UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of he
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) - January 19, 2000
PSC Inc.
(Exact name of Registrant as Specified in its Charter)
New York
(State or other jurisdiction of Incorporation)
0-9919 16-0969362
(Commission File Number) (IRS Employer Identification No.)
675 Basket Road, Webster, New York 14580
(Address of Principal Executive Offices)
(716) 265-1600
Registrant's Telephone Number, including Area Code
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired:
See enclosed Percon Incorporated Financial Statements as of
December 31, 1998 and for the year then ended.
See enclosed unaudited Percon Incorporated Financial
Statements as of September 30, 1999 and for the period then
ended.
(b) Pro forma financial information:
See enclosed Pro Forma Condensed Combined Financial Data
(Unaudited).
(c) Exhibits:
Consent of KPMG LLP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PSC Inc
(Registrant)
Date: April 3, 2000 By:/s/ William J. Woodard
---------------------------------
William J. Woodard
Vice President, Chief Financial
Officer & Treasurer
<PAGE>
Percon Incorporated
Index to Financial Statements
Page
------
Independent Auditor's Report 4
Consolidated Balance Sheet as of December 31, 1998 5
Consolidated Statement of Income for the year ended
December 31, 1998 6
Consolidated Statement of Changes in Shareholders' Equity
for the year ended December 31, 1998 7
Consolidated Statement of Cash Flows for the year ended
December 31, 1998 8
Notes to Consolidated Financial Statements as
of December 31, 1998 9-23
Condensed Consolidated Balance Sheet as of
September 30, 1999 24
Condensed Consolidated Statement of Income for the nine
months ended September 30, 1999 (unaudited) 25
Condensed Consolidated Statement of Cash Flows for the
nine months ended September 30, 1999 (unaudited) 26
Notes to Condensed Consolidated Financial Statements
as of September 30, 1999 27-29
<PAGE>
Independent Auditor's Report
To Board of Directors
Percon Incorporated:
We have audited the accompanying consolidated balance sheet of Percon
Incorporated and subsidiaries as of December 31, 1998, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
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 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Percon
Incorporated as of December 31, 1998, and the results of their operations and
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Portland, OR
January 27, 1999
<PAGE>
Percon Incorporated
Consolidated Balance Sheet
December 31, 1998
1998
-------------
Assets
Current assets:
Cash and cash equivalents $ 4,534,485
Accounts receivable, net 6,793,447
Inventories, net 3,742,215
Prepaid expenses and other 859,533
Deferred income tax asset 276,100
------------
Total current assets 16,205,780
Property and equipment, net 2,758,083
Goodwill and intangibles, net 1,438,989
------------
Total assets $ 20,402,852
============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 104,557
Accounts payable 1,644,306
Accrued expenses 1,123,611
Deferred revenue 115,930
Income taxes payable 231,912
------------
Total current liabilities 3,220,316
Deferred income taxes 467,600
Long-term debt, less current portion 702,852
Other liabilities 19,614
------------
Total liabilities 4,410,382
------------
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized, --
none issued
Common stock, no par value, 20,000,000 shares authorized,
3,918,781 shares issued and outstanding 9,319,116
Treasury stock, at cost, 94,400 shares (596,885)
Retained earnings 7,471,259
Accumulated other comprehensive income (201,020)
------------
Total shareholders' equity 15,992,470
------------
Total liabilities and shareholders' equity $ 20,402,852
============
The accompanying notes are an integral part of this consolidated financial
statement.
<PAGE>
Percon Incorporated
Consolidated Statement of Income
For the Year Ended December 31, 1998
1998
- -------------------------------------------------------------------------------
Net sales $31,070,940
Cost of goods sold 16,311,670
- -------------------------------------------------------------------------------
Gross profit 14,759,270
Operating expenses:
Selling, marketing and customer service 5,865,714
General and administrative 2,967,679
Research and product development 1,688,385
- -------------------------------------------------------------------------------
Operating income 4,237,492
Interest income (expense), net 109,216
- -------------------------------------------------------------------------------
Income before taxes 4,346,708
Provision for income taxes 1,631,500
- -------------------------------------------------------------------------------
Net income $2,715,208
- -------------------------------------------------------------------------------
Net income per share:
Basic $0.68
- ---------------------------------------------------------- -------------------
Diluted $0.67
- ---------------------------------------------------------- -------------------
Weighted average shares outstanding:
Basic 3,999,975
Effect of dilutive securities:
Warrants 15,215
Options 25,799
- ---------------------------------------------------------- -------------------
Diluted 4,040,989
- ---------------------------------------------------------- -------------------
The accompanying notes are an integral part of this consolidated financial
statement.
<PAGE>
<TABLE>
Percon Incorporated
Consolidated Statement of Changes in Shareholders' Equity
For the Year Ended December 31, 1998
<CAPTION>
Accumulated
Other Other
Comprehensive Common Treasury Comprehensive Retained
Income Shares Stock Stock Income Earnings Total
---------------- ----------- ------------ ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 3,976,061 $9,002,585 $ 0 $ (435,065) $4,756,051 $13,323,571
Net Income $2,715,208 2,715,208 2,715,208
Comprehensive Income
Other comprehensive
income, net of tax
Foreign currency
translation adjustment 234,045 234,045 234,045
-----------
Other comprehensive income $2,949,253
-----------
Proceeds from exercise of 37,120 260,031 260,031
stock options
Income tax benefits from
stock options exercised 56,500 56,500
Repurchase of common stock (94,400) (596,885) (596,885)
----------- ----------- ----------- ----------- ------------- ----------- -------------
Balance, December 31, 1998 3,918,781 $9,319,116 $ (596,885) $ (201,020) $7,471,259 $15,992,470
=========== =========== =========== =========== ============= =========== =============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
<PAGE>
Percon Incorporated
Consolidated Statements of Cash Flows
For the Year Ended December 31, 1998
1998
-----------
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Net Income ............................................... $ 2,715,208
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization ....................... 1,189,392
Deferred income taxes ............................... (83,248)
Change in operating assets and liabilities
Accounts receivable ................................. (594,405)
Inventories ......................................... 754,707
Prepaid expenses and other .......................... (358,124)
Accounts payable and accrued expenses ............... 387,317
Income taxes payable ................................ 25,367
-----------
Net cash provided by operating activities ................ 4,036,214
-----------
Cash flows from investing activities:
Capital expenditures ..................................... (1,301,672)
-----------
Net cash used in investing activities .................... (1,301,672)
-----------
Cash flows from financing activities:
Principal paid on long-term debt ......................... (51,701)
Proceeds from stock issued ............................... 316,531
Cash used for purchase of treasury stock ................. (596,885)
-----------
Net cash used in financing activities .................... (332,055)
-----------
Effect of exchange rate changes on cash ...................... 248,242
-----------
Net increase in cash and cash equivalents .................... 2,650,729
Cash and cash equivalents at beginning of period ............. 1,883,756
-----------
Cash and cash equivalents at end of period ................... $ 4,534,485
===========
Supplemental disclosure:
Interest paid ............................................ $ 82,987
Taxes paid ............................................... $ 1,639,216
The accompanying notes are an integral part of this consolidated financial
statement.
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
1. Summary of Significant Accounting Policies:
Organization: Percon Incorporated (the "Company") develops, manufactures, and
markets data collection hardware and data management software products,
including batch and radio frequency ("RF") portable data terminals, fixed
station and integrated decoders, hand-held laser scanners, and application
software for the automatic identification and data collection market. The
Company also markets bar code input devices manufactured by others for use with
the Company's fixed-station decoders and portable data terminals.
Principles of Consolidation: The consolidated financial statements include the
accounts of Percon Incorporated, its wholly owned subsidiary Percon Europe S.A.,
and its foreign sales corporation. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash and Cash Equivalents: All highly liquid investments purchased with a
remaining maturity of three months or less at the date acquired are cash
equivalents. These investments, consisting of money market funds, are stated at
cost, which approximates market.
Inventories: Inventories are stated at the lower of cost (methods which
approximate the first-in, first-out method) or market. Inventory costs include
materials, labor, and overhead. The Company increased inventory reserves to
account for slow moving and obsolete products by $262,005 in 1998.
Property and Equipment: Property and equipment, including significant
improvements thereto, are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred. The cost of equipment is
depreciated on the straight-line method over their estimated useful lives
(generally three to seven years). Gains or losses realized on assets retired or
disposed of are included in current income. Tooling costs are capitalized and
amortized over the lesser of the estimated useful life of the tool or the
product life (generally two to five years).
Continued,
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
Summary of Significant Accounting Policies, Continued:
Building on Land Leased from Others: A building owned by Percon Europe S.A. is
on leased land. The Company does not have an option to purchase the land or
extend the lease, and ownership of the building passes to the landowner at the
end of the lease term in December 2010. Accordingly, the cost of the building is
being amortized over the 16-year term of the lease.
Goodwill and Intangibles: Goodwill resulting from business acquisitions (the
excess cost of acquired subsidiaries over the fair value of net assets acquired)
is amortized using the straight-line method over seven years, the current
estimated useful life.
Intangibles include the cost of internally developed software, purchased product
software, technologies acquired in connection with business combinations, and
certain noncompete agreements. Software costs related to software developed for
sale are capitalized where economic and technological feasibility has been
established and for qualifying purchased products software. Amortization of
capitalized software cost, which is included in cost of goods sold, is provided
on a product-by-product basis on the greater of (a) the ratio the current gross
revenues for a product bears to the total of current and anticipated future
gross revenues for that product, or (b) the straight-line method over the
remaining estimated economic life of the product, including the period being
reported. The amortization period for these products match the products
estimated useful life, generally from two to five years. Amortization of
capitalized technology cost, which is included in cost of goods sold, is
provided on the straight-line method over the estimated economic life of the
technologies (two to five years). It is reasonably possible that those estimates
of anticipated future gross revenues, the remaining estimated economic life of
the products, or both, may be reduced significantly due to competitive pressures
or other factors.
When factors indicate intangibles should be evaluated for possible impairment,
management uses an estimate of the related asset's undiscounted cash flow over
its remaining life in measuring whether the carrying amount of goodwill is
impaired.
Continued,
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
Summary of Significant Accounting Policies, Continued:
Stock Options: Statement of Financial Accounting Standards No. 123 (SFAS No.
123), "Accounting for Stock-Based Compensation", encourages, but does not
require, the recording of compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation under the provisions of Accounting Principles
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations.
Revenue Recognition: Revenue from product sales to customers is generally
recognized upon shipment. In conjunction with these sales, service maintenance
or extended warranty agreements are sold for certain products. When such revenue
is recorded prior to providing these services, it is deferred and recognized
over the term of the related agreement. All products have a warranty generally
for one to five years from date of sale covering product defects. Sales
agreements provide for a basic 30-day right of return. The Company provides for
estimated costs of warranty and returns when products are shipped.
Sales and Concentration of Credit Risk: Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally of
accounts receivable. The Company's accounts receivable are primarily with a
small number of distributors, value-added resellers, and system integrators,
principally in the United States and Europe. The Company believes any risk of
loss is significantly reduced by its ongoing credit evaluations of its
customers, diversity of its end users, and geographical sales area.
The Company considers current and historical loss experience and general
economic conditions in determining the allowance for uncollectible accounts
receivable. The Company also holds in reserve amounts associated with the sale
of demonstration and evaluation equipment, and basic 30-day rights of return.
The total of these reserves was approximately $134,000 as of December 31, 1998.
These reserves increased by approximately $33,000 in 1998. Ultimate losses may
vary from the current estimates, and any adjustments are reported in earnings in
the periods in which they become known.
Continued,
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
Summary of Significant Accounting Policies, Continued:
Research and Development: Research and development costs are charged to expense
as incurred.
Income taxes: The Company records deferred income tax assets and liabilities
based upon the differences between the financial statements and income tax bases
of assets and liabilities using enacted income tax rates. Valuation allowances
are established when necessary to reduce deferred income tax assets to the
amount more likely than not to be realized. Income tax expense is the tax
payable for the period and the tax effect of the change during the period in net
deferred tax assets and liabilities.
Earnings Per Share: Basic earnings per share are computed by dividing net income
by the weighted average number of shares outstanding for the period. Diluted
earnings per share include the assumed dilution, using the treasury stock
method, which would occur if warrants and options to purchase common stock were
exercised.
Foreign Currency Translation: Assets and liabilities are translated at the rate
of exchange in effect as of the balance sheet date. The gains and losses that
result from this process are shown as accumulated other comprehensive income in
the shareholders' equity section of the balance sheet. Operating transactions
are translated at weighted average rates during the period. Transaction gains
and losses are reflected in net income.
Continued,
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
Estimates and Industry Factors:
Estimates - 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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Technology - The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards, and changing customer needs.
The Company believes that its future success will depend, in part, upon its
ability to enhance its current products, to develop new products and systems on
a timely and cost-effective basis, and to respond to changing customer needs and
technological developments. A substantial portion of the Company's revenues is
derived from sales of portable data terminals, fixed-station and integrated
decoders, hand-held laser scanners, and related software products. A decline in
the demand for these products, whether as a result of competition, technological
change or other factors, or a decrease in their prices could have a material
adverse effect on the Company's financial condition and results of operations.
Intellectual Property -The nature of the industry is characterized by
substantial litigation regarding patent and other intellectual property rights.
Although the Company is not involved in any such litigation, there is no
assurance that future claims will not be brought against the Company. Any such
litigation could result in significant costs and changes in the Company's
products.
Dependence on Suppliers - The Company is dependent on several suppliers for
components and subassemblies. Certain of these components and subassemblies are
obtained from a single supplier or a limited number of suppliers. The Company
has no material long-term contracts with suppliers of components or
subassemblies. Component or subassembly shortages, production delays or work
stoppages experienced by these suppliers or any other circumstances resulting in
the failure of any of these suppliers to supply the Company could have a
material adverse effect on the Company's financial condition and results of
operations. Although to date the Company has not experienced significant
restrictions in the supply of components and subassemblies, there is no
assurance that supply restrictions will not occur in the future.
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
Financial Accounting Standards Board (FASB): The FASB has issued certain
accounting pronouncements that the Company has adopted:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") which establishes requirements for disclosure of comprehensive income. The
objective of SFAS 130 is to report all changes in equity that result from
transactions and economic events other than transactions with owners.
Comprehensive income is the total of net income and all other non-owner changes
in equity. The Company has adopted SFAS 130 in 1998 and retroactively
reclassified previous financial statements for comparative purposes.
During the year ended December 31, 1998, Percon adopted SFAS 131, "Disclosures
about Segment of an enterprise and Related Information." SFAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. SFAS 131 also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The adoption
of SFAS 131 did not affect results of operations or financial position, but did
affect the disclosure of segment information.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" which revises employers' disclosures
about pension and other postretirement benefit plans. Management believes they
comply with the new standard.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which requires the Company to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in fair value of the derivative will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings, or recognized through comprehensive income
until the hedged item is recognized in earnings. The Company believes that SFAS
No. 133 will not affect financial reporting because the Company and its wholly
owned subsidiaries are not currently involved in any hedge positions at this
time, nor are there any plans to adopt such positions in the near future.
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
2. Inventories, net
Inventory consists of the following:
1998
- --------------------------------------------------------------------------------
Finished Goods $2,257,528
Materials 2,053,245
Reserve (568,558)
- --------------------------------------------------------------------------------
$3,742,215
================================================================================
3. Property and Equipment, net:
1998
- --------------------------------------------------------------------------------
Building on land leased from others $1,339,942
Equipment 2,544,704
Tooling 988,674
Leasehold improvements 193,303
- --------------------------------------------------------------------------------
5,066,623
Less accumulated depreciation and amortization 2,308,540
- --------------------------------------------------------------------------------
$2,758,083
================================================================================
4. Goodwill and Intangibles, net:
1998
- --------------------------------------------------------------------------------
Capitalized software and technology $2,423,631
Noncompete agreements 832,129
Goodwill and other 641,560
- --------------------------------------------------------------------------------
3,897,320
Less accumulated amortization 2,458,331
- --------------------------------------------------------------------------------
$1,438,989
================================================================================
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
5. Accrued Expenses:
1998
- --------------------------------------------------------------------------------
Accrued payroll and payroll liabilities $635,148
Accrued warranty 132,642
Accrued business and property taxes 127,142
Other liabilities 228,679
- --------------------------------------------------------------------------------
$1,123,611
================================================================================
6. Bank Line of Credit:
The Company has a revolving line of credit with one domestic bank of up to
$1,000,000, subject to certain limitations, collateralized by accounts
receivable and inventories. The interest rate is the bank's prime rate (7.75% at
December 31, 1998). No amounts were outstanding as of December 31, 1998.
The Company also has a credit facility with two foreign banks to borrow up to
2,000,000 French francs (approximately $358,000), collateralized by accounts
receivable. Borrowings under these facilities bear interest at the banks'
current interest rate (8.1% and 10.1% at December 31, 1998). No amounts were
outstanding at December 31,1998.
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
7. Long-term Debt:
1998
- --------------------------------------------------------------------------------
Bank loan, monthly payments of approximately
$14,750, including interest at 9.6%,
maturing December 31, 2004 $807,409
Less current portion (104,557)
- --------------------------------------------------------------------------------
$702,852
================================================================================
The bank loan is collateralized by a preferential lien on the building owned by
Percon Europe S.A. and matures as follows:
1999 $104,557
2000 115,048
2001 126,591
2002 139,294
2003 153,270
Thereafter 168,649
- --------------------------------------------------------------------------------
$807,409
================================================================================
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
8. Income Taxes:
The provision for income taxes consists of the following at December 31:
1998
- --------------------------------------------------------------------------------
Current:
Federal $1,151,348
State 208,700
Foreign 354,700
Deferred (83,248)
- --------------------------------------------------------------------------------
$1,631,500
================================================================================
The difference between the statutory federal income tax rate and the Company's
effective rate is summarized as follows:
1998
- --------------------------------------------------------------------------------
Federal 34.0%
State, net of Oregon rebate and federal benefit 3.6
Research and experimentation tax credits (2.0)
Foreign sales corporation (0.5)
Excess of foreign over U.S. tax rate 1.5
Goodwill amortization 0.6
Other 0.3
- --------------------------------------------------------------------------------
37.5%
================================================================================
The components of the net deferred tax liability at December 31 are as follows:
1998
- --------------------------------------------------------------------------------
Assets:
Inventory reserve $87,100
Warranty provision 41,400
Allowance for doubtful accounts 36,400
Accrued expenses and other 111,200
- --------------------------------------------------------------------------------
276,100
- --------------------------------------------------------------------------------
Liabilities:
Depreciation 134,700
Capitalized software and noncompete agreements 332,900
----------------------------------------------------------------------------
467,600
- --------------------------------------------------------------------------------
Net deferred income tax liability $(191,500)
================================================================================
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
10. Stock Options and Warrant:
In connection with its initial public offering, ("IPO"), the Company granted its
underwriters a warrant to purchase 120,000 shares of common stock at an exercise
price of $8.10 per share. The warrants are nontransferable for a period of
one-year following the date of issuance and expire in August 2000.
On July 10, 1995, the shareholders of the Company approved a stock option plan,
as amended and restated on June 2, 1995, May 24, 1996, and May 22, 1998 (the
"Stock Incentive Plan"). The Stock Incentive Plan provides for the award of
incentive stock options to key employees and the award of nonqualified stock
options, stock appreciation rights, bonus rights, and other incentive options to
employees, independent contractors, and consultants. The total number of shares
of common stock authorized under the Stock Incentive Plan may not exceed
600,000.
During the year ended December 31, 1998, the Company granted options to
employees and directors to purchase an aggregate of 104,500 shares. The exercise
prices of these options are equal to or at 110% of the market price of the
Company's stock on the date of grant.
A summary of option activity is as follows:
Weighted-Average
Number of Exercise
Shares Price
- --------------------------------------------------------------------------------
Balance, January 1, 1998 400,910 $10.40
Options granted 104,500 11.05
Options exercised (37,120) 7.01
Options surrendered (78,165) 11.14
- --------------------------------------------------------------------------------
Balance, December 31, 1998 390,125 $10.70
================================================================================
Continued,
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
The table summarizes information about stock options outstanding as of December
31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------- -----------------------------
Weighted- Weighted-
Weighted- Average Average
Range of Number Average Remaining Exercise Number Exercise
Exercise Price Outstanding Contractual Life Price Exercisable Price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.00 - $7.50 90,300 5.3 years $ 7.06 67,990 $ 6.99
$7.51 - $10.00 56,100 8.4 years $ 9.83 17,540 $ 9.85
$10.01 - $12.50 142,275 8.3 years $11.08 51,887 $11.09
$12.51 - $16.75 101,450 8.3 years $13.90 40,180 $14.00
- -------------------------------------------------------------------------- -----------------------------
390,125 7.6 years $10.70 177,597 $10.05
========================================================================== =============================
</TABLE>
The following table presents the Company's net income and earnings per share,
assuming compensation cost had been determined based on the fair value at the
date of grant, and recognized as expense on a straight-line basis over the
vesting period of the options.
1998
- --------------------------------------------------------------------------------
Net income - as reported $2,715,208
Net income-pro forma $1,979,766
Earnings per share basic - as reported $0.68
Earnings per share basic - pro forma $0.49
Earnings per share diluted - as reported $0.67
Earnings per share diluted - pro forma $0.49
For purposes of the above pro forma information, the fair value of each option
grant was estimated as the date of grant using the Black-Scholes option pricing
model with the following assumptions.
1998
- --------------------------------------------------------------------------------
Average risk-free interest rate 5.58%
Average expected life 8.1 years
Expected volatility 47.9%
Expected dividend yield None
Weighted average fair value of options granted $6.60
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
11. Commitments and Contingencies:
On October 8, 1998, the Company announced that its Board of Directors has
authorized the repurchase of up to 250,000 shares of its common stock. The
shares may be repurchased from time to time through open market transactions,
and funded from existing cash balances or from borrowings under bank credit
arrangements. As of December 31, 1998, the Company had repurchased 94,400
shares.
The Company leases certain facilities and land under non-cancelable operating
leases. The lease for the Company's headquarters expired in September 1998. In
December 1997, the Company signed a ten-year non-cancelable lease for a new
headquarters facility, which contains a five-year lease extension option. The
lease contains provisions for the Company to pay certain ongoing costs, such as
property taxes, insurance and support costs, which are not reflected in the
minimum lease payments totaling approximately $5.6 million. The Company expects
to sublease certain portions of the new facility as permitted under the lease
agreement. The Company completed its move to the new facility September 30,
1998.
Rent expense was $398,821 for the year ended December 31, 1998. Future minimum
payments required under these operating lease agreements are summarized below.
All existing sublease agreements have terminated at December 31, 1998.
Year ending December 31:
---------------------- -------------------------------------------------
1999 $ 396,545
2000 395,028
2001 416,781
2002 440,323
2003 454,582
Thereafter 3,446,958
---------------------- -------------------------------------------------
Total $5,550,217
====================== =================================================
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
12. Employee Benefit Plans:
The Company sponsors various benefit plans that cover substantially all of the
Company's employees. Total expense related to these plans was $120,167 for the
year ended December 31, 1998.
13. Fair Value of Financial Instruments:
The carrying value of the Company's financial instruments, including cash and
cash equivalents, accounts receivable, long-term debt, accounts payable, and
accrued liabilities approximates fair value due to their short maturities.
14. Business Segment Information:
The Company operates in a single industry with two geographic operating segments
- - North America and Europe. While the Company's chief operating decision maker
monitors the revenue streams of the various products and geographic locations,
operations are managed and financial performance is evaluated based upon the
geographic locations because each operating segment represents a strategic
business unit that serves different markets.
The accounting policies of the operating segments are the same as those
described in the summary of significant policies. The Company evaluates
performance based on stand-alone operating segment net income and generally
accounts for intersegment sales and transfers based upon internal transfer
prices set by the Company. Revenues are attributed to geographic areas based on
the location of the assets producing the revenues.
Continued,
<PAGE>
Percon Incorporated
Notes to Consolidated Financial Statements, Continued
For the Year Ended December 31, 1998
Summarized data of the Company's operations, by geographic area, for the year
ended December 31, 1998 is presented below, in thousands.
<TABLE>
Percon
1998 Percon US Europe Elim. Consol.
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers ...... $19,746 $11,325 $ -- $31,071
Intra-company transfers .............. 1,941 -- (1,941) --
Gross Profit ......................... 10,185 4,546 28 14,759
Income from operations ............... 3,346 945 (54) 4,237
Interest & Other Income (Expense), net 175 (66) -- 109
Pretax income ........................ 3,521 879 (54) 4,346
Total assets ......................... 18,930 6,695 (5,223) 20,402
</TABLE>
Identifiable assets are those tangible and intangible assets used in operations
in each geographic area. Eliminated assets primarily represent the investment in
the European subsidiary and the net result of operations since that time.
Sales to a single distributor accounted for 14.1% of net sales in 1998. Accounts
receivable at December 31, 1998 was $1,357,310 related to this distributor. No
other single account represented more than 10% of the Company's sales for 1998.
15. Subsequent Event (Unaudited):
On January 19, 2000, PSC Inc. acquired all of the common stock outstanding of
the Company.
<PAGE>
Percon Incorporated
Condensed Consolidated Balance Sheet
(in thousands, except share data)
Sept. 30, 1999
----------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents ................................... $ 7,085
Accounts receivable, net .................................... 6,246
Inventories, net ............................................ 3,398
Prepaid expenses and other .................................. 507
Deferred income tax asset ................................... 289
--------
Total current assets ...................................... 17,525
Property and equipment, net ...................................... 2,733
Goodwill and intangibles, net .................................... 1,061
--------
Total assets .............................................. $ 21,319
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ........................... $ 101
Accounts payable ............................................ 1,620
Accrued expenses ............................................ 1,399
Deferred revenue ............................................ 174
Income taxes payable ........................................ 41
--------
Total current liabilities ................................. 3,335
Deferred income taxes ............................................ 387
Long-term debt, less current portion ............................. 554
Other ............................................................ 21
--------
Total liabilities ......................................... $ 4,297
--------
Commitments and Contingencies
Shareholder's Equity:
Preferred stock, 5,000,000 shares authorized,
None issued ................................................ --
Common stock, no par value, 20,000,000 shares authorized,
3,918,781 and 3,807,711 shares issued and
Outstanding, respectively .................................. 9,353
Treasury stock, at cost, 210,000 at September 30, 1999 ........ (1,517)
Retained earnings ............................................. 9,753
Accumulated other comprehensive income / (loss) ............... (567)
--------
Total shareholders' equity ................................ 17,022
--------
Total liabilities and shareholders' equity ................ $ 21,319
========
See accompanying notes.
<PAGE>
Percon Incorporated
Condensed Consolidated Statement of Income, (Unaudited)
(in thousands, except per share data)
Nine Months Ended
September 30, 1999
- ------------------------------------------------------ ---------------
Net sales $ 25,710
Cost of goods sold 12,766
- ------------------------------------------------------ ---------------
Gross profit 12,944
Operating Expenses:
Selling, marketing and customer service 4,910
General and administrative 2,670
Research and product development 1,578
Charges related to terminated acquisition 161
- ------------------------------------------------------ ---------------
Operating income 3,625
Interest and other income (expense), net 82
- ------------------------------------------------------ ---------------
Income before taxes 3,707
Provision for income taxes 1,425
- ------------------------------------------------------ ---------------
Net income $ 2,282
- ------------------------------------------------------ ---------------
Net income per share:
Basic $ 0.59
- ------------------------------------------------------ ---------------
Diluted $ 0.59
- ------------------------------------------------------ ---------------
Weighted average shares outstanding:
Basic 3,854
Effect of dilutive securities:
Warrants 1
Options 13
- ------------------------------------------------------ ---------------
Diluted 3,868
- ------------------------------------------------------ ---------------
See accompanying notes.
<PAGE>
Percon Incorporated
Condensed Consolidated Statement of Cash Flows, (Unaudited)
(in thousands)
Nine Months Ended
Sept. 30, 1999
-------------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Net Income .................................................... $ 2,282
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization ............................. 884
Deferred income taxes ..................................... (94)
Change in operating assets and liabilities:
Accounts receivable ...................................... 547
Inventories .............................................. 344
Prepaid expenses and other ............................... 354
Accounts payable and accrued expenses .................... 202
-------
Net cash provided by operating activities .............. 4,519
-------
Cash flows from investing activities:
Capital expenditures ......................................... (568)
-------
Net cash used in investing activities .................... (568)
-------
Cash flows from financing activities:
Principal paid on long-term debt .............................. (148)
Proceeds from stock issued .................................... 30
Tax benefit from exercise or
early disposition of certain stock options .................. 3
Cash used for purchase of treasury stock ...................... (920)
-------
Net cash used in financing activities ...................... (1,035)
-------
Effect of exchange rate changes on cash .......................... (365)
-------
Net increase in cash and cash equivalents ........................ 2,551
Cash and cash equivalents at beginning of period ................. 4,534
-------
Cash and cash equivalents at end of period ....................... $ 7,085
-------
Supplemental disclosure:
Interest paid ................................................. $ 50
Taxes paid .................................................... $ 1,730
See accompanying notes.
<PAGE>
Percon Incorporated And Subsidiaries Notes To Condensed Consolidated
Financial Statements, (Unaudited)
1. Summary Of Significant Accounting Policies
Principles Of Consolidation
The condensed consolidated financial statements include the accounts of Percon
Incorporated ("Percon" or the "Company") and its wholly owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Basis Of Reporting
The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company and in the opinion of management contain all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of the results of the interim periods presented. It should be
understood that accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The results of operations for
the nine months ended September 30, 1999, are not necessarily indicative of the
results to be expected for the full year.
The accompanying interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1998.
Basic earnings per share are based on the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share are based
on the weighted average number of shares of common stock and potentially
dilutive securities outstanding during the period, computed in accordance with
the treasury stock method.
2. Inventories
Inventories are stated at the lower of cost (methods which approximate the
first-in, first-out method) or market. Inventory costs include materials, labor,
and overhead and consist of the following:
(In thousands) Sept. 30, 1999
--------------
Finished goods $2,173
Materials 1,918
Reserve for obsolescence (693)
-----
$3,398
======
3. Stock Options
During the first nine months of 1999, the Company granted options to purchase an
aggregate of 55,000 shares of common stock at an average price of $8.48 per
share. The exercise prices are greater than or equal to the Company's market
price on the date of grant.
<PAGE>
Percon Incorporated And Subsidiaries Notes To Condensed Consolidated Financial
Statements, Continued, (Unaudited)
4. Commitments and Contingencies
In December 1997, the Company signed a ten year non-cancelable lease for a new
headquarters facility, which contains a five year lease extension option. The
lease contains provisions for the Company to pay certain ongoing costs, such as
property taxes, insurance and support costs, which are not reflected in the
minimum lease payments totaling approximately $5.5 million. The Company expects
to sublease certain portions of the new facility as permitted under the lease
agreement.
On October 8, 1998 the Company announced that its Board of Directors had
authorized the repurchase of up to 250,000 shares of its common stock. The
shares may be repurchased from time to time through open market transactions,
and funded from existing cash balances or from borrowings under bank credit
arrangements. The number of shares held as treasury stock was 210,000 as of
September 30, 1999.
5. Income Taxes
The provision for income taxes has been recorded based on the Company's current
estimate of the Company's annual effective tax rate. This rate differs from the
combined federal and state statutory rate of approximately 38.5% primarily due
to the benefit of the Company's foreign sales corporation and research and
experimentation tax credits.
6. Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" on January 1,
1998. This statement establishes standards for reporting comprehensive income
and its components in the condensed consolidated financial statements. The
objective of SFAS 130 is to report changes in equity that result from
transactions and economic events other than transactions with owners.
Comprehensive income is the total of net income and all other non-owner changes
in equity.
(in thousands) Nine Months Ended
Sept. 30, 1999
---------------------
Net income $2,281
Other comprehensive income net of tax -
Foreign currency translation adjustment (365)
-----
Comprehensive income $1,916
======
7. Significant Customer Discussion
Sales to a single customer accounted for 11.7% of net sales for the nine months
ended September 30, 1999. Accounts receivable at September 30, 1999 were
$624,000 related to this one customer. No other account represented more than
10% of the Company's sales.
<PAGE>
Percon Incorporated And Subsidiaries Notes To Condensed Consolidated
Financial Statements, Continued, (Unaudited)
8. Business Segment Information
The Company operates in a single industry with two geographic operating segments
- - North America and Europe. While the Company's chief operating decision maker
monitors the revenue streams of the various products and geographic locations,
operations are managed and financial performance is evaluated based upon the
geographic locations because each operating segment represents a strategic
business unit that serves different markets.
The accounting policies of the operating segments are the same as those
described in the summary of significant policies. The Company evaluates
performance based on stand-alone operating segment net income and generally
accounts for intersegment sales and transfers based upon internal transfer
prices set by the Company. Revenues are attributed to geographic areas based on
the location of the assets producing the revenues.
Identifiable assets are those tangible and intangible assets used in operations
in each geographic area. Eliminated assets primarily represent the investment in
the European subsidiary and the net result of operations since that time.
Summarized data of the Company's operations, by geographic area, for the nine
months ended September 30, 1999 is presented below (in thousands).
Nine Months Ended
Percon
September 30, 1999 Percon US Europe Elim Consol
- --------------------------------------------------------------------------------
Sales to unaffiliated customers ...... $18,019 $ 7,691 $ -- $25,710
Intra-company transfers .............. 2,123 -- (2,123) --
Gross profit ......................... 9,996 3,006 (58) 12,944
Income from operations ............... 3,134 611 (120) 3,625
Interest & other income (expense), net 177 (95) -- 82
Pretax income ........................ 3,310 516 (119) 3,707
9. Subsequent Events
On November 9, 1999 the Company entered into an Agreement and Plan of Merger
with PSC Inc. ("PSC") that provides for the merger of a wholly owned subsidiary
of PSC into the Company, with the Company surviving as a wholly owned subsidiary
of PSC. In the merger shareholders of Percon would receive $15.00 in cash per
share of Percon common stock. The merger, which was approved by the board of
directors of each company, is subject to Percon shareholder and regulatory
approvals.
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(UNAUDITED)
The following unaudited pro forma condensed combined financial data of PSC Inc.
(the Company) consists of (I) an unaudited pro forma condensed combined balance
sheet as of October 1, 1999, (ii) an unaudited pro forma condensed combined
statement of income for the year ended December 31, 1998 and (iii) an unaudited
pro forma condensed combined statement of income for the nine months ended
October 1, 1999, collectively the pro forma statements.
The unaudited pro forma condensed combined balance sheet as of October 1, 1999
combines the balance sheet of the Company as of October 1, 1999 and the balance
sheet of Percon Incorporated (Percon) as of September 30, 1999, as adjusted for
the acquisition on January 19, 2000 in which the Company acquired all of the
outstanding common shares of Percon. The unaudited pro forma condensed combined
balance sheet is presented as if the acquisition was consummated on October 1,
1999.
The unaudited pro forma condensed combined statements of income combine the
historical consolidated statements of income of the Company for the year ended
December 31, 1998 and for the nine months ended October 1, 1999 and the
consolidated statements of income of Percon for the year ended December 31, 1998
and for the nine months ended September 30, 1999, as adjusted for the
acquisition on January 19, 2000 in which the Company acquired all of the
outstanding common shares of Percon. The unaudited pro forma condensed combined
statement of income is presented as if the acquisition was consummated on
January 1, 1998.
The unaudited pro forma statements as described above should be read in
conjunction with the separate historical financial statements of Percon and
related notes (included herein) and the historical consolidated financial
statements of the Company, the related notes and Management's Discussion and
Analysis of Financial Condition and Results of Operations, and with the
accompanying notes to proforma statements. The pro forma statements are based
upon currently available information and upon certain assumptions that the
Company believes are reasonable under the circumstances. The pro forma
statements do not purport to represent what the Company's financial position or
results of operations would actually have been if the acquisition of Percon had
occurred at such date or at the beginning of the period indicated or to project
the Company's financial position or results of operations at any future date or
for any future period.
<PAGE>
<TABLE>
PSC Inc. and Subsidiaries
and Percon Incorporated
Pro Forma Condensed Combined Balance Sheet
For the Period Ended October 1, 1999
(Unaudited) - (in thousands)
<CAPTION>
Pro Forma Pro Forma
PSC Inc. Percon Adjustments Combined
--------- --------- ----------- --------
<S> <C> <C> <C> <C>
Accounts receivable, net $ 36,857 $ 6,246 $ -- $ 43,103
Inventories, net 23,970 3,398 27,368
Other current assets 8,800 7,881 16,681
-------- -------- -------- --------
Total current assets 69,627 17,525 -- 87,152
Property, plant & equipment, net 26,454 2,733 29,187
Deferred tax assets 18,738 - 18,738
Intangible and other assets, net 50,449 1,061 44,871 1 96,381
-------- -------- -------- --------
Total assets $165,268 $ 21,319 $ 44,871 $231,458
======== ======== ======== ========
Current portion of long-term debt $ 15,804 $ 101 $ (3,500) 2 $ 12,405
Accounts payable 18,883 1,620 20,503
Other current liabilities 12,528 1,614 3,893 3 18,035
-------- -------- -------- --------
Total current liabilities 47,215 3,335 393 50,943
Long-term debt 61,632 554 61,500 2 123,686
Other long-term liabilities 1,957 408 2,365
Common stock 121 9,353 (9,353) 4 121
Additional paid-in capital 71,766 - - 71,766
Retained earinings/(Accumulated deficit) (16,606) 9,753 (9,753) 4 (16,606)
Other shareholders' equity (817) (2,084) 2,084 4 (817)
-------- -------- -------- --------
Total shareholders' equity 54,464 17,022 (17,022) 54,464
-------- -------- -------- --------
Total liabilities and shareholders' equity $165,268 $ 21,319 $ 44,871 $231,458
======== ======== ======== ========
</TABLE>
Notes to Unaudited Pro Forma Balance Sheet
1 Reflects the estimated purchase accounting adjustments for the Percon
acquisition based upon the Company's preliminary estimate of the assets and
liabilities assumed. For purchase accounting, Percon's assets have been
recorded at their estimated fair market value subject to adjustments based
upon the results of an independent appraisal. The estimated amounts
recorded for assets and liabilities acquired from Percon are not expected
to differ materially from the final assigned values. The calculation of
excess purchase cost over fair value of net assets acquired is as follows:
Additional debt borrowed to finance acquisition $ 57,136
Direct acquisition costs 1,361
Additional liabilities assumed 3,396
--------
Total purchase cost 61,893
Less: net book value of assets acquired (17,022)
--------
Excess purchase cost over fair value of assets
acquired and liabilities assumed (goodwill) $ 44,871
========
2 Reflects additional borrowings of $58,000 to finance the Percon acquisition
and direct acquisition costs, and the reduction in current portion of
long-term debt as a result of amending the credit agreement in connection
with the acquisition.
3 Reflects the liability for direct acqusition costs of $1,361 (less $864
paid at closing) and additional liabilities assumed of $3,396.
4 Reflects the elimination of Percon's shareholders' equity.
<PAGE>
<TABLE>
PSC Inc. and Subsidiaries
and Percon Incorporated
Pro Forma Condensed Combined Statement of Income
For the Year Ended December 31, 1998
(Unaudited) - (in thousands, except per share data)
<CAPTION>
Pro Forma Pro Forma
PSC Inc. Percon Adjustments Combined
-------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Net Sales $217,223 $ 31,071 $ -- $248,294
Cost of Sales 126,350 16,312 142,662
-------- -------- -------- --------
Gross profit 90,873 14,759 -- 105,632
Operating Expenses:
Engineering, research & development 15,665 1,688 17,353
Selling, general and administrative 42,069 8,833 50,902
Amortization of acquisition related intangibles 6,822 4,857 1 11,679
-------- -------- -------- --------
Income from operations 26,317 4,238 (4,857) 25,698
Interest and Other Income/(Expense), net (9,833) 109 (2,230) 2 (11,954)
-------- -------- -------- --------
Income before provision for income taxes 16,484 4,347 (7,087) 13,744
Income Tax Provision 5,968 1,632 (866) 3 6,734
-------- -------- -------- --------
Net Income $ 10,516 $ 2,715 $ (6,221) $ 7,010
======== ======== ======== ========
Net Income per Common and Common
Equivalent Share:
Basic $0.90 $0.68 $0.60
Diluted $0.75 $0.67 $0.50
Weighted Average Number of Common and
Common Equivalent Shares Outstanding:
Basic 11,713 4,000 11,713
Diluted 13,993 4,041 13,993
</TABLE>
Notes to Unaudited Pro Forma Statement of Income
1 Reflects an increase in amortization expense of $4,857 relating to the
amortization of the acquired goodwill recorded in connection with the
Percon acquisition. The acquired goodwill is based on estimated values and
is amortized using the straight-line method over 10 years, the current
estimated useful life.
2 Reflects the elimination of Percon's net interest income of $109 and the
incremental interest expense of $2,121 incurred on the additional debt
borrowed to finance the Percon acquisition. The overall effective interest
rate was 9.4% per annum.
3 Reflects the tax effect of the pro forma interest expense adjustment and
the reduction in income tax provision based on an overall combined federal
and state income tax rate of 36.2%.
<PAGE>
<TABLE>
PSC Inc. and Subsidiaries
and Percon Incorporated
Pro Forma Condensed Combined Statement of Income
For the Nine Months Ended October 1, 1999
(Unaudited) - (in thousands, except per share data)
<CAPTION>
Pro Forma Pro Forma
PSC Inc. Percon Adjustments Combined
-------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Net Sales $176,177 $ 25,710 $ -- $201,887
Cost of Sales 101,649 12,766 114,415
-------- -------- -------- --------
Gross profit 74,528 12,944 -- 87,472
Operating Expenses:
Engineering, research & development 13,169 1,578 14,747
Selling, general and administrative 34,593 7,741 42,334
Amortization of acquisition related intangibles 4,815 -- 3,365 1 8,180
Severance and other costs 2,103 -- 2,103
-------- -------- -------- --------
Income from operations 19,848 3,625 (3,365) 20,108
Interest and Other Income/(Expense), net (5,362) 82 (2,840) 2 (8,120)
-------- -------- -------- --------
Income before provision for income taxes 14,486 3,707 (6,205) 11,988
Income Tax Provision 5,065 1,425 (1,116) 3 5,374
-------- -------- -------- --------
Net Income $ 9,421 $ 2,282 $ (5,089) $ 6,614
======== ======== ======== ========
Net Income per Common and Common
Equivalent Share:
Basic $0.79 $0.59 $0.55
Diluted $0.68 $0.59 $0.48
Weighted Average Number of Common and
Common Equivalent Shares Outstanding:
Basic 11,948 3,854 11,948
Diluted 13,873 3,868 13,873
</TABLE>
Notes to Unaudited Pro Forma Statement of Income
1 Reflects an increase in amortization expense of $3,365 relating to the
amortization of the acquired goodwill recorded in connection with the
Percon acquisition. The acquired goodwill is based on estimated values and
is amortized using the straight-line method over 10 years, the current
estimated useful life.
2 Reflects the elimination of Percon's net interest income of $82 and the
incremental interest expense of $2,758 incurred on the additional debt
borrowed to finance the Percon acquisition. The overall effective interest
rate was 9.6% per annum.
3 Reflects the tax effect of the pro forma interest expense adjustment and
the reduction in income tax provision based on an overall combined federal
and state income tax rate of 35%.
EXHIBIT 23.1
Independent Auditors' Consent
The Board of Directors
Percon Incorporated:
We consent to the inclusion of our report dated January 27, 1999, with respect
to the consolidated balance sheet of Percon Incorporated and subsidiaries as of
December 31, 1998, and the related consolidated statements of income,
shareholders' equity, and cash flows, for the year ended December 31, 1998,
which report appears in the Form 8-K of PSC Inc. dated on or about March 30,
2000.
/s/ KPMG LLP
Portland, Oregon
March 30, 2000
