth below.
If on or after the closing date of a Transaction (the "Closing Date")
and prior to the date that is six months after the Closing Date of the
Transaction (i) your employment is terminated without cause (as defined below)
by the Company, or (ii) you terminate your employment with the Company for Good
Reason (as defined below), among other reasons, then, except as provided below,
for a period of ___ months following such termination, the Company will continue
to pay to you an amount equal to ___% of your then current monthly base salary
and provide you with your then current health, dental, life and accidental death
and dismemberment insurance benefits.
<PAGE>
If on or after the date that is six months after the Closing Date and
prior to the date that is 18 months after the Closing Date (i) your employment
is terminated without Cause (as defined below) by the Company, or (ii) you
terminate your employment with the Company for Good Reason (as defined below),
then, except as provided below, for a period of 18 months following such
termination, the Company will continue to pay to you an amount equal to ___% of
your then current monthly base salary and provide you with your then current
health, dental, life and accidental death and dismemberment insurance benefits.
Notwithstanding the foregoing, if any payment to you, whether pursuant
to this letter agreement of otherwise, would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, then
payments hereunder will be reduced to avoid imposition of such excise tax. In
the event of a dispute between you and the Company regarding whether any such
payment will be subject to such excise tax, the dispute will be resolved by a
"Big Six" accounting firm, not previously engaged by either you or the Company,
mutually acceptable to you and the Company.
At the end of either such severance period, you shall be entitled to
exercise your COBRA rights to purchase health, dental and other medical
insurance under the Company's health insurance plan. In the event of your death
or permanent disability, all remaining severance installment payments otherwise
payable to you hereunder will be accelerated and paid within 30 days to you or
your heirs and legal representatives.
All payments due to you hereunder will be subject to all applicable
employment and withholding taxes.
For the purposes of this agreement, "Good Reason" shall mean the
occurrence or existence of any of the following with respect to you:
(i) your base salary plus bonus at target is reduced from that
currently in effect, or your other employee benefits are in the aggregate
materially reduced from those currently in effect (unless such reduction of
employee benefits applies to employees of the Company generally);
(ii) your place of employment is moved more than 20 miles from its
current location; or
(iii) you are assigned duties that are demeaning or are otherwise
materially inconsistent with the duties currently performed by you.
Before you may terminate your employment for Good Reason, you must
notify the Company in writing of your intention to terminate and the Company
shall have 15 days after receiving such written notice to remedy the situation,
if possible.
For purposes of this agreement, "Cause" shall mean the occurrence or
existence of any of the following with respect to you, as determined in good
faith by the Board of Directors of the Company:
(i) your conviction of a felony;
(ii) your refusal to perform such services as may be reasonably
delegated or assigned to you consistent with your position, by the Board of
Directors; or
<PAGE>
(iii) your willful misconduct or gross negligence in connection with
the performance of your duties as an employee of the Company that materially
adversely affects your ability to perform your duties for the Company or
materially adversely affects the Company.
If the sale of the Company occurs by means of a sale of the assets of
the Company, the term "Company" herein shall thereafter be deemed to be a
reference to the purchaser of such assets and if you are offered employment by
such purchaser or an affiliate of such purchaser in a comparable position to
your current position with the Company with comparable duties and authorities
and on terms and conditions substantially similar to those currently in effect,
and you do not accept such offer, your employment with the Company may
thereafter be terminated by the Company and you shall be deemed to have
voluntarily terminated your employment without Good Reason.
Nothing in this letter agreement shall be construed as giving you any
right to remain in the employ of the Company and you hereby acknowledge that you
are and will remain an employee-at-will of the Company, terminable with or
without Cause.
This letter agreement contains the entire understanding between you and
the Company and its affiliates with respect to the matters covered hereby and
supersedes any prior written or oral agreement or understanding with respect to
the matters covered hereby, but shall not affect certain letter agreements
between you and the Company or its affiliates, dated the date hereof. Any
payments due to you under this letter agreement will be in lieu of any severance
benefits or severance payments to which you may be entitled under any other
agreement between you and the Company or under the Company's policies (other
than payments of accrued vacation or expense reimbursements) and in lieu of any
incentive payments under the Company's incentive compensation programs. This
letter agreement may be amended or modified only by an agreement in writing
executed by you and by the Company.
This letter agreement shall be construed and interpreted under the laws
of the State of Oregon. Because it is agreed that time will be of the essence in
determining whether any payments are due to you under this Third Party Severance
Letter Agreement, any disputes arising hereunder shall be submitted to binding
arbitration in Eugene, Oregon, or such other place as the parties may agree. The
parties agree that the arbitration award shall be the sole and exclusive remedy
between them regarding any and all claims arising hereunder.
The arbitration shall be conducted pursuant to the commercial rules of
the American Arbitration Association, subject to the following provisions:
(i) the arbitration hearing shall be held within seven days (or as soon
thereafter as possible) after the selection of the arbitrator, no continuance of
said hearing shall be allowed without the mutual consent of the parties, absence
from or nonparticipation at the hearing by either party shall not prevent the
issuance of an award, hearing procedures which will expedite the hearing may be
ordered at the arbitrator's discretion, and the arbitrator may close the hearing
in his or her sole discretion when he or she decides he or she has heard
sufficient evidence to satisfy issuance of an award;
(ii) the arbitrator's award shall be rendered as expeditiously as
possible and the parties will request that the arbitrator render the award no
later than one week after the close of the hearing, the award of the arbitrator
shall be final and binding upon the parties, the award may be enforced in any
appropriate court as soon as possible after its rendition and if an action is
brought to confirm the award, both parties agree that no appeal shall be taken
by either party from any decision rendered in such action; and
<PAGE>
(iii) the prevailing party, as determined by the arbitrator, in any
such arbitration proceeding shall be awarded reasonable costs and attorneys'
fees.
If prior to the Closing Date of a Transaction your employment is
terminated by the Company without Cause at the request or suggestion of the
proposed purchaser of the Company with the intention of attempting to avoid its
obligations under this letter agreement, then you shall nevertheless be entitled
to all the benefits afforded to you under this letter agreement as if you
employment was terminated by the Company without Cause immediately following the
Closing Date of such Transaction.
This agreement shall terminate and be of no further force or effect
upon the completion of an IPO or if a definitive agreement for a Transaction has
not been signed by August 31, 1996 or such later date as the Company notifies
you in writing; provided that if such definitive agreement is terminated without
the closing of a Transaction occurring thereunder, this letter agreement shall
also terminate. Notwithstanding the definition of transaction contained
elsewhere herein, any business combination transaction with a particular company
(the identity of which we have previously agreed upon) in which Spectra-Physics
retains, directly or indirectly, a majority ownership interest or a majority of
the voting power in the surviving entity, but does not or is not entitled to
elect a majority of the board of directors thereof, will be considered a
Transaction hereunder.
This agreement shall insure to the benefit of your heirs, assigns, and
legal representatives. Additionally, this agreement shall be binding upon the
parties hereto, and their respective successors and assigns.
Very truly yours,
SPECTRA-PHYSICS SCANNING
SYSTEMS, INC.
By: /s/
Title:
Agreed and Accepted
, 1996
AGREEMENT dated July 12, 1996 between PSC Inc. ("PSC") and John F. O'Brien
("O'Brien").
RECITALS
A. O'Brien has been the President of Spectra-Physics Scanning systems, Inc.
("SPSS").
B. By letter dated March 31, 1996, a copy of which is attached to this
Agreement as Exhibit A (the "Severance Letter"), SPSS provided O'Brien with
certain severance benefits under certain conditions as therein described.
C. Effective this date, SPSS has become a wholly-owned subsidiary of PSC.
D. PSC and O'Brien desire that effective this date O'Brien become the
President of PSC.
E. O'Brien seeks t protect his rights under the Severance Letter in the
event that the job content of position of President does not meet his
expectations during a six month transitional period.
Accordingly, it is agreed as follows:
1. Upon the execution hereof O'Brien will be employed as President of PSC having
the responsibilities and reporting relationships substantially as described in
Alternative #3 of a memorandum dated July 9, 1996 from O'Brien to L. Michael
Hone, a copy of which is attached as Exhibit B.
2. The term of this employment shall expire on six months from the date hereof
(the "Term") unless the parties shall mutually agree in writing to renew, extend
or modify the same. O'Brien's employment hereunder shall not be terminated
during the said six month term except for Cause as the same is defined in the
Severance Letter.
3. During the Term O'Brien's salary and benefits shall be continued as currently
in effect subject, in the case of benefits, to such changes as PSC's benefit
plans effect with regard to all executive employees generally.
4. O'Brien's right to severance payments as set forth in the Severance Letter
shall not be abridged if he shall resign his position (i) during the Term for
"Good Reason" as defined in the Severance Letter, or (ii) during the Term
because his duties and responsibilities are changed materially from those
described under the Alternatives 1,2 and 3 of Exhibit B. O'Brien will give PSC
15 days written notice of any intent to terminate his employment during the Term
and PSC will have an opportunity to cure or remedy the situation during such
period. In addition, he shall be entitled to the said severance benefits, if at
the expiration of the Term in his sole discretion he elects not to renew or
extend his employment with PSC because the job content has not met his
expectations. In such case for the purpose of calculating the amount of
O'Brien's severance payments, the term Closing Date as used at the bottom of
page one and on page two of the Severance Letter shall be deemed to be January
12, 1997.
<PAGE>
5. O'Brien agrees that during the Term and for five years thereafter, he will
not, except as required by the performance of his duties under this Agreement,
disclose or authorize anyone else to disclose or use or make known for his or
another's benefit, any confidential information or knowledge of data of PSC,
whether or not patentable or copyrightable, in any way acquired by him from the
inception of his employment with PSC through the expiration of the Term (herein
"Confidential Information"). Confidential Information, the purposes of this
Agreement, shall include, but not be limited to, matters not readily available
to the public which are:
a. of a technical nature, such as, but not limited to, methods, know-how,
formulae, compositions, drawings, blueprints, compounds, processes, discoveries,
machines, prototypes, inventions, computer programs;
b. of a business nature, such as, but not limited to, information about
sales or lists of customers, prices, costs, purchasing, profits, markets,
strengths and weaknesses of products, business processes, business and marketing
plans and activities and employee personnel records;
c. pertain to future developments, such as, but not limited, to research
and development, future marketing or merchandising plans or ideas.
Immediately upon termination of O'Brien services, he shall deliver to
PSC all originals and copies of everything in his possession or under his
control which embodies or contains any Confidential Information, including,
without limitations, all documents, correspondence, specifications, blueprints,
notebooks, reports, sketches, formulae, computer programs, computer discs,
prototypes, price lists, customer lists or information, samples, and all other
materials.
Confidential Information shall not include information which (i) is
published or otherwise becomes generally available to the public other than by a
breach of confidentiality, or (ii) O'Brien can show by documentation was
properly in his possession to his employment with PSC, or (iii) becomes
available to O'Brien from an independent source without breach of this Agreement
or violation of law, or (iv) id independently developed by O'Brien without the
use of PSC's Confidential Information.
6.a. In light of the special and unique services that have been and
will be furnished to PSC by O'Brien and the Confidential Information that has
been and will be disclosed to him during his employment, O'Brien agrees that
during the Term, and for a period of twelve months thereafter he will not,
without the written consent of PSC, directly or indirectly, whether as
principal, agent, officer, director, consultant, employee, partner, stockholder
or owners of or in any capacity with any corporation, partnership, business,
firm, individual company or any entity located anywhere in the world engage in,
or assist another to engage in, any work or activity in any way competitive with
the Business of PSC as herein defined. However, nothing herein shall prevent
O'Brien from owning not more than five percent (5%) of the outstanding publicly
traded shares of common stock of a corporation, as to which corporation O'Brien
has no relationship other than as a shareholder.
O'Brien specifically agrees that because of his special expertise and
the special and unique services that he will be furnishing PSC, and because of
the Confidential Information that will be disclosed to him during his
employment, the above stated geographic areas and time period, in and during
which he will not compete with PSC, are reasonable in scope and duration and are
necessary to afford PSC just and adequate protection against the irreparable
damage which would result to PSC from any activities prohibited by this Section.
The "Business" of PSC is the development, manufacturing and marketing of
technologies products and services for the automatic identification and keyless
data entry industry, and includes, but is not limited to, products, services,
applications, systems and technologies relating to bar coded data, magnetic
stripe encoded data, radio frequency communications of bar coded or related
data, optical character recognition, machine vision as applied to the
recognition of bar coded data, electronic interchange of bar coded or related
data. The Business of PSC shall also include any business in which PSC is
actually engaged or as to which it is doing research and development during
O'Brien's employment with PSC.
<PAGE>
7. Except as expressly modified herein, all of the terms and conditions of
the Severance Letter shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
PSC Inc.
By: /s/ L. Michael Hone
L. Michael Hone
Chief Executive Officer and
Chairman of the Board
/s/ John F. O'Brien
John F. O'Brien, President
December 3, 1996
Mr. John F. O'Brien
PSC Inc.
959 Terry Street
Eugene, Oregon 97402
Dear John:
This letter is to confirm and outline the consulting agreement between PSC and
yourself. The arrangements discussed are as follows:
The consulting agreement will be for a maximum of 20 hours per month. Any
hours in excess will be discussed in advance. The consulting fee will be
$5,000 per month. Any additional consulting fees will be negotiated. The
term of the agreement will be for six months. Any additional need will be
discussed at the end of the term. The consulting agreement will be
predominately for business issues with members of the management team.
I believe this sums up our conversation. If this is satisfactory, please sign
and date below.
I'm pleased you're willing to continue on a consulting basis. I think this is in
the best interest of everyone involved.
Warmest regards,
/s/ L. Michael Hone
L. Michael Hone
Chief Executive Officer
and Chairman
I agree to the above terms.
_/s/ John F. O'Brien__________________
John F. O'Brien Date
EXHIBIT 22.1
SUBSIDIARIES OF REGISTRANT
PSC Scanning Systems Inc. (100% owned by the Company
and incorporated in New York)
PSC GmbH (100% owned by the Company
and incorporated in Germany)
PSC Bar Code Limited (100% owned by the Company
and incorporated in the United Kingdom)
PSC Foreign Sales Corporation (100% owned by the Company
and incorporated in the U.S. Virgin Islands)
LazerData Holdings Inc. (100% owned by the Company
and incorporated in New York)
PSC Automation, Inc. (100% owned by LazerData Holdings Inc.
and incorporated in Florida)
Instaread Corporation (100% owned by PSC Automation, Inc.)
and incorporated in Florida
PSC S.A., Inc. (100% owned by the Company
and incorporated in New York)
PSC Scanning, Inc. (100% owned by the Company
and incorporated in New York)
PSC Asia Pacific Pty. Limited (100% owned by the Company
and incorporated in Australia)
PSC S.A.R.L. (100% owned by the Company
and incorporated in France)
PSC S.R.L. (100% owned by the Company
and incorporated in Italy)
PSC Japan KK (100% owned by the Company
and incorporated in Japan)
TxCOM S.A. (72% owned by the Company
and incorporated in France)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 File Nos. 33-30249, 33-38201, 33-45610,
33-45614, 33-80084, 33-60343, 33-60389 and on Form S-3 File Nos. 33-31409,
33-44769, 33-89178 and 333-13859.
/s/ Arthur Andersen
Rochester, New York,
March 28, 1997
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