UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1998 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:
None
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Securities registered pursuant to Section 12(g) of the Act: Nasdaq Stock Market
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 [X].
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As of March 26, 1999, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $83,980,278 (Assumes
officers, directors and any shareholder holding 5% of the outstanding shares are
affiliates.)
As of March 26, 1999, there were outstanding 11,900,175 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 12, 1999 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............................................ 17
Item 4: Submission of Matters to a Vote of Security Holders.......... 17
Executive Officers of Registrant........................ 18
PART II
Item 5: Market for Registrant's Common Equity and Related
Security Holder Matters................................... 21
Item 6: Selected Financial Data...................................... 22
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 23
Item 8: Financial Statements and Supplementary Data.................. 29
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................... 29
PART III
Item 10: Directors and Executive Officers of the Registrant........... 29
Item 11: Executive Compensation....................................... 29
Item 12: Security Ownership of Certain Beneficial Owners and
Management................................................ 29
Item 13: Certain Relationships and Related Transactions............... 29
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................... 30
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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 designs, manufactures
and markets a broad line of laser and non-laser based handheld and fixed
position bar code scanners, bar code engines, verifiers, integrated sortation
and point-of-sale (POS) scanning and automated dimensioning 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
automated data collection solutions in the food, general retail, health care and
other industries, and in government.
The Company has positioned itself within the AIDC industry by selling
both domestically and internationally. International sales accounted for
approximately 52% of the Company's 1998 total sales. The Company has a
diversified customer base comprised of original equipment manufacturers (OEMs),
value-added resellers (VAR's), distributors, system integrators 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.
In September 1997, the Company completed a private placement of
Convertible Preferred Shares with Hydra Investissements S.A., a Luxembourg
corporation. The net proceeds to the Company from the offering were $10.2
million. The Company used the proceeds to repay a portion of its senior
revolving credit facility.
In 1996, the Company acquired Spectra-Physics Scanning Systems, Inc.,
TxCOM S.A. and related businesses (Spectra). Spectra was one of the world's
leading manufacturers of countertop and in-counter fixed position bar code
scanners for retail POS applications. The purchase price was approximately
$140.0 million and was accounted for as a purchase and is included in the 1996
Consolidated Financial Statements since the date of acquisition.
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 offices
throughout Europe, Asia, Australia and the Americas.
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.
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The Company is currently active in most retail applications and sells
its countertop, in-counter and handheld 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(R) Express Self-Checkout System, an automated grocery store
self-checkout system developed and licensed to the Company by Optimal Robotics
Corporation. The U-Scan(R) Express Self-Checkout System, which has been
installed in several major supermarket chains and is currently being tested by
several national mass merchandise chains, 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, health care 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 handheld, countertop, in-counter, fixed position and unattended
scanners and scan engines for use by business, industry and government in
multiple applications. To ensure the quality of bar codes themselves, the
Company offers a full line of barcode verifiers. 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.
The Company's products include:
Fixed Position Scanners: Retail
360-Degree Scanner and Scanner/Scale (Magellan SL(TM) Scanner). In 1997, the
Company introduced the Magellan SL(TM) Scanner. The Magellan SL Scanner is a
variant of the original Magellan(R) line, the industry's first 360-degree
scanner and scanner/scale. The Magellan SL has a smaller size to accommodate
installation in the narrower check-stands common in Europe, Asia and large
cities throughout the world. The Magellan SL with all the benefits of the
original Magellan, 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. The Magellan SL 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
check-stands. A key feature of the Magellan SL Scanner/Scale is the L-shaped,
All-Weighs(TM) Platter. With the All-Weighs Platter, the scanner/scale's
vertical window and frame are an integral part of the scale weighing platter,
allowing checkers to lean oversized items against the vertical window,
intentionally or unintentionally, and get an accurate weight. As in the original
Magellan, an integrated electronic article surveillance antenna is also
available for use in deactivating RF-based security tags. Magellan SL
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 SL also reads UPC/EAN and Code 128 supplemental
codes, such as those found on books, periodicals and coupons.
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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 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 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 (Duet(TM) and VS800). The Duet(TM) Scanner, announced in 1997,
is a compact "dual action" scanner that combines features of both countertop and
handheld scanners. Standard bar coded items are presented or swept by the
scanner's 19 line omni-directional scan window. Pick lists and large, bulky
goods are easily processed using Duet's Targeted Handheld Mode by simply picking
up the scanner and pointing it at a bar code. With an innovative scan pattern
and a 9" depth-of-field, Duet provides superior performance and fast throughput.
The ergonomic design of the Duet Scanner makes it exceptionally easy to use and
easy on the user.
The VS800 is the company's newest fixed position scanner. Announced in 1998,
this compact scanner is perfect for situations where space is at a premium.
Fully adjustable and able to be mounted in a wide variety of orientations, the
VS800 provides aggressive, highly affordable hands-free scanning performance in
a very small package. The VS800 is ideally suited for convenience stores,
pharmacies, specialty retailers and small grocers.
Retail Automation Systems
The Company is currently marketing the U-Scan(R) Express Self-Checkout
System, a stand-alone self-checkout system, to major supermarkets and mass
merchandisers in the U.S. Designed and licensed to the Company by Optimal
Robotics Corporation, a Montreal-based company, the system is targeted for
retail store 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(R) Express 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(R) Express System has been installed in a number of major supermarket
chains nationwide 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.
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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, 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. In 1997, the Company introduced the
AutoRange(TM) scanner which is essentially two scanners in one. This scanner is
ideally suited for warehouse and distribution center applications for reading
bar code labels at long distances as well as up close.
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 and Commercial Scanners (QuickScan(TM) and SP400). The QuickScan(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 and commercial applications with
consistent bar code placement and location. The QuickScan 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 QuickScan EP(TM) provides extended
performance and longer range scanning applications up to five feet. The
QuickScan(TM) 6000 Plus 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 size and shape of QuickScan makes
it comfortable to hold independent of handedness and hand size.
Announced in 1998, the QuickScan(TM) 1000 Scanner provides the same superior
scan performance of the QuickScan 6000 Plus in a sleek triggerless design. The
QuickScan 1000 is an ergonomically designed triggerless laser scanner, ideal for
use in both hands-free (with optional countertop stand) and handheld
applications. LaserSense(TM) automatic wake-up software provides for fast wake
up and immediate read through the scanner's 10" depth-of-field. The QuickScan
1000 scanner also features a 650 nm (nominal) laser option, perfect for use in
bright light environments. With snappy performance in hands-free and handheld
applications, the QuickScan 1000 is the perfect laser scanner.
The QuickScan 200(TM) Scanner, which was also announced in 1998, is a
lightweight, ergonomic, handheld CCD (charge coupled device) scanner for retail
and light commercial applications. The QuickScan 200 offers the ability to read
all major retail and industrial bar code symbologies and autodiscriminate any
four at a time. Five single and six dual interfaces are available. With dual
interfaces, changing the interface is as easy as changing the cable. Standard
with the QuickScan 200 is a 5 foot cable with power off the terminal. An RS232
version is available with optional external power. The QuickScan 200 comes with
a one year warranty, and is backed by the Company's quality and reliability.
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. The SP400 EP (Extreme Performance) scanner is the only
handheld scanner on the market to offer a true seal against windblown dust and
rain. This feature, combined with other enhancements to the housing, gives the
SP400 EP the highest rating in the industry for ruggedness and durability, and
makes it ideal for outdoor use.
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Fixed Position Scanners: Commercial and Industrial
Miniature Scanners: The LazerData(R) 9000, 11000 and 12000 offer a complete line
of compact, versatile, industrial miniature line scanners aimed at the
high-speed automated sorting or identification applications in the demanding
environments of the manufacturing and material handling markets. The LD11000 is
our most compact and economical industrial line scanner. It is capable of
reading narrow bars ranging from 6 to 20 mils over a 10" depth-of-field with
scan rates as high as 600 scans per second. When greater scan coverage is
required, the LD12000 is the scanner of choice. With scan windows as great as
12" and two rastering patterns, the LD12000 can locate bar codes anywhere on a
carton. Both models come with LDHost, an easy to use versatile software package
that makes configuring the scanners for a customer's application a breeze. For
the most demanding applications, the LD9000 is selected. With read ranges out to
26", depth-of-fields of 24" and scan rates up to 2000 scans per second, the
LD9000 offers the performance of many larger high-performance line scanners.
High-End Line Scanners: With the addition of LazerData 16000 to the LD8000
family of line scanners, the Company now offers the most complete line of
high-end line scanners. The LD16000 is exceptional for reading bar codes on the
side of packages, where as, the LD8000 is perfect for reading bar codes on the
front and back. In addition, the LD8000 is an integral component of the fast
growing tunnel scanning market. 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.
With scan rates from 330 to 1600 scans per second and carton tracking, there is
a LD16000 or LD8000 for any customer requirement.
Mid Range Omnidirectional Scanning: The LazerData 8000LX offers a low cost
omnidirectional scanning solution by creating an "X" pattern using only a single
laser. To achieve greater depths-of-field, increased scan coverage, or to scan
more than one face of the carton at a time, the LD8000LX can be chained together
providing a single output to the customer. With TSD and tracking built into the
scanner, more than one bar code can be in the scan zone at one time maximizing
the system throughput. The LD8000LX can read bar code labels moving at speeds of
up to 500 feet per minute.
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 600 feet per minute at
a distance of 30 inches. The model 990 can also be configured with up to four
multiplexed scanners.
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.
Scanning Tunnel Systems. By using multiple scanners oriented around a conveyor
belt, PSC offers a unique solution to solve high-speed sortation problems where
cartons may have a bar code label on any surface of a carton, even the bottom,
or multiple labels on multiple sides of the carton. With the ScanManager(TM),
this system can track up to 16 cartons at one time at conveyor speeds up to 300
feet per minute.
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 its 5301 "large"
platform, the smaller 5303 version or the miniaturized Minuet(TM) Direct
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Illumination(TM) bar code engine or LM500. 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, the Company introduced the
5303 scan engine, which is about half the footprint of the 5301 and occupies 3.5
cubic inches. The Company introduced an even smaller scan engine, the Minuet
Direct Illumination bar code engine. This miniature engine has a volume of only
1.2 cubic inches. In a Direct Illumination bar code engine system, there are no
reflective optics; the laser is mechanically swept to directly illuminate the
bar code. The Minuet Direct Illumination 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. The newest edition to the scan engine
family is the LM500 Plus Scan Module. Introduced in 1998, the LM500 Plus is the
lightest scan engine in its class and features RapidStart(TM) circuitry for the
fastest start-of-scan in the industry with very low power consumption.
Quick Check(R) Verifiers
The Company's line of Quick Check(R) verifiers is designed to ensure
that the customer is producing, using and receiving quality bar code symbols.
Quick Check 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), European Committee
for Standardisation (CEN) and International Standards Organization (ISO)
guidelines such as edge determination, reflectance minimum, symbol contrast,
modulation, decodability and edge contrast minimum. When mounted on-line, the
Quick Check verifier results can automatically control the user's system and
cause it to pause, reprint, shutdown or activate an alarm. All Quick Check
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.
Sales and Marketing
The Company sells its products domestically and internationally through
a diversified customer base comprised of OEMs, third party resellers and end
users. International sales increased from approximately $55.2 million, or 38% of
net sales, in 1996 to approximately $112.0 million, or 52% of net sales, in
1998. 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 regions 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
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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 Webster, New York and Eugene, Oregon customer support
and service organizations have met ISO 9001 quality registration levels.
Customers
The Company sells its products to OEMs, VARs, distributors, systems
integrators and end users. During 1998, 1997 and 1996, no individual customer
accounted for greater than 10% of net sales. 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 fixed and portable bar code scanning, retail applications, such as retail
self-checkout systems, and new generations of laser and CCD scan engines. 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 and software development.
The Company's ER&D expenses were approximately $15.7 million, $13.4
million, and $11.1 million in 1998, 1997, and 1996, 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. 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
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, quality problems, 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, and 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 competitors in the fixed
position scanner market are Accu-Sort Systems, Inc. and CI/Matrix. 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 are Stratix
(formerly 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 United States and foreign patent, trade
secret, copyright and trademark law to establish and protect its proprietary
rights. The Company currently holds more than 230 United States patents and also
has certain foreign patents pertaining to various technologies associated with
its products. These patents expire on various dates between 2003 and 2015. 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
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.
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Employees
As of March 1, 1999, 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 10% of the work force is
located outside the United States, based in offices throughout Europe and the
Asia 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, Underwriters Laboratories (UL), the Canadian Standards
Association (CSA), the European Community Standards (CE), TUV Rheinland (Europe)
and TUV Product Services, 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.
All products manufactured by the Company are produced under quality
systems compliant to ISO 9001. The Company received its ISO 9001 registration
from National Quality Assurance, USA Inc. (NQA, USA), an accredited registrar
that performs assessments of management systems against requirements of national
and international standards.
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. 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 such risk factors, nor can it
assess the impact of all 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.
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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.
RISK FACTORS
Debt Service. The Company incurred substantial indebtedness in connection with
the acquisition of Spectra, of which, $93.2 million was outstanding as of
December 31, 1998. 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, changes in customer
requirements, and frequent new product introductions and enhancements. 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 requirements 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 and
marketing on a timely or cost-effective basis, product enhancements or new
products that respond to technological advances by others, or that such product
enhancements or new products will achieve market acceptance.
Dependence on Intellectual Property Rights. 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 on the proprietary rights
of others. The Company currently owns over 230 United States patents having
expiration dates from the year 2003 to the year 2015, 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.
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Pending Litigation. 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.
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,
including claims that royalties have been underpaid. 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, nor underpaid royalties, there can be no assurance that this or
any other action will be decided or settled in the Company's favor.
On October 22, 1998, the Court granted the Company's motion for partial
summary judgment on the issue of patent misuse on the part of Symbol and denied
Symbol's cross motion. Accordingly, PSC is not obligated to pay royalties to
Symbol under the `297 and `186 patents pursuant to either of its licensing
agreements for products manufactured or sold on or after April 1, 1996. Symbol
has moved for reconsideration of the Court's Decision, and has also moved for
permission to appeal immediately, rather than wait until the end of the case.
These motions were submitted on December 16, 1998. No decision has been rendered
yet.
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. Although the amount of any liability
with respect to such litigation cannot be determined, in the opinion of
management, such liability will not have a material adverse effect on the
results of operations, financial position or cash flows. 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, technical, marketing and other resources than
the Company. As a result, they may be able to respond more quickly to new or
emerging technologies and to changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products, than
can the Company. In addition, other larger corporations could enter the AIDC
industry. Increased competition is likely to result in average selling price
reductions, reduced operating margins or loss of market share. 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."
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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, financial condition or
results of operations.
Dependence on Sales by Third Parties: Significant Customers. A significant
portion of the Company's net sales is dependent upon the ability of its OEM,
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 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 1998, 1997 and
1996, no individual customer accounted for more than 10% of net sales. See
"Business--Sales and Marketing" and "--Customer Support and Service."
Risks Associated with International Operations. The Company's sales to
international customers increased from $55.2 million or 38% of total net sales
in 1996 to $112.0 million or 52% of net sales in 1998. 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 unexpected changes in regulatory
requirements, compliance costs associated with quality control standards,
special standards requirements, longer accounts receivable collections in
certain geographic regions, 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. 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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--Sales
and Marketing."
Exposure to Currency Fluctuations. Historically, the Company's revenue from
international operations primarily has been denominated in United States
dollars. During 1998, approximately 50% of its revenue from international
operations and approximately 75% of its consolidated revenue were denominated in
United States dollars. The Company expects that a growing percentage of its
business will be conducted in currencies other than the United States dollar. As
a result, fluctuations in the value of certain foreign currencies could
materially affect the Company's business operating results and financial
condition. Also, an increase in the value of the United States dollar relative
to foreign currencies could make the Company's products more expensive and,
therefore, less competitive in certain markets. Due to the constantly changing
currency exposures and the volatility of currency exchange rates, there can be
no assurance that the Company will not experience currency losses in the future,
nor can the Company predict the effect of exchange rate fluctuations upon future
operating results. The Company enters into forward foreign exchange contracts as
a hedge against currency fluctuations relating to foreign sales denominated in
foreign currencies. The forward contracts generally have maturities of
approximately 30 days and require the Company to exchange foreign currencies for
United States dollars at maturity, at rates agreed to at the inception of the
contracts. Gains and losses on forward contracts are offset against the foreign
exchange gains and losses on the underlying hedged items and are recorded in the
Consolidated Statements of Operations.
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Price. Traditionally, the selling price of the Company's products decreases over
the life of the product. The Company endeavors to reduce manufacturing costs of
existing products and to introduce new products, functions and other
price/performance-enhancing features in order to mitigate the effect of such
decreases. To the extent that such cost reductions, product enhancements and new
product introductions do not occur in a timely manner or do not achieve market
acceptance, the Company's operating results could be materially, adversely
affected.
Acquisitions. The Company has in the past and may in the future acquire
businesses or product lines as a way of expanding its product offerings and
acquiring new technology. Failure of the Company to identify future acquisition
opportunities and/or to integrate effectively businesses that it may acquire
could have a material adverse effect on the Company's growth.
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."
Risks Associated with Significant Suppliers in the Year 2000. The Company
believes that the area of the greatest potential risk associated with the Year
2000 relates to significant suppliers' failing to remediate their Year 2000
issues in a timely manner. The Company is conducting formal communications with
its significant suppliers to determine the extent to which it may be affected by
those parties' plans to remediate their own Year 2000 issue in a timely manner.
If a number of significant suppliers are not Year 2000 compliant, this could
have a material adverse effect on the Company's results of operations, financial
position or cash flow. At this point, the Company has not been advised by any
significant supplier that it will not be Year 2000 compliant. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Fluctuations in Quarterly Operating Results. Historically, the Company has
experienced variability in its quarterly results and the Company anticipates
that such variability will continue in the future as a result of a number of
factors, many of which are beyond the Company's control. The factors affecting
this variability include demand for the Company's products, the size and timing
of large customer orders, the entry of new competitors and new technological
advances by competitors, changes in pricing policies by the Company or
competitors, customer order deferrals in anticipation of product enhancements or
new product offerings by the Company or its competitors, changes in the mix of
products sold by the Company and general economic factors.
Since customers order products for delivery within 30 to 45 days, backlog is not
a reliable predictor of future results beyond the current quarter. The Company's
expense levels are based, in part, on expectations of future revenue. If revenue
levels are below expectations, expense levels would be disproportionately high
as a percentage of total revenue and operating results would be adversely
affected. 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."
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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 December 31,
2001.
The Company also owns a 32 acre site in Eugene, Oregon. Engineering,
marketing and administrative functions are contained in a seventeen year old
54,000 square foot facility. Manufacturing and warehousing are contained in a
separate twelve 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, 2000.
Domestically, the Company maintains offices under short-term leases for
individual sales and support personnel in or near Dallas, Texas; Dayton, Ohio;
Denver, Colorado; 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, Paris, Milan, Frankfurt, Brussels, Madrid,
Malmo and Ontario. These offices house from one to 25 people in 300 to 12,000
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.
ITEM 3: LEGAL PROCEEDINGS
There is litigation pending in the United States District Court for the
Western District of New York located in Rochester, New York between the Company
and one of its customers, Data General, on the one hand, and Symbol on the
other, involving certain of Symbol's patents. In that action, the Company has
also alleged violations of the antitrust laws and unfair practices by Symbol.
Symbol has alleged patent infringement and breaches of certain license
agreements between the Company and Symbol, including claims that royalties have
been underpaid. The Company has assumed the responsibility of defending the
action on behalf of Data General.
On October 22, 1998, the Court granted the Company's motion for partial
summary judgment on the issue of patent misuse on the part of Symbol and denied
Symbol's cross motion. Accordingly, PSC is not obligated to pay royalties to
Symbol under the `297 and `186 patents pursuant to either of its licensing
agreements for products manufactured or sold on or after April 1, 1996. Symbol
has moved for reconsideration of the Court's Decision, and has also moved for
permission to appeal immediately, rather than wait until the end of the case.
These motions were submitted on December 16, 1998. No decision has been rendered
yet.
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, 1998.
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EXECUTIVE OFFICERS OF REGISTRANT
The Company's executive officers as of December 31, 1998, were as follows.
Name Age Officer/Position
Robert C. Strandberg 41..........President and Chief Executive Officer
Edward J. Biernat 44..........Vice President, Quality
Charles E. Biss 46..........Vice President, Verification
Cecil F. Bowes 55..........Vice President, Sales-The Americas,
Asia Pacific
Nigel P. Davis 48..........Vice President, Sales - Europe,
Middle East, Africa
G. William Hartman 53..........Vice President, Automation
Dennis T. Hopwood 49..........Vice President, Human Resources
Linda J. Miller 38......... Vice President, Marketing
William L. Parnell, Jr. 42..........Vice President, Operations
Brad R. Reddersen 46..........Vice President, Chief Technology Officer
Matt D. Schler 43..........Vice President, Engineering and
Product Development
Michael J. Stachura 43..........Vice President, Finance
Roger D. Tedford 45..........Vice President, Chief Information Officer
William J. Woodard 47.........Vice President, Chief Financial Officer
and Treasurer
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Robert C. Strandberg has served as the President and Chief Executive
Officer of the Company since May 1997 and was Executive Vice President from
November 1996 until May 1997. Prior to joining the Company, Mr. Strandberg was
Chairman of the Board of Directors, President and Chief Executive Officer of
Datamax International Corporation ("Datamax"), Orlando, Florida, from 1991 to
1996. Datamax designs and manufactures thermal printers. Mr. Strandberg holds a
B.S. degree in Operations Research and Industrial Engineering from Cornell
University and an M.B.A. degree from Harvard Graduate School of Business
Administration.
Edward J. Biernat has served as Vice President, Quality, since January
1996. Prior to joining the Company, Mr. Biernat was the Manager of Quality
Systems for Thin Film Technology, a division of Bausch and Lomb, Inc. based in
Rochester, New York (1989-1996). Mr. Biernat holds B.S. degrees in Electrical
and Mechanical Engineering from Clarkson University.
Charles E. Biss has served as Vice President, Verification 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 B.S. degree in Photographic Science and
Engineering from Rochester Institute of Technology.
Cecil F. Bowes has served as Vice President, Sales - The Americas, Asia
Pacific since December 1996. Prior thereto, he was Group Director, North America
for Spectra-Physics Scanning Systems, Inc. ("Spectra") from November 1990 until
December 1996. Mr. Bowes holds a B.S. degree in Education from the University of
Dayton.
Nigel P. Davis has served as Vice President, Sales - Europe, Middle East,
Africa since July 1996. Prior thereto, he was Group Director - Europe, Middle
East, Africa for Spectra from March 1993 to May 1996.
G. William Hartman has served as Vice President, Automation since September
1997. Prior to joining the Company, he was Senior Vice President and Chief
Operating Officer of Datamax from 1991 to 1996. Mr. Hartman holds a B.S. degree
in Mechanical Engineering from the University of Utah and an M.S. degree in
Mechanical Engineering from Villanova University.
Dennis T. Hopwood has served as Vice President, Human Resources since July
1997. Prior thereto, he was Vice President, Human Resources for Spectra from May
1986 to January 1997. Mr. Hopwood holds a B.S. degree in Sociology from the
University of Idaho and an M.S. degree in Higher Education Administration from
the University of Wisconsin.
Linda J. Miller has served as Vice President, Marketing since April 1998.
Prior to joining the Company, Ms. Miller was Vice President of Business Planning
and Development for Champion Products, which she joined in 1992 as Director of
Sales Planning. Ms. Miller holds a B.S. degree in Industrial Administration from
General Motors Institute and an M.B.A. degree from the University of Michigan.
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 B.S. degree in Physics from Utah
State University and an M.B.A. degree from the University of Washington.
Brad R. Reddersen has served as Vice President, Chief Technology Officer
since November 1997 and was Vice President, Engineering and Product Development
from December 1996 to October 1997. 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 B.S. degree in Physics from Harvey Mudd College and an
M.S. degree in Optical Engineering from the University of Rochester.
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Matt D. Schler has served as Vice President, Engineering and Product
Development since November 1997. Prior thereto, he was Vice President of
Engineering at Percon Inc., a manufacturer of bar code reading products, from
February 1997 to November 1997 and Vice President of New Products, Engineering
Manager of Spectra from March 1992 until January 1997. Mr. Schler received a
B.S. degree in Electrical Engineering from University of Colorado.
Michael J. Stachura has served as Vice President, Finance since September
1997. Prior thereto, he was Vice President, Corporate Controller of Genencor
International, Inc. from January 1991 until August 1997. Mr. Stachura received a
B.S. degree in Accounting from Canisius College.
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 B.A. degree in Accounting/Finance and an M.B.A. degree from
California University at Fullerton.
William J. Woodard has served as Vice President, Chief Financial Officer
and Treasurer since October 1996. Prior thereto, he served as Vice President,
Finance and Treasurer from August 1994 until September 1996. 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 B.B.A. degree in Accounting.
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SECURITY HOLDER MATTERS
The Company's common shares trade on The Nasdaq Stock Market(R) 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
1998
Fourth Quarter.............................. $11.50 $6.50
Third Quarter............................... $ 9.38 $6.00
Second Quarter.............................. $12.25 $8.63
First Quarter............................... $13.38 $9.13
1997
Fourth Quarter.............................. $13.50 $9.13
Third Quarter............................... $10.13 $6.63
Second Quarter.............................. $ 7.88 $6.13
First Quarter............................... $ 9.00 $6.88
As of December 31, 1998, there were approximately 1,465 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.
21
<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, 1998 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,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net sales ................................... $217,223 $207,840 $146,051 $87,516 $60,447
Cost of sales ............................... 126,350 122,995 (1) 83,675 50,634 32,198
----------------------------------------------------------------------------
Gross profit ............................. 90,873 84,845 62,376 36,882 28,249
Operating expenses:
Engineering, research and development..... 15,665 13,429 11,069 4,962 3,810
Selling, general and administrative....... 42,069 43,743 37,855 23,024 16,031
Acquisition related restructuring and
other costs ............................ -- -- 70,068 (2) -- 6,894 (3)
Severance and other costs................. -- 4,191 (1) -- -- --
Amortization of intangibles from
business acquisitions.................. 6,822 6,715 3,564 877 485
----------------------------------------------------------------------------
Income/(loss) from operations............... 26,317 16,767 (60,180) 8,019 1,029
Interest and other income/(expense).......... (9,833) (12,016) (5,747) 676 110
income/(expense)............................. ----------------------------------------------------------------------------
Income/(loss) from continuing operations
before income tax provision/(benefit)... 16,484 4,751 (1) (65,927) (2) 8,695 1,139 (3)
Income tax provision/(benefit)............... 5,968 1,761 (24,393) 3,246 527
----------------------------------------------------------------------------
Income/(loss) from continuing operations.... 10,516 2,990 (41,534) 5,449 612
Loss from discontinued operations........... -- (101) (5,446) -- --
============================================================================
Net income/(loss)......................... $10,516 $2,889 (1) $(46,980) (2) $ 5,449 $ 612 (3)
============================================================================
Net income/(loss) per common and
common equivalent share:
Basic:
Continuing operations .................. $0.90 $0.27 $(3.96) $0.58 $0.08
Discontinued operations ................ -- (0.01) (0.52) -- --
============================================================================
Net income/(loss)....................... $0.90 $0.26 (1) $(4.48) (2) $0.58 $0.08 (3)
============================================================================
Diluted:
Continuing operations.................. $0.75 $0.25 $(3.96) $0.54 $0.08
Discontinued operations................ -- (0.01) (0.52) -- --
============================================================================
Net income/(loss)..................... $0.75 $0.24 (1) $(4.48) (2) $0.54 $0.08 (3)
============================================================================
Weighted average number of common and
common equivalent shares:
Basic.................................... 11,713 11,197 10,490 9,329 7,319
Diluted ................................. 13,993 11,843 10,490 10,013 7,617
</TABLE>
(1) Severance and other costs reduced 1997 income before income taxes, net
income, basic EPS and diluted EPS by $5.2 million,
$3.3 million, $0.29 and $0.28, respectively.
(2) The acquisition related restructuring and other costs reduced 1996
income before income taxes, net income, basic EPS and diluted EPS by
$70.1 million, $44.2 million, $4.21 and $4.21, respectively.
(3) The acquisition related restructuring and other costs reduced 1994
income before income taxes, net income, basic EPS and diluted EPS by
$6.9 million, $4.5 million, $0.61 and $0.59, respectively.
22
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents........ $ 6,180 $ 2,271 $ 10,838 $ 5,538 $ 2,720
Working capital.................. 16,827 12,112 13,320 20,397 8,014
Total assets..................... 171,263 172,798 183,361 71,237 52,763
Long-term debt, including current
maturities...................... 93,208 108,554 127,453 623 13,609
Total shareholders' equity....... 44,199 29,330 15,301 53,327 22,233
</TABLE>
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,
------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- ---------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales ......................................... $ 217,223 100.0% $ 207,840 100.0% $ 146,051 100.0%
Cost of sales ..................................... 126,350 58.2 122,995 59.2 83,675 57.3
--------- ----- --------- ----- --------- -----
Gross profit .................................... 90,873 41.8 84,845 40.8 62,376 42.7
Operating expenses:
Engineering, research and development ........... 15,665 7.2 13,429 6.5 11,069 7.6
Selling, general and administrative ............ 42,069 19.4 43,743 21.0 37,855 25.9
Severance and other costs ....................... -- -- 4,191 2.0 -- --
Acquisition related restructuring and other costs -- -- -- -- 70,068 48.0
Amortization of intangibles from business
acquisitions ................................. 6,822 3.1 6,715 3.2 3,564 2.4
--------- ----- --------- ----- --------- -----
Income/(loss) from operations ................... 26,317 12.1 16,767 8.1 (60,180) (41.2)
Interest and other income/(expense) ............... (9,833) (4.5) (12,016) (5.8) (5,747) (3.9)
--------- ----- --------- ----- --------- -----
Income/(loss) from continuing operations
before income tax provision/(benefit) ............. 16,484 7.6 4,751 2.3 (65,927) (45.1)
Income tax provision/(benefit) ................... 5,968 2.7 1,761 0.9 (24,393) (16.7)
--------- ----- --------- ----- --------- -----
Income/(loss) from continuing operatoins .......... 10,516 4.9 2,990 1.4 (41,534) (28.4)
Loss from discontinued operations ................. -- -- (101) -- (5,446) (3.7)
========= ===== ========= ===== ========= =====
Net income/(loss) ................................. $ 10,516 4.9% $ 2,889 (1) 1.4% $(46,980)(2) (32.1%)
========= ===== ========= ===== ========= =====
</TABLE>
(1) Severance and other costs reduced 1997 income before income taxes and
net income by $5.2 million and $3.3 million, respectively.
(2) 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.
23
<PAGE>
Overview
During 1998, PSC Inc. (the Company) achieved record results from the
reorganization activities it began in 1997. Profits and sales reached record
highs. The Company streamlined operations, reduced operating expenses and debt,
and leveraged core competencies in technology. A stronger financial position
enabled the Company to increase investments in product development and marketing
to drive future profitable revenue growth.
Some of the key results of the Company's 1998 efforts include the following:
o Earnings per diluted share improved by 39% to a record $0.75
o Sales reached a record high of $217.2 million
o SG&A declined to 19.4% of sales
o More than a dozen new products were introduced across the entire product line
o Long-term debt decreased by $17.3 million or 18%
o Four quarters of EBITDA reached $40.1 million
With its stronger financial position, established earnings record, market and
technological leadership, and new product introductions, the Company has
established the base to generate future sales growth and improved financial
results.
For the Year ended December 31, 1998
Net sales of $217.2 million for the year ended December 31, 1998 increased 5%
over 1997. The increase in net sales is primarily due to higher sales of the
Magellan Scanner line, industrial automation products and U-Scan(R) Express
Self-Checkout Systems products offset by lower handheld scanner and engine
sales. International net sales increased 18% over the prior year primarily due
to the introduction of new products and the continued growth in the Company's
European customer sales, and represented 52% of net sales in 1998 versus 46% in
1997.
Gross profit of $90.9 million for the year ended December 31, 1998 increased 7%
over 1997. As a percentage of sales, gross profit was 41.8% in 1998 compared to
40.8% in 1997. Gross profit dollars and percentage increased primarily due to
the change in product mix, as higher margin fixed position products represented
a greater percentage of total sales.
In 1998, the Company continued its commitment to new products. Engineering,
research and development (ER&D) expenses of $15.7 million for the year ended
December 31, 1998 increased $2.2 million or 17%. As a percentage of sales, ER&D
increased to 7.2% from 6.5% in 1997. The 1998 dollar and percentage increases
were primarily due to additional investments to develop new products and enhance
existing products.
Selling, general and administrative (SG&A) expenses of $42.1 million for the
year ended December 31, 1998 decreased $1.7 million or 4%. As a percentage of
sales, SG&A declined to 19.4% in 1998 from 21.0% in 1997. The 1998 dollar and
percentage decreases were primarily attributed to the implementation of the
reorganization program during the second quarter of 1997.
The Company's effective tax rate was 36.2% in 1998 versus 37.1% in 1997
primarily due to larger Foreign Sales Corporation benefits realized during the
current year. In 1998, the Company recorded a $6.0 million income tax provision
due to an increase in pretax income.
24
<PAGE>
For the Year ended December 31, 1997
Net sales of $207.8 million for the year ended December 31, 1997 increased 42%
over 1996. The increase in net sales is primarily due to the inclusion of
Spectra-Physics Scanning Systems, Inc. (Spectra) product sales for the full year
in 1997 and increased sales volume offset by lower average selling prices.
International net sales increased 73% over the prior year primarily due to the
Spectra acquisition and represented 46% of sales versus 38% in 1996.
Gross profit of $84.8 million for the year ended December 31, 1997 increased 36%
over 1996. As a percentage of sales, gross profit was 40.8% in 1997 compared to
42.7% in 1996. The increase in gross profit dollars is primarily due to the
inclusion of Spectra for the full year while the decrease in gross profit as a
percentage of sales is primarily due to the $1.0 million inventory write-off
recorded in the second quarter for the discontinuation of certain products to
streamline the Company's product lines, a change in the mix of products and
lower selling prices for handheld and fixed position scanner products.
Engineering, research and development (ER&D) expenses of $13.4 million for the
year ended December 31, 1997 increased $2.4 million or 21%. As a percentage of
sales, ER&D was 6.5% versus 7.6% in 1996. The dollar increase in 1997 was
primarily due to the inclusion of Spectra for the full year in 1997. As a result
of efficiencies developed due to the integration of Spectra, ER&D as a
percentage of sales declined in 1997.
Selling, general and administrative (SG&A) expenses of $43.7 million for the
year ended December 31, 1997 increased $5.9 million or 15.6%. As a percentage of
sales, SG&A declined to 21.0% in 1997 from 25.9% in 1996. The 1997 dollar
increase is due to the inclusion of Spectra for the full year in 1997. The
decrease in SG&A as a percentage of sales is a result of efficiencies developed
due to the integration of Spectra. In addition, the Company is now operating
under the Spectra-Symbol License Agreement, which results in a lower royalty
expense.
The Company's effective tax rate was 37.1% in 1997 versus 37.0% in 1996. In
1997, the Company recorded a $1.8 million income tax provision due to the
increase in pretax income.
During the second quarter of 1997, the Company recorded a pretax charge of $4.2
million for severance and other costs. Of the total charge, approximately $2.3
million was associated with the Severance Agreement with the former CEO, $1.2
million was for employee severance and benefit costs for the elimination of
approximately 30 positions including several senior executives and $0.7 million
was for the centralization of research and development efforts and the
relocation of manufacturing of certain product lines between the Company's two
manufacturing facilities. Accrued expenses for these activities as of December
31, 1998 was approximately $0.7 million, of which $0.1 million related to
long-term contractual obligations. These costs and the inventory write-off
reduced 1997 income before income taxes, net income, basic EPS and diluted EPS
by $5.2 million, $3.3 million, $0.29 and $0.28, respectively.
During the third quarter of 1996, the Company recorded a pretax charge of $10.0
million for the cost of restructuring its existing operations with those of
Spectra, which was acquired in July 1996. The restructuring program, in part,
provided for employee severance and benefit costs for the elimination of certain
positions. As of December 31, 1998, all positions targeted in the restructuring
program have been eliminated. Restructuring actions are expected to be complete
by the end of 1999. Excluding $0.2 million reversed in 1998, the Company
recorded charges against the accrual of $0.5 million, $3.7 million and $5.3
million in 1998, 1997 and 1996, respectively. The amount of the restructuring
accrual at December 31, 1998 was approximately $0.3 million, which relates to
current contractual obligations. There have been no other reallocations or
reestimates to date.
Discontinued Operations
During the third quarter of 1996, the Company adopted a plan to dispose of its
TxCOM subsidiary. TxCOM was acquired as a part of the Spectra acquisition.
Results from operations of TxCOM were a gain of $0.2 million in 1997 and a loss
of $0.2 million in 1996. Disposal of TxCOM, which occurred in June 1997,
resulted in the recording of losses of $ 0.3 million in 1997 and $5.2 million in
1996. These losses include the write-down of the assets to their net realizable
value and the costs of disposing of the subsidiary, net of applicable tax
benefits.
25
<PAGE>
Liquidity and Capital Resources
Current assets increased $6.8 million from December 31, 1997 primarily due to
increased cash balances and increased levels of accounts receivable resultant
from higher sales during the fourth quarter of 1998 versus 1997. Current
liabilities increased $2.1 million from December 31, 1997 primarily due to an
increase in the current portion of long-tem debt and accrued expenses offset by
a reduction in acquisition related restructuring costs. As a result, working
capital increased $4.7 million in 1998.
In 1997, current assets declined $3.2 million from December 31, 1996 primarily
due to decreased cash balances which were utilized to reduce the outstanding
balance of the revolving credit facility, offset by increased levels of accounts
receivable from increased sales in Europe where customers have longer credit
terms. Current liabilities declined $2.0 million from December 31, 1996
primarily due to reduced accrued expenses and acquisition related restructuring
costs, offset by an increase in the current portion of long-term debt. As a
result, working capital decreased $1.2 million in 1997.
Property, plant and equipment expenditures totaled $5.8 million in 1998 and $6.6
million in 1997. The 1998 expenditures primarily related to manufacturing
equipment and new product tooling. The 1997 expenditures primarily related to
manufacturing and research equipment and new product tooling.
In September 1997, the Company completed a private placement of equity with
Hydra Investissements S.A., a Luxembourg Corporation (the Purchaser). The
Company issued and sold 110 thousand shares of Series A Convertible Preferred
Shares (the Preferred Shares) which are convertible into 1,375 thousand Common
Shares. In connection with the issuance of the Preferred Shares, a warrant
evidencing the right to purchase an aggregate of 180 thousand Common Shares of
the Company was issued to the Purchaser. This warrant has an exercise price of
$8.00 per share and may be exercised before September 10, 2001. As a result, the
Purchaser is the beneficial owner of 1,555 thousand Common Shares of the
Company. The net proceeds to the Company from the offering were $10.2 million.
The Company used the proceeds for working capital purposes and to repay a
portion of its senior revolving credit facility.
The long-term debt-to-capital percentage was 64.1% at December 31, 1998 versus
76.6% at December 31, 1997 due to both a reduction in long-term debt by $17.3
million and an increase in retained earnings resultant from 1998 net income of
$10.5 million. At December 31, 1998, liquidity immediately available to the
Company consisted of cash and cash equivalents of approximately $6.2 million.
The Company has outstanding credit facilities totaling $93.2 million and a
revolving line of credit totaling $20.0 million, of which, there is no
outstanding balance. The Company believes that its cash resources and available
credit facilities, in addition to its operating cash flows, are sufficient to
meet its requirements for the next 12 months.
In the opinion of management, inflation has not had a material effect on the
operations of the Company.
Market Risk
At December 31, 1998, the Company had outstanding foreign currency exchange
contracts to sell $2.2 million of various currencies. The difference between the
fair value of these outstanding contracts and the contract amounts was
immaterial. A hypothetical 10% fluctuation in exchange rates for these
currencies would change the fair value by approximately $0.2 million. However,
since these contracts hedge foreign currency denominated transactions, any
change in the fair value of the contracts would be offset by changes in the
underlying value of the transactions being hedged.
The net assets of the Company's foreign subsidiaries at December 31, 1998
totaled $9.4 million. The potential loss in net assets resulting from a
hypothetical 10% adverse change in quoted foreign currency exchange rates
amounts to $0.9 million.
26
<PAGE>
At December 31, 1998, the Company had interest rate swap agreements aggregating
a notional principal amount of $60.0 million. These swaps effectively change the
Company's payment of interest on $60.0 million of variable rate debt to fixed
rate debt. Based on the fair value of these interest rate swap agreements at
December 31, 1998, it would have cost the Company $0.5 million to terminate the
agreements. A hypothetical 1% decrease in the 30 day commercial paper rates
would decrease the fair value by approximately $0.9 million.
The fair value of long-term fixed interest rate debt is subject to interest rate
risk. Generally, the fair value of fixed interest rate debt will increase as
interest rates fall and decrease as interest rates rise. The estimated fair
value of the Company's total long-term debt was $94.1 million, including current
maturities, at December 31, 1998. A hypothetical 1% increase from prevailing
interest rates at December 31, 1998 would result in a decrease in fair value of
long-term debt by approximately $1.5 million.
Year 2000
The Year 2000 problem is the result of many existing computer programs written
in two digits, rather than four, to define the applicable year. Accordingly,
date-sensitive software or hardware may not be able to distinguish between the
year 1900 and year 2000, and programs that perform arithmetic operations,
comparisons or sorting of date fields may begin yielding incorrect results. This
potentially could cause a system failure or miscalculations that could disrupt
operations, including, among other things, an inability to process transactions,
send invoices, or engage in normal business activities. These Year 2000 issues
affect virtually all companies and organizations.
The Company has developed a three-phase plan to address its Year 2000 issues:
(1) Identification of software and hardware. This includes the
following:
(a) Applications and information technology (IT) equipment,
which includes all mainframe, network and desktop software
and hardware, custom and packaged applications, and IT
embedded systems;
(b) Non-information technology (non-IT) embedded systems. This
includes non-IT equipment and machinery. Non-IT embedded
systems, such as security, fire prevention and climate
control systems typically include embedded technology; and
(c) Vendor relationships. This includes significant third-party
vendors and supplier interfaces.
Both domestically and internationally, the Company has
substantially completed the identification stage.
(2) Assessment of the software and hardware identified. This phase
includes the evaluation of the software and hardware identified
for Year 2000 compliance, the determination of the remediation
method and resources required, and the development of an
implementation plan. A significant portion of the assessment
stage has been completed. The Company expects this phase to be
fully completed by the end of March 1999.
(3) Implementation of a remediation plan. This phase includes testing
some modifications/upgrades in a Year 2000 simulated environment
and vendor interface testing, if necessary. The Company has
commenced implementation, both domestically and internationally,
and expects this phase to be completed by the end of August 1999.
The Company's remediation plan for its Year 2000 issue is an
ongoing process and the estimated completion dates above are
subject to change.
27
<PAGE>
Overall, at this time, the Company believes that its systems will be Year 2000
compliant in a timely manner for several reasons. Several significant operating
systems are already compliant. Internationally, the Company is currently
implementing new computer systems that were developed in the United States and
are currently Year 2000 compliant. To the extent that current systems that will
not be replaced have been determined to be non-compliant, the Company is working
with the suppliers of such systems to obtain upgrades and/or enhancements to
ensure Year 2000 compliance. Also, comprehensive testing of all critical systems
is planned to be conducted in a simulated Year 2000 environment.
The Company believes that it will not be required to modify or replace
significant portions of the products it presently develops and provides to
customers as such products are not date dependent and, accordingly, will
function properly with respect to dates in the Year 2000. All new products will
be Year 2000 ready when released.
At this stage in the process, the Company has not identified any significant
risks. However, the Company believes that the area of the greatest potential
risk relates to significant suppliers' failing to remediate their Year 2000
issues in a timely manner. The Company is conducting formal communications with
its significant suppliers to determine the extent to which it may be affected by
those parties' plans to remediate their own Year 2000 issue in a timely manner.
If a number of significant suppliers are not Year 2000 compliant, this could
have a material adverse effect on the Company's results of operations, financial
position or cash flow. At this point, the Company has not been advised by any
significant supplier that it will not be Year 2000 compliant.
The Company is developing its contingency plans and expects to have them
completed by June 1999. To mitigate the effects of the Company's or significant
suppliers' potential failure to remediate the Year 2000 issue in a timely
manner, the Company will take appropriate actions. Such actions may include
having arrangements for alternate suppliers, using manual intervention to ensure
the continuation of operations where necessary and scheduling activity in
December 1999 that would normally occur at the beginning of January 2000. If it
becomes necessary for the Company to take these corrective actions, it is
uncertain, until the contingency plans are finalized, whether this would result
in significant delays in business operations or have a material adverse effect
on the Company's results of operations, financial position or cash flows.
Based upon the Company's current estimates, incremental out-of-pocket costs of
its Year 2000 program are expected not to be material. These costs are expected
to be incurred primarily in fiscal 1999 and will be associated primarily with
the remediation of existing computer software and hardware. Such costs are
estimated to be approximately $0.5 million. Such costs do not include internal
management time, which the Company does not separately track, nor the deferral
of other projects, the effects of which are not expected to be material to the
Company's results of operations or financial condition. The Company's total Year
2000 project costs include the estimated costs and time associated with the
impact of third-party Year 2000 issues based on presently available information.
However, there can be no guarantee that other companies upon which the Company
relies will be able to address in a timely manner their Year 2000 compliance
issues, the effects of which may be an adverse impact on the Company's results
of operations.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing legacy currencies and
the euro. The legacy currencies will remain in effect until July 1, 2002, at
which time, the legacy currencies will no longer be legal tender for any
transactions. The Company has not yet determined the impact of the euro
conversion. However, the Company believes, but can give no assurance, that the
conversion will not have a material adverse impact to results of operations,
financial position or cash flows.
28
<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 12, 1999 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 12, 1999 and is incorporated in this report by reference thereto,
except, however, the sections entitled "Corporate 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 12, 1999 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 12, 1999 and
is incorporated in this report by reference thereto.
29
<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.................. 36
Consolidated Financial Statements......................... 37
Notes to Consolidated Financial Statements................ 41
(a) 2 Financial Statement Schedules:
Included in Part IV of this report:
Schedule II Valuation and Qualifying Accounts....... 61
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 of the Company's Current Report on Form 8-K
dated December 21, 1994).
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
of 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).
3.2 Certificate of Amendment of Certificate of Incorporation of PSC Inc.
filed with the Secretary of State of the State of New York on September
5, 1997 (incorporated by reference to Exhibit 3.1 of the Company's
Current Report on Form 8-K dated as of September 10, 1997 (the "1997
Form 8-K")).
3.3 Certificate of Amendment of Certificate of Incorporation of PSC Inc.
filed with the Secretary of State of the State of New York on December
30, 1997 (incorporated by reference to Exhibit 3.3 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997
(the "December 31, 1997 Form 10-K")).
3.4 Bylaws of the Company as currently in effect (incorporated by
reference to Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994).
4.1 Form of Certificate for Common Shares of the Company (incorporated by
reference to Exhibit 4.3 of the Company's Registration Statement on
Form S-3, effective March 24, 1995 No. 33-89178).
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).
30
<PAGE>
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).
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).
4.7 Form of Certificate for Preferred Stock issued to Hydra
Investissements S.A. on September 10, 1997 (incorporated by
reference to Exhibit 4.1 of the 1997 Form 8-K).
4.8 Form of Warrant issued to Hydra Investissements S.A. on September 10,
1997 (incorporated by reference to Exhibit 4.2 of the 1997 Form 8-K).
4.9 Form of Rights Agreement dated as of December 30, 1997 between PSC Inc.
and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, which
includes as Exhibit A - Form of Right Certificate; Exhibit B - Summary
of Rights to Purchase Preferred Stock; and Exhibit C - Form of
Certificate of Amendment designating the relative rights, preferences
and limitations of the Series B Preferred Shares (incorporated by
reference to Exhibit 4.1 of the Company's Current Report on Form 8-K
dated December 30, 1997).
10.1* Severance Agreement between the Company and L. Michael Hone, dated
April 30, 1997 (incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the quarter ended April 4,
1997).
10.2* Agreement between the Company and Robert S. Ehrlich as of June 2, 1997
(incorporated by reference to Exhibit 10.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended July 4, 1997 (the "July 4,
1997 Form 10-Q")).
10.3* Agreement between the Company and Robert S. Ehrlich as of June 2, 1998
(incorporated by reference to Exhibit 10.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended July 3, 1998 (the "July 3,
1998 Form 10-Q")).
10.4* First Amendment to Agreement between the Company and Robert S. Ehrlich
as of December 11, 1998..............................................62
10.5* Form of Change-in-Control/Severance Agreement between the Company and
certain of its executive officers (incorporated by reference to Exhibit
10.3 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the "December 31,1996 Form 10-K")).
10.6* Form of third party severance letter between Spectra-Physics Scanning
Systems, Inc. and certain executive officers (incorporated by reference
to Exhibit 10.4 of the December 31, 1996 Form 10-K).
10.7* Employment Agreement between the Company and Robert C. Strandberg, as
of June 2, 1997 (incorporated by reference to Exhibit 10.1 of the
July 4, 1997 Form 10-Q).
10.8* Employment Agreement between the Company and Robert C. Strandberg, as
of June 2, 1998 (incorporated by reference to Exhibit 10.1 of the
July 3, 1998 Form 10-Q).
31
<PAGE>
10.9* First Amendment to Employment Agreement between the Company and
Robert C. Strandberg, as of December 11, 1998..........................66
10.10* Severance and Consulting Agreement between the Company and Jay M.
Eastman dated as of July 15, 1997 (incorporated by reference to Exhibit
10.6 of the December 31, 1997 Form 10-K).
10.11* Employment Agreement between the Company and Nigel P. Davis dated 1998...
.......................................................................68
10.12* 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).
10.13* Plan for Deferral of Directors' Fees dated as of March 4, 1992
(incorporated by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1992).
10.14* Director Compensation Plan dated as of May 7, 1998 (incorporated by
reference to Exhibit 10.3 of the July 3, 1998 Form 10-Q).
10.15* 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).
10.16* 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).
10.17* Amended 1995 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.4 of the July 3, 1998 Form 10-Q).
10.18* 1997 Management Incentive Plan (incorporated by reference to Exhibit
10.12 of the Company's December 31, 1997 Form 10-K).
10.19* Third Restatement of the PSC Inc. 401(k) Plan dated as of July 1, 1997
(incorporated by reference to Exhibit 10.13 of the Company's December 31
1997 Form 10-K).
10.20 Credit 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).
10.21 First 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
Form 10-Q")).
10.22 Second Amendment dated as of July 4, 1997 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 10.3 of the July 4, 1997 Form 10-Q).
10.23 Amendment Three dated as of August 13, 1997 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 10.5 of the Company's Quarterly Report on Form
10-Q/A for the quarter ended July 4, 1997 (the "July 4, 1997 Form
10-Q/A")).
32
<PAGE>
10.24 Fourth Amendment dated as of April 8, 1998 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 April 3, 1998).
10.25 Consent dated as of December 8, 1997 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 10.18 of the Company's December 31, 1997 Form
10-K).
10.26 Securities 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).
10.27 Amendment 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).
10.28 Amendment No. 2 dated July 4, 1997 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 10.4 of the July 4, 1997 Form
10-Q).
10.29 Amendment No. 3 dated August 18, 1997 to Securities Purchase Agreements
and Warrants among PSC Inc., PSC Scanning Inc., and the Purchasers
named in the Securities Purchase Agreements (incorporated by reference
to Exhibit 10.6 of the July 4, 1997 Form 10-Q/A).
10.30 Consent dated as of December 29, 1997 to Securities Purchase Agreements
and Warrants among PSC Inc., PSC Scanning Inc., and the Purchasers
named in the Securities Purchase agreements (incorporated by reference
to Exhibit 10.23 of the Company's December 31, 1997 Form 10-K).
10.31 Stock and Warrant Purchase Agreement dated September 4, 1997 by and
between PSC Inc. and Hydra Investissements S.A. (incorporated by
reference to Exhibit 10.1 of the 1997 Form 8-K).
10.32 Registration and Investor Rights Agreement dated September 10, 1997 by
and between PSC Inc. and Hydra Investissements S.A. (incorporated by
reference to Exhibit 10.2 of the 1997 Form 8-K).
22.1 Subsidiaries of Registrant...........................................86
.
24.1 Consent of Independent Public Accountant, dated March 30, 1999.......87
(b): Reports on Form 8-K: None
* Management contract or compensatory plan or arrangement
33
<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 30, 1999 PSC Inc.
/s/ Robert C. Strandberg
Robert C. Strandberg
President and Chief Executive Officer
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 30, 1999 Principal Executive Officer
/s/ Robert C. Strandberg
Robert C. Strandberg
President and Chief Executive Officer
Date: March 30, 1999 Chief Financial Officer
/s/ William J. Woodard
William J. Woodard
Vice President, Chief Financial Officer
and Treasurer
Date: March 30, 1999 Principal Accounting Officer
/s/ Michael J. Stachura
Michael J. Stachura
Vice President, Finance
34
<PAGE>
Date: March 30, 1999 /s/ Jay M. Eastman
-----------------------------------
Jay M. Eastman
Director
Date: March 30, 1999 /s/ Robert S. Ehrlich
-----------------------------------
Robert S. Ehrlich
Director, Chairman of the Board
Date: March 30, 1999 /s/ James W. Henry
-----------------------------------
James W. Henry
Director
Date: March 30, 1999 /s/ Donald K. Hess
-----------------------------------
Donald K. Hess
Director
Date: March 30, 1999 /s/ Thomas J. Morgan
-----------------------------------
Thomas J. Morgan
Director
Date: March 30, 1999 /s/ James C. O'Shea
-----------------------------------
James C. O'Shea
Director
Date: March 30, 1999 /s/ Jack E. Rosenfeld
-----------------------------------
Jack E. Rosenfeld
Director
Date: March 30, 1999 /s/ Justin L. Vigdor
-----------------------------------
Justin L. Vigdor
Director
Date: March 30, 1999 /s/ Romano Volta
--------------------------
Romano Volta
Director
35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of PSC Inc.:
We have audited the accompanying consolidated balance sheets of PSC Inc. (a New
York corporation) and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, 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 the index of
financial statements 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 appplied
in the audits 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.
ARTHUR ANDERSEN LLP
Rochester, New York
January 29, 1999
36
<PAGE>
<TABLE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except per share data)
<CAPTION>
December 31,
------------------------------
1998 1997
------------- -------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................................................. $ 6,180 $ 2,271
Accounts receivable, net of allowance for doubtful accounts
of $1,492 and $1,169 in 1998 and 1997, respectively ................................. 37,121 35,094
Inventories, net ...................................................................... 17,250 17,723
Prepaid expenses and other ............................................................ 2,946 1,569
------------- -------------
Total current assets ............................................................... 63,497 56,657
Property, Plant and Equipment, net ...................................................... 35,397 35,469
Deferred Tax Assets ..................................................................... 21,244 23,576
Intangible and Other Assets, net ........................................................ 51,125 57,096
============= =============
Total assets ....................................................................... $171,263 $172,798
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ..................................................... $14,402 $12,406
Accounts payable ...................................................................... 18,190 18,000
Accrued expenses ...................................................................... 8,035 7,405
Accrued payroll and related employee benefits ......................................... 5,628 5,559
Accrued acquisition related restructuring costs ....................................... 415 1,175
------------- -------------
Total current liabilities .......................................................... 46,670 44,545
Long-Term Debt, less current maturities ................................................. 78,806 96,148
Other Long-Term Liabilities ............................................................. 1,588 2,775
Commitments and Contingencies
Shareholders' Equity:
Series A convertible preferred shares, par value $.01; 110 shares authorized,
issued and outstanding ($11,000 aggregate liquidation value) ....................... 1 1
Series B preferred shares, par value $.01; 175 authorized, 0 shares
issued and outstanding ............................................................. -- --
Undesignated preferred shares, par value $.01; 9,715 authorized, 0 shares
issued and outstanding ............................................................. -- --
Common shares, par value $.01; 40,000 authorized, 11,869
and 11,390 issued at December 31, 1998 and 1997, respectively ...................... 119 114
Additional paid-in capital ........................................................... 70,068 66,734
Retained earnings/(Accumulated deficit) .............................................. (26,027) (36,543)
Accumulated other comprehensive income/(loss) ........................................ 275 (739)
Less -- 39 treasury shares, repurchased at cost ...................................... (237) (237)
------------- -------------
Total shareholders' equity ......................................................... 44,199 29,330
============= =============
Total liabilities and shareholders' equity ......................................... $171,263 $172,798
============= =============
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
37
<PAGE>
<TABLE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
Net Sales ...................................................... $217,223 $207,840 $146,051
Cost of Sales .................................................. 126,350 122,995 83,675
------------ ------------- -------------
Gross profit ............................................. 90,873 84,845 62,376
Operating Expenses:
Engineering, research and development .................... 15,665 13,429 11,069
Selling, general and administrative ...................... 42,069 43,743 37,855
Amortization of intangibles resulting from business
acquisitions ...................................... 6,822 6,715 3,564
Severance and other costs ................................ -- 4,191 --
Acquisition related restructuring and other costs ........ -- -- 70,068
------------ ------------- -------------
Income/(loss) from operations ....................... 26,317 16,767 (60,180)
Interest and Other Income/(Expense):
Interest expense .......................................... (10,246) (12,563) (5,835)
Interest income ........................................... 238 440 568
Other income/(expense) .................................... 175 107 (480)
------------ ------------- -------------
(9,833) (12,016) (5,747)
------------ ------------- -------------
Income/(Loss) from Continuing Operations Before
Income Tax Provision/(Benefit) ............................ 16,484 4,751 (65,927)
Income Tax Provision/(Benefit) ................................. 5,968 1,761 (24,393)
------------ ------------- -------------
Income/(Loss) from Continuing Operations ....................... 10,516 2,990 (41,534)
Discontinued Operations:
Gain/(loss) from discontinued operations, net of tax ...... -- 164 (229)
Loss on disposal of discontinued operations ............... -- (265) (5,217)
------------ ------------- -------------
Total Loss from Discontinued Operations ........................ -- (101) (5,446)
============ ============= =============
Net Income/(Loss) .............................................. $10,516 $2,889 $ (46,980)
============ ============= =============
Net Income/(Loss) Per Common and
Common Equivalent Share:
Basic:
Continuing operations ..................................... $0.90 $0.27 $(3.96)
Discontinued operations .................................. -- (0.01) (0.52)
============ ============= =============
Net income/(loss) ........................................ $0.90 $0.26 $(4.48)
============ ============= =============
Diluted:
Continuing operations ..................................... $0.75 $0.25 $(3.96)
Discontinued operations .................................. -- (0.01) (0.52)
============ ============= =============
Net income/(loss) ........................................ $0.75 $0.24 $(4.48)
============ ============= =============
Weighted Average Number of Common
and Common Equivalent Shares Outstanding:
Basic .................................................... 11,713 11,197 10,490
Diluted .................................................. 13,993 11,843 10,490
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
38
<PAGE>
<TABLE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(All amounts in thousands)
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ------------------------- -------------------------
Shares Amount Shares Amount Shares Amount
---------- ------------ --------- ------------- --------- ------------
<S> <C> <C> <C> <C>
Series A Convertible Preferred Shares:
Balance, beginning of year ............ 110 $1 -- $-- -- $--
Issuance of preferred shares .......... -- -- 110 1 -- --
---------- ------------ --------- ------------- --------- ------------
Balance, end of year .................. 110 $1 110 $1 -- $--
========== ============ ========= ============= ========= ============
Common Shares:
Balance, beginning of year ............ 11,351 $114 11,122 $112 9,946 $100
Issuance of shares pursuant to
Employee Stock Purchase Plan ....... 107 1 67 1 26 --
Issuance of restricted stock awards, net 62 1 7 -- -- --
Issuance of common shares ............. -- -- -- -- 977 10
Exercise of options ................... 310 3 155 1 173 2
========== ============ ========= ============= ========= ============
Balance, end of year .................. 11,830 $119 11,351 $114 11,122 $112
========== ============ ========= ============= ========= ============
Additional Paid-In Capital:
Balance, beginning of year ............ $66,734 $54,891 $ 45,881
Issuance of shares pursuant to
Employee Stock Purchase Plan ....... 737 390 201
Exercise of options ................... 1,983 1,150 1,079
Issuance of restricted stock awards, net 590 70 --
Deferred compensation for restricted stock
awards, net of amortization ........ (459) (70) --
Issuance of common shares, net ........ -- -- 6,990
Issuance of preferred shares, net ..... -- 9,595 --
Issuance of warrants .................. -- 617 600
Tax benefit from exercise or early
disposition of stock options ....... 483 91 140
============ ============= ============
Balance, end of year .................. $70,068 $66,734 $ 54,891
============ ============= ============
Retained Earnings/(Accumulated Deficit):
Balance, beginning of year ............ $(36,543) $(39,432) $ 7,548
Net income/(loss) ..................... 10,516 2,889 (46,980)
============ ============= ============
Balance, end of year .................. $(26,027) $(36,543) $(39,432)
============ ============= ============
Accumulated Other Comprehensive
Income/(Loss):
Balance, beginning of year ............ $(739) $( 33) $ 35
Foreign currency translation adjustment 702 (706) (68)
Unrealized gain on securities ......... 312 -- --
------------ ------------- ------------
Balance, end of year .................. $275 $(739) $( 33)
============ ============= ============
Treasury Shares:
Balance, beginning of year ............ $(237) $(237) $(237)
Shares repurchased .................... -- -- --
============ ============= ============
Balance, end of year .................. $(237) $(237) $(237)
============ ============= ============
Comprehensive Income/(Loss):
Net Income/(Loss) ..................... $10,516 $2,889 $(46,980)
Other comprehensive income/(loss), net of
tax:
Foreign currency translation adjustment 702 (706) (68)
Unrealized gain on securities ...... 312 -- --
============ ============= ============
Comprehensive Income/(Loss) ........... $11,530 $2,183 $(47,048)
============ ============= ============
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
39
<PAGE>
<TABLE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) ................................................... $10,516 $2,889 ($46,980)
Adjustments to reconcile net income/(loss) to
net cash provided by operating activities:
Depreciation and amortization ............................... 13,399 13,735 9,169
Loss on disposition of assets ............................... 9 109 3,860
Acquired research and development write-off ................. -- -- 60,100
Loss on disposal of discontinued operations ................. -- 265 5,217
Deferred tax assets ......................................... 2,332 1,197 (23,033)
(Increase) decrease in assets:
Accounts receivable, net ................................. (2,029) (6,705) 1,760
Inventories .............................................. 473 581 (1,199)
Prepaid expenses and other ............................... (1,377) 80 (147)
Increase (decrease) in liabilities:
Accounts payable ......................................... 190 2,467 1,461
Accrued expenses ......................................... 630 (3,190) (5,535)
Accrued payroll and related employee benefits ............ (477) (1,855) 6,272
Accrued acquisition related restructuring costs .......... (819) (3,830) 4,278
------------ ----------- -----------
Net cash provided by operating activities .............. 22,847 5,743 15,223
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................ (5,792) (6,557) (4,843)
Cash paid for acquisition of business ............................... -- -- (10,124)
Additions to intangible and other assets ............................ (1,559) (343) (1,238)
Issuance of notes for stock option activity ......................... -- -- (382)
Repayment of notes for stock option activity ........................ 325 278 --
Proceeds from sale of marketable securities ......................... -- -- 4,167
------------ ----------- -----------
Net cash used in investing activities .................. (7,026) (6,622) (12,420)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt ......................................... 11,500 5,000 --
Payment of long-term debt ........................................... (26,846) (23,899) (105)
Additions to other long-term liabilities ............................ -- 1,398 648
Payment of other long-term liabilities .............................. (476) (655) --
Exercise of options and the issuance of common shares and warrants .. 2,725 1,542 1,882
Issuance of preferred shares and warrants, net ...................... -- 10,213 --
Tax benefit from exercise or early disposition of stock options ..... 483 91 140
------------ ----------- -----------
Net cash (used in) provided by financing activities .... (12,614) (6,310) 2,565
------------ ----------- -----------
Foreign currency translation ........................................ 702 (1,378) (68)
------------ ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents ................ 3,909 (8,567) 5,300
CASH AND CASH EQUIVALENTS:
Beginning of year ................................... 2,271 10,838 5,538
============ =========== ===========
End of year ......................................... $6,180 $ 2,271 $10,838
============ =========== ===========
Supplemental disclosures of cash flow information:
Interest paid ..................................................... $10,059 $13,804 $3,994
Income taxes paid ................................................. $2,455 $ 438 $ 833
Capital leases .................................................... $ -- $ -- $ 35
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
40
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
1. DESCRIPTION OF BUSINESS
PSC Inc. (the Company) designs, manufactures and markets a broad line
of handheld and fixed position bar code readers, verifiers, 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, general retail, health care and other industries, and in government.
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 worldwide. 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 accounts and
transactions 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.
Inventories
Inventories are valued at the lower of cost or market using the
first-in, first-out method. Inventory costs comprise material, direct labor and
overhead.
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 ..................... 10-40 years
Office furniture and equipment ................ 3-7 years
Production equipment .......................... 3-8 years
Leasehold improvements ........................ 5-15 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.
41
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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 10 years, their current estimated
useful lives.
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 five years, their current
estimated useful lives.
The Company reviews its long-lived assets, including certain
intangibles and goodwill, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-lived Assets and
Long-lived Assets to be Disposed of," 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.
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
Net income per common and common equivalent share is computed in
accordance with Statement of Financial Accounting Standards No. 128 (SFAS No.
128), "Earnings Per Share." SFAS No. 128 requires a dual presentation of basic
and diluted earnings per share on the consolidated statements of operations.
Basic EPS is computed by dividing reported earnings available to common
shareholders by the weighted average number of common shares outstanding during
the year. No dilution for common share equivalents is included. Diluted EPS is
computed by dividing reported earnings available to common shareholders by the
weighted average number of common and common equivalent shares outstanding
during the year.
Comprehensive Income
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS No. 130), "Reporting Comprehensive Income," which
requires comprehensive income and its components to be presented in the
financial statements. Comprehensive income consists of net income, foreign
currency translation adjustments and unrealized gains on securities, net of tax,
and is presented in the consolidated statements of shareholders' equity. The
adoption of SFAS No. 130 had no impact on total shareholders' equity.
42
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
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 recorded in accumulated other comprehensive income in the
consolidated balance sheets. Operating transactions are translated at weighted
average rates prevailing during the year.
Transaction gains and losses are reflected in net income and were not material.
Derivatives
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999 and cannot be applied retroactively. SFAS No. 133 must be applied
to derivative instruments that were issued, acquired or substantively modified
after December 31, 1997. The Company has not yet quantified the impacts of
adopting SFAS No. 133 on the financial statements and has not determined the
timing of or method of adopting SFAS No. 133.
The Company monitors its exposure to interest rate and foreign currency
exchange risk. The Company has limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company uses
derivative instruments solely to reduce the financial impact of these risks.
Cash flows from interest rate swap agreements and foreign currency forward
exchange contracts are classified in the same category as the item being hedged.
Interest Rate Risk:
The Company's exposure to interest rate changes relates to its
long-term debt. The Company has entered into interest rate swap agreements with
its senior lending banks in accordance with the terms of the senior credit
agreement. The Company uses these interest rate swap agreements to reduce its
exposure to interest rate changes. The differentials to be received or paid
under these interest rate swap agreements are recognized as a component of
interest expense in the consolidated statements of operations.
Foreign Currency Exchange Rate Risk:
The Company's exposure to foreign currency relates primarily to its
international subsidiaries. Sales to certain countries are denominated in their
local currency. The Company enters into foreign currency forward exchange
contracts to minimize the effect of foreign currency fluctuations relating to
these transactions and commitments denominated in foreign currencies. The
foreign exchange contracts generally have maturities of approximately 30 days
and require the Company to exchange foreign currencies for U.S. dollars at
maturity, at rates agreed to at the inception of the contracts. Gains and losses
on forward contracts are offset against the foreign exchange gains and losses on
the underlying hedged items and are recorded in the consolidated statements of
operations.
43
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade receivables,
other current assets, accounts payable, and amounts included in accruals meeting
the definition of a financial instrument approximate fair value because of the
short-term maturity of these instruments. The notional amounts, carrying values
and related estimated fair values for the Company's remaining financial
instruments are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------- -----------------------------------------
Notional Carrying Fair Notional Carrying Fair
Amount Amount Value Amount Amount Value
----------- ----------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt,
including current
portion ................... $ -- $93,208 $94,145 $ -- $108,554 $108,554
Interest rate swap
agreements ................ $60,000 $ -- $ 522 $73,250 $ -- $ 451
Foreign currency
exchange contracts ........ $ 2,241 $ -- $( 7) $ -- $ -- $ --
</TABLE>
The fair value of long-term debt is based on borrowing rates currently
available to the Company for loans with similar terms and average maturities.
Interest rate swap agreements are estimated by obtaining quoted market prices
from brokers and reflecting the cost to terminate the agreements. The fair value
of the Company's foreign currency exchange contracts represents the gain on the
original contract amount adjusted using the year-end closing spot exchange
rates.
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 scanning 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.
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.
44
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
Reclassification
Certain amounts in prior years have been reclassified to conform to the
current year 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 was headquartered in
Eugene, Oregon, was 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 $140.0 million. The purchase
was funded by $125.0 million in cash, $10.0 million in the Company's common
shares less a $3.0 million discount as the shares were unregistered and a $5.0
million subordinated promissory note. The $125.0 million cash portion was funded
by a combination of the Company's cash, senior debt ($92.5 million) and
subordinated debt ($30.0 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 of 1996. The remaining excess of the purchase
price over the fair value of net assets acquired was approximately $58.0 million
and is being 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 year ended December 31, 1996. 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 were based upon currently
available information and upon certain assumptions that the Company believes
were 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
------------------------------
Net sales ..................................... $210,961
Income/(loss) from operations ................. (51,800)
Income/(loss) from continuing operations ...... (40,148)
Total loss from discontinued operations ....... (5,446)
Net income/(loss) ............................. (45,594)
Net income/(loss) per common and common
equivalent share:
Basic:
Continuing operations ...................... $ (3.83)
Discontinued operations .................... (0.52)
------
Net income/(loss) .......................... $ (4.35)
========
Diluted:
Continuing operations ...................... $ (3.83)
Discontinued operations .................... (0.52)
------
Net income/(loss) .......................... $ (4.35)
========
Weighted average shares outstanding:
Basic ...................................... 10,490
Diluted .................................... 10,490
45
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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
=======
4. INVENTORY
Inventory consists of the following at December 31:
1998 1997
------------ ------------
Raw materials ............. $11,231 $10,979
Work-in-process ........... 2,888 3,727
Finished goods ............ 3,131 3,017
============ ============
$17,250 $17,723
============ ============
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of the following at
December 31:
1998 1997
------------ ------------
Land ................................. $ 2,312 $ 2,312
Building and improvements ............ 18,114 17,782
Office furniture and equipment ....... 13,347 11,169
Production equipment ................. 19,702 16,529
Leasehold improvements ............... 561 701
------------ ------------
54,036 48,493
Less: accumulated depreciation
and amortization .............. 18,639 13,024
============ ============
$35,397 $35,469
============ ============
Depreciation expense for 1998, 1997 and 1996 amounted to $5,855, $6,478,
and $4,947, respectively. Amortization of capital lease assets is included in
depreciation expense.
46
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
6. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following at December 31:
1998 1997
------------ ------------
Intangibles resulting from
business acquisitions .............. $66,749 $66,846
Other intangibles ...................... 3,522 2,565
Other assets ........................... 1,273 691
------------ ------------
71,544 70,102
Less: accumulated amortization ........ 20,419 13,006
------------ ------------
$51,125 $57,096
============ ============
Amortization expense for 1998, 1997 and 1996 amounted to $7,413,
$7,257, and $4,222, respectively.
7. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
1998 1997
----------- ------------
Accrued warranty ................ $1,738 $1,818
Accrued royalty ................. 1,412 862
Accrued taxes ................... 1,098 (348)
Accrued relocation .............. 292 939
Deferred revenue ................ 629 758
Other expenses .................. 2,866 3,376
=========== ============
$8,035 $7,405
=========== ============
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1998 1997
----------- ------------
Senior term loan A .............. $37,000 $ 47,000
Senior term loan B .............. 23,000 24,000
Senior revolving credit ......... -- 3,000
Subordinated term loan .......... 29,547 29,488
Subordinated promissory note .... 3,438 4,688
Other ........................... 223 378
----------- ------------
93,208 108,554
Less: current maturities ..... 14,402 12,406
----------- ------------
$78,806 $ 96,148
=========== ============
47
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
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 7.0%, paid quarterly, and a swapped fixed rate
of 7.4%. Term loan B is a senior loan with four lenders, having a final maturity
in December 2002, at a current floating interest rate of 7.5%, paid quarterly,
and a swapped fixed rate of 7.9%. The swaps, which were entered into on
September 30, 1998, expire on September 30, 2000 for both loans.
The Company has revolving credit facilities with the term loan lenders,
which mature in 2001, totaling $20.0 million. As of December 31, 1998, the
Company had no borrowings outstanding under these facilities. 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%, paid quarterly, with principal payments starting in June 2003 and a
final maturity in June 2006. This debt has an associated unamortized discount of
$453, 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 8.75%, paid quarterly. The subordinated term loan and
promissory note are unsecured.
The other debt is principally composed of capital lease obligations.
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, 1998.
Long-term debt maturities are as follows for years ending December 31:
1999 $14,402
2000 16,281
2001 22,449
2002 10,507
2003 7,507
Thereafter 22,062
================
$93,208
================
The Company is a guarantor under a mortgage agreement through February
2001 relating to its former principal manufacturing facility up to $500.
48
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
9. INCOME TAXES
The provision for (benefit from) income taxes consisted of the
following for the years ended December 31:
1998 1997 1996
------------- ------------- --------------
Current:
Federal ......... $1,943 $244 $(1,589)
State ........... 110 59 65
Foreign ......... 1,583 261 164
Deferred:
Federal ......... 2,299 1,658 (21,176)
State ........... 33 (461) (1,857)
============= ============= ==============
$5,968 $1,761 $(24,393)
============= ============= ==============
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:
1998 1997 1996
--------- ---------- ----------
Statutory U.S. federal rate ..... 35.0% 34.0% 34.0%
Change in valuation reserve ..... -- -- 2.3%
State income taxes, net of
federal income tax benefit .... 0.4% 4.2% 1.8%
Goodwill amortization ........... 0.8% 2.7% 0.2%
FSC benefit ..................... (4.7%) (3.7%) (0.1%)
Foreign income taxes in excess
of U.S. rate .................. 3.7% 0.2% 0.1%
Meals and entertainment ......... 0.6% 2.1% 0.3%
Miscellaneous items, net ........ 0.4% (2.4%) (1.6%)
--------- ---------- ----------
36.2% 37.1% 37.0%
========== =========== ===========
The deferred tax assets/(liabilities) are comprised of the following at
December 31:
1998 1997
----------- ------------
Intangibles resulting from business acquisitions . $17,229 $18,834
Tax credit carryforwards ......................... 1,914 1,271
Net operating loss carryforwards ................. 1,211 --
Inventory reserve ................................ 1,103 1,018
Warranty reserve ................................. 1,091 1,170
Severance accrual ................................ 229 1,072
Acquisition related restructuring and other costs 157 494
Other, net ....................................... (124) 1,283
----------- ------------
22,810 25,142
Less: valuation allowance ....................... (1,566) (1,566)
=========== ============
Net deferred tax asset ........................... $21,244 $23,576
=========== ============
49
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
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 a valuation allowance to reflect the
estimated realizable amount of deferred tax assets and it primarily relates to
state tax benefits.
At December 31, 1998, the Company has net operating loss carryforwards
of $1,211 for federal income tax purposes, which are available to offset future
federal taxable income through 2018. Other tax credits of $1,914 primarily
represent state investment tax credit and federal general business credit
carryforwards which expire between 2010 and 2018.
10. COMMITMENTS AND CONTINGENCIES
Operating Lease Agreements
Certain equipment and properties are rented under noncancelable
operating leases that expire at various dates through 2003. Total rental expense
under operating leases was approximately $2,581, $2,214, and $1,214, for the
years ended December 31, 1998, 1997 and 1996, respectively.
Future minimum lease payments required under these agreements are as
follows for the years ending December 31:
1999 $2,269
2000 1,520
2001 1,190
2002 443
2003 107
----------
$5,529
==========
Employment and Consulting Agreements
The Company has an employment agreement with the President and Chief
Executive Officer and a consulting agreement with the Chairman of the Board of
Directors which terminate on December 31, 2000 and for which the Company has a
minimum commitment aggregating approximately $770 plus benefits at December 31,
1998. The commitment is payable ratably over the term of the contracts.
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 1998, 1997 and
1996.
50
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
Legal Matters
The automatic identification and data capture industry is characterized
by substantial litigation regarding patent and other intellectual property
rights. 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,
including claims that royalties have been underpaid. 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, nor underpaid royalties, there can be no assurance that this or
any other action will be decided or settled in the Company's favor.
On October 22, 1998, the Court granted the Company's motion for partial
summary judgment on the issue of patent misuse on the part of Symbol and denied
Symbol's cross motion. Accordingly, PSC is not obligated to pay royalties to
Symbol under the `297 and `186 patents pursuant to either of its licensing
agreements for products manufactured or sold on or after April 1, 1996. Symbol
has moved for reconsideration of the Court's Decision, and has also moved for
permission to appeal immediately, rather than wait until the end of the case.
These motions were submitted on December 16, 1998. No decision has been rendered
yet.
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. Although the amount of any liability
with respect to such litigation cannot be determined, in the opinion of
management, such liability will not have a material adverse effect on the
results of operations, financial position or cash flows.
51
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
11. SHAREHOLDERS' EQUITY
Preferred Shares
In September 1997, the Company completed a private placement of equity
with Hydra Investissements S.A., a Luxembourg Corporation (the Purchaser). The
Company issued 110 shares of Series A Convertible Preferred Shares (the
Preferred Shares) which are convertible into 1,375 Common Shares. The Preferred
Shares are convertible at anytime at the option of the holders into Common
Shares of the Company. The conversion price is $8.00 per Common Share or one
Preferred Share for 12.5 Common Shares. In connection with the issuance of
Preferred Shares, a warrant evidencing the right to purchase an aggregate of 180
Common Shares of the Company was issued to the Purchaser. This warrant has an
exercise price of $8.00 per share and may be exercised at anytime prior to
September 10, 2001. As a result, the Purchaser beneficially owns 1,555 Common
Shares of the Company. The net proceeds to the Company from the offering were
$10.2 million. The Company used the proceeds to repay a portion of its senior
revolving credit facility.
Shareholder Rights Plan
In December 1997, the Company adopted a Shareholder Rights Plan in
which one Preferred Share Purchase Right (the Right) was granted for each
outstanding Common Share. The Rights are exercisable only if a person or group
acquires or tenders an offer that would result in the beneficial ownership of
20% or more of the then outstanding Common Shares of the Company. Each Right
entitles the holder to purchase one one-thousandth of a share of the Company's
Series B Preferred Shares at a purchase price of $45. Under certain
circumstances, the Rights are redeemable at a price of $0.01 per Right and,
unless redeemed earlier, will expire in December 2007. There were no issued or
outstanding Series B Preferred Shares at December 31, 1998 or 1997.
Stock Option Plan
Options under the Company's Stock Option Plan (SOP) may be granted to
employees, consultants, directors and officers and 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 must be issued at an exercise price not less than
fair market value on date of grant and expire five to 10 years from date of
grant unless employment is terminated or death occurs earlier.
In accordance with the provisions of the SOP, the Company may make
loans to participants to finance the exercise price and related income taxes
upon the exercise of an option. During 1998 and 1997, the Company received loan
repayments from participants totaling $364 and $278, respectively.
The Company accounts for its SOP and Employee Stock Purchase Plan under
APB Opinion No. 25, "Accounting for Stock Issued to Employees," under which no
compensation cost was 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:
52
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
1998 1997 1996
---- ---- ----
Net income/(loss) as reported ............ $10,516 $2,889 $(46,980)
Net income/(loss) pro forma .............. $ 9,483 $2,175 $(48,501)
Net income/(loss) per common and common
equivalent share as reported:
Basic ................................ $0.90 $0.26 $(4.48)
Diluted .............................. $0.75 $0.24 $(4.48)
Net income/(loss) per common and
common equivalent share pro forma:
Basic ................................ $0.81 $0.19 $(4.62)
Diluted .............................. $0.68 $0.18 $(4.62)
SFAS No. 123 has been applied only to options granted 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.
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 1998, 1997 and 1996:
1998 1997 1996
---- ---- ----
Risk free interest rate .......... 4.53% 6.19% 5.95%
Expected dividend yield .......... -- -- --
Expected lives ................... 4 years 4 years 4 years
Expected volatility .............. 51% 45% 45%
Fair value of options granted .... $3.99 $2.89 $3.31
The following is a summary of stock option activity and weighted
average exercise prices in the Company's SOP for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
--------- --------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
period ................................ 3,046 $7.76 2,818 $8.33 2,138 $8.41
Options granted ........................... 391 8.92 1,087 6.98 953 7.78
Options exercised ......................... (310) 6.42 (155) 7.51 (173) 6.27
Options forfeited/canceled ................ (100) 7.28 (704) 9.00 (100) 8.06
========= ============= ========== ============ ========= ============
Options outstanding at end of period ...... 3,027 $7.98 3,046 $7.76 2,818 $8.33
========= ============= ========== ============ ========= ============
Number of options at end of period:
Exercisable ............................ 1,820 $8.18 1,884 $8.06 1,630 $5.02
Available for grant .................... 4 394 784
</TABLE>
53
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
The following is a summary of stock options outstanding and exercisable
for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- -----------------------------
Weighted Weighted Average Weighted
Range of Average Remaining Average
Exercise Pricese Exercise Price Contractual Life Exercise Price
Per Share Shares per Share (in years) Shares per Share
- ------------------- ------------ ------------------- -------------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$5.75 - $13.06 3,027 $7.98 4.9 1,820 $8.18
</TABLE>
During the twelve month period ended December 31, 1998, 33 forfeited
options were cancelled due to the expiration of the 1987 Stock Option Plan in
December 1997. These options are not available for future grants.
The Company was able to realize an income tax benefit in 1998, 1997 and
1996 from the exercise or early disposition of 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.
Restricted Stock Awards
The Company granted 62 and 7 restricted shares to certain key employees
from the SOP at an average share price of $10.89 and $10.00 in 1998 and 1997,
respectively. Shares were awarded in the name of the employee, who has all
rights of a shareholder, subject to certain restrictions on transferability and
a risk of forfeiture. Restricted stock awards are dependent upon continued
employment, and in the case of performance shares, achievement of certain
performance objectives. If the performance objectives are not met, the shares
will expire in 2002. Deferred compensation was recorded as a reduction to
shareholders' equity in the consolidated balance sheets based on the market
value of the shares on the date of grant and is adjusted based on the closing
price of the Company's Common Shares at the end of each fiscal quarter. Deferred
compensation is amortized ratably over the restriction periods, which range
between two and four years. Compensation expense was included in selling,
general and administrative in the consolidated statements of operations and was
not material.
Warrants
In connection with the issuance of Preferred Shares, a warrant
evidencing rights to purchase an aggregate of 180 Common Shares of the Company
was issued and sold to the Purchaser of the Preferred Shares. This warrant has
an exercise price of $8.00 per share and may be exercised prior to September 10,
2001.
The acquisition of Spectra was financed, in part, by the subordinated
term loan. In connection with the subordinated term loan, warrants evidencing
rights to purchase an aggregate of 975 Common Shares of the Company were issued
and sold to the purchasers of the subordinated term loan. These warrants have an
exercise price of $8.00 per share and may be exercised at anytime prior to July
12, 2006.
The holders of these 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.
54
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the Plan) under which
600 Common Shares can be issued. Under the terms of the Plan, eligible employees
may purchase the Company's Common Shares 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 shares on the first or last day of each six
month offering period. Employees purchased approximately 107 shares at an
average price of $6.92 per share, 67 shares at an average price of $5.81 per
share and 26 shares at an average price of $7.82 per share during 1998, 1997 and
1996, respectively. The Plan expires on December 31, 2000.
The fair value of the purchase rights 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 1998, 1997 and 1996:
1998 1997 1996
---- ---- ----
Risk free interest rate .......... 5.19% 5.12% 5.89%
Expected dividend yield .......... -- -- --
Expected lives ................... 6 mos. 6 mos. 6 mos.
Expected volatility .............. 51% 45% 45%
Fair value of purchase rights .... $3.35 $2.06 $2.54
12. ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income consists of the following for
the year ended December 31, 1998:
Foreign Accumulated Other
Currency Unrealized Comprehensive
Translation Gain on Income
Adjustment Securities
--------------- -------------- ----------------
Balance, beginning of year . $(739) $ -- $(739)
Current period change ...... 702 312 1,014
=============== ============== ================
Balance, end of year ....... $(37) $312 $ 275
=============== ============== ================
13. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Year Ended December 31, 1998
----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- ------------- ---------
Basic EPS:
Income available to
common shareholders ................ $10,516 11,713 $0.90
=========
Effect of dilutive securities:
Options ........................... -- 704
Warrants .......................... -- 201
Preferred shares .................. -- 1,375
------------- -------------
Diluted EPS:
Income available to common
shareholders and assumed conversions $10,516 13,993 $0.75
============= ============= =========
55
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
Year Ended December 31, 1997
-----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- ------------- ---------------
Basic EPS:
Income available to
common shareholders $2,889 11,197 $0.26
===============
Effect of dilutive securities:
Options -- 195
Warrants -- 29
Preferred shares -- 422
------------- -------------
Diluted EPS:
Income available to common
shareholders and assumed
conversions $2,889 11,843 $0.24
============= ============= ===============
Year Ended December 31, 1996
-----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- ------------- --------------
Basic EPS:
Income available to
common shareholders $(46,980) 10,490 $(4.48)
============= ============= ==============
Diluted EPS:
Income available to common
shareholders and assumed
conversions $(46,980) 10,490 $(4.48)
============= ============= ==============
Basic EPS were computed by dividing reported earnings available to
common shareholders by weighted average shares outstanding during the year.
Diluted EPS for the years 1998, 1997 and 1996 were determined on the following
assumptions: 1) Preferred Shares and related warrants issued in connection with
the private placement of equity were converted upon issuance on September 10,
1997 and January 1, 1998 and 2) warrants issued in connection with the
acquisition of Spectra were converted on July 12, 1996, January 1, 1997 and
January 1, 1998.
Options to purchase 469, 1,148 and 2,495 shares of common stock at an
average price of $9.93, $9.52, and $9.70 per share were outstanding for the
years ending December 31, 1998, 1997, and 1996, respectively, but were not
included in the computation of diluted EPS since the options' exercise price was
greater than the average market price of Common Shares.
14. 401(k) PLAN
The Company's 401(k) plan is available to U.S. employees meeting
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 eligible compensation. Plan expense was $761, $717, and
$377 for 1998, 1997 and 1996, respectively.
56
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
15. SEVERANCE AND OTHER COSTS
During the second quarter of 1997, the Company recorded a pretax charge
of $5.2 million for severance and other costs. Of the total charge,
approximately $2.3 million was associated with the Severance Agreement with the
former CEO, $1.2 million was for employee severance and benefit costs for the
elimination of approximately 30 positions including several senior executives, a
$1.0 million inventory write-off for the discontinuation of certain products,
and $0.7 million for the centralization of research and development efforts and
the relocation of manufacturing of certain product lines between the Company's
two manufacturing facilities. Of the $4.2 million originally accrued in 1997,
the Company recorded charges against the accrual of $2.2 million and $1.3
million in 1998 and 1997, respectively. The accrual as of December 31, 1998 was
approximately $0.7 million, of which $0.1 million related to long-term
contractual obligations.
16. ACQUISITION RELATED RESTRUCTURING AND OTHER COSTS
During the third quarter of 1996, the Company recorded a 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, $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, 1998, all positions targeted
in the restructuring program were eliminated. Restructuring actions are expected
to be completed by the end of 1999. Excluding $0.2 million reversed in 1998, the
Company recorded charges against the accrual of $0.5 million, $3.7 million and
$5.3 million in 1998, 1997 and 1996, respectively. The restructuring accrual as
of December 31, 1998 was approximately $0.3 million, which relates to current
contractual obligations. There have been no other 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, basic EPS and diluted
EPS by $70.1 million, $44.2 million, $4.21 and $4.21, respectively.
17. DISCONTINUED OPERATIONS
In June 1997, the Company disposed of its TxCOM subsidiary, which was
acquired as part of the Spectra acquisition. For 1997 and 1996, results of
operations were reported as discontinued operations in the Consolidated
Statement of Operations. The Company recognized a net gain on operations of $164
in 1997 and a net loss on operations of $229 in 1996. Disposal of TxCOM resulted
in the recording of losses of $265 and $5,217 in 1997 and 1996, respectively.
These losses include the write-down of the assets to their net realizable value
and the costs of disposing of the subsidiary, net of applicable tax benefits.
57
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
16. SIGNIFICANT CUSTOMER INFORMATION
The Company sells its products principally to original equipment
manufacturers, value-added resellers, distributors and systems integrators.
During 1998, 1997 and 1996, no individual customer accounted for greater than
10% of net sales. The Company's arrangements with major customers are generally
nonexclusive.
<TABLE>
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ----------- ------------
Year Ended December 31, 1998
-------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ............................................. $53,628 $51,877 $52,807 $58,911
Gross profit .......................................... 21,685 21,866 22,468 24,854
Net income ............................................ 2,230 2,695 2,727 2,864
Net income per common and
common equivalent share (1):
Basic .............................................. $0.19 $0.23 $0.23 $0.24
Diluted ............................................ $0.16 $0.19 $0.20 $0.21
Year Ended December 31, 1997
-------------------------------------------------
Net sales ............................................. $54,236 $47,301 $53,191 $53,112
Gross profit .......................................... 22,701 17,913 22,167 22,064
Income (loss) from continuing operations .............. 886 (3,246) 2,542 2,808
Loss from discontinued operations ..................... (16) (85) -- --
Net income (loss) .................................... 870 (3,331) 2,542 2,808
Net income (loss) per common and
common equivalent share (1):
Basic:
Continuing operations .............................. $0.08 $(0.29) $0.23 $0.25
Discontinued operations ............................ -- (0.01) -- --
---------- ---------- ----------- ------------
Net income (loss) .................................. $0.08 $(0.30) $0.23 $0.25
========== ========== =========== ============
Diluted:
Continuing operations .............................. $0.08 $(0.29) $0.22 $0.20
Discontinued operations ............................ -- (0.01) -- --
========== ========== =========== ============
Net income (loss) .................................. $0.08 $(0.30) $0.22 $0.20
========== ========== =========== ============
</TABLE>
(1) Earnings per share are computed independently for each of the quarters
presented whereby the sum of the quarterly earnings per share in 1998 and
1997 does not equal the total computed for the respective years.
58
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
20. OPERATIONS BY GEOGRAPHIC AREA
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS No. 131), "Disclosures About Segments of an Enterprise
and Related Information," which requires public business enterprises to report
certain information about operating segments. It also requires that public
business enterprises report certain information about their products and
services, the geographic areas in which they operate and their major customers.
SFAS No. 131 was issued effective for fiscal years beginning after December 15,
1997.
The Company is engaged in a single reportable segment, specifically the
design, manufacture and marketing of handheld and fixed position bar code
readers, verifiers, integrated sortation and point-of-sale scanning systems.
Operations in this business segment are summarized below by geographic area and
by products. The Company's operations in Europe and Rest of World (ROW)
primarily consist of selling and performing field service maintenance on
products designed and manufactured in the United States.
Sales are allocated to geographic areas based on customer location. In
determining earnings before provision for income taxes for each geographic area,
sales and purchases between areas have been accounted for on the basis of
internal transfer prices set by the Company. Certain U.S. operating expenses are
allocated between geographic areas based upon the percentage of geographic area
revenue to total revenue.
Long-lived assets represent tangible assets used in operations in each
geographic area.
<TABLE>
<CAPTION>
North
Year Ended December 31, 1998 America Europe ROW Eliminations Total
- ----------------------------- --------------- ------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers .................. $119,266 $70,599 $27,358 $ -- $217,223
Transfers between
geographic areas ........... 51,155 -- -- (51,155) --
--------------- ------------- ------------- ---------------- --------------
Total net sales ............... 170,421 70,599 27,358 (51,155) 217,223
=============== ============= ============= ================ ==============
Long-lived assets ............. $34,301 $ 843 $ 253 $ -- $35,397
=============== ============= ============= ================ ==============
North
Year Ended December 31, 1997 America Europe ROW Eliminations Total
- --------------------------- -------------- -------------- --------------- ---------------- ---------------
Sales to unaffiliated
customers .................. $120,606 $57,518 $29,716 $ -- $207,840
Transfers between
geographic areas ........... 39,820 157 -- (39,977) --
-------------- -------------- --------------- ---------------- ---------------
Total net sales ............... 160,426 57,675 29,716 (39,977) 207,840
============== ============== =============== ================ ===============
Long-lived assets ............. $34,502 $ 622 $ 345 $ -- $35,469
============== ============== =============== ================ ===============
</TABLE>
59
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All amounts in thousands, except per share data)
<TABLE>
<CAPTION>
North
Year Ended December 31, 1996 America Europe ROW Eliminations Total
- ------------------------------ -------------- ----------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $96,321 $31,968 $17,762 $ -- $146,051
Transfers between
geographic areas 18,165 -- -- (18,165) --
-------------- ----------- --------- --------------- ---------
Total net sales 114,486 31,968 17,762 (18,165) 146,051
============== =========== ========= =============== =========
Long-lived assets $34,965 $ 601 $ 46 $ -- $35,612
============== =========== ========= =============== =========
</TABLE>
Sales are summarized by product as follows:
1998 1997 1996
-------------- ------------- --------------
Scanners ..... $197,096 $190,723 $136,711
Service ...... 20,127 17,117 9,340
============== ============= ==============
$217,223 $207,840 $146,051
============== ============= ==============
60
<PAGE>
SCHEDULE II
PSC INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(All amounts in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ --------------
<S> <C> <C> <C>
Accounts Receivable Reserve-
BALANCE, at beginning of year $1,169 $1,101 $387
Provision for doubtful accounts 469 346 168
Write-offs of doubtful accounts,
net of recoveries (146) (278) (200)
Other -- -- 746 (1)
============ ============ ==============
BALANCE, at end of year $1,492 $1,169 $1,101
============ ============ ==============
Restructuring Reserves-
BALANCE, at beginning of year $1,234 $5,064 $ 786
Addition to restructuring reserves -- -- 9,968
Usage of restructuring reserves (619) (3,830) (5,690)
Reversal of excess restructuring reserves (200) -- --
============ ============ ==============
BALANCE, at end of year $ 415 $1,234 $5,064
============ ============ ==============
</TABLE>
(1) Amount represents the reserve recorded in connection with the acquisition of
Spectra.
61
FIRST AMENDMENT
TO
AGREEMENT
THIS AGREEMENT (the "First Amendment") is made as of the 11th day of
December, 1998 by PSC INC., a New York corporation ("PSC" or the "Company") and
ROBERT S. EHRLICH ("Ehrlich").
WHEREAS, PSC and Ehrlich entered into a certain agreement on June 2,
1998 (the "Agreement"); and WHEREAS, the parties desire to amend in
certain respects said Agreement. NOW, THEREFORE, in consideration of
the premises and mutual covenants herein contained, the parties agree
as follows: 1. All of the terms used in this First Amendment shall have
the meanings defined in the Agreement. 2. Section 4 of the Agreement is
deleted in its entirety and replaced by a new Section 4, which will
read as follows:
"4. Restricted Stock. Pursuant to the Company's 1994 Stock
Option Plan, on March 25, 1998 PSC awarded Ehrlich 17,500
restricted Common Shares of the Company, upon the terms and
conditions and subject to the restrictions set forth in the
Restricted Stock Award Agreement attached hereto as Exhibit A.
If Ehrlich is then Chairman of the Board of Directors of the
Company, on each of March 25, 1999 and March 25, 2000, PSC
will award Ehrlich 17,500 restricted Common Shares pursuant to
a Restricted Stock Award Agreement similar in form to Exhibit
A, as modified to reflect changes in dates and stock prices.
Notwithstanding the foregoing sentence, if there is a Change
in Control (as hereinafter defined), and if Ehrlich becomes
entitled to receive Severance Benefits (as hereinafter
defined), Ehrlich will be immediately entitled to receive the
Common Shares which otherwise would have been awarded to him
on March 25, 1999 and/or on March 25, 2000, fully vested and
free of any and all restrictions."
62
<PAGE>
3. There is added to the Agreement a new Section 14, which will read as
follows:
"14. Change in Control
a. Severance Payment. If following a Change in
Control (as hereinafter defined) of the Company, Ehrlich
ceases to be Chairman of the Board of Directors of the Company
at any time prior to the expiration of the Term of this
Agreement, for any reason other than death or disability, the
Company will pay Ehrlich over a period of three years
following such termination of services an amount equal to the
product of Ehrlich's compensation for services at the annual
rate than in effect multiplied by 2.9. Such amount shall be
payable in bi-weekly installments. In addition, Ehrlich will
be immediately vested in any restricted stock or option plans
or agreements then in effect.
b. Limitations. Notwithstanding anything in this
Section 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 this Section (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 Ehrlich and then, if
further reductions are necessary, by adjusting other benefits
as determined by the Company.
63
<PAGE>
c. Definition of 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, a "Current Director" shall mean
any member of the Board of Directors elected at or continuing
in office after, the 1998 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."
64
<PAGE>
4. Except as modified by this First Amendment, the Agreement has not
heretofore been amended or cancelled, and remains in full and effect.
IN WITNESS WHEREOF, the parties have caused this First Amendment to
be executed as of the day and year first above written. PSC Inc.
By: /s/ Robert C. Strandberg
------------------------
Robert C. Strandberg
President and Chief Executive Officer
/s/ Robert S. Ehrlich
------------------------
Robert S. Ehrlich
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "First Amendment") is made as of the 11th day of
December, 1998 by PSC INC., a New York corporation ("PSC" or the "Company") and
ROBERT C. STRANDBERG ("Executive").
WHEREAS, PSC and Executive entered into a certain employment agreement
on June 2, 1998 (the "Employment Agreement"); and
WHEREAS, the parties desire to amend in certain respects said
Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties agree as follows:
1. All of the terms used in this First Amendment shall have the
meanings defined in the Employment Agreement.
2. Section 5 of the Employment Agreement is deleted in its entirety and
replaced by a new Section 5, which will read as follows:
"5. Restricted Stock. Pursuant to the Company's 1994 Stock
Option Plan, on March 25, 1998 PSC awarded Executive 37,500
restricted Common Shares of the Company, upon the terms and
conditions and subject to the restrictions set forth in the
Restricted Stock Award Agreement attached hereto as Exhibit A.
If Executive is then an officer of the Company, on each of
March 25, 1999 and March 25, 2000, PSC will award Executive
37,500 restricted Common Shares pursuant to a Restricted Stock
Award Agreement similar in form to Exhibit A, as modified to
reflect changes in dates and stock prices. Notwithstanding the
foregoing sentence, if there is a Change in Control (as
hereinafter defined), and if Executive becomes entitled to
receive Severance Benefits (as hereinafter defined), Executive
will be immediately entitled to receive the Common Shares
which otherwise would have been awarded to him on March 25,
1999 and/or on March 25, 2000, fully vested and free of any
and all restrictions."
66
<PAGE>
3. Except as modified by this First Amendment, the Employment Agreement
has not heretofore been amended or cancelled, and remains in full force and
effect.
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed as of the day and year first above written.
PSC Inc.
By: /s/ Robert S. Ehrlich
Robert S. Ehrlich
Chairman of the Board
/s/ Robert C. Strandberg
Robert C. Strandberg
67
- -
DATED 1998
PSC BAR CODE LIMITED
- and -
N P DAVIS ESQ
-------------------------------------
SERVICE AGREEMENT
-------------------------------------
Penningtons
Highfield
Brighton Road
Godalming
Surrey
GU7 1NS
68
<PAGE>
THIS AGREEMENT is made the day of ____________________ 1998
BETWEEN:
(1) PSC BAR CODE LIMITED (registered no 2668056) whose registered office is
at Peter House, St Peter's Square, Manchester M1 5BH("the Company"); and
(2) NIGEL PHILIP DAVIS of 95 Hungerford Drive, Maidenhead, Berkshire,
SL6 7UU ("the Executive").
WHEREAS, in order to enhance the 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. Interpretation
1.1 In this Agreement unless the context otherwise requires the following
expressions shall have the following meanings:
"associated company" the Holding Company and any subsidiary of the Holding
Company, any company the equity share capital of which (as defined in Section
744 of the Companies Act, 1985) is owned as to 50% or less but more than 25% by
such Holding Company or by any of its subsidiaries or by the Company or any of
its subsidiaries as the case may be and shall include any subsidiary of an
associated company;
the "Board" the directors of the Company from time to time present (in any
manner permitted by the Articles of Association of the Company) at a meeting of
the directors or of a committee of the directors duly convened and held;
"Change in Control" a Change in Control as defined in Clause 19.1 of this
Agreement;
69
<PAGE>
the "Employment" the employment of the Executive by the Company pursuant to
this Agreement;
"Good Reason" Good Reason as defined in Clause 19.2 of this Agreement;
the "Group" the Company and its subsidiaries and associated companies from
time to time (and the expression "Group Company" and "Group Companies" shall be
construed accordingly);
"Holding Company" PSC Inc and any other holding company of the company as
defined by Section 736 of the Companies Act 1985;
"Intellectual Property" letters patent trade marks service models design
rights applications for registration of any of the foregoing and the right to
apply for them in any part of the world inventions drawings computer programs
confidential information know-how and rights of like nature arising or
subsisting anywhere in the world in relation to all of the foregoing whether
registered or unregistered;
"Severance Benefits" cash and other benefits payable under Clause 18 of
this Agreement;
"Subsidiary" a subsidiary as defined by Section 736 of the Companies Act,
1985;
"Termination Date" the termination date of the Employment under this
Agreement howsoever terminated.
"Termination for Cause" termination of this appointment by the Company
pursuant to Clause 17.2 of this Agreement.
1.2 All references to a statutory provision shall be construed as including
references to any statutory modification, consolidation or re-enactment
(whether before or after the date of this Agreement) for the time being in
force.
2. Appointment and duration
2.1 The Company appoints the Executive and the Executive agrees to serve as
Vice President Europe, Middle East and Africa (VP EMEA).
70
<PAGE>
2.2 The appointment shall be deemed to have commenced on 12 May 1997 and shall
continue (subject to earlier termination as provided in this Agreement)
until terminated by the Company giving to the Executive not less than
twelve calendar months prior notice or by the Executive giving to the
Company not less than three calendar months prior notice. Provided that
this Agreement shall automatically terminate on the Executive's sixty fifth
birthday.
2.3 The Company may at its absolute discretion elect to terminate the
employment of the Executive with immediate effect by paying to the
Executive salary and other benefits under this Agreement in lieu of notice.
3. Duties of the Executive
During the Employment:
3.1 the Executive shall undertake and diligently pursue such duties in relation
to the Company as the Board shall from time to time entrust to him and
shall obey and observe all the lawful and reasonable resolutions of the
Board from time to time given or made and, shall devote the whole of his
time and attention during business hours (except holidays) to the discharge
of his duties hereunder and to the benefit of the Company and shall carry
out his duties in a loyal and efficient manner;
3.2 the Executive may be required in pursuance of his duties hereunder to serve
not only the Company but also any other Group Company;
3.3 the Executive shall promote the trade and business of the Company and the
Group to the best of his ability knowledge and power;
3.4 the Executive shall not willingly do anything to the prejudice of the
Company or any other Group Company or of the Group as a whole or any trade
or business in which the Company or any other Group Company may for the
time being be directly or indirectly interested;
3.5 if the Executive becomes aware of any facts, matters, circumstances or
information which may relate to or affect the Company or any other Group
Company or any trade or business in which the Company or any other Group
Company is for the time being interested he shall forthwith communicate the
same in writing to the Board giving full particulars of the matters of
which he is aware;
3.6 without prejudice to the generality of clause 3.5 if the Executive becomes
aware of any of the following:-
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(a) all matters relating to any misconduct, dishonesty
or other conduct on the part of employees or
directors of the Company or any other Group Company
which may be in breach of their contracts of
employment or may adversely affect the Company or
any one or more members of the Group; and/or
(b) any details relating to any secret process or
confidential information which is or may be relevant
to the business of the Company or any one or more
members of the Group;
then he shall immediately communicate the same to the Board;
3.7 the Executive shall at all times keep the Board promptly and fully informed
of the business and affairs of the Company and provide all such
explanations as the Board may require; and
3.8 the Executive shall not at any time make any untrue statement in relation
to the Company or any other Group Company and in addition shall not after
the termination of the Employment represent himself as being employed by or
connected with the Company or any other Group Company.
4. Place of work and residence
The Executive shall initially carry out his duties at Axis 3 Rhodes Way,
Watford, Herts WD2 4YW
5. Pay
5.1 During his appointment the Company shall pay to the Executive an annual
salary at the rate of (pound)110,000. Such salary shall accrue day-to-day
and be payable by equal monthly instalments in arrears. The salary shall be
deemed to include any fees receivable by the Executive as a Director of the
Company or any Group Company, or of any other company or unincorporated
body in which he holds office as nominee or representative of the Company
or any Group Company.
5.2 The Executive's salary shall be notified to the Executive by the Board
following adoption by the Board of the accounts of the Company for the
immediately preceding financial period and the rate of salary may be
increased by the Company with effect from 1 January in the succeeding year
by such amount if any as it shall think fit.
5.3 In addition the Executive shall be entitled to participate in the Company's
Business Incentive Scheme under which the Executive may be entitled to be
paid monthly incentive payments of such amounts (if any) and subject to
such conditions as the Board may in its absolute discretion decide.
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6. Medical Insurance and Life Assurance
6.1 The Company shall so long as the Executive is employed by the Company
contribute to a life assurance policy on the life of the Executive for the
benefit of the Executive. The Executive agrees to submit to such physical
examinations as may be required from time to time by assurers or
prospective assurers in connection with such policy. The Company agrees to
pay any costs or expenses that may be payable in connection with such
physical examination.
6.2 The Executive shall be entitled to participate at the Company's expense in
the Company's long term disability insurance scheme and for himself his
wife and dependent children in the Company's private medical expenses
insurance scheme (or schemes).
6.3 In the event of the Executive (or, where relevant, members of his family)
not being acceptable to the relevant insurers referred to in Clause 6.1 or
6.2 at standard rates of premium, the Executive agrees to reimburse to the
Company forthwith on demand the amount of any excess over such standard
rates.
7. Expenses
7.1 The Company shall reimburse to the Executive on a monthly basis all
travelling, hotel, entertainment and other expenditure reasonably incurred
by him in the proper performance of his duties subject to the production to
the Company of such vouchers or other evidence of actual payment of the
expenses as the Company may reasonably require.
7.2 Where the Company issues a company sponsored credit or charge card to the
Executive he shall use such card only for expenditure reimbursable under
clause 7.1 above, and shall return it to the Company forthwith on the
termination of his employment.
7.3 The Company shall reimburse the Executive all home and mobile telephone and
facsimile bills to the extent that the same are properly incurred by him in
the course of the Employment and are supported by evidence of payment.
8. Pension
8.1 The Executive is eligible to join the PSC BCL Group Personal Pension Scheme
subject to the terms of its Rules from time to time.
8.2 A contracting out certificate under the Social Security Pensions Act 1975
is not in force in respect of the Executive's employment.
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9. Car
9.1 Subject to the Executive holding a current full driving licence, the
Company shall provide the Executive with a car of such make and model as
the Board shall decide for his sole business and private use in respect of
which the Company shall pay or reimburse the Executive all standing and
running costs (including petrol, insurance, tax, servicing and repairs but
excluding the cost of petrol consumed during holiday periods).
9.2 The Executive shall always comply with all regulations laid down by the
Company from time to time with respect to company cars, shall forthwith
notify the Company of any accidents involving his company car and, on
termination of his appointment whether lawfully or unlawfully, shall
forthwith return the car and its keys to the Company.
9.3 The Executive shall not permit such car to be taken out of the United
Kingdom without the written consent of the Finance Director.
10. Holiday
10.1 In addition to English public holidays the Executive is entitled to 25
working days paid holiday in each holiday year from 1 January to 31
December to be taken at such time or times as are agreed with the Board.
The Executive shall not carry forward any unused part of his holiday
entitlement to a subsequent year.
10.2 For the year during which his appointment commences or terminates, the
Executive is entitled to 2.08 working days holiday for each complete
calendar month of his employment by the Company during that year. On the
termination of his appointment for whatever reason, the Executive shall be
entitled to pay in lieu of outstanding holiday entitlement and shall be
required to repay to the Company any salary received for holiday taken in
excess of his actual entitlement. The basis for payment and repayment shall
be 1/253 x of the Executive's annual basic salary for each day.
11. Incapacity
11.1 If the Executive is absent because of sickness (including mental disorder)
or injury he shall report this fact forthwith to the Company Secretary's
office and if the Executive is so prevented for seven or more consecutive
days he shall provide a medical practitioner's statement on the eighth day
and weekly thereafter so that the whole period of absence is certified by
such statements. Immediately following his return to work after a period of
absence the Executive shall complete a Self-Certification form available
from the Company Secretary's office detailing the reason for his absence.
11.2 If the Executive shall be absent due to sickness (including mental
disorder) or injury duly certified in accordance with the provisions of
sub-clause 11.1 hereof, he shall be paid his full remuneration hereunder
for up to 30 working days' absence in any period of 12 consecutive months
and thereafter such remuneration, if any, as the Board shall from time to
time determine provided that such remuneration shall be inclusive of any
Statutory Sick Pay to which the Executive is entitled under the provisions
of the Social Security and Housing Benefits Act 1982 and any Social
Security Sickness Benefit or other benefits recoverable by the Executive
(whether or not recovered) may be deducted therefrom.
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11.3 For Statutory Sick Pay purposes the Executive's qualifying days shall be
his normal working days.
11.4 At any time during the period of his appointment, (but not normally more
often than every second year), the Executive shall at the request and
expense of the Company permit himself to be examined by a registered
medical practitioner to be selected by the Company and shall authorise such
medical practitioner to disclose to and discuss with the Company's medical
adviser the results of such examination and any matters which arise from it
in order that the Company's medical adviser can notify the Company of any
matters which, in his opinion, might hinder or prevent the Executive (if
during a period of incapacity) from returning to work for any period or (in
other circumstances) from properly performing any duties of his appointment
at any time.
12. Non-disclosure and Non-use of Confidential Information
The Executive acknowledges that the Executive's work as an employee of the
Company has exposed the Executive to Confidential Information of the
Company and of Group Companies and that the Executive's continuing service
to the Company may expose him to additional Confidential Information.
"Confidential Information" includes, but is not limited to, matters which
are 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, inventions, computer programs
and similar items;
b) of a business nature, such as, but not limited to, information
about sales or lists or customers, prices, costs, purchasing,
profits, markets, strengths and weaknesses of products, business
processes, business and marketing plans and activities and
employee and personnel records;
c) pertaining to future developments, such as, but not limited to,
research and development, future marketing or merchandising plans
or ideas.
The Executive agrees that during the period of the Employment and for
five years thereafter, the Executive will not, directly or indirectly,
except to the extent required by law: (1) reveal, divulge, make known,
sell, exchange, give away or otherwise dispose of, to any person, firm or
company any Confidential Information of the Company or any Group Company
or its or their business, whether the same shall or may have been
designed, developed or originated by the Executive or otherwise; or (2)
reveal, divulge or make known to any person, firm or company, the name of
any customers of the Company or any Group Company. This obligation shall
not apply to information which (i) is acquired from a third party who, to
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the best of the Executive's knowledge, is not in default of any
obligation to the Company or any Group Company in disclosing such
information or (ii) is already in the public domain or known to the
Company's competitors or the public generally or that becomes available
to the public generally or the Company's competitors other than as a
result of the Executive's breach of this Agreement. All records (whether
in hard copy or digital form), books and computer discs relating in any
manner whatsoever to the Company or any Group Company shall be the
exclusive property of the Company or such Group Company regardless of who
actually prepared the original record or book. The Executive shall not
copy or cause to have copied any such records and books except in the
ordinary course of business. All such records and books shall be
immediately returned to the Company by the Executive on the Termination
Date.
13. Intellectual property
13.1 The Executive shall forthwith communicate to the Company in confidence all
Intellectual Property which the Executive may make or originate either
solely or jointly with another or others during the Employment.
13.2 In the case of such Intellectual Property as is made or originated
hereunder wholly or substantially in the course of his normal duties or in
the course of duties specifically assigned to him and which relate to the
affairs of the Company or any Group Company the following subclauses of
this clause shall apply.
13.3 Such Intellectual Property (or in the case of Intellectual Property made or
originated by the Executive jointly with another or others to the full
extent of the Executive's interest therein so far as the law allows) shall
be and become the exclusive property of the Company and shall not be
disclosed to any other person, firm or company without the consent of the
Company being previously obtained which if given may be subject to
conditions.
13.4 The Executive shall if and when required by the Company and at the expense
of the Company do and/or combine with others in doing all acts and sign and
execute all applications and other documents (including Powers of Attorney
in favour of nominees of the Company) necessary or incidental to obtaining
maintaining or extending patent or other forms of protection for such
Intellectual Property in the UK and in any other part of the world or for
transferring to or vesting in the Company or its nominees the Executive's
entire right title and interest to and in such Intellectual Property or to
and in any application, patent or other form of protection or copyright as
the case may be including the right to file applications in the name of the
Company or its nominees for patent or other forms of protection or for
registration of copyright in any country claiming priority from the date of
filing of any application or other date from which priority may run in any
other country.
13.5 The provisions of this clause shall remain in full force and effect
notwithstanding that after the Executive has made or originated any such
Intellectual Property the Employment may have ceased or been determined for
any reason whatsoever with the intention that the same shall bind the heirs
of and/or assigns of the Executive.
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14. Restrictions on the Executive
During the Employment the Executive shall not without the written consent
of the Board (and other than in relation to a Group Company or the
Company's holding company) directly or indirectly be engaged, concerned or
interested in any other business either alone or jointly with or as
director, manager, agent or servant of any other person, firm or company
and whether inside or outside his usual hours of work.
15. Non-competition/Non-solicitation
15.1 In light of the special and unique services that have been and will be
furnished to the Company by the Executive and the Confidential Information
that has been and will be disclosed to the Executive during the Executive's
relationship with the Company, and in consideration of the Company's
undertaking to make the severance payments and benefits pursuant to Clause
19.1 below the Executive agrees that during the period the Executive is
employed by the Company and during the period the Executive is receiving
those severance payments and benefits (the "Non-Competition Period"), the
Executive will not, without the written consent of the Company, directly or
indirectly, whether as principal, agent, officer, director, consultant,
employee, partner, stockholder or owner of or in any capacity with any
company, partnership, business, firm, individual, or any entity located any
where in the world engage in, or assist another to engage in, any work or
activity in any way competitive with the Business of the Company (as
hereinafter defined). However, nothing herein shall prevent the Executive
from owning not more than five percent (5%) of the equity share capital of
any company as to which company the Executive has no relationship other
than as a shareholder. In addition, during the Non-Competition Period, the
Executive will not, directly or indirectly (a) induce or attempt to induce
any officer or employee of the Company or any Group Company to leave the
employment of the Company or any Group Company , or in any way interfere
with the relationship between the Company or any Group Company and any
officer, employee, director or shareholder thereof, or (b) hire directly or
through another entity any person who is an employee of the Company or any
Group Company on the date of termination of employment of the Executive, or
(c) induce or attempt to induce any customer, dealer, supplier or licensee
to cease doing business with the Company or any Group Company, or in any
way interfere with the relationship between any such customer, dealer,
supplier or licensee and the Company or any Group Company .
15.2 The Executive specifically agrees that because of his special expertise and
the special and unique services that the Executive has been and will be
furnishing the Company, and because of the Confidential Information that
has been acquired by the Executive or will be disclosed to the Executive
during the Executive's employment, the above stated geographic areas and
time period, in and during which the Executive will not compete with the
Company, are reasonable in scope and duration and are necessary to afford
the Company just and adequate protection against the irreparable damage
which would result to the Company from any activities prohibited by this
Clause.
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15.3 If the Executive in any way breaches the obligations specified in this
Clause, the Company shall have the right, in addition to any other remedies
available to it, to terminate the further payment of any amounts due under
Clause 18 hereof.
15.4 For purposes of this Agreement, the "Business of the Company" 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 and electronic interchange of bar coded or related data.
The Business of the Company shall also include any business in which the
Company or any Group Company is actually engaged or as to which it is doing
research and development during the Employment.
16. Delivery of documents and property
The Executive shall upon request at any time and in any event upon the
termination of the Executive's employment immediately deliver up to the
Company or its authorised representative all keys, security passes, credit
cards, plans, statistics, documents, records, papers, magnetic disks, tapes
or other software storage media and all property of whatsoever nature which
may be in his possession or control or relate in any way to the business
affairs of the Company and any Group Company and the Executive shall not,
without the written consent of the Company, retain any copies thereof.
17. Termination of Agreement
17.1 Automatic termination
This Agreement shall automatically terminate:
(i) on the Executive reaching his 65th birthday; or
(ii) if he resigns his office.
17.2 Immediate dismissal
The Company may by notice terminate this Agreement with immediate effect if
the Executive:
(i) has failed or refused to perform such services as may reasonably be
delegated or assigned to him by the Board; or
(ii) if the Executive becomes prohibited by law from being a director; or
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(iii)commits any act of gross misconduct or repeats or continues (after written
warning) any other serious breach of his obligations under this Agreement;
or
(iv) is guilty of any conduct which in the reasonable opinion of the Board
brings him, the Company or any Group Company into serious disrepute; or
(v) if the office of director of the Company held by the Executive is vacated
pursuant to the Company's Articles of Association; or
(vi) is convicted of any criminal offence (excluding an offence under road
traffic legislation in the United Kingdom or elsewhere); or
(vii)commits any act of dishonesty whether relating to the Company, any Group
Company, any of its or their employees or otherwise; or
(viii) becomes bankrupt or makes any arrangement or composition with his
creditors generally; or
(ix) is in the reasonable opinion of the Board incompetent in the performance of
his duties;
provided that in the case of paragraphs (ii), (v), (vi) and (viii) of this
Clause 17.2 the Company may only terminate this Agreement with immediate
effect if the Board in its absolute discretion reasonably believes that as
a consequence of any such event the Executive would no longer be able to
perform his duties under this Agreement.
17.3 Dismissal on short notice
The Company may terminate this Agreement notwithstanding clause 11.2 by not
less than 3 months' prior notice given at any time while the Executive is
incapacitated by ill-health or accident from performing his duties under
this Agreement and has been so incapacitated for a period or periods
aggregating 180 days in the preceding 12 months
17.4 Notice
If notice is served by either the Executive or the Company to terminate the
Employment the Company shall at any time thereafter be entitled to require
the Executive either:
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(i) to work such notice (or the remainder thereof); or
(ii) not to enter the premises of the Company or any Group Company during the
applicable notice period except by prior appointment with the Chairman of
the Board nor to contact or communicate with customers/clients, prospective
clients, suppliers, distributors, agents, employees or independent
contractors of the Company or of any Group Company without the prior
approval of the Chairman of the Board;
and in the latter case the Executive will continue to be paid his salary
(at the rate then current) for the unexpired portion of the duration of the
Employment or entitlement to notice as the case may be.
17.5 Miscellaneous
At any time at the request of the Company and in any event on the
termination of this Agreement for whatever reason, the Executive shall
resign from all and any offices which he may hold as a Director of the
Company or of any Group Company and from all other appointments or offices
which he holds as nominee or representative of the Company or any Group
Company and if he should fail to do so within seven days the Company is
hereby irrevocably authorised to appoint some person in his name and on his
behalf to sign any documents or do any things necessary or requisite to
effect such resignation(s) and/or transfer(s).
18. Severance Payment
18.1 Termination of Employment - In General
In the event of the termination of the Employment by the Company for any
reason other than Termination for Cause, death, disability or a Change in
Control, the Company will continue to pay the Executive for a period of one
year following the Termination Date an amount equal to the aggregate of:-
(x) the Executive's salary at the annual rate in effect on the Termination
Date; and
(y) the highest annual incentive payments paid to the Executive under the
Company's current Business Incentive Scheme or any successor scheme in the
three full financial years preceding the Termination Date,; and
(z) an amount equal to the annual cost to the Company of providing a company
car for the Executive;
Provided that the Company may in its absolute discretion choose to continue
to provide the Executive with a car for a period of one year after the
Termination Date on the terms contained in Clause 9 above in which case the
amount in (z) above shall not be included in the above calculation. Such
amount shall be payable monthly. In addition, the Company will provide the
Executive with the Executive's then current medical expenses insurance,
long term disability insurance and life assurance benefits for a period of
one year following the Termination Date. In the event of the Executive's
death while receiving severance payments hereunder, all remaining severance
instalment payments otherwise payable to the Executive hereunder will be
paid in the same amounts and in the same manner to the Executive's personal
representatives. All payments made to the Executive hereunder will be
subject to all applicable employment and withholding taxes.
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18.2 Termination of Employment - Change in Control
In the event of the termination of the Employment within the two year
period following a Change in Control, and such termination is (i) by the
Company for any reason other than Termination for Cause, death or
disability, or (ii) by the Executive for "Good Reason", the Company will
pay the Executive a total amount equal to the aggregate of:-
(x) an amount equal to the Executive's salary at the annual rate in effect on
the Termination Date multiplied by 2.9; and
(y) an amount equal to the highest annual incentive payments paid to the
Executive under the Company's current Business Incentive Scheme or any
successor scheme in the three full financial years preceding the
Termination Date multiplied by 2.9; and
(z) an amount equal to the annual cost to the Company of providing a company
car for the Executive;
Provided that the Company may in its absolute discretion choose to continue
to provide the Executive with a car for a period of one year after the
Termination Date on the terms contained in Clause 9 above in which the
amount in (z) above shall not be included in the above calculation.
Payments of such total amount will be made by equal monthly instalments
over a period of three years following the Termination Date. In addition,
the Executive will be entitled to exercise any share options granted to him
by the Company or any Group Company notwithstanding that the contractual
date for the exercise of such share options may not have been reached and
the Company will continue to provide the Executive with the Executive's
then current medical expenses insurance, long term disability insurance and
life assurance benefits for a period of three years. All payments made to
the Executive hereunder will be subject to all applicable employment and
withholding taxes.
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18.3 Limitations
Notwithstanding anything in this Agreement to the contrary, the maximum
amount of cash and other benefits payable under this Clause 18 shall
include all compensation to which the Executive may be entitled in the
event of his successfully claiming unfair dismissal and shall also include
all damages to which the Executive may be entitled in the event of his
successfully claiming that the Employment has been wrongfully terminated
and shall include all redundancy payments to which he may be entitled in
the event of his redundancy.
19. Certain Additional Definitions
19.1 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 US Securities Exchange Act of 1934, other than the Holding 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 Holding Company; or (ii) on the date
on which one third or more of the members of the Board of Directors of the
Holding Company shall consist of persons other than Current Directors (for
these purposes, "Current Director" shall mean any member of the Board of
Directors of the Holding Company elected at or continuing in office after,
the 1997 Annual Meeting of Shareholders of the Holding Company, any
successor of a Current Director who has been approved by a majority of the
Current Directors then on the Board of the Holding Company, and any other
person who has been approved by a majority of the Current Directors then on
the Board of the Holding Company); or (iii) on the date of approval of (x)
the merger or consolidation of the Holding Company with another corporation
where the shareholders of the Holding 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 Holding 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 Holding Company.
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19.2 Good Reason
Good Reason shall mean the occurrence or existence of any of the following
with respect to the Executive: (i) the Executive's annual rate of salary is
reduced from the annual rate then currently in effect or the 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) the Executive is
assigned duties that are demeaning or are otherwise materially inconsistent
with the duties then currently performed by the Executive, or (iii) the
Executive's place of work is moved more than 25 miles from its then current
location. Before the Executive may terminate the Employment for Good
Reason, he must notify the Company in writing of his intention to terminate
and the Company shall have 15 days after receiving such written notice to
remedy the situation, if possible.
20. General
20.1 Other terms
The provisions of the Company's standard terms and conditions of employment
(as amended from time to time) shall be terms of the Executive's employment
except to the extent that they are inconsistent with this Agreement.
20.2 Statutory particulars
The further particulars of terms of employment not contained in the body of
this Agreement which must be given to the Executive in compliance with Part
1 of the Employment Protection (Consolidation) Act 1978 are given in the
Schedule.
20.3 Prior agreements
This Agreement is in substitution for any previous contracts of employment
or for services between the Company or any of its Group Companies and the
Executive (which shall be deemed to have been terminated by mutual
consent).
20.4 Accrued rights
The expiration or termination of this Agreement however arising shall not
operate to affect such of the provisions of this Agreement as are expressed
to operate or have effect after then and shall be without prejudice to any
accrued rights or remedies of the parties.
20.5 Proper law
The validity construction and performance of this Agreement shall be
governed by and construed under English law and each of the parties hereto
submits to the non-exclusive jurisdiction of the English Courts as regards
any claim or matter arising under this Agreement.
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20.6 Benefit of Obligations
The Company hereby declares itself trustee of the obligations and covenants
given in this Agreement by the Executive insofar as they are expressed to
be for the benefit of any Group Company and holds the said obligations and
covenants insofar as they are expressed to be for the benefit of any such
company upon trust for the absolute benefit of such company and the
Executive hereby covenants with the Company in its capacity as such trustee
to observe and perform each of the said obligations and covenants.
20.7 Notices
Any notice to be given hereunder shall be served in the case of a notice to
be served on the Executive by being delivered either personally to him or
sent by prepaid first class post addressed to him at his usual or last
known place of abode or, in the case of a notice to be served on the
Company, be delivered at or sent by prepaid first class post to its
registered office for the time being and any such notice so posted shall be
deemed served on the second day following that on which it was posted.
AS WITNESS the hands of the parties hereto the day and year first above written.
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SCHEDULE
Part 1 Employment Protection (Consolidation) Act 1978
The following information is given to supplement the information given in the
body of the Agreement in order to comply with the requirements of Part 1 of the
Act.
1. The Executive's employment by the Company commenced on the date of
this Agreement.
2. The Executive's period of continuous employment with the Company began
on 12 May 1997.
3. The Executive's hours of work are the normal hours of the Company from 9
am to 5.30 pm Monday to Friday each week together with such additional
hours as may be necessary so as properly to fulfil his duties.
4. The Executive is subject to the Company's Disciplinary Rules and
Disciplinary Procedures copies of which have been given to the
Executive, but has no contractual entitlement in those respects.
5. If the Executive has any grievance relating to his employment (other
than one relating to a disciplinary decision) he should refer such
grievance to the Chairman of the Board and if the grievance is not
resolved by discussion with him it will be referred to the Board for
resolution.
SIGNED by )
on behalf of PSC BAR CODE LIMITED )
in the presence of:- )
Witness:
Address:
Occupation:
SIGNED by NIGEL PHILIP )
DAVIS in the presence of:- )
Witness:
Address:
Occupation:
EXHIBIT 22.1
SUBSIDIARIES OF REGISTRANT
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)
PSC Automation, Inc. (100% owned by the Company
and incorporated in Florida)
Instaread Corporation (100% owned by PSC Automation, Inc.
and incorporated in Florida)
PSC Scanning, Inc. (100% owned by the Company
and incorporated in Delaware)
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 SRL. (100% owned by the Company
and incorporated in Italy)
PSC Japan K.K (100% owned by the Company
and incorporated in Japan)
PSC Belgium, Inc. (100% owned by the Company
and incorporated in Delaware)
PSC Scandinavia AB (100% owned by PSC Bar Code Ltd.
and incorporated in Sweden)
Spectra Scan Pty. Ltd. (100% owned by PSC Scanning, Inc.
and incorporated in Australia)
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, 333-69789 and 333-69791, and on Form S-3
File Nos. 33-31409, 33-44769, 33-89178, 333-13859 and 333-34715.
/s/ Arthur Andersen LLP
Rochester, New York,
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule 1998
</LEGEND>
<CIK> 319379
<NAME> PSC Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 6,180
<SECURITIES> 0
<RECEIVABLES> 37,121
<ALLOWANCES> 1,492
<INVENTORY> 17,250
<CURRENT-ASSETS> 63,497
<PP&E> 35,397
<DEPRECIATION> 18,639
<TOTAL-ASSETS> 171,263
<CURRENT-LIABILITIES> 46,670
<BONDS> 0
0
1
<COMMON> 119
<OTHER-SE> 44,079
<TOTAL-LIABILITY-AND-EQUITY> 171,263
<SALES> 217,223
<TOTAL-REVENUES> 217,223
<CGS> 126,350
<TOTAL-COSTS> 64,556
<OTHER-EXPENSES> (175)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,246
<INCOME-PRETAX> 16,484
<INCOME-TAX> 5,968
<INCOME-CONTINUING> 10,516
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,516
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.75
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