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, 1999 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 27, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $65,539,284 (Assumes
officers, directors and any shareholder holding 5% of the outstanding shares are
affiliates.)
As of March 27, 2000, there were outstanding 12,208,801 shares of Common Stock.
Documents incorporated by reference:
Part III incorporates information from certain portions of PSC Inc.'s Proxy
Statement for the 2000 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission within 120 days after the close of the fiscal
year.
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TABLE OF CONTENTS
PART I
PAGE
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Item 1: Business......................................................... 4
Item 2: Properties....................................................... 16
Item 3: Legal Proceedings................................................ 17
Item 4: Submission of Matters to a Vote of Security Holders.............. 19
Executive Officers of Registrant........................... 20
PART II
Item 5: Market for Registrant's Common Equity and Related
Security Holder Matters...................................... 23
Item 6: Selected Financial Data.......................................... 24
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 25
Item 8: Financial Statements and Supplementary Data...................... 30
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....................... 30
PART III
Item 10: Directors and Executive Officers of the Registrant.............. 30
Item 11: Executive Compensation.......................................... 30
Item 12: Security Ownership of Certain Beneficial Owners and
Management................................................... 30
Item 13: Certain Relationships and Related Transactions.................. 30
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................. 31
U-SCAN and U-SCAN EXPRESS are trademarks of Optimal Robotics Corp. used under
license. ADVANTAG is a trademark of Eldat Communication Ltd.
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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, two-dimensional image readers, wireless portable data terminals,
warehouse management software, bar code scan engines, verifiers and automated
carton dimensioning systems for the worldwide Automatic Identification and Data
Collection (AIDC) market. The Company's products 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, manufacturing, warehousing,
logistics, package handling and other industries.
The Company has positioned itself within the AIDC industry by selling both
domestically and internationally. International sales accounted for
approximately 58% of the Company's 1999 total sales. The Company has a
diversified customer base comprised of original equipment manufacturers (OEMs),
value-added resellers (VARs), distributors, systems integrators and end users.
The Company's distribution relationships have enabled it to introduce its
products 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 collection.
On January 19, 2000, the Company acquired all of the outstanding shares of
Percon Incorporated (Percon), a manufacturer of wireless and batch portable data
terminals (PDTs), decoders, input devices and data management software, for
approximately $57.1 million. The acquisition of Percon significantly increased
the scope of the Company's product line, enhancing the Company's ability to
provide systems type solutions and to expand the Company into the PDT and
software/services categories of the AIDC market, which are growing rapidly. The
transaction will be accounted for under the purchase method of accounting in the
first quarter of 2000.
On December 21, 1999, the Company acquired substantially all of the assets
of GAP Technologies, Inc. and GEO Labs, Inc. (GAP) for approximately $4.8
million. GAP is a technology and research group that designs and manufactures
miniature laser scan engines and pen-based scanners. In February 2000, the
Company introduced an innovative consumer home shopping appliance, incorporating
the miniature scan engine technology developed by GAP. The home shopping system
enables consumers to create a shopping list by scanning product bar codes and
then transmitting the list online to the retailer.
In May 1999, the Company made a minority interest investment of $3.0
million in Eldat Communication Ltd., which develops and manufactures fully
integrated electronic price display systems for retail applications, including
electronic shelf labels. The system interfaces with a store's main computer,
point-of-sale and back-office system enabling immediate, coordinated price
changes to thousands of products.
In September 1997, the Company completed a private placement of Convertible
Preferred Shares with Hydra Investissements S.A., a Luxembourg corporation. The
Company received net proceeds of $10.2 million from the offering which were used
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 under the purchase method of accounting.
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.
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Markets
The Company currently focuses on retail and commercial and industrial
applications for the AIDC market.
Retail
The retail market 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 market has, however, expanded beyond this base with regard to both the
types of retail stores employing scanners and scanning systems, and the uses to
which these stores put the scanners and scanning systems. Discount, drug,
do-it-yourself, convenience, department and specialty retail stores now use
scanners in such diverse ways as price verification, shelf stocking, inventory
tracking and replenishment, receiving, coupon redemption,
promotion/merchandising and frequent shopper programs.
The Company is currently active in most retail applications and sells its
countertop, in-counter and handheld bar code scanners to customers in most
retail markets. In addition, the Company has begun to target systems-oriented
and market segment-specific products. One such product currently being marketed
by the Company in a stategic alliance with Optimal Robotics Corporation, is
U-Scan(R) Express Self-Checkout System, an automated grocery store self-checkout
system. 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. To meet the increasing demand for up-to-date, accurate pricing at the
merchandise shelf, the Company offers Electronic Shelf Labels (ESLs). These
allow a retailer to electronically change pricing instantaneously at the shelf
and at the checkout.
Commercial and Industrial
The commercial and industrial market is comprised of commercial,
manufacturing, warehousing, logistics and distribution applications of bar code
systems and data management 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 and non-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. The Company
also offers data management products including data management application
software, software development tools and terminal emulation software. 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(R) SL(TM) Scanner). The Magellan
SL was designed to accommodate installation in the narrower check-stands common
in Europe, Asia and large cities throughout the world. The Magellan SL 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 also available with an integrated, 30 pound
capacity scale with an L-shaped, All-Weighs(TM) Platter which allows retailers
to combine the scanner and scale functions into a single unit. 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. The unit may also be ordered with an integrated electronic
article surveillance antenna for use in deactivating RF-based security tags.
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High Performance Horizontal Scanner (HS1250). The HS1250 is 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.
High Performance Vertical Scanners (VS1000 and VS1200). The VS1000 and VS1200
compact vertical scanners 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. 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(TM)). The Duet Scanner 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 scanned
using Duet's Targeted Handheld Mode by simply picking up the scanner and
pointing it at a bar code. The VS800 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 manufacturing and marketing the U-Scan(R) Express
Self-Checkout System to major supermarkets and mass merchandisers in a stategic
alliance with Optimal Robotics Corporation. The system is targeted for retail
store express lanes and incorporates the PSC Magellan SL scanner, interactive
video, security system and money tendering (cash, credit or debit). 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.
The Company also markets the AdvanTAG(TM) Electronic Shelf Label system to meet
the growing demand for pricing accuracy in the retail marketplace. This system
is an in-store network that delivers shelf edge data for use in pricing,
merchandising, and managing the retail environment. It consists of a high speed
wireless infra-red (IR) network for communicating throughout the store, and
shelf edge labels to display data for customers, employees and store management.
Handheld Scanners
Rugged Industrial Scanners (PowerScan(TM), 5300 IP). Designed "from the ground
up" for rugged industrial applications, the PowerScan handheld scanner is one of
the toughest tools in the industry. It is ideally suited for harsh conditions as
found in industrial warehouses and trucking and for demanding applications,
including inventory control, parcel sorting and tracking, and product
manufacturing (from electronics goods to large industrial equipment). It is also
used for outdoor applications (e.g. rental car returns or home and garden
stores) and for freezer or cold storage applications.
The 5300 IP series is the predecessor to the new PowerScan family of industrial
bar code scanners. Like the PowerScan, the 5300 IP series is built for extreme
durability and performance for jobs in demanding environments. It is ideal for
use in warehouses, distribution centers, automotive plants, utilities, cold
storage warehouses and at chemical plants. The 5300 series of scanners has many
different options available, such as LED display and optional memory, which
allows the bar code scanner to be customized.
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Light Industrial/Commercial Scanners (5300 HP, SP400). The Company's high
performance 5300 HP handheld scanners are based on the same scanning technology
used for the 5300 IP scanners but use a less robust enclosure. They were
designed for light industrial, commercial and special retail environments where
high performance scanning is critical.
The SP400 family of handheld scanners sets the standard for performance,
ergonomics and durability. It is perfect for point-of-sale, back-room inventory,
warehouse and manufacturing applications.
Retail, POS and Commercial Scanners (QuickScan(R) Series). The QuickScan series
of bar code scanners is a full feature, full function, full performance scanner
series incorporating the Company's smaller scan engine platforms. The QuickScan
series consists of the QS6000 Plus, QS1000, QS200, and QS Pen bar code scanners.
The QuickScan(R) 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, which helps to ensure
prolonged operator productivity. The size and shape of the QS6000 Plus makes it
comfortable to hold independent of handedness and hand size.
The QuickScan(R) 1000 Scanner provides the same superior scan performance of the
QuickScan 6000 Plus in a sleek triggerless design. It is ideal for use in both
hands-free (with optional countertop stand) and handheld applications such as
clothing or convenience store point-of-sale.
The QuickScan(R) 200 Scanner is a lightweight, ergonomic, handheld CCD (charge
coupled device) scanner for retail and light commercial applications. The
QuickScan 200 offers the ability to read and autodiscriminate all major retail
and industrial bar code symbologies in a small, inexpensive package.
The newest addition to the QuickScan family is the QuickScan Pen(TM). It is the
first laser bar code reader to utilize high performance laser scanning optics in
a small, ergonomic pen design. Its small shape and lightweight design make it
ideal for mating with portable data terminals (PDTs) and personal data
assistants (PDAs). The QuickScan Pen is ideal for route accounting,
point-of-sale checkouts with limited space, electronics manufacturing and
medical applications.
Two-Dimensional (2D) Label Readers (Imager 8000(TM)). Meeting the demand for a
reader to read 2D labels and capture images, PSC recently introduced the rugged
Imager 8000. This is a high performance, rugged handheld reader, capable of
omni-directional decoding of traditional linear bar codes and 2D symbologies,
including DataMatrix, MaxiCode, QR Code and PDF417. Images of objects,
signatures, labels, etc. also can be easily captured. This reader is especially
suited for warehousing and logistics applications.
Fixed Position Scanners: Commercial and Industrial
Miniature Scanners. The LazerData(R) 9000, 11000, 12000 and LM520 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 and
LD12000 are supplied with LDHost, a Windows-based software package that makes
configuring the scanners for a customer's application a breeze. For the most
demanding applications, the LD9000E offers the performance of many larger
high-performance line scanners. The LM520 is PSC's most cost-effective compact
scanning solution for indexed or continuous flow material tracking. Its simple
plug-and-play design is incorporated easily into any scanning application,
particularly OEM environments where space is limited.
High-End Line Scanners. With the LD16000 and 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, whereas,
the LD8000 is perfect for reading bar codes on the front and back. In addition,
the LD8000 is an integral component of sophisticated tunnel scanning systems
that scan bar codes on high-speed conveyors from all angles.
Mid Range Omni-directional Scanning. The LD8000LX offers a low cost
omni-directional scanning solution by creating an "X" pattern using 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 TimeSlice(TM) decoding (TSD)
software and tracking built into the scanner, more than one bar code can be in
the scan zone at one time maximizing the system throughput.
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Omni-directional Scanners. The SureScan(R) is a high-speed modular,
omni-directional scanner for use in high-volume retail distribution, parcel
sortation centers and e-commerce distribution applications. It can be configured
with up to four multiplexed scanners and is a key component of tunnel scanning
systems. For scanning bar codes positioned on the bottom of packages, PSC offers
the SureScan HS Linear Omni Scanner. Using both image-based and laser
technology, the HS Linear Omni scans bar codes in any orientation through a gap
between two conveyor belts. It is ideal for parcel identification and sorting in
high-volume distribution centers.
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 for reducing
shipping costs and inventory shrinkage.
Scanning Tunnel Systems. By mounting multiple scanners in a fixed array 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 PSC's
ScanManager Data Management System, this system can track up to 16 cartons at
one time at conveyor speeds up to 500 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, mechanical and bar code
decoding components required for laser scanning in a single package which can be
easily integrated into fixed position and portable applications. The various
models manufactured by the Company are based on its successful LM500 Plus(TM)
laser scanning engine used in many of its own products, adapted for custom OEM
needs. Ideally suited for portable applications, the LM500 Plus is the lightest
scan engine in its class and features RapidStart circuitry for the fastest
start-of-scan in the industry with very low power consumption, which is
essential for battery powered applications.
Portable Data Collection Terminals
Portable data collection terminals (PDTs) are handheld, battery
powered, durable computers that typically employ application specific software.
Data can be entered either manually through an input device such as an
integrated keypad or automatically through a wand, CCD, magnetic stripe reader,
integrated laser scanning module or a handheld laser scanner.
Falcon(TM) 320 and Falcon(TM) 325. The Falcon 320 and 325 are 16-line DOS PDTs
which include a 486 processor, 57 key splash resistant alphanumeric keypad, user
accessible PC Card slot and eight megabytes of RAM memory. The Falcon 320 is the
batch version and the Falcon 325 is the RF version, incorporating 2.4 GHz spread
spectrum radio technology. The PC Card slot can be utilized for memory expansion
cards or modems.
Falcon(TM)310. The Falcon 310 is an eight-line DOS PDT batch unit with a 386
processor and a user accessible PC Card slot for ATA flash cards or modem.
Falcon(TM)315. The Falcon 315 is an eight-line DOS PDT RF unit with a 386
processor and 2.4 GHz spread spectrum radio.
PT2000. The PT2000 is a 12 ounce PDT with 34 splash resistant alphanumeric keys,
up to one megabyte of data storage and a separate bank of erasable flash ROM
memory.
TopGun(R). The TopGun is a PT 2000 with an integrated laser which allows for
one-handed scanning.
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Fixed Station and Integrated Decoders
Fixed station decoders (decoders) are bar code readers designed to be
connected in series with the keyboard (a keyboard wedge) of either a personal
computer (PC), a computer terminal or attached to a serial port on a host
computer. Bar codes scanned by the decoders are translated into data used by the
PC or terminal as if the data originated from the keyboard. Decoders permit
computers to read bar codes without requiring special programming of the
application software. Products offered in this category include the Mini
PowerWedge(TM), PowerWedge 10, PowerWedge 20, Master B+ and Master BB+.
Integrated decoders are products incorporating the base decoder technology
in other form factors thereby creating integrated decoder products. These
products include the SnapShot, a handheld laser scanner available with an
integrated decoder, and the Decoder Communications Card, which is an ISA Bus
card incorporating the decoder technology with four high-speed serial ports.
Symphony is a decoder product that incorporates narrow band RF support and
includes the Maestro base station and Player radio unit with belt clip.
Application Software
Application software consists of PC-based computer programs available in
both stand alone and networked versions that permit the storage, management and
reporting of data. Data can be uploaded or downloaded into these programs with
the Company's PDTs. Products offered in this category include the full line of
IntelliTrack(R) software, including applications for fixed assets, inventory,
shipping, receiving, tool room management, check-in and checkout applications,
and stock room management. IntelliTrack RF is a reliable, affordable, and
easy-to-use real-time inventory control software application which operates
under Microsoft Windows 95, 98 or NT. When combined with the Falcon 315 or
Falcon 325 RF PDT, it becomes a complete RF-based inventory solution.
Quick Check(R) Verifiers
The Company's line of Quick Check 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 online, 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 $95.2 million, or 46% of
net sales, in 1997 to approximately $133.0 million, or 58% of net sales, in
1999. Management believes that the international markets for Automatic
Identification and Data Collection 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 sub-markets 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 thereby further expanding its market
presence and broadening its distribution network.
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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, Latin America 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
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. These
marketing efforts are augmented by the Company's cooperative advertising and
sales incentives programs which promote greater visibility of the Company's
products.
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 1999, 1998 and 1997, 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 imaging 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.
While the majority of the Company's research and development is performed
by its own staff, advanced research in targeted technologies is supported
through relationships with several well known universities. The Company believes
its technical strengths are in the specialty disciplines of lasers,
electro-optics, miniature mechanical mechanisms, video imaging, signal
processing, decoding and software development.
The Company's ER&D expenses were approximately $18.1 million, $15.7 million
and $13.4 million in 1999, 1998, and 1997, respectively. Such amounts do not
include expenditures by the Company for manufacturing engineering activities.
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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.
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. For the portable data terminal line, the principal competitors are Symbol,
Intermec Technologies Corporation and Telxon Corporation.
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.
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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 250 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 2017. 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. The
Company, however, is currently involved in several patent lawsuits. See "Legal
Proceedings." While the Company believes that its patents provide it with
competitive advantages with respect to the products they cover, the Company
relies primarily upon the technical know-how, competence, innovative skills and
marketing abilities of its engineers and other employees.
The Company currently holds certain trademarks that are registered with the
United States Patent and Trademark Office and a number of common law trademarks
and valuable trade secrets. It also has certain foreign trademarks and has
numerous domestic and foreign trademark registrations pending.
Employees
As of March 1, 2000, the Company had approximately 1,250 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, Latin
America 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.
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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 phrases "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.
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, $73.9 million was outstanding as of
December 31, 1999. Subsequent to year-end, the Company borrowed an additional
$58.0 million under its amended senior term loan and revolving credit facility
to finance the acquisition of Percon resulting in total indebtedness of
approximately $133.6 million. 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
acquisitions of Spectra and Percon, 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.
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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 250 United States patents having
various expiration dates between 2003 and 2017, 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.
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 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.
There can be no assurance that such litigation will not have a material adverse
effect on the results of operations, financial position or cash flows. See
"Business - Intellectual Property" and "Legal Proceedings."
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."
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.
The Company and Optimal Robotics Corp. (Optimal) entered into an agreement in
April 1998, which provides the Company exclusive rights to manufacture U-Scan(R)
Express Self-Checkout Systems until December 31, 2000. During 1999, Optimal
announced that they would commence manufacturing of the U-Scan(R) Express
Self-Checkout Systems upon termination of the agreement with the Company. In
anticipation that the relationship with Optimal would eventually terminate, the
Company reserved the right under the agreement to design and manufacture its own
self-checkout product, however, the Company agreed not to actually sell, promote
or market a competing product. The Company intends on remaining a market leader
in all aspects of retail scanning and is committed to retaining that position
for the long term. 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.
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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 1999, 1998 and
1997, 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 $95.2 million or 46% of total net sales
in 1997 to $133.0 million or 58% of net sales in 1999. 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 1999, approximately 55% 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 Income.
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 market acceptance is
not achieved, 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."
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Risks Associated with Significant Suppliers in the Year 2000. The Company
believes that the area of greatest potential risk associated with the Year 2000
relates to significant suppliers' failing to remediate their Year 2000 issues 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 of any Year 2000 issues experienced by any of its significant
suppliers. 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."
The Company anticipates that in 2000 it will sell more products with lower
margins and lower margin products will represent a greater percentage of total
sales than in prior years. If the Company does not increase sales and/or lower
operating expenses to compensate for overall lower margins, the Company's
operating results could be materially, adversely affected.
Government Regulation. The Company's products and operations are subject to
regulation by federal, state and local agencies in the United States and its
products are subject to regulation in certain foreign countries where the
Company's products are sold. While the Company believes that its products and
operations comply with all applicable regulations, there can be no assurance of
continued compliance if these regulations were to change. Noncompliance with
respect to these regulations could have a material adverse impact on the
Company's results of operations. See "Business--Government Regulation."
ITEM 2: PROPERTIES
The Company's headquarters are located in a 132,000 square foot
Company-owned facility in Webster, New York, a suburb of Rochester, New York
which is utilized primarily for manufacturing, engineering, and administrative
functions. This facility, completed in 1995, was custom-designed to serve the
Company's operations.
During 1999, the Company sold its two facilities and 32 acre parcel located
in Eugene, Oregon and simultaneously entered into a lease agreement for the
facilities, which expires in May 2014. Engineering, marketing and administrative
functions are contained in one of the facilities, which is eighteen years old
and consists of 54,000 square feet. The second facility, which is thirteen years
old and consists of 56,000 square feet, contains manufacturing and warehousing
functions. The Company also leases 20,000 square feet for manufacturing and
warehousing activities and 9,000 square feet of offsite storage and shop space
which are both located within a two miles radius from the main facilities. These
leases expire on March 31, 2001 and on June 30, 2000, respectively.
Additionally, the Company leases a separate 37,250 square foot facility in
Eugene, Oregon for manufacturing and research and development activities, of
which, approximately 9,000 square feet are subleased to another tenant. This
lease expires on December 31, 2007.
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The Company leases approximately 6,250 square feet in Sharon Hill,
Pennsylvania for manufacturing and engineering operations associated with the
recent acquisition of GAP. This lease expires on October 31, 2000.
Domestically, the Company maintains offices under short-term leases for
individual sales and support personnel in or near Dallas, Texas; Dayton, Ohio;
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,
Guangzhou, Sydney, Melbourne, Hong Kong, London, Paris, Milan, Frankfurt,
Brussels, Madrid, Malmo, Singapore, Santiago, Istanbul 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
Symbol Technologies, Inc.
On or about April 1, 1996, the Company filed suit in the United States
District Court for the Western District of New York located in Rochester, New
York against Symbol Technologies, Inc. (Symbol)(97-CV-06152) for violation of
the antitrust laws and unfair trade practices and for declaration of
non-infringement and/or invalidity of certain of Symbol's patents. Symbol has
counterclaimed, alleging patent infringement and alleging breaches of certain
Symbol-PSC License Agreements. The Company informed Symbol that subsequent to
the acquisition of Spectra-Physics Scanning Systems, Inc., now PSC Scanning,
Inc. (Scanning), it has been operating under certain Symbol-Scanning licenses
rather than under the Symbol-PSC licenses. Proceedings were stayed with respect
to all issues other than the contract issues involved in the status of the
various licenses.
On September 11, 1998, the Company made a motion for partial summary
judgment on the issue of patent misuse on the part of Symbol. Thereafter, Symbol
cross-moved for partial summary judgment that it had not engaged in patent
misuse. 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, the Company was 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
unless and until the misuse was purged. Symbol moved for reconsideration of the
Court's Decision, and also moved for permission to file an interlocutory appeal,
rather than wait for the final adjudication of the case. On April 28, 1999, the
Court denied Symbol's motions for reconsideration and for interlocutory appeal
of the Court's October 1998 Order granting the Company partial summary judgment
against Symbol for patent misuse.
Pursuant to a scheduling order dated October 6, 1999, the contract issues
in the litigation were submitted as cross-motions for summary judgment filed
with the Court in November 1999.
On February 8, 2000, an order was entered by the United States District
Court for the Western District of New York based upon a decision of Judge
Michael A. Telesca (the Decision and Order), which held (1) that the Company is
obligated to pay Symbol a royalty under the Symbol-PSC License Agreements for
any product manufactured by the Company that practices the licensed Symbol
patent rights described in those Agreements rather than a royalty under more
favorable Symbol-Scanning License Agreements to which the Company succeeded when
it acquired Scanning and (2) that Symbol purged its misuse on October 23, 1998.
Thereafter, several motions were made by the parties:
a. On February 23, 2000, the Company filed a motion for
reconsideration and clarification of the Decision and Order and,
in the alternative, for certification of an interlocutory appeal
thereof under 28 U.S.C. ss. 1292(b). These motions were opposed
by Symbol.
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b. On March 10, 2000, Symbol filed a motion for an order holding the
Company in contempt of the Decision and Order and imposing a fine
on the Company for each day of non-compliance therewith. The
Company opposed the motion.
c. On March 21, 2000, the Company filed a cross-motion for a stay of
any money payments due under the Decision and Order, pending a
final adjudication in the action. This motion was opposed by
Symbol.
All the foregoing motions are currently scheduled to be considered
submitted without oral argument, unless the Court otherwise directs, on April
19, 2000.
On March 14, 2000, Symbol commenced an unrelated action (the Eastern
District Action) against the Company in the United States District Court for the
Eastern District of New York for the alleged infringement by the Company's
Momentum bar code scanner module of Symbol's patents Nos. 5468952 and 6036098
(CV-001432). On April 6, 2000, the Company filed an answer to the complaint in
that action in which it denies infringement, pleads four affirmative defenses
and asserts two counterclaims.
On March 27, 2000, Symbol filed a motion for an injunction pendente lite in
the Eastern District Action. On March 28, 2000, this motion was summarily
dismissed without prejudice, because Symbol filed a brief in excess of the
applicable page limitation. Symbol intends to refile that motion and is asking
permission to file an oversized brief. This motion is returnable on April 26,
2000. When Symbol refiles its motion for an injunction pendente lite, the
Company will oppose it. The action is in its preliminary stage. However, the
Company believes it to be without merit and will vigorously defend the claims.
Lemelson
On July 21, 1999, the Company and six other leading members of the
Automatic Identification and Data Capture industry jointly initiated litigation
(the Auto ID Action) in the United States District Court of Nevada in Reno,
Nevada against the Lemelson Medical, Educational & Research Foundation, Limited
Partnership (the Lemelson Partnership). In the Auto ID Action, entitled "Symbol
Technologies, Inc. et al. v. Lemelson Medical, Educational & Research
Foundation, Limited Partnership", the Auto ID companies seek, among other
remedies, a declaration that certain patents, which have been asserted by the
Lemelson Partnership against end users of bar code equipment, are invalid,
unenforceable and not infringed. The other plaintiffs in the lawsuit are
Accu-Sort Systems, Inc., Intermec Technologies Corporation, a wholly-owned
subsidiary of UNOVA, Inc., Metrologic Instruments, Inc., Symbol Technologies,
Inc., Teklogix Corporation, a wholly-owned U.S. subsidiary of Teklogix
International, Inc. and Zebra Technologies Corporation. Symbol has agreed to
bear approximately half of the legal and related expenses associated with the
litigation, with the remaining portion being borne equally by the Company and
the other five Auto ID companies.
Although no claim is now being asserted by the Lemelson Partnership
directly against the Company, the Lemelson Partnership has contacted many of the
Company's and other Auto ID companies' customers demanding a one-time license
fee for certain so-called "bar code" patents transferred to the Lemelson
Partnership by the late Jerome H. Lemelson. The Company and the other Auto ID
companies have received many requests from their customers asking that they
undertake the defense of these claims using their knowledge of the technology at
issue. Certain of these customers have requested indemnification against the
Lemelson Partnership's claims from the Company and the other Auto ID companies,
individually and/or collectively with other equipment suppliers. The Company and
the other Auto ID companies believe that generally they have no obligation to
indemnify their customers against these claims and that the patents being
asserted by the Lemelson Partnership against their customers with respect to bar
code equipment are invalid, unenforceable and not infringed. However, the
Company and the other Auto ID companies believe that the Lemelson claims do
concern the Auto ID industry at large and that it is appropriate for them to act
jointly to protect their customers against what they believe to be baseless
claims being asserted by the Lemelson Partnership. The Lemelson Partnership
moved to dismiss, transfer and/or stay the Auto ID Action.
On March 21, 2000, the U.S. District Court in Nevada denied the Lemelson
Partnerhip's motion to dismiss, transfer or stay the Auto ID Action. It also
struck one of the five counts in the Action and ordered the Action consolidated
with an action against the Lemelson Partnership brought by Cognex Corporation
pending in the same Court.
-18-
<PAGE>
On March 31, 2000, the Lemelson Partnership moved (1) to have a new
Magistrate appointed and (2) to transfer the case from Reno, Nevada to the
unofficial southern division of Nevada in Las Vegas. The motion was denied by
the Court on April 10, 2000. A scheduling hearing was held on April 13, 2000.
This litigation is in its early stages.
International Automated Systems
On or about July 2, 1999, International Automated Systems (IAS) filed a
complaint in the State of Utah against the Company and Optimal Robotics Corp
(Optimal) alleging patent infringement. The complaint was served on the Company
on or about August 23, 1999. An answer and counterclaim on behalf of the Company
and Optimal was served on IAS on or about October 22, 1999. A reply to the
counterclaim was filed on November 12, 1999. The Kroger Company and Smith's Food
and Drug have been added to the case as defendants. Optimal has retained counsel
to represent Optimal, the Company and the other companies. This case is in the
discovery phase. The Company's contract with Optimal provides for
indemnification obligations on the part of Optimal. The Company believes that
the lawsuit will not have a material adverse effect on the Company's business or
prospects and, with Optimal and the other defendants, intends to vigorously
defend the claim.
Metrologic Instruments, Inc.
On or about October 13, 1999, Metrologic Instruments, Inc. commenced suit
against the Company in the United States District Court for the District of New
Jersey alleging patent infringement and seeking damages and injunctive relief.
The Company filed an answer and counterclaim on December 22, 1999. The action
involves seven patents. The Company believes that the claims against it are
without merit and intends to vigorously defend the action.
Following a status conference on January 26, 2000, the District Court
referred this action to a mediator in accordance with its non-binding mediation
program. On April 4, 2000, the parties met with the mediator. An additional
session has been scheduled for May 4, 2000. A stay of discovery and other
proceedings has been ordered to May 15, 2000 to permit the parties to focus on
the mediation process.
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, 1999.
-19-
<PAGE>
EXECUTIVE OFFICERS OF REGISTRANT
The Company's executive officers as of December 31, 1999, were as follows.
Name Age Officer/Position
- ---- --- ----------------
Robert C. Strandberg 42.....President and Chief Executive Officer
Charles E. Biss 47.....Vice President, Verification Products
Cecil F. Bowes 56.....Vice President, Sales - The Americas,
Asia Pacific Rim
Nigel P. Davis 49.....Vice President, Sales - Europe,
Middle East, Africa
Phillip A. Eckerdt 52.....Vice President, Operations
G. William Hartman 53.....Vice President, Automation
Dennis T. Hopwood 50.....Vice President, Human Resources
David L. Latimer 48.....Vice President, Product Marketing
Elizabeth J. McDonald 46.....Vice President, Corporate Counsel and
Assistant Secretary
Linda J. Miller 39.....Senior Vice President and General Manager
William L. Parnell, Jr. 43.....Chief Operating Officer and
Senior Vice President
George A. Plesko 53.....Senior Vice President
Brad R. Reddersen 47.....Vice President, Chief Technology Officer
Matt D. Schler 43.....Vice President, Engineering and
Product Development
Michael J. Stachura 44.....Vice President, Finance
Roger D. Tedford 46.....Vice President, Chief Information Officer
G. Lloyd West 54.....Senior Vice President, Global Sales Operations
William J. Woodard 48.....Vice President, Chief Financial Officer and
Treasurer
-20-
<PAGE>
Robert C. Strandberg has served as a director since May 1998. He has served
as the President and Chief Executive Officer of the Company since April 1997 and
as Executive Vice President from November 1996 until April 1997. Between 1991
and 1996, Mr. Strandberg was Chairman of the Board of Directors, President and
Chief Executive Officer of Datamax International Corporation ("Datamax"),
Orlando, Florida. Datamax designs and manufactures thermal bar code printers.
Mr. Strandberg is a director of Sawtech, Inc., Orlando, Florida, a manufacturer
of surface acoustical filters for cellular phones. He is also a director of
Merix Corporation, Forest Grove, Oregon, a manufacturer of advanced printed
circuit boards for use in sophisticated electronic equipment. Mr. Strandberg
holds a B.S. degree in Industrial Engineering Operations Research from Cornell
University and an M.B.A. degree from Harvard University.
Charles E. Biss has served as Vice President, Verification Products since
January 1996, as General Manager, Verification Products (1995-1996) and as
Product and Technical Support Manager (1985-1995). Mr. Biss has served the
Company in a variety of technical and production related roles since 1973. Mr.
Biss represents the Company on a number of national and international standards
creating committees relating to bar codes and the automatic identification and
data capture industry. Mr. Biss holds a 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 Rim 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 (EMEA) since July 1996. Prior thereto, he was Group Director, EMEA for
Spectra from March 1993 to May 1996. Before joining Spectra, he held the
position of Vice President, EMEA for Prime Computer, Inc.
Phillip A. Eckerdt has served as Vice President, Operations since May 1999
and Director of Materials from July 1996 until May 1999. Prior thereto, he was
Director of Materials for Spectra from November 1990 until July 1996. Mr.
Eckerdt holds a B.S. degree in Psychology from Washington State University and
an M.S. degree in International Management from the University of Oregon.
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 served as Vice President, Human Resources since July
1997. As of January 11, 2000, Mr. Hopwood left the Company. Prior thereto, he
was Vice President, Human Resources for Spectra from May 1985 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.
David L. Latimer has served as Vice President, Product Marketing since May
1998. Prior thereto, he was Vice President of Product Marketing at Percon Inc.,
Eugene, Oregon, a manufacturer of bar code reading products, from February 1997
to May 1998 and Director of Product Marketing at Spectra from December 1987
until February 1997. He received B.S. and M.S. degrees from Michigan State
University and University of Wisconsin - Milwaukee, respectively, and holds an
M.B.A. degree from Harvard Business School.
Elizabeth J. McDonald has served as Vice President, Corporate Counsel and
Assistant Secretary since July 1999, as Corporate Counsel and Assistant
Secretary from September 1997 until July 1999 and as Assistant Corporate Counsel
from December 1996 until September 1997. Prior thereto, Ms. McDonald was a New
York State Assistant Attorney General. Ms. McDonald holds a B.A. degree from
Elmira College and a J.D. degree from Albany Law School of Union University.
Linda J. Miller has served as Senior Vice President and General Manager
since May 1999 and as Vice President, Marketing from April 1998 until May 1999.
Prior to joining the Company, Ms. Miller was Vice President of Business Planning
and Development for Champion Products, which she joined in January 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.
-21-
<PAGE>
William L. Parnell, Jr. served as Chief Operating Officer and Senior Vice
since May 1999 and as Vice President, Operations from October 1996 until May
1999. On January 11, 2000, Mr. Parnell left the Company. 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.
George A. Plesko has served as Senior Vice President since December 1999.
Prior to joining the Company, Mr. Plesko was President, CEO, Chairman and
majority stockholder of GAP Technologies, Inc. (GAP) which he founded in 1989.
GAP was engaged in the design, development and manufacture of miniature
electro-optical scanning devices. Prior to founding GAP, he served as a director
at Mars Electronics International, Inc. Mr. Plesko is the inventor of 31 United
States patents, 29 of which are now owned by the Company. These include broad
patents on the world's only non-contact laser scanning pen. Mr. Plesko received
a B.S. degree in Physics and an M.S. degree in Nuclear Physics from the
Pennsylvania State University.
Brad R. Reddersen has served as Vice President, Chief Technology Officer
since December 1997 and was Vice President, Engineering and Product Development
from December 1996 to November 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.
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 Engineering Manager of Spectra from March
1992 until January 1997. Mr. Schler received a B.S. degree in Electrical
Engineering from the 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 served as Vice President, Chief Information Officer since
November 1996. On March 31, 2000, Mr. Tedford left the Company. 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.
G. Lloyd West has served as Senior Vice President, Global Sales Operations
since October 1999. Prior to joining the Company, Mr. West was Vice President,
International Business Development at Tektronix, Inc. He also held positions as
Vice President and General Manager, Europe and Vice President - U.S. Sales at
Tektronix. Mr. West received a B.S. degree in Business/Mathematics from Oregon
State University and an M.B.A. degree from the University of Oregon.
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.
-22-
<PAGE>
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
---- ---
1999
Fourth Quarter................... $ 9.00 $6.25
Third Quarter.................... $10.25 $6.88
Second Quarter................... $10.75 $7.63
First Quarter.................... $ 9.63 $7.38
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
As of December 31, 1999, there were approximately 1,400 holders of record
of common shares.
The Company has not paid any cash dividends since 1979 and does not
anticipate paying cash dividends in the foreseeable future. The Company's senior
debt and subordinated term loan agreements restrict payment of dividends.
-23-
<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, 1999 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,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net sales................................. $231,324 $217,223 $207,840 $146,051 $87,516
Cost of sales............................. 134,049 126,350 122,995 (2) 83,675 50,634
-------------------------------------------------------------------------
Gross profit........................... 97,275 90,873 84,845 62,376 36,882
Operating expenses:
Engineering, research and development.. 18,075 15,665 13,429 11,069 4,962
Selling, general and administrative.... 45,185 42,069 43,743 37,855 23,024
Acquisition related restructuring and
other costs.......................... -- -- -- 70,068 (3) --
Severance and other costs.............. 8,323 (1) -- 4,191 (2) -- --
Amortization of intangibles from
business acquisitions................ 6,419 6,822 6,715 3,564 877
-------------------------------------------------------------------------
Income/(loss)from operations.............. 19,273 26,317 16,767 (60,180) 8,019
Interest and other income/(expense)....... (7,024) (9,833) (12,016) (5,747) 676
-------------------------------------------------------------------------
Income/(loss) from continuing operations
before income tax provision/(benefit) 12,249 (1) 16,484 4,751 (2) (65,927) (3) 8,695
Income tax provision/(benefit)............ 4,287 5,968 1,761 (24,393) 3,246
-------------------------------------------------------------------------
Income/(loss) from continuing operations.. 7,962 10,516 2,990 (41,534) 5,449
Loss from discontinued operations......... -- -- (101) (5,446) --
-------------------------------------------------------------------------
Net income/(loss)......................... $ 7,962 (1) $10,516 $ 2,889 (2) $(46,980) (3) $5,449
=========================================================================
Net income/(loss) per common and
common equivalent share:
Basic:
Continuing operations................. $0.67 $0.90 $0.27 $(3.96) $0.58
Discontinued operations............... -- -- (0.01) (0.52) --
=========================================================================
Net income/(loss)........................ $0.67 (1) $0.90 $0.26 (2) $(4.48) (3) $0.58
=========================================================================
Diluted:
Continuing operations................. $0.58 $0.75 $0.25 $(3.96) $0.54
Discontinued operations............... -- -- (0.01) (0.52) --
=========================================================================
Net income/(loss)........................ $0.58 (1) $0.75 $0.24 (2) $(4.48) (3) $0.54
=========================================================================
Weighted average number of common and
common equivalent shares:
Basic................................. 11,942 11,713 11,197 10,490 9,329
Diluted .............................. 13,751 13,993 11,843 10,490 10,013
</TABLE>
(1) Severance and other costs reduced 1999 income before income taxes, net
income, basic EPS and diluted EPS by $8.3 million, $5.4 million, $0.45
and $0.39, respectively.
(2) 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.
(3) 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.
-24-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents........ $ 1,402 $ 6,180 $ 2,271 $ 10,838 $ 5,538
Working capital.................. 16,845 16,827 12,112 13,320 20,397
Total assets..................... 166,741 171,263 172,798 183,361 71,237
Long-term debt, including current
maturities....................... 73,866 93,208 108,554 127,453 623
Total shareholders' equity....... 51,333 44,199 29,330 15,301 53,327
</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,
----------------------------------------------------------------------
1999 1998 1997
--------------------- ---------------------- -----------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................... $231,324 100.0% $217,223 100.0% $207,840 100.0%
Cost of sales................................ 134,049 58.0 126,350 58.2 122,995 (2) 59.2
---------- -------- ----------- --------- ---------- --------
Gross profit............................... 97,275 42.0 90,873 41.8 84,845 40.8
Operating expenses:
Engineering, research and development...... 18,075 7.8 15,665 7.2 13,429 6.5
Selling, general and administrative........ 45,185 19.5 42,069 19.4 43,743 21.0
Severance and other costs.................. 8,323 (1) 3.6 -- -- 4,191 (2) 2.0
Amortization of intangibles from business
acquisitions............................ 6,419 2.8 6,822 3.1 6,715 3.2
---------- -------- ----------- --------- ----------- --------
Income from operations....................... 19,273 8.3 26,317 12.1 16,767 8.1
Interest and other income/(expense).......... (7,024) (3.0) (9,833) (4.5) (12,016) (5.8)
---------- -------- ----------- --------- ----------- --------
Income from continuing operations before
income tax provision...................... 12,249 (1) 5.3 16,484 7.6 4,751 (2) 2.3
Income tax provision......................... 4,287 1.9 5,968 2.7 1,761 0.9
---------- -------- ----------- --------- ----------- --------
Income from continuing operations........... 7,962 3.4 10,516 4.9 2,990 1.4
Loss from discontinued operations........... -- -- -- -- (101) --
---------- -------- ----------- --------- ----------- --------
Net income.................................. $ 7,962 (1) 3.4% $10,516 4.9% $ 2,889 (2) 1.4%
========== ======== =========== ========= =========== ========
</TABLE>
(1) Severance and other costs reduced 1999 income before income taxes and
net income by $8.3 million and $5.4 million, respectively.
(2) Severance and other costs reduced 1997 income before income taxes and
net income by $5.2 million and $3.3 million, respectively.
-25-
<PAGE>
Overview
PSC Inc. (the Company) achieved record annual sales in 1999 while also investing
in new products and companies that extend its reach into higher growth markets
and emerging technologies within the Automatic Identification and Data
Collection (AIDC) industry. During the year, the Company announced two
acquisitions and a minority investment, streamlined manufacturing operations,
strengthened its financial position by reducing debt and interest expense and
increased investments in product development and marketing to accelerate
profitable revenue growth.
Some of the key results of the Company's 1999 efforts include the following:
o Sales reached a record high of $231.3 million
o Earnings per diluted share, excluding one-time charges, improved by 29% to a
record $0.97
o Earnings per diluted share, excluding goodwill amortization and one-time
charges, increased by 18% to a record $1.22
o Four quarters of EBITDA, excluding one-time charges, reached $41.3 million
o Long-term debt declined by $21.2 million or 27%
o Two acquisitions and a minority investment were announced, expanding the
Company's product lines and systems solutions capabilities
The Company's solid financial position, established earnings record, market and
technological leadership, and new product introductions provided a strong
foundation from which to increase future sales growth and improve financial
results. The Company expects growth from several investments announced in 1999.
On January 19, 2000, the Company acquired all of the outstanding shares of
Percon Incorporated (Percon), a manufacturer of wireless and batch portable data
terminals (PDTs), decoders, input devices and data management software, for
approximately $57.1 million. The acquisition of Percon significantly increased
the scope of the Company's product line, enhancing the Company's ability to
provide systems type solutions and to expand the Company into the PDT and
software/services categories of the AIDC market, which are growing rapidly.
On December 21, 1999, the Company acquired substantially all of the assets of
GAP Technologies, Inc. and GEO Labs, Inc. (GAP) for approximately $4.8 million.
GAP is a technology and research group that designs and manufactures miniature
laser scan engines and pen-based scanners. The Company recently introduced an
innovative consumer home shopping appliance, incorporating the miniature scan
engine technology developed by GAP. The home shopping system enables consumers
to create a shopping list by scanning product bar codes and then transmitting
the list online to the retailer.
In May 1999, the Company made a minority interest investment of $3.0 million in
Eldat Communication Ltd., which develops and manufactures fully integrated
electronic price display systems for retail applications, including electronic
shelf labels. The system interfaces with a store's main computer, point-of-sale
and back-office system enabling immediate, coordinated price changes to
thousands of products.
Also during 1999, the Company continued to develop its commercial and industrial
and retail scanner product lines for the future. One of the fastest growing
product categories for PSC in 1999 was self-checkout, with sales of the
U-Scan(R) Express Self-Checkout System up significantly over 1998. U-Scan(R)
Express Self-Checkout Systems are manufactured exclusively by the Company in
accordance with an agreement entered into by the Company with Optimal Robotics
Corp. (Optimal) which extends until December 31, 2000. During 1999, Optimal
announced that they would commence manufacturing at the termination of the
agreement. In anticipation that the relationship with Optimal would eventually
terminate, the Company reserved the right under the agreement to design and
manufacture its own self-checkout product, however, the Company agreed not to
actually sell, promote or market a competing product until the agreement
terminates. The Company intends on remaining a market leader in all aspects of
retail scanning and is committed to retaining that position for the long-term.
For the Year ended December 31, 1999
Net sales of $231.3 million for the year ended December 31, 1999 increased 7%
over 1998. The increase in net sales is primarily due to higher sales of fixed
position retail, handheld retail and U-Scan(R) Express Self-Checkout Systems
products offset by lower industrial automation, handheld commercial and
industrial scanner and engine product sales. International net sales increased
19% over the prior year primarily due to the introduction of new products and
the continued growth in the Company's European and Asian customer sales, and
represented 58% of net sales in 1999 versus 52% in 1998.
-26-
<PAGE>
Gross profit of $97.3 million for the year ended December 31, 1999 increased 7%
over 1998. As a percentage of sales, gross profit was 42.1% in 1999 compared to
41.8% in 1998. 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 1999, the Company continued its commitment to new products. Engineering,
research and development (ER&D) expenses of $18.1 million for the year ended
December 31, 1999 increased $2.4 million or 15%. As a percentage of sales, ER&D
increased to 7.8% from 7.2% in 1998. The 1999 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 $45.2 million for the
year ended December 31, 1999 increased $3.1 million or 7%. As a percentage of
sales, SG&A increased slightly to 19.5% in 1999 from 19.4% in 1998. The 1999
dollar and percentage increases are primarily attributed to an increase in the
international sales infrastructure to support higher sales volumes and
additional investments in the Company's marketing organization and marketing
programs.
During the first quarter of 1999, the Company recorded a pretax charge of $2.1
million for severance and other costs. Of the total charge, $1.4 million was for
employee severance and benefit costs for the elimination of approximately 140
positions primarily at the Webster, New York manufacturing facility resultant
from the consolidation of all high volume handheld scanner manufacturing at the
Company's Eugene, Oregon facility. The remaining $0.7 million was for early
termination of the lease on the Company's Webster offsite storage and repair
facility. Excluding $0.2 million reversed in 1999, the Company recorded charges
against the accrual of $1.8 million in 1999. As of December 31, 1999, the
severance and other accruals were approximately $0.1 million, which relates to
current contractual obligations. These costs reduced 1999 income before income
tax provision, net income, basic EPS and diluted EPS by $1.9 million, $1.3
million, $0.10 and $0.09, respectively.
During the fourth quarter of 1999, the Company recorded a pretax charge of $6.4
million for potential back royalty charges in connection with the Symbol
litigation. These costs reduced 1999 income before income tax provision, net
income, basic EPS and diluted EPS by $6.4 million, $4.2 million, $0.35 and
$0.30, respectively.
The Company's effective tax rate was 35.0% in 1999 versus 36.2% in 1998
primarily due to utilization of federal tax credits and larger Foreign Sales
Corporation benefits realized during the current year. In 1999, the Company
recorded a $4.3 million income tax provision due to an increase in pretax
income.
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 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, engineering, research and development (ER&D) expenses of $15.7 million
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.
-27-
<PAGE>
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.
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. The accrual for these activities as of December 31,
1999 was approximately $0.1 million, which relates to current 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.
Discontinued Operations
In June 1997, the Company disposed of its TxCOM subsidiary, which was acquired
as a part of the Spectra acquisition. In 1997, the Company recognized a net gain
on operations of $0.2 million and a loss of $0.3 million in connection with the
disposal of TxCOM. This loss includes the write-down of the assets to their net
realizable value and the costs of disposing of the subsidiary, net of applicable
tax benefits.
Liquidity and Capital Resources
Current assets increased $3.1 million from December 31, 1998 primarily due to an
increase in accounts receivable and inventory levels. Current liabilities
increased $3.1 million from December 31, 1998 primarily due to an increase in
the current portion of long-tem debt and accounts payable offset by a reduction
in accrued expenses. As a result, working capital was consistent with prior
year.
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.
Property, plant and equipment expenditures totaled $4.8 million in 1999 and $5.8
million in 1998. The 1999 expenditures primarily related to manufacturing
equipment, new product tooling and computer hardware. The 1998 expenditures
primarily related to manufacturing equipment and new product tooling.
During May 1999, the Company sold its facilities and property located in Eugene,
Oregon and simultaneously entered into a lease agreement for the facilities for
a 15 year period. The net proceeds from the sale totaled $8.0 million, which
were utilized to reduce the senior credit facilities.
The long-term debt-to-capital percentage was 50.9% at December 31, 1999 versus
64.1% at December 31, 1998. The decrease in percentage was primarily due to a
reduction in long-term debt of $21.2 million and an increase in retained
earnings of $12.1 million resultant from 1999 net income offset, in part, by
$1.1 million of common shares repurchased during 1999. At December 31, 1999,
liquidity immediately available to the Company consisted of cash and cash
equivalents of approximately $1.4 million. The Company has outstanding credit
facilities totaling $73.9 million and a revolving line of credit totaling $20.0
million, of which, there were no outstanding borrowings as of December 31, 1999.
In January 2000, the Company's credit agreement with the senior term loan
lenders was amended in connection with the Percon acquisition. Consequently, the
Company borrowed an additional $58.0 million resulting in total indebtedness of
approximately $133.6 million. Additionally, the Company's revolving line of
credit was increased to $50.0 million, of which, $23.0 million was available to
the Company subsequent to the acquisition. 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.
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<PAGE>
In the opinion of management, inflation has not had a material effect on the
operations of the Company.
Market Risk
At December 31, 1999, the Company had outstanding foreign currency exchange
contracts to sell $7.5 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 $0.7 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, 1999
totaled $8.5 million. The potential loss in net assets resulting from a
hypothetical 10% adverse change in quoted foreign currency exchange rates
amounts to $0.8 million.
At December 31, 1999, the Company had interest rate swap agreements aggregating
a notional principal amount of $42.0 million. These swaps effectively change the
Company's payment of interest on $42.0 million of variable rate debt to fixed
rate debt. Based on the fair value of these interest rate swap agreements at
December 31, 1999, the Company would have received $0.2 million to terminate the
agreements. A hypothetical 1% decrease in the replacement swap rate would
decrease the fair value by approximately $0.3 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 $73.5 million, including current
maturities, at December 31, 1999. A hypothetical 1% increase from prevailing
interest rates at December 31, 1999 would result in a decrease in fair value of
long-term debt by approximately $1.1 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.
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
execute its contingency plan and make arrangements for alternate suppliers and
utilize manual intervention to ensure the continuation of operations where
necessary. If it becomes necessary for the Company to take these corrective
actions, the Company does not believe that 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.
The Company incurred approximately $0.6 million of incremental out-of-pocket
costs for its Year 2000 program to remediate existing computer software and
hardware. These costs do not include internal management time, which the Company
does not separately track, nor the deferral of other projects, the effects of
which were not material to the Company's results of operations or financial
condition. As of this time, the Company has not been made aware of any Year 2000
issues nor has the Year 2000 issue had a material adverse impact on results of
operations, financial position or cash flows.
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 believes that the euro conversion will not have a
material adverse impact to results of operations, financial position or cash
flows.
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<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 captions
entitled "Election of Directors - Information Concerning Nominees for Directors
and Other Incumbent Members of the Board of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" contained in the Company's proxy
statement for the 2000 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
fiscal year covered by this report, or in an amendment to this Form 10-K, 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 Company's proxy
statement for the 2000 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
fiscal year covered by this report, or in an amendment to this Form 10-K, 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 Company's proxy statement for the 2000 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year covered by this report, or in an
amendment to this Form 10-K, 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 Company's proxy statement for the 2000
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this report, or in an amendment to this Form 10-K, and is incorporated in this
report by reference thereto.
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<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........................38
Consolidated Financial Statements...............................39
Notes to Consolidated Financial Statements......................43
(a) 2 Financial Statement Schedules:
Included in Part IV of this report:
Schedule II Valuation and Qualifying Accounts.............62
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 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")).
2.2 Agreement and Plan of Merger, dated as of November 9, 1999, by and among
PSC Inc., West Acquisition Corp. and Percon Incorporated (incorporated by
reference to Exhibit 2.1 of the Company's Current Report on Form 8-K as of
January 19, 2000 ("the January 19, 2000 Form 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.............................63
3.5 Articles of Merger of West Acquisition Corp. into Percon Incorporated filed
with the Secretary of the State of Washington on January 19, 2000
(incorporated by reference to Exhibit 3.1 of the January 19, 2000 Form
8-K).
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).
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).
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<PAGE>
4.4 Form of Warrant issued to the Purchasers named in the Securities Purchase
Agreements dated July 12, 1996 (Warrants were issued to seven Purchasers
for an aggregate of 975,000 common shares of the Company) (incorporated by
reference to Exhibit 4.3 of the 1996 8-K).
4.5 Subordinated Installment Promissory Note of PSC Acquisition, Inc. issued to
Spectra-Physics, Inc. on July 12, 1996 in the principal amount of
$5,000,000 (incorporated by reference to Exhibit 4.4 of the 1996 8-K).
4.6 Note Guarantee dated July 12, 1996 made by PSC Inc. to Spectra-Physics,
Inc. (incorporated by reference to Exhibit 4.5 of the 1996 8-K).
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, 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")).
10.3*First Amendment to Agreement between the Company and Robert S. Ehrlich as
of December 11, 1998 (incorporated by reference to Exhibit 10.4 of the
Company's Annual Form 10-K for the fiscal year ended December 31, 1998 (the
"December 31, 1998 Form 10-K")).
10.4*Second Amendment to Agreement between the Company and Robert S. Ehrlich as
of July 13, 1999 (incorporated by reference to Exhibit 10.6 of the
Company's Quarterly Report on Form 10-Q for the quarter ended July 2, 1999
(the "July 2, 1999 Form 10-Q")).
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, 1998 (incorporated by reference to Exhibit 10.1 of the July 3, 1998
Form 10-Q).
10.8*First Amendment to Employment Agreement between the Company and Robert C.
Strandberg, as of December 11, 1998 (incorporated by reference to Exhibit
10.9 of the December 31, 1998 Form 10-K).
10.9*Second Amendment to Employment Agreement between the Company and Robert C.
Strandberg, as of July 13, 1999 (incorporated by reference to Exhibit 10.5
of the July 2, 1999 Form 10-Q).
10.10*Employment Agreement between the Company and Nigel P. Davis dated 1998
(incorporated by reference to Exhibit 10.11 of the December 31, 1998 Form
10-K).
10.11*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).
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<PAGE>
10.12* PSC Inc. Director Compensation Plan dated as of May 7, 1998 (incorporated
by reference to Exhibit 10.3 of the July 3, 1998 Form 10-Q).
10.13* 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).
10.14* Amended PSC Inc. 1994 Stock Option Plan (incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on Form S-8 dated
August 5, 1999 No. 333-84539).
10.15* Amended 1995 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.4 of the July 3, 1998 Form 10-Q).
10.16* 1997 Management Incentive Plan (incorporated by reference to Exhibit
10.12 of the Company's December 31, 1997 Form 10-K).
10.17* 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).
10.18Credit 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).
10.19First 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")).
10.20Second 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).
10.21Amendment 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")).
10.22Consent 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).
10.23Fourth 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).
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<PAGE>
10.24AmendmentFive and Consent and Waiver dated as of March 1, 1999 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 July 2, 1999 Form 10-Q).
10.25Amendment Six dated as of May 1, 1999 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 2, 1999 Form 10-Q).
10.26Consent and Waiver dated as of June 30, 1999 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 10.4 of the July 2, 1999 Form 10-Q).
10.27Amendment Seven and Consent and Waiver dated as of October 13, 1999 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....................................................................76
10.28Variance dated as of October 28, 1999 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............................................81
10.29Amendment Eight and Consent and Waiver dated as of January 19, 2000 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 January 19, 2000 Form
8-K).
10.30Securities 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).
10.31Amendment 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).
10.32Amendment 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).
10.33Amendment 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).
10.34Consent 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).
10.35Amendment No. 4, Consent and Waiver dated March 1, 1999 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 10.2 of the July 2, 1999 Form 10-Q).
10.36Amendment No. 5, and Consent dated December 20, 1999 to Securities Purchase
Agreements and Warrants among PSC Inc., PSC Scanning Inc., and the
Purchasers named in the Securities Purchase
Agreements...............................................................84
10.37Stock 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).
10.38Registration 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).
10.39Lease Agreement between the Company and Scan LLC dated May 12, 1999
(incorporated by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q for the quarter ended April 2, 1999).
22.1 Subsidiaries of Registrant...............................................94
24.1 Consent of Independent Public Accountant, dated April 14, 2000...........95
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<PAGE>
(b): Reports on Form 8-K:
Report on Form 8-K dated November 10, 1999
Report on Form 8-K dated December 22, 1999
Report on Form 8-K dated February 2, 2000
Report on Form 8-K/A dated April 3, 2000
* Management contract or compensatory plan or arrangement
-35-
<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: April 14, 2000 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: April 14, 2000 Principal Executive Officer
/s/ Robert C. Strandberg
Robert C. Strandberg
President and Chief Executive Officer
Date: April 14, 2000 Chief Financial Officer
/s/ William J. Woodard
William J. Woodard
Vice President, Chief Financial Officer
and Treasurer
Date: April 14, 2000 Principal Accounting Officer
/s/ Michael J. Stachura
Michael J. Stachura
Vice President, Finance
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<PAGE>
Date: April 14, 2000 /s/ Jay M. Eastman
-----------------------------------
Jay M. Eastman
Director
Date: April 14, 2000 /s/ Robert S. Ehrlich
-----------------------------------
Robert S. Ehrlich
Director, Chairman of the Board
Date: April 14, 2000 /s/ Donald K. Hess
-----------------------------------
Donald K. Hess
Director
Date: April 14, 2000 /s/ Thomas J. Morgan
-----------------------------------
Thomas J. Morgan
Director
Date: April 14, 2000 /s/ James C. O'Shea
-----------------------------------
James C. O'Shea
Director
Date: April 14, 2000 /s/ Jack E. Rosenfeld
-----------------------------------
Jack E. Rosenfeld
Director
Date: April 14, 2000 /s/ Justin L. Vigdor
-----------------------------------
Justin L. Vigdor
Director
Date: April 14, 2000 /s/ Romano Volta
-----------------------------------
Romano Volta
Director
Date: April 14, 2000 /s/ Bert W. Wasserman
------------------------------------
Bert W. Wasserman
Director
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PSC Inc.:
We have audited the accompanying consolidated balance sheets of PSC Inc. (a New
York corporation) and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
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 statement schedules is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied 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.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Rochester, New York
April 14, 2000
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<PAGE>
<TABLE>
<CAPTION>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except per share data)
December 31,
------------------------------
1999 1998
------------- -------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,402 $ 6,180
Accounts receivable, net of allowance for doubtful accounts
of $685 and $1,492, respectively 38,396 37,121
Inventories, net 23,343 17,250
Prepaid expenses and other 3,514 2,946
--------- ---------
Total current assets 66,655 63,497
Property, Plant and Equipment, net 25,994 35,397
Deferred Tax Assets 20,762 21,244
Intangible and Other Assets, net 53,330 51,125
--------- ---------
Total assets $ 166,741 $ 171,263
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 16,281 $ 14,402
Accounts payable 20,685 18,190
Accrued expenses 7,086 8,450
Accrued payroll and related employee benefits 5,758 5,628
--------- ---------
Total current liabilities 49,810 46,670
Long-Term Debt, less current maturities 57,585 78,806
Accrued Provision for Disputed Royalties 6,400 --
Other Long-Term Liabilities 1,613 1,588
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, no shares
issued and outstanding -- --
Undesignated preferred shares, par value $.01; 9,715 authorized, no shares
issued and outstanding -- --
Common shares, par value $.01; 40,000 authorized, 12,080
and 11,869 issued, respectively 121 119
Additional paid-in capital 71,843 70,068
Retained earnings/(Accumulated deficit) (18,065) (26,027)
Accumulated other comprehensive income/(loss) (1,210) 275
Less treasury shares repurchased at cost, 180 and 39 shares, respectively (1,357) (237)
--------- ---------
Total shareholders' equity 51,333 44,199
--------- ---------
Total liabilities and shareholders' equity $ 166,741 $ 171,263
========= =========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
-39-
<PAGE>
<TABLE>
<CAPTION>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(All amounts in thousands, except per share data)
Year Ended December 31,
--------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Net Sales $ 231,324 $ 217,223 $ 207,840
Cost of Sales 134,049 126,350 122,995
--------- --------- ---------
Gross profit 97,275 90,873 84,845
Operating Expenses:
Engineering, research and development 18,075 15,665 13,429
Selling, general and administrative 45,185 42,069 43,743
Amortization of intangibles resulting from business
acquisitions 6,419 6,822 6,715
Severance and other costs 8,323 -- 4,191
--------- --------- ---------
Income from operations 19,273 26,317 16,767
Interest and Other Income:
Interest expense (7,686) (10,246) (12,563)
Interest income 278 238 440
Other income 384 175 107
--------- --------- ---------
(7,024) (9,833) (12,016)
--------- --------- ---------
Income from Continuing Operations Before
Income Tax Provision 12,249 16,484 4,751
Income Tax Provision 4,287 5,968 1,761
--------- --------- ---------
Income from Continuing Operations 7,962 10,516 2,990
Discontinued Operations:
Gain from discontinued operations, net of tax -- -- 164
Loss on disposal of discontinued operations -- -- (265)
--------- --------- ---------
Total Loss from Discontinued Operations -- -- (101)
--------- --------- ---------
Net Income $ 7,962 $ 10,516 $ 2,889
========= ========= =========
Net Income Per Common and Common
Equivalent Share:
Basic:
Continuing operations $ 0.67 $ 0.90 $ 0.27
Discontinued operations -- -- (0.01)
--------- --------- ---------
Net income $ 0.67 $ 0.90 $ 0.26
========= ========= =========
Diluted:
Continuing operations $ 0.58 $ 0.75 $ 0.25
Discontinued operations -- -- (0.01)
--------- --------- ---------
Net income $ 0.58 $ 0.75 $ 0.24
========= ========= =========
Weighted Average Number of Common
and Common Equivalent Shares Outstanding:
Basic 11,942 11,713 11,197
Diluted 13,751 13,993 11,843
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
-40-
<PAGE>
<TABLE>
<CAPTION>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(All amounts in thousands)
Year Ended December 31,
---------------------------------------------------------
1999 1998 1997
----------------- --------------- -----------------
Shares Amount Shares Amount Shares Amount
------ -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Series A Convertible Preferred Shares:
Balance, beginning of year 110 $ 1 110 $ 1 -- $ --
Issuance of preferred shares -- -- -- -- 110 1
------- ------- ------- ------- ------- -------
Balance, end of year 110 $ 1 110 $ 1 110 $ 1
======= ======= ======= ======= ======= =======
Common Shares:
Balance, beginning of year 11,830 $ 119 11,351 $ 114 11,122 $ 112
Issuance of shares pursuant to
Employee Stock Purchase Plan 129 1 107 1 67 1
Issuance of restricted stock awards, net -- -- 62 1 7 --
Shares repurchased (141) -- -- -- -- --
Exercise of options 82 1 310 3 155 1
------- ------- ------- ------- ------- -------
Balance, end of year 11,900 $ 121 11,830 $ 119 11,351 $ 114
======= ======= ======= ======= ======= =======
Additional Paid-In Capital:
Balance, beginning of year $70,068 $66,734 $54,891
Issuance of shares pursuant to
Employee Stock Purchase Plan 964 737 390
Exercise of options 594 1,983 1,150
Issuance of restricted stock awards, net -- 590 70
Deferred compensation for restricted
stock awards, net of amortization 175 (459) (70)
Issuance of preferred shares, net -- -- 9,595
Issuance of warrants -- -- 617
Tax benefit from exercise or early
disposition of stock options 42 483 91
------- ------- -------
Balance, end of year $71,843 $70,068 $66,734
======= ======= =======
Retained Earnings/(Accumulated Deficit):
Balance, beginning of year $(26,027) $(36,543) $(39,432)
Net income 7,962 10,516 2,889
--------- --------- ---------
Balance, end of year $(18,065) $(26,027) $(36,543)
========= ========= =========
Accumulated Other Comprehensive
Income/(Loss):
Balance, beginning of year $ 275 $ (739) $ (33)
Foreign currency translation adjustment (1,173) 702 (706)
Unrealized (loss)/gain on securities (312) 312 --
--------- --------- ---------
Balance, end of year $ (1,210) $ 275 $ (739)
========= ========= =========
Treasury Shares:
Balance, beginning of year $ (237) $ (237) $ (237)
Shares repurchased (1,120) -- --
--------- --------- ---------
Balance, end of year $ (1,357) $ (237) $ (237)
========= ========= =========
Comprehensive Income:
Net Income $ 7,962 $ 10,516 $ 2,889
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustment (1,173) 702 (706)
Unrealized (loss)/gain on securities (312) 312 --
--------- --------- ---------
Comprehensive Income $ 6,477 $ 11,530 $ 2,183
========= ========= =========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
-41-
<PAGE>
<TABLE>
<CAPTION>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
Year Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,962 $ 10,516 $ 2,889
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 13,300 13,399 13,735
Loss on disposition of assets -- 9 109
Loss on disposal of discontinued operations -- -- 265
Deferred tax assets 482 2,332 1,197
(Increase) decrease in assets:
Accounts receivable, net (1,284) (2,029) (6,705)
Inventories (6,093) 473 581
Prepaid expenses and other (568) (1,377) 80
Increase (decrease) in liabilities:
Accounts payable 2,495 190 2,467
Accrued expenses (982) 630 (3,190)
Accrued payroll and related employee benefits 88 (477) (1,855)
Accrued provision for disputed royalties 6,400 -- --
Accrued acquisition related restructuring costs (414) (819) (3,830)
-------- -------- --------
Net cash provided by operating activities 21,386 22,847 5,743
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,752) (5,792) (6,557)
Additions to intangible and other assets (9,736) (1,559) (343)
Proceeds from sale/leaseback and land sale 8,620 -- --
Repayment of notes for stock option activity -- 325 278
-------- -------- --------
Net cash used in investing activities (5,868) (7,026) (6,622)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt 11,750 11,500 5,000
Payments of long-term debt (31,092) (26,846) (23,899)
Additions to other long-term liabilities -- -- 1,398
Payments of other long-term liabilities (263) (476) (655)
Exercise of options and the issuance of common shares 1,559 2,725 1,542
Purchase of treasury stock (1,120) -- --
Issuance of preferred shares and warrants, net -- -- 10,213
Tax benefit from exercise or early disposition of stock options 43 483 91
-------- -------- --------
Net cash used in financing activities (19,123) (12,614) (6,310)
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents (1,173) 702 (1,378)
-------- -------- --------
Net (Decrease) Increase in Cash and Cash Equivalents (4,778) 3,909 (8,567)
CASH AND CASH EQUIVALENTS:
Beginning of year 6,180 2,271 10,838
-------- -------- --------
End of year $ 1,402 $ 6,180 $ 2,271
======== ======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 7,607 $10,059 $13,804
Income taxes paid $ 3,739 $ 2,455 $ 438
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
-42-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(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 are recorded at cost less accumulated
depreciation. Expenditures for maintenance and repairs are expensed;
expenditures for renewals and improvements are generally capitalized. Upon sale
or retirement of an asset, the related costs and accumulated depreciation are
removed from the accounts and any gain or loss is recognized in the consolidated
statements of operations. 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 leasehold improvements is amortized using the straight-line
method over the shorter of the estimated useful lives of the assets or the lease
term.
-43-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(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 on a
straight-line basis over a period of 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 if 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.
An impairment loss is measured as the amount by which the carrying amount of the
asset exceeds the fair value of the asset. No impairments were recorded in 1999,
1998 or 1997.
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
Statement of Financial Accounting Standards No. 130 (SFAS No. 130),
"Reporting Comprehensive Income," 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/(losses) on securities, net of tax, and is presented in the consolidated
statements of shareholders' equity.
-44-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(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. Gains and losses resulting from this
process are recorded in accumulated other comprehensive income/(loss) in the
consolidated balance sheets. Operating transactions are translated at weighted
average exchange rates prevailing during the year and are reflected in net
income. Translation gains and losses were not material in 1999, 1998 or 1997.
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. As
amended by Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133", SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000 and cannot be applied retroactively.
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.
-45-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(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 due to 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>
1999 1998
-------------------------------------- -----------------------------------------
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 $ -- $73,866 $73,534 $ -- $93,208 $94,145
Interest rate swap
agreements $42,000 $ -- $ (156) $60,000 $ -- $ 522
Foreign currency
exchange contracts $ 7,460 $ -- $ (35) $ 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 (benefit)/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 generally
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.
Reclassification
Certain amounts in prior years have been reclassified to conform to the
current year presentation.
-46-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(All amounts in thousands, except per share data)
3. INVENTORY
Inventory consists of the following at December 31:
1999 1998
------------ ------------
Raw materials $14,358 $11,231
Work-in-process 5,238 2,888
Finished goods 3,747 3,131
------------ ------------
$23,343 $17,250
============ ============
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of the following at
December 31:
1999 1998
-------- --------
Land $ 234 $ 2,312
Building and improvements 11,041 18,114
Office furniture and equipment 15,028 13,347
Production equipment 22,027 19,702
Leasehold improvements 1,278 561
-------- --------
49,608 54,036
Less: accumulated depreciation and amortization 23,614 18,639
-------- --------
$25,994 $35,397
======== ========
Depreciation expense for 1999, 1998 and 1997 amounted to $6,005, $5,855 and
$6,478, respectively. Amortization of capital lease assets is included in
depreciation expense.
During May 1999, the Company sold its facilities and property located in
Eugene, Oregon and simultaneously entered into a lease agreement for the
facilities for a 15 year period. The lease is being accounted for as an
operating lease, and the resulting gain of $0.5 million is being amortized over
the life of the lease. The annual rental expense will be $0.8 million, which
will be paid in quarterly installments. The net proceeds from the sale totaled
$8.0 million which were utilized to reduce the senior credit facilities.
5. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following at December 31:
1999 1998
-------- -------
Intangibles resulting from business acquisitions $71,103 $66,749
Other intangibles 4,695 3,522
Other assets 5,008 1,273
-------- -------
80,806 71,544
Less: accumulated amortization 27,476 20,419
-------- -------
$53,330 $51,125
======== =======
Amortization expense for 1999, 1998 and 1997 amounted to $7,120, $7,413 and
$7,257, respectively.
-47-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(All amounts in thousands, except per share data)
On December 21, 1999, the Company acquired substantially all of the assets
from GAP Technologies, Inc. and GEO Labs, Inc. (GAP) for approximately $4.8
million, which included the assumption of certain liabilities. GAP is a
technology and research group that designs and manufactures laser scan engines
and pen-based scanners. The acquisition was accounted for as a purchase and
accordingly, the results of GAP's operations are included in the 1999
consolidated statements of operations since the date of acquisition. The excess
purchase price over the fair value of net assets acquired was approximately $5.0
million and is being amortized on a straight-line basis over 10 years.
In May 1999, the Company made a minority interest investment of $3.0
million in a company which develops and manufactures fully integrated electronic
price display systems, including electronic shelf labels.
6. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
1999 1998
-------- --------
Accrued warranty $1,740 $1,738
Accrued royalty 815 1,412
Accrued taxes 1,248 1,098
Deferred revenue 665 629
Other expenses 2,618 3,573
-------- --------
$7,086 $8,450
======== ========
7. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1999 1998
-------- --------
Senior term loan A $22,004 $37,000
Senior term loan B 19,996 23,000
Subordinated term loan 29,607 29,547
Subordinated promissory note 2,188 3,438
Other 71 223
-------- --------
73,866 93,208
Less: current maturities 16,281 14,402
-------- --------
$57,585 $78,806
======== ========
Term loan A is a senior loan with five lenders, having a final maturity in
June 2001, at a current floating interest rate of 7.4%, paid quarterly, and a
swapped fixed rate of 6.9%. Term loan B is a senior loan with four lenders,
having a final maturity in December 2002, at a current floating interest rate of
7.9%, paid quarterly, and a swapped fixed rate of 7.4%. The interest rate swaps,
which were entered into on September 30, 1998, expire on or about 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, 1999, the
Company had no borrowings outstanding under these facilities. The unused portion
of the revolving credit facility is subject to a commitment fee of 0.375%. 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 $393,
which has been netted against the total outstanding balance of $30.0 million.
-48-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(All amounts in thousands, except per share data)
The subordinated promissory note matures in 2001 and has a current floating
interest rate of 9.5%, 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 as
of December 31, 1999 as a result of obtaining amendments and waivers from the
senior and subordinated debt holders.
Long-term debt maturities are as follows for years ending December 31:
2000 $16,281
2001 19,453
2002 8,503
2003 7,507
2004 7,508
Thereafter 14,614
---------
$73,866
=========
The Company is a guarantor under a mortgage agreement through February 2001
relating to its former principal manufacturing facility up to $500.
8. INCOME TAXES
The provision for income taxes consisted of the following for the years
ended December 31:
1999 1998 1997
---------- ---------- ----------
Current:
Federal $1,700 $1,943 $ 244
State 709 110 59
Foreign 1,394 1,583 261
Deferred:
Federal 450 2,299 1,658
State 34 33 (461)
---------- ----------- ----------
$4,287 $5,968 $1,761
========== =========== ==========
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:
1999 1998 1997
------ ------ ------
Statutory U.S. federal rate 35.0% 35.0% 34.0%
State income taxes, net of
federal income tax benefit 3.8% 0.4% 4.2%
Goodwill amortization -- 0.8% 2.7%
FSC benefit (6.2%) (4.7%) (3.7%)
Foreign income taxes in excess of U.S. rate 1.3% 3.7% 0.2%
Meals and entertainment 1.1% 0.6% 2.1%
Miscellaneous items, net -- 0.4% (2.4%)
------ ------ ------
35.0% 36.2% 37.1%
====== ====== ======
-49-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(All amounts in thousands, except per share data)
The deferred tax assets/(liabilities) are comprised of the following at
December 31:
1999 1998
--------- ---------
Intangibles resulting from business acquisitions $ 16,567 $ 17,229
Accrued provision for disputed royalties 2,240 --
Tax credit carryforwards 2,016 1,914
Net operating loss carryforwards -- 1,211
Inventory reserve 1,155 1,103
Warranty reserve 995 1,091
Plant and equipment (836) (663)
Allowance for doubtful accounts 208 509
Other, net (17) 416
-------- --------
22,328 22,810
Less: valuation allowance (1,566) (1,566)
-------- --------
Net deferred tax asset $ 20,762 $ 21,244
======== ========
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, 1999 and 1998, the Company has tax credits of $2,016 and
$1,914, respectively, which primarily represent state investment tax credit and
federal general business credit carryforwards that expire between 2010 and 2019.
9. COMMITMENTS AND CONTINGENCIES
Operating Lease Agreements
Certain equipment and properties are rented under noncancelable operating
leases that expire at various dates through 2014. Total rental expense under
operating leases was approximately $3,284, $2,581, and $2,214, for the years
ended December 31, 1999, 1998 and 1997, respectively.
During May 1999, the Company sold its facilities and property located in
Eugene, Oregon and simultaneously entered into a lease agreement for the
facilities for a 15 year period. The lease is being accounted for as an
operating lease, and the resulting gain of $0.5 million is being amortized over
the life of the lease. The annual rental expense will be $0.8 million, which
will be paid in quarterly installments. The net proceeds from the sale totaled
$8.0 million which were utilized to reduce the senior credit facilities.
Future minimum lease payments required under these agreements are as
follows for the years ending December 31:
2000 $ 3,214
2001 2,464
2002 1,803
2003 998
2004 847
Thereafter 7,722
-------
$17,048
=======
-50-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(All amounts in thousands, except per share data)
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 $421 plus benefits at December 31,
1999. 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 1999, 1998 and 1997.
Legal Matters
The automatic identification and data capture industry is characterized by
substantial litigation regarding patent and other intellectual property rights.
On or about April 1, 1996, the Company filed suit in the United States District
Court for the Western District of New York located in Rochester, New York
against Symbol Technologies, Inc. (Symbol)(97-CV-06152) for violation of the
antitrust laws and unfair trade practices and for declaration of
non-infringement and/or invalidity of certain of Symbol's patents. Symbol has
counterclaimed, alleging patent infringement and alleging breaches of certain
Symbol-PSC License Agreements. The Company informed Symbol that subsequent to
the acquisition of Spectra-Physics Scanning Systems, Inc., now PSC Scanning,
Inc. (Scanning), it has been operating under certain Symbol-Scanning licenses
rather than under the Symbol-PSC licenses. Proceedings were stayed with respect
to all issues other than the contract issues involved in the status of the
various licenses.
Pursuant to a scheduling order dated October 6, 1999, the contract issues
in the litigation were submitted as cross-motions for summary judgment filed
with the Court in November 1999. On February 8, 2000, an order was entered by
the United States District Court for the Western District of New York based upon
a decision of Judge Michael A. Telesca (the Decision and Order), which held (1)
that the Company is obligated to pay Symbol a royalty under the Symbol-PSC
License Agreements for any product manufactured by the Company that practices
the licensed Symbol patent rights described in those Agreements rather than a
royalty under more favorable Symbol-Scanning License Agreements to which the
Company succeeded when it acquired Scanning and (2) that Symbol purged its
misuse on October 23, 1998.
Thereafter, several motions were made by the parties:(a) On February 23,
2000, the Company filed a motion for reconsideration and clarification of the
Decision and Order and, in the alternative, for certification of an
interlocutory appeal thereof under 28 U.S.C. ss. 1292 (b). These motions were
opposed by Symbol. (b) On March 10, 2000, Symbol filed a motion for an order
holding the Company in contempt of the Decision and Order and imposing a fine on
the Company for each day of non-compliance therewith. The Company opposed the
motion. (c) On March 21, 2000, the Company filed a cross-motion for a stay of
any money payments due under the Decision and Order, pending a final
adjudication in the action. This motion was opposed by Symbol. These motions are
pending.
On March 14, 2000, Symbol commenced an unrelated action (the Eastern
District Action) against the Company in the United States District Court for the
Eastern District of New York for the alleged infringement by the Company's
Momentum bar code scanner module of Symbol's patents Nos. 5468952 and 6036098
(CV-001432). On April 6, 2000, the Company filed an answer to the complaint in
that action in which it denies infringement, pleads four affirmative defenses
and asserts two counterclaims.
-51-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(All amounts in thousands, except per share data)
On July 21, 1999, the Company and six other leading members of the
Automatic Identification and Data Capture industry jointly initiated litigation
(the Auto ID Action) in the United States District Court of Nevada in Reno,
Nevada against the Lemelson Medical, Educational & Research Foundation, Limited
Partnership (the Lemelson Partnership). In the Auto ID Action, entitled "Symbol
Technologies, Inc. et al. v. Lemelson Medical, Educational & Research
Foundation, Limited Partnership", the Auto ID companies seek, among other
remedies, a declaration that certain patents, which have been asserted by the
Lemelson Partnership against end users of bar code equipment, are invalid,
unenforceable and not infringed. The other plaintiffs in the lawsuit are
Accu-Sort Systems, Inc., Intermec Technologies Corporation, a wholly-owned
subsidiary of UNOVA, Inc., Metrologic Instruments, Inc., Symbol Technologies,
Inc., Teklogix Corporation, a wholly-owned U.S. subsidiary of Teklogix
International, Inc. and Zebra Technologies Corporation. Symbol has agreed to
bear approximately half of the legal and related expenses associated with the
litigation, with the remaining portion being borne equally by the Company and
the other five Auto ID companies.
Although no claim is now being asserted by the Lemelson Partnership
directly against the Company, the Lemelson Partnership has contacted many of the
Company's and other Auto ID companies' customers demanding a one-time license
fee for certain so-called "bar code" patents transferred to the Lemelson
Partnership by the late Jerome H. Lemelson. The Company and the other Auto ID
companies have received many requests from their customers asking that they
undertake the defense of these claims using their knowledge of the technology at
issue. Certain of these customers have requested indemnification against the
Lemelson Partnership's claims from the Company and the other Auto ID companies,
individually and/or collectively with other equipment suppliers. The Company and
the other Auto ID companies believe that generally they have no obligation to
indemnify their customers against these claims and that the patents being
asserted by the Lemelson Partnership against their customers with respect to bar
code equipment are invalid, unenforceable and not infringed. However, the
Company and the other Auto ID companies believe that the Lemelson claims do
concern the Auto ID industry at large and that it is appropriate for them to act
jointly to protect their customers against what they believe to be baseless
claims being asserted by the Lemelson Partnership. The Lemelson Partnership
moved to dismiss, transfer and/or stay the Auto ID Action. On March 21, 2000,
the U.S. District Court in Nevada denied the Lemelson Partnership's motion to
dismiss, transfer or stay the Auto ID Action.
On or about July 2, 1999, International Automated Systems (IAS) filed a
complaint in the State of Utah against the Company and Optimal Robotics Corp.
(Optimal) alleging patent infringement. The complaint was served on the Company
on or about August 23, 1999. An answer and counterclaim on behalf of the Company
and Optimal was served on IAS on or about October 22, 1999. A reply to the
counterclaim was filed on November 12, 1999. The Kroger Company and Smith's Food
and Drug have been added to the case as defendants. Optimal has retained counsel
to represent Optimal, the Company, and the other companies. This case is in the
discovery phase. The Company's contract with Optimal provides for
indemnification obligations on the part of Optimal. The Company believes that
the lawsuit will not have a material adverse effect on the Company's business or
prospects and, with Optimal and the other defendants, intends to vigorously
defend the claim.
On or about October 13, 1999, Metrologic Instruments, Inc. commenced suit
against the Company in the United States District Court for the District of New
Jersey alleging patent infringement and seeking damages and injunctive relief.
The Company filed an answer and counterclaim on December 22, 1999. The action
involves seven patents. The Company believes that the claims against it are
without merit and intends to vigorously defend the action. Following a status
conference on January 26, 2000, the District Court referred this action to a
mediator in accordance with its non-binding mediation program. A stay of
discovery and other proceedings has been ordered to May 15, 2000 to permit the
parties to focus on the mediation process.
-52-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(All amounts in thousands, except per share data)
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. There can be no assurance that such
litigation will not have a material adverse effect on the results of operations,
financial position or cash flows.
10. 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 Company received net proceeds of $10.2 million from
the offering which were used to repay a portion of its senior revolving credit
facility.
Common Stock Repurchase Program
In May 1999, the Board of Directors approved a plan to repurchase up to
$3.0 million of the Company's common shares. In 1999, the Company repurchased
141 shares at a cost of approximately $1.1 million. The repurchased shares are
held in treasury.
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, 1999 or 1998.
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 common shares, 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.
-53-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(All amounts in thousands, except per share data)
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, the Company received loan repayments from
participants totaling $325.
The Company accounts for its SOP and Employee Stock Purchase Plan under
Accounting Principles Board Opinion No. 25 (APB Opinion No. 25), "Accounting for
Stock Issued to Employees," in which no compensation cost is recognized for
awards granted at or above fair market value. 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 reduced as follows:
1999 1998 1997
---- ---- ----
Net income as reported $7,962 $10,516 $2,889
Net income pro forma $6,835 $ 9,483 $2,175
Net income per common and common
equivalent share as reported:
Basic $0.67 $0.90 $0.26
Diluted $0.58 $0.75 $0.24
Net income per common and common
equivalent share pro forma:
Basic $0.57 $0.81 $0.19
Diluted $0.50 $0.68 $0.18
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 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Risk free interest rate 5.86% 4.53% 6.19%
Expected dividend yield -- -- --
Expected lives 4 years 4 years 4 years
Expected volatility 49% 51% 45%
Fair value of options granted $3.21 $3.99 $2.89
The following is a summary of stock option activity and weighted average
exercise prices under the Company's SOP for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- -------------------------
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 3,027 $7.98 3,046 $7.76 2,818 $8.33
Options granted 432 7.28 391 8.92 1,087 6.98
Options exercised (82) 7.24 (310) 6.42 (155) 7.51
Options forfeited/canceled (156) 9.24 (100) 7.28 (704) 9.00
--------- -------- ---------
Options outstanding at end of period 3,221 7.84 3,027 7.98 3,046 7.76
========= ======== =========
Number of options at end of period:
Exercisable 2,058 $8.13 1,820 $8.18 1,884 $8.06
Available for grant 693 4 394
</TABLE>
-54-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(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, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------- -------------------------------
Weighted Weighted Weighted
Range of Exercise Average Average Remaining Average
Prices Exercise Price Contractual Life Exercise Price
per Share Shares per Share (in years) Shares per Share
------------------- ----------- --------------- --------------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
$5.75 - $7.19 1,631 $ 6.70 4.6 808 $ 6.65
$7.19 - $8.99 1,124 $ 8.37 3.9 882 $ 8.48
$8.99 - $11.24 330 $ 9.93 3.0 275 $ 9.88
$11.24 - $13.06 136 $12.20 3.2 93 $12.36
</TABLE>
On May 12, 1999, the shareholders approved an increase in the number of
common shares available for the issuance of stock options and restricted stock
awards under the 1994 Stock Option Plan by 1,000 shares.
During the twelve month period ended December 31, 1999 and 1998, 35 and 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 1999, 1998 and
1997 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
In 1998, the Company granted 62 restricted shares to certain key employees
from the SOP at an average share price of $10.89. 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.
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
September 15, 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.
-55-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(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 are authorized to be issued to its employees. 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 129 shares at an average price of $7.49 per share, 107 shares at
an average price of $6.92 per share and 67 shares at an average price of $5.81
per share during 1999, 1998 and 1997, 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 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Risk free interest rate 4.76% 5.19% 5.12%
Expected dividend yield -- -- --
Expected lives 6 mos. 6 mos. 6 mos.
Expected volatility 49% 51% 45%
Fair value of purchase rights $2.84 $3.35 $2.06
11. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
Accumulated other comprehensive income/(loss) consists of the following at
December 31:
<TABLE>
<CAPTION>
1999
----------------------------------------------------------
Foreign Accumulated
Currency Unrealized Other
Translation Gain/(Loss) on Comprehensive
Adjustment Securities Income/(Loss)
--------------- ---------------- ------------------
<S> <C> <C> <C>
Balance, beginning of year $ (37) $312 $ 275
Current period change (1,173) (312) (1,485)
--------------- ---------------- ------------------
Balance, end of year $(1,210) $ -- $(1,210)
=============== ================ ==================
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------------------------------------
Foreign Accumulated
Currency Unrealized Other
Translation Gain on Comprehensive
Adjustment Securities Income/(Loss)
--------------- ---------------- ------------------
<S> <C> <C> <C>
Balance, beginning of year $(739) $ -- $ (739)
Current period change 702 312 1,014
--------------- ---------------- ------------------
Balance, end of year $ (37) $312 $ 275
=============== ================ ==================
</TABLE>
-56-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(All amounts in thousands, except per share data)
12. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Year Ended December 31, 1999
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- --------------- -------------
Basic EPS:
Income available to
common shareholders $7,962 11,942 $0.67
=======
Effect of dilutive securities:
Options -- 333
Warrants -- 101
Preferred shares -- 1,375
------ ------
Diluted EPS:
Income available to common
shareholders and assumed conversions $7,962 13,751 $0.58
====== ====== =======
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
========= ========= =======
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
========= ========= =========
-57-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(All amounts in thousands, except per share data)
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 1999, 1998 and 1997 were determined on the following assumptions:
1) Preferred Shares and related warrants issued in connection with the private
placement of equity were converted upon the later of issuance or the beginning
of fiscal year on September 10, 1997, January 1, 1998 and January 1, 1999 and 2)
warrants issued in connection with the acquisition of Spectra-Physics Scanning
Systems, Inc., TxCOM S.A. and related businesses (Spectra) were converted
January 1, 1997, January 1, 1998 and January 1, 1999.
The following options were not included in the computation of diluted EPS
since the exercise prices were greater than the average market price of Common
Shares. Options to purchase 1,076, 469 and 1,148 shares of common stock at an
average price of $9.62, $9.93 and $9.52 per share were outstanding for the years
ending December 31, 1999, 1998, and 1997, respectively.
13. 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 $797, $761 and $717 for 1999,
1998 and 1997, respectively.
14. SEVERANCE AND OTHER COSTS
During the first quarter of 1999, the Company recorded a pretax charge of
$2.1 million for severance and other costs. Of the total charge, $1.4 million
was for employee severance and benefit costs for the elimination of
approximately 140 positions primarily at the Webster, New York manufacturing
facility resultant from the consolidation of all high volume handheld scanner
manufacturing at the Company's Eugene, Oregon facility. The remaining $0.7 is
for early termination of the lease on the Company's Webster offsite storage and
repair facility. Excluding $0.2 million reversed in 1999, the Company recorded
charges of $1.8 million in 1999. As of December 31, 1999, the severance and
other accruals were approximately $0.1 million, which relates to current
contractual obligations. Including $0.2 million reversed in 1999, these costs
reduced 1999 income before income tax provision, net income, basic EPS and
diluted EPS by $1.9 million, $1.3 million, $0.10 and $0.09, respectively.
During the fourth quarter of 1999, the Company recorded a pretax charge of
$6.4 million for potential back royalties owed in connection with the Symbol
litigation (see Note 9 "Commitments and Contingencies: Legal Matters"). These
costs reduced 1999 income before income tax provision, net income, basic EPS and
diluted EPS by $6.4 million, $4.2 million, $0.35 and $0.30, respectively.
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 $0.6 million, $2.2 million and
$1.3 million in 1999, 1998 and 1997, respectively. The accrual as of December
31, 1999 was approximately $0.1 million, which relates to current contractual
obligations.
-58-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(All amounts in thousands, except per share data)
15. 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. Excluding $0.1 million reversed in 1999 and $0.2 million
reversed in 1998, the Company recorded charges against the accrual of $0.3
million, $0.5 million and $3.7 million in 1999, 1998 and 1997, respectively.
16. DISCONTINUED OPERATIONS
In June 1997, the Company disposed of its TxCOM subsidiary, which was
acquired as part of the Spectra acquisition. For 1997, results of operations
were reported as discontinued operations in the Consolidated Statement of
Income. The Company recognized a net gain on operations of $164 in 1997.
Disposal of TxCOM resulted in the recording of a loss of $265 in 1997. This loss
includes the write-down of the assets to their net realizable value and the
costs of disposing of the subsidiary, net of applicable tax benefits.
17. SIGNIFICANT CUSTOMER INFORMATION
The Company sells its products principally to original equipment
manufacturers, value-added resellers, distributors and systems integrators.
During 1999, 1998 and 1997, no individual customer accounted for greater than
10% of net sales. The Company's arrangements with major customers are generally
nonexclusive.
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Year Ended December 31, 1999
- -------------------------------
Net sales $59,145 $58,001 $59,031 $55,147
Gross profit 25,605 24,022 24,901 22,747
Net income/(loss) 2,091 3,488 3,842 (1,459)
Net income/(loss) per common and
common equivalent share (1):
Basic $0.18 $0.29 $0.32 $(0.12)
Diluted $0.15 $0.25 $0.27 $(0.12)
-59-
<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(All amounts in thousands, except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Year Ended December 31, 1998
- -------------------------------
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
(1) Earnings per share are computed independently for each of the quarters
presented whereby the sum of the quarterly earnings per share in 1999 and
1998 does not equal the total computed for the respective years.
19. OPERATIONS BY GEOGRAPHIC AREA
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 and
long-lived assets represent tangible assets used in operations in each
geographic area.
Year Ended December 31, 1999
- ----------------------------
North
America Europe ROW Eliminations Total
--------- -------- ----- -------------- -------
Sales to unaffiliated
customers $127,344 $ 74,564 $ 29,416 $ -- $231,324
Transfers between
geographic areas 57,013 -- -- (57,013) --
-------- -------- -------- -------- --------
Total net sales 184,357 74,564 29,416 (57,013) 231,324
======== ======== ======== ======== ========
Long-lived assets $ 24,945 $ 849 $ 200 $ -- $ 25,994
======== ======== ======== ======== ========
Year Ended December 31, 1998
- ----------------------------
North
America Europe ROW Eliminations Total
--------- -------- ----- -------------- -------
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
======== ======== ======== ======== ========
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<PAGE>
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(All amounts in thousands, except per share data)
Year Ended December 31, 1997
- ----------------------------
North
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
======== ======== ======== ======== ========
Sales are summarized by product as follows:
1999 1998 1997
-------------- ------------- --------------
Scanners $214,231 $197,096 $190,723
Service 17,093 20,127 17,117
-------------- ------------- --------------
$231,324 $217,223 $207,840
============== ============= ==============
20. SUBSEQUENT EVENTS
Acquisition
On January 19, 2000, the Company acquired all of the outstanding shares of
Percon Incorporated, a manufacturer of wireless and batch portable data
terminals, decoders, input devices and data management software, for
approximately $57.1 million. The Company borrowed an additional $58.0 million
under its amended senior term loan and revolving credit facility to finance the
acquisition. The amended revolving credit facilities provide for borrowings up
to $50.0 million, of which, $27.0 million was utilized to finance the
acquisition. The total indebtedness subsequent to the acquisition was
approximately $133.6 million. The acquisition will be accounted for under the
purchase method of accounting.
Litigation
On February 8, 2000, an order was entered by the United States District
Court for the Western District of New York based upon a decision of Judge
Michael A. Telesca (the Decision and Order), which held (1) that the Company is
obligated to pay Symbol a royalty under the Symbol-PSC License Agreements for
any product manufactured by the Company that practices the licensed Symbol
patent rights described in those Agreements rather than a royalty under more
favorable Symbol-Scanning License Agreements to which the Company succeeded when
it acquired Scanning and (2) that Symbol purged its misuse on October 23, 1998.
On February 23, 2000, the Company filed a motion for reconsideration and
clarification of the Decision and Order and, in the alternative, for
certification of an interlocutory appeal (see Note 9 "Commitments and
Contingencies: Legal Matters"). As a result of the Decision and Order, the
Company recorded a $6.4 million pre-tax charge in the fourth quarter of 1999 for
potential back royalties owed. Commencing in the first quarter of 2000, the
Company will record royalty expense at the higher royalty rate, pending the
outcome of the court proceedings.
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SCHEDULE II
PSC INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(All amounts in thousands)
1999 1998 1997
------ ------ ------
Accounts Receivable Reserve-
BALANCE, at beginning of year $1,492 $1,169 $1,101
Provision for doubtful accounts 169 469 346
Write-offs of doubtful accounts,
net of recoveries (976) (146) (278)
------- ------- -------
BALANCE, at end of year $ 685 $1,492 $1,169
======= ======= =======
Restructuring Reserves-
BALANCE, at beginning of year $ 415 $1,234 $5,064
Addition to restructuring reserves -- -- --
Usage of restructuring reserves (290) (619) (3,830)
Reversal of excess restructuring reserves (124) (200) --
------- ------- -------
BALANCE, at end of year $ 1 $ 415 $1,234
======= ======= =======
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<PAGE>
(As amended - 9/3/97)
BY-LAWS
OF
PSC INC.
(hereinafter called the "Corporation")
ARTICLE I.
MEETINGS OF SHAREHOLDERS
SECTION 1. Annual Meeting. The Annual Meeting of the Shareholders of
the Corporation shall be held on such dates and as may be fixed from time to
time by the Board of Directors and stated in the notice of meeting, for the
election of Directors and for the transaction of such other business as may
properly be brought before such meeting.
SECTION 2. Special Meetings. Special Meetings of the Shareholders of
the Corporation may be held at any time in the interval between Annual Meetings.
Special Meetings may be called only by the Board of Directors pursuant to a
resolution approved by a majority of the entire Board of Directors.
SECTION 3. Place of Meetings. Annual and Special Meetings of the
Shareholders of the Corporation shall be held at the principal office of the
Corporation or at such other place within or without the State of New York as
the Board of Directors may from time to time determine.
SECTION 4. Notice of Meetings. Written or printed notice of the time
and place and purpose or purposes of all meetings of the Shareholders shall be
given personally, or by mail, not less than ten (10) days nor more than fifty
(50) days before the day fixed for the meeting, to each Shareholder entitled to
vote at said meeting, and such notice must indicate that it is being issued by
or at the direction of the person or persons calling the meeting. Such notice
must also be given to any Shareholder who, by reason of any action proposed at
such meeting, would be entitled to have his stock appraised, if such action were
taken, and such notice must specify the proposed action and state the fact that
if the action is taken, the dissenting Shareholder shall have appraisal rights.
Such notice shall be given to the Shareholder by leaving the same with him or at
his residence or usual place of business or by mailing it, postage prepaid and
addressed to him at his address as it appears on the books of the Corporation,
unless he shall have filed with the Secretary of the Corporation a written
request that notices intended for him be mailed to some other address, in which
event it shall be mailed to the address designated in such request. Notices of
every Annual or Special Meeting shall state the place, day, hour and purpose or
purposes of such meeting; and, in case of any Special Meeting, no business shall
be acted upon which has not been stated in the notice of the meeting. The
notices, as provided for in this Section, are not required to be given to any
Shareholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of any Shareholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by him. No notice of an adjourned meeting of Shareholders need be given,
unless the Board of Directors fixes a new record date for the adjourned meeting.
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SECTION 5. Record Dates. For the purpose of determining the
Shareholders entitled to notice of or to vote at a Shareholders' meeting or any
adjournment thereof, the Board of Directors may fix a date of record which shall
not be more than fifty (50) days nor less than ten (10) days before said meeting
date. For the purpose of determining Shareholders entitled to express consent to
or dissent from any proposal without a meeting, or for determining Shareholders
entitled to receive payment of a dividend or the allotment of any rights, or for
any other action, the Board of Directors may fix a date of record which shall
not be more than fifty (50) days prior to such action.
SECTION 6. Quorum. At all Meetings of Shareholders, except as otherwise
provided by law or by the Certificate of Incorporation, there shall be present
in person or represented by proxy, Shareholders owning a majority in number of
the shares of the Corporation issued and outstanding and entitled to vote
thereat, in order to constitute a quorum; but if there be no quorum, the holders
of such shares so present or represented may by majority vote adjourn the
meeting from time to time, but not for a period of over thirty (30) days at any
one time, without notice other than by announcement at the meeting, until a
quorum shall attend, any business may be transacted which might have been
transacted at the meeting as originally called. When a quorum is once present,
it is not broken by the subsequent withdrawal of any Shareholder.
SECTION 7. Voting. At all meetings of the Shareholders, each
Shareholder, entitled to vote thereat, may vote in person or by proxy, and shall
have one (1) vote for each share standing in his name on the books of the
Corporation, unless otherwise required by law, the Certificate of Incorporation
or any amendments thereto, or these By-Laws. Upon demand of the Shareholders
holding ten percent (10%), in interest of the shares, present in person or by
proxy, and entitled to vote, voting shall be by ballot. A plurality of votes
cast shall be sufficient to elect Directors, and a majority of votes cast shall
be sufficient to take any other corporate action, except as otherwise provided
by law or these By-Laws.
SECTION 8. Proxies. Every proxy shall be in writing, subscribed by the
Shareholder or his duly authorized attorney and dated. No proxy which is dated
more than eleven (11) months before the meeting at which it is offered shall be
accepted, unless such proxy shall, on its face, name a longer period for which
it is to remain in force.
SECTION 9. Conduct of Meetings. Meetings of Shareholders shall be
presided over by the Chief Executive Officer of the Corporation, or in his
absence, by the Chairman of the Board of Directors, if any, or in his absence by
the President, or in his absence, by an Executive Vice President, if any, or in
the absence of all such officers, by a Chairman to be chosen at the Meeting.
The Secretary of the Corporation shall act as Secretary of the Meeting, if
present.
The Board of Directors of the Corporation shall be entitled to make
such rules or regulations for the conduct of Meetings of Shareholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the Chairman of the Meeting shall
have the right and authority to prescribe such rules, regulations and procedures
an to do all such acts as, in the judgment of such Chairman, are necessary,
appropriate or convenient for the proper conduct of the Meeting, including,
without limitation, establishing an agenda or order of business for the Meeting,
rules and procedures for maintaining order at the Meeting and the safety of
those present, limitations on participation in such Meeting to Shareholders of
record of the Corporation and their duly authorized and constituted proxies, and
such other persons as the Chairman shall permit, restrictions on entry to the
Meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comment by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot, unless, and to the extent, determined by the Board of Directors or
the Chairman of the Meeting, Meetings of Shareholders shall not be required to
be held in accordance with rules of parliamentary procedure.
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<PAGE>
SECTION 10. Notification of Nominations. Nominations for election of
Directors may be made by the Board of Directors or by any shareholder entitled
to vote for the election of Directors. Any Shareholder entitled to vote for the
election of Directors at such a Meeting may nominate persons for election as
Directors only if written notice of such Shareholder's intent to make such
nomination is given, either by personal delivery or by United States mail,
postage prepaid, to the Secretary of the Corporation not later than (i) with
respect to an election to be held at an Annual Meeting of Shareholders, 90 days
in advance of such Meeting, and (ii) with respect to an election to be held at a
Special Meeting of Shareholders for the election of Directors, the close of
business on the seventh day following the date on which notice of such Meeting
is first given to Shareholders. Each such notice shall set forth: (a) the name
and address of the Shareholder who intends to make the nomination and of the
person or persons to be nominated, (b) a representation that such Shareholder is
a holder of record of stock of the Corporation entitled to vote at such Meeting
and intends to appear in person or by proxy at the Meeting to nominate the
person or persons specified in the notice, (c) a description of all arrangements
or understandings between such Shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such Shareholder, (d) such other information
regarding each nominee proposed by such Shareholder as would have been required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or intended
to be nominated by the Board of Directors, and (e) the consent of each nominee
to serve as a Director of the Corporation if elected. The Chairman of a
Shareholder Meeting may refuse to acknowledge the nomination of any person not
made in compliance with the foregoing procedure.
SECTION 11. Notification of Proposals for Corporate Action. Any
Shareholder entitled to vote at a Meeting may make a proposal for corporate
action at such Meeting only if written notice of such Shareholder's intent to
make such a proposal is given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation not later than (i)
with respect to an annual Meeting of Shareholder, 90 days in advance of such
Meeting, and (ii) with respect to a Special Meeting of Shareholders, the close
of business on the seventh day following the date on which notice of such
Meeting is first given to Shareholders. Each such notice shall set forth: (a)
the name and address of the Shareholder who intends to make the proposal, (b) a
representation that such Shareholder is a holder of record of stock of the
Corporation entitled to vote at such Meeting and intends to appear in person or
by proxy at the Meeting to make the proposal, (c) a description of the proposal,
(d) such other information regarding the proposal as would have been required to
be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission. The Chairman of a Shareholder Meeting may
refuse to acknowledge the proposal of any person not made in compliance with the
foregoing procedure.
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<PAGE>
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Number, Election and Terms. The business and affairs of the
Corporation shall be managed and controlled by a Board of Directors consisting
of not less than nine (9) nor more than twenty (20) persons. The exact number of
Directors within the minimum limitations specified in the preceding sentence
shall be fixed from time to time by the by-laws pursuant to a resolution adopted
by a majority of the entire Board of Directors.* At the 1989 Annual Meeting of
Shareholders, the Directors shall be divided into three (3) classes, as nearly
equal in number as possible, with the term of office of the first class to
expire at the 1990 Annual Meeting of Shareholders, the term of office of the
second class to expire at the 1991 Annual Meeting of Shareholders, and the term
of office of the third class to expire at the 1992 Annual Meeting of
Shareholders. At each Annual Meeting of Shareholders following such initial
classification and election, Directors elected to succeed those Directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding Annual Meeting of Shareholders after their election. Each Director
shall serve until his successor is elected and qualified, unless his
directorship be theretofore vacated by resignation, death, removal or otherwise.
Directors need not be shareholders.
SECTION 2. Newly Created Directorships and Vacancies. Subject to the
rights of the holders of any series of Preferred Stock then outstanding, newly
created directorships resulting from any increase in the authorized number of
Directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
shall be filled by a majority vote of the Directors then in office, and
Directors so chosen shall hold office for a term expiring at the next Annual
Meeting of Shareholders and until his successor is elected and qualified. No
decrease in the number of Directors constituting the Board of Directors shall
shorten the term of any incumbent director.
SECTION 3. Removal. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, any Director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least 66-2/3% of the voting power
of all of the shares of the Corporation entitled to vote for the election of
Directors.
SECTION 4. Meetings. Regular Meetings of the Board of Directors shall
be held at such times as the Directors may from time to time determine. Special
Meetings of the Board of Directors shall be held at any time, upon call from the
Chairman of the Board, the Chief Executive Officer or at least one-third (1/3)
of the Directors.
SECTION 5. Place of Meetings. Regular and Special Meetings of the Board
of Directors shall be held at the principal office of the Corporation or at such
other place, within or without the State of New York, as the Board of Directors
may from time to time determine.
<PAGE>
SECTION 6. Notice of Meetings. Notice of the place, day and hour of
every Regular and Special Meeting shall be given to each Director at least one
(1) day before the meeting by delivering the same to him personally or sending
the same to him by telegraph or leaving the same at his residence or usual place
of business or by mailing, at least three (3) days before the meeting, such
known Post Office address according to the records of the Corporation. No notice
of any adjourned meeting of the Board of Directors need be given other than by
announcement at the meeting, subject to the provisions of Section 8 of this
Article.
SECTION 7. Waiver of Notice. Notice of the meeting need not be given to
any Director who submits a signed written waiver thereof whether before, during
or after the meeting nor to any Director who attends the meeting without
protesting, prior thereto or at it commencement, the lack of notice to him.
SECTION 8. Quorum. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these By-Laws, a majority of the Board
of Directors shall be necessary to constitute a quorum for the transaction of
business at each meeting of the Board of Directors; but if at any meeting there
be less than a quorum present, a majority of those present may adjourn the
meeting from time to time without notice other than by announcement at the
meeting, until a quorum shall attend. At any such adjournment, at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting as originally called.
SECTION 9. Compensation. Directors as such shall not receive any stated
compensation for their services, but by resolution of the Board of Directors, a
fixed sum and expense of attendance may be allowed for attendance at each
Special or Regular Meeting thereof. Nothing in this Section will be construed to
preclude a Director from serving the Corporation in any other capacity and from
receiving compensation therefor.
SECTION 10. Executive Committee and Other Committees. The Board of
Directors may, in its discretion, by an affirmative vote of a majority of the
whole Board appoint an Executive Committee, or any other committee, to consist
of three (3) or more Directors as the Board of Directors in the management of
the business and affairs the Corporation, and other committees shall have those
powers conferred upon them by the Board, except that no committee shall have
power:
(a) To recommend to Shareholders any action requiring Shareholder approval;
(b) To fill vacancies in the Board or in any committee thereof;
(c) To fix compensation of Directors for service on the Board or any
committee thereof;
(d) To repeal, amend or adopt By-Laws;
(e) To amend or repeal any Board resolution which does not, by its terms,
make it amendable or repealable by such committee;
(f) To remove, or fix the compensation of, officers who are elected by the
Board.
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<PAGE>
In the absence of any member of the Executive Committee or of any other
committee, the members thereof present at any meeting may appoint a member of
the Board of Directors previously designated by the Board as a committee
alternate to act in place of such absent member. The Board of Directors shall
have the power at any time to change the membership of any committee, to fill
vacancies in it, or dissolve it. The Executive Committee and any other committee
may make rules for the conduct of its business, and may appoint such committees
and assistants as may from time to time be necessary, unless the Board shall
provide otherwise. A majority of the members of the Executive Committee and of
any other committee shall constitute a quorum. Each committee shall keep regular
minutes and report to the Board of Directors when required.
SECTION 11. Action Without a Meeting. Any action required or permitted
to be taken by the Board of Directors or any committee thereof at a duly held
meeting may be taken without a meeting if all members of the Board of Directors
or the committee consent in writing to the adoption of a resolution authorizing
the action. Such resolution and the written consents thereto by the members of
the Board of Directors or the committee shall be filed with the minutes of the
proceedings of the Board of Directors or the committee.
SECTION 12. Participation in Meetings by Conference Telephone. Any one
or more members of the Board of Directors or any committee thereof may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participating by such means
shall constitute presence in person at a meeting.
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<PAGE>
ARTICLE III
OFFICERS
SECTION 1. Election of Officers. The Board of Directors (or the
Executive Committee), at any duly held meeting thereof, shall elect a President,
a Secretary and Treasurer of the Corporation, and may elect a Chairman of the
Board of Directors and a Vice Chairman of the Board of Directors from among the
Directors of the Corporation, one or more Vice Presidents and any other
officers. Each such officer shall serve at the pleasure of the Board of
Directors or until his successor shall have been duly elected or appointed and
qualifies, or until he shall have been removed in the manner provided in Section
3 of this Article. Any two offices may be held by the same person, except that
no person shall hold the office of President and Secretary concurrently. Any
vacancies in the above offices shall be filled in the same manner.
SECTION 2. Assistant and Subordinate Officers. The Board of Directors
(or the Executive Committee) may elect one or more Assistant Treasurers, one or
more Assistant Secretaries and such other subordinate officers or agents as it
may deem proper from time to time, who shall hold office only at the pleasure of
the Board of Directors (or the Executive Committee). The Board of Directors may
from time to time authorize the Chief Executive Officer to appoint and remove
such assistant and subordinate officers and agents and prescribe the powers and
duties thereof.
SECTION 3. Removal. Any officer of the Corporation may be removed with
or without cause by a vote of the majority of the entire Board of Directors of
the Corporation then in office at a meeting called for that purpose (or, except
in the case of an officer elected by the Board of Directors, by the Executive
Committee) whenever in its judgment the best interests of the Corporation will
be served thereby.
SECTION 4. Compensation. The Board of Directors shall fix the
compensation of all officers of the Corporation who are appointed by the Board
of Directors. The Board of Directors or the Executive Committee shall fix the
compensation of all other officers of the Corporation, except that the Board of
Directors may authorize the Chief Executive Officer to fix the compensation of
such assistant and subordinate officers and agents as he is authorized to
appoint and remove.
SECTION 5. Chairman of the Board and Vice Chairman of the Board. The
Chairman of the Board and in his absence the Vice Chairman if there be one shall
preside at all meetings of the directors and shall perform such other duties as
the Board may direct. The Chairman of the Board shall select and charter Board
committees, establish board agendas, direct that management prepares and
presents informative reports to the Board, monitor and review the performance of
the President and Chief Executive Officer, and perform such other duties as the
Board may from time to time direct.
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SECTION 6. President. The President shall, subject to the control of
the Board of Directors (or the Executive Committee), have general supervision of
the business of the Corporation and shall see that all orders and resolutions of
the Board of Directors (or the Executive Committee) are carried into effect. He
shall execute all bonds, mortgages, contracts and other instruments of the
Corporation requiring a signature under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute documents
when so authorized by these By-Laws, the Board of Directors or the President. In
the absence or disability of the Chairman of the Board of Directors, or if there
be none, the President shall preside at all meetings of the Board of Directors.
The President shall be the Chief Executive Officer of the Corporation. The
President shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these By-Laws or by the
Board of Directors (or the Executive Committee).
SECTION 7. Vice Presidents. Any one or more of the Vice Presidents may
be designated by the Board of Directors (or the Executive Committee) as an
Executive Vice President. At the request of the President to whom that Executive
Vice President reports, or in his absence or during his disability, the
Executive Vice President shall perform the duties and exercise the functions of
that President.
SECTION 8. Secretary. The Secretary shall keep full Minutes of all
meetings of the Shareholders and of the Board of Directors in books provided for
the purpose. He shall see that all notices are duly given in accordance with the
provisions of these By-Laws or as required by law. He shall be the custodian of
the records and of the Seal or Seals of the Corporation. He shall affix the
Corporate Seal to all documents, the execution of which on behalf of the
Corporation, under the Seal, is duly authorized by the Board of Directors (or
the Executive Committee), and when so affixed may attest the same. He shall have
such other powers and duties as may be properly designated by the Board of
Directors (or the Executive Committee) and the Chief Executive Officer.
SECTION 9. Treasurer. The Treasurer shall keep correct and complete
books and records of account for the Corporation. Subject to the control and
supervision of the Board of Directors (or the Executive Committee) and the Chief
Executive Officer, or such other officers as the Chief Executive Officer may
designate, the Treasurer shall establish and execute programs for the provision
of the capital required by the Corporation, including negotiating the
procurement of capital and maintaining adequate sources for the Corporation's
current borrowings from lending institutions. He shall maintain banking
arrangements to receive, have custody of and disburse the Corporation's monies
and securities. He shall invest the Corporation's funds as required, establish
and coordinate policies for investment in pension and other similar trusts, and
provide insurance coverage as required. He shall direct the granting of credit
and the collection of accounts due the Corporation, including the supervision of
special arrangements for financing sales, such as time payment and leasing
plans. He shall have such other powers and duties as may be properly designated
by the Board of Directors (or the Executive Committee) and the Chief Executive
Officer.
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SECTION 10. Securities of Other Corporation. Unless otherwise provided
by resolution adopted by the Board of Directors, the Chairman of the Board, the
Chief Executive Officer, the President of the Corporation or any Vice President
may, with respect to any shares of stock or other securities issued by any other
corporation or other business organization and held by the Corporation, exercise
voting and similar rights on behalf of the Corporation and execute any ballots,
consents, powers of attorney or proxies for that purpose. In addition, any such
officer may endorse for sale or transfer and may sell or transfer for and on
behalf of the Corporation any such stock or securities and may appoint proxies
or attorneys for such purpose.
SECTION 11. Non-corporate Officers. The Chairman of the Board or the
President may from time to time appoint one or more vice presidents who shall
not be considered officers of the Corporation for any purpose. Such vice
presidents shall be clearly designated as non-corporate officers, shall hold
office for such period, have such authority, and perform such duties as the
Chairman of the Board, or the President may from time to time prescribe.
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<PAGE>
ARTICLE IV
SHARE CERTIFICATES
SECTION 1. Form and Signatures. The interest of each Shareholder of the
Corporation shall be evidenced by certificates for shares in such form not
inconsistent with law or the Certificate of Incorporation, and any amendments
thereof, as the Board of Directors may from time to time prescribe. The share
certificates shall be signed by the Chief Executive Officer, a President or a
Vice President and by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer, sealed with the seal of the Corporation, and
countersigned and registered in such manner, if any, as the Board of Directors
may by resolution prescribe. Where any share certificate is countersigned by a
transfer agent or registered by a registrar, other than the Corporation itself
or its employee, the signatures of any such Chief Executive Officer, President,
Vice President, Secretary, Assistant Secretary, Treasurer, or Assistant
Treasurer and such corporate seal, may be facsimiles engraved or printed. In
case any officer who has signed or whose facsimile signature has been placed
upon such certificate shall have ceased to be such officer before the share
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if such person had not ceased to be such officer.
SECTION 2. Transfer of Shares. The shares of the Corporation shall be
transferred on the books of the Corporation by the registered holder thereof, in
person or by his attorney, upon surrender for cancellation of certificates for
the same number of shares, with a proper assignment and powers of transfer
endorsed thereon or attached thereto, duly signed by the person appearing by the
certificate to be the owner of the shares represented thereby, with such proof
of the authenticity of the signature as the Corporation, or its agents, may
reasonably require. Such certificate shall have affixed thereto all stock
transfer stamps required by law. The Board of Directors shall have power and
authority to make all such other rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
the Corporation.
SECTION 3. Mutilated, Lost, Stolen or Destroyed Certificates. The
holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any mutilation, loss, theft or destruction
thereof, and the Board of Directors may, in its discretion, cause one or more
new certificates, for the same number of shares in aggregate, to be issued to
such holder upon satisfactory proof of such loss, theft or destruction and the
deposit of indemnity by way of bond or otherwise in such form and amount and
with such sureties or securities as the Board of Directors may require to
indemnify the Corporation and transfer agent and registrar, if any, against loss
or liability by reason of the issuance of such new certificates; but the Board
of Directors may, in its discretion, refuse to issue such new certificates save
upon the order of some court having jurisdiction in such matters.
SECTION 4. Stock Ledgers. The stock ledgers of the Corporation
containing the names and addresses of the Shareholders and the number of shares
held by them respectively shall be maintained at the principal office of the
Corporation, or if there be a transfer agent, at the office of such transfer
agent, as the Board of Directors shall determine.
SECTION 5. Transfer Agents and Registrars. The Corporation may have one
or more transfer agents and one or more registrars of its stock or of any class
or classes of its shares whose respective duties the Board of Directors may from
time to time determine.
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ARTICLE V
INDEMNIFICATION
SECTION 1. Indemnification of Directors and Officers. To the full
extent authorized or permitted by law, the Corporation shall indemnify any
person ("Indemnified Person") made, or threatened to be made, a party to any
action or proceeding, whether civil, at law, in equity, criminal,
administrative, investigative or otherwise, including any action by or in the
right of the Corporation, by reason of the fact that he, his testator or
intestate ("Responsible Person"), whether before or after adoption of this
Article: (a) is or was a director or officer of the Corporation, or (b) if a
director or officer of the Corporation, is serving or served, in any capacity,
at the request of the Corporation, any other corporation, or any partnership,
joint venture, trust, employee benefit plan or other enterprise, or (c) if not a
director or officer of the Corporation, is serving or served, in any capacity,
at the request of the Corporation, any other corporation, or any partnership,
joint venture, trust, employee benefit play or other enterprise, against all
judgments, fines, penalties, amounts paid in settlement (provided the
Corporation shall have consented to such settlement, which consent shall not be
unreasonably withheld by it) and reasonable expenses, including attorneys' fees
and costs of investigation, incurred by such Indemnified Person with respect to
any such threatened or actual action or proceeding, and any appeal therein,
provided only that the following standard of conduct is met (x) the acts of the
Reasonable Person which were material to the cause of action so adjudicated or
otherwise disposed of were not committed in bad faith or were not the result of
active and deliberate dishonesty, and (y) the Responsible Person did not
personally gain in fact a financial profit or other advantage to which he was
not legally entitled.
SECTION 2. Advancement of Expenses. All expenses reasonably incurred by
an Indemnified Person in connection with a threatened or actual action or
proceeding with respect to which such person is or may be entitled to
indemnification under this Article shall be advanced or promptly reimbursed by
the Corporation to him in advance of the final disposition of such action or
proceeding, upon receipt of an undertaking by him or on his behalf to repay the
amount of such advances, if any, as to which he is ultimately found not to be
entitled to indemnification or, where indemnification is granted, to the extent
such advances exceed the indemnification to which he is entitled.
SECTION 3. Procedure for Indemnification
(a) Not later than thirty (30) days following final
disposition of an action or proceeding with respect to which the Corporation has
received written request by an Indemnified Person for indemnification pursuant
to this Article, if such indemnification has not been ordered by a court, the
Board of Directors shall meet and find whether the Responsible Person met the
standard of conduct set forth in Section 1 of the Article, and, if it finds that
he did, or to the extent it so finds, shall authorize such indemnification.
(b) Such standard of conduct shall be found to have been met
unless (i) a judgment or other final adjudication adverse to the Indemnified
Person establishes that (A) acts of the Responsible Person were committed in bad
faith or were the result of active and deliberate dishonesty and were material
to the cause of action so adjudicated, or (B) the Responsible Person personally
gained in fact a financial profit or other advantage to which he was not legally
entitled; or (ii) if the action or proceeding was disposed of other than by
judgment or other final adjudication, the Board finds in good faith that, if it
had been disposed of by judgment or other final adjudication, such judgment or
other final adjudication would have been adverse to the Indemnified Person and
would have established (A) or (B) above.
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(c) If indemnification is denied, in whole or part, because of
such a finding by the Board in the absence of a judgment or other final
adjudication, or because the Board believes the expenses for which
indemnification is requested to be unreasonable, such action by the Board shall
in no way affect the right of the Indemnified Person to make application
therefor in any court having jurisdiction thereof, and in such action or
proceeding the issue shall be whether the Responsible Person met the standard of
conduct set forth in Section 1, or whether the expenses were reasonable, as the
case may be; not whether the finding of the Board with respect thereto was
correct; and the determination of such issue shall not be affected by the
Board's finding. If the judgment or other final adjudication in such action or
proceeding establishes that the Responsible Person met the standard of conduct
set forth in Section 1, or that the disallowed expenses were reasonable, or to
the extent that it does, the Board shall then find such standard to have been
met if it has not done so, and shall grant such indemnification, and shall also
grant to the Indemnified Person indemnification of the expenses incurred by him
in connection with the action or proceeding resulting in the judgment or other
final adjudication that such standard of conduct was met, or if pursuant to such
court determination such person is entitled to less than the full amount of
indemnification denied by the Corporation, the portion of such expenses
proportionate to the amount of such indemnification so awarded.
(d) A finding by the Board pursuant to this Section that the
standard of conduct set forth in Section 1 has been met shall mean a finding (i)
by a quorum consisting of directors who are not parties to such action or
proceeding or, (ii) if such a quorum is not obtainable or, if obtainable, such a
quorum is unable to make such a finding and so directs: (A) by the Board upon
the written opinion of independent legal counsel that indemnification is proper
in the circumstances because the applicable standard of conduct has been met, or
(B) by the shareholders upon a finding that such standard has been met, such
action by the Board or shareholders to be taken as promptly as is practicable.
SECTION 4. Contractual Article. This Article shall be deemed to
constitute a contract between the Corporation and person who serves as a
Responsible Person at any time while this Article is in effect. No repeal or
amendment to this Article, insofar as it reduces the extent of the
indemnification of any person who could be a Responsible Person shall, without
his written consent, be effective as to such person with respect to any event,
act or omission occurring or allegedly occurring prior to: (a) the date of such
repeal or amendment if on that date he is not serving in any capacity in which
he is serving on the date of such repeal or amendment, other than as a director
or officer of the Corporation, for which he could be a Responsible Person, or
(b) the later of the thirtieth (30th) day following the end of the term of
office (for whatever reason) if he is serving as director or officer of the
Corporation on the date of such repeal or amendment, with respect to being a
Responsible Person in that capacity. No amendment of the Business Corporation
Law shall, insofar as it reduces the permissible extent of the right of
indemnification of a Responsible Person under this Article, be effective as to
such person with respect to any event, act or omission occurring or allegedly
occurring prior to the effective date of such amendment.
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SECTION 5. Insurance. The Corporation may, but need not, maintain
insurance insuring the corporation or Responsible Persons for any obligation of
the Corporation for indemnification of Responsible Persons or for liabilities
against which Responsible Persons are entitled to indemnification under this
Article or insuring Responsible Persons for liabilities against which they are
not entitled to indemnification under this Article.
SECTION 6. Non-Exclusivity. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which director or
officer of the Corporation or other corporate personnel may be entitled under
law other than pursuant to this Article. If the standard of conduct set forth in
Section 1 of this Article is met, the Corporation is authorized to provide such
persons rights to indemnification or advancement of expenses in addition to the
provisions therefor in this Article, to the full extent permitted by law,
pursuant to (a) a resolution of shareholders, (b) a resolution of directors, or
(c) an agreement providing for such indemnification.
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ARTICLE VI
FINANCES
SECTION 1. Dividends. Subject to law and to the provisions of the
Certificate of Incorporation, and any amendments thereof, the Board of Directors
may declare dividends on the stock of the Corporation, payable upon such dates
as the Board of Directors may designate.
SECTION 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sums or
sums, as the Board of Directors from time to time, in its absolute discretion,
deems proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall deem conducive to the
interest of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
SECTION 3. Bills, Notes, Etc. All checks or demands for money and notes
or other instruments evidencing indebtedness or obligations of the Corporation
shall be made in the name of the Corporation and shall be signed by such officer
or officers or such other person or persons as the Board of Directors may from
time to time designate.
ARTICLE VII
AMENDMENTS
SECTION 1. Power to Amend. The Board of Directors shall have the power
to adopt, amend or repeal the By-Laws of the Corporation by a majority vote of
the entire Board of Directors at any meeting. Any By-Law adopted by the Board of
Directors may be amended or repealed at any meeting of Shareholders by a
majority of the votes cast at such meeting by the holders of shares entitled to
vote thereon. However, the affirmative vote of the holders of at least 66 2/3%
of the voting power of all of the shares of the Corporation entitled to vote for
the election of Directors shall be required to amend or repeal Article 8 of the
Restated Certificate of Incorporation, the related amendments to these By-Laws,
or to adopt any provision inconsistent therewith.
SECTION 2. Notice of Amendment Affecting Election of Directors. If any
By-Law regulating an impending election of Directors is adopted, amended or
repealed by the Board of Directors, there shall be set forth in the Notice for
the next Meeting of Shareholders for the election of Directors the By-Law so
adopted, amended or repealed, together with a concise statement of the changes
made.
* At a meeting of the Board of Directors held on September 3, 1997, the number
of directors was fixed at ten (10) persons.
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Amendment Seven and Consent and Waiver
To
Credit Agreement
THIS AMENDMENT SEVEN AND CONSENT AND WAIVER is dated as of October 13,
1999 and is made in respect of the Credit Agreement dated as of July 12, 1996 as
amended and in effect immediately prior to the date hereof (the "Credit
Agreement") by and among PSC SCANNING, INC., a Delaware corporation formerly
known as SpectraScan, Inc., which is the successor by merger to PSC Acquisition,
Inc., (the "Borrower"), PSC INC. ("PSC"), the financial institutions party to
the Credit Agreement (the "Lender Parties"), FLEET NATIONAL BANK (formerly known
as Fleet Bank) as the "Initial Issuing Bank", and FLEET NATIONAL BANK, as
administrative agent (the "Administrative Agent") under the Credit Agreement.
Statement of the Premises
The Borrower, PSC, the Lender Parties, the Initial Issuing Bank and the
Administrative Agent have previously entered into the Credit Agreement and
various amendments thereto from time to time. The Borrower has requested that
the Lender Parties consent to the acquisition of the assets of GEO Labs, Inc.
and GAP Technologies, Inc. (collectively, the "GEO/GAP Acquisition") and,
further, that the Lender Parties waive and amend certain covenants in the Credit
Agreement as applied to the GEO/GAP Acquisition and certain elements thereof.
Statement of Consideration
Accordingly, in consideration of the premises, and under the authority
of Section 5-1103 of the New York General Obligations Law, the parties hereto
agree as follows.
Agreement
1. Defined Terms. The terms "this Agreement", "hereunder" and similar references
in the Credit Agreement shall be deemed to refer to the Credit Agreement as
amended hereby. Capitalized terms used and not otherwise defined herein shall
have the meanings ascribed to such terms in the Credit Agreement.
2. Amendment. Effective as of October 13, 1999, the Credit Agreement is hereby
amended as follows:
2.1 Section 1.01 of the Credit Agreement is amended by adding the
definitions of "GEO/GAP Acquisition" and "GEO/GAP Term Sheet" thereto, as
follows:
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"GEO/GAP Acquisition" means the Transaction described in the GEO/GAP
Term Sheet.
"GEO/GAP Term Sheet" means the Term Sheet annexed as Exhibit A hereto.
2.2 Section 1.01 of the Credit Agreement is amended by changing the
definitions of "Capital Expenditures" and "Debt" to read in their entirety as
follows (new, additional language being in bold type):
"Capital Expenditures" means, for any Person for any
period, the sum of all expenditures made, directly or
indirectly, by such Person or any of its Subsidiaries during
such period for equipment, fixed assets, real property or
improvements, or for replacements or substitutions therefor or
additions thereto, that have been or should be, in accordance
with GAAP, reflected as additions to property, plant or
equipment on a Consolidated balance sheet of such Person;
provided however that for the purposes of computing compliance
with Section 5.04(a) of this Agreement, Capital Expenditures
shall not be deemed to include those expenditures which are
funded by Debt and which are made to accomplish the GEO/GAP
Acquisition.
"Debt" of any Person means, without duplication, (a)
all indebtedness of such Person for borrowed money, (b) all
Obligations of such Person for the deferred purchase price of
property or services (other than trade payables not overdue by
more than 60 days incurred in the ordinary course of such
Person's business and trade payables that are being contested
in good faith), (c) all Obligations of such Person evidenced
by notes, bonds, debentures or other similar instruments, (d)
all Obligations of such Person created or arising under any
conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession
or sale of such property), (e) all Obligations of such Person
as lessee under Capitalized Leases, (f) all Obligations,
contingent or otherwise, of such Person under acceptance,
letter of credit or similar facilities, (g) all Obligations of
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such Person to purchase, redeem, retire, defease or otherwise
make any payment in respect of any capital stock of or other
ownership or profit interest in such Person or any other
Person or any warrants, rights or options to acquire such
capital stock, valued, in the case of Redeemable Preferred
Stock, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends, (h)
all Obligations of such Person in respect of Hedge Agreements,
(i) all Debt of others referred to in clauses (a) through (h)
above or clause (j) below guaranteed directly or indirectly in
any manner by such Person, or in effect guaranteed directly or
indirectly by such Person through an agreement (i) to pay or
purchase such Debt or to advance or supply funds for the
payment or purchase of such Debt, (ii) to purchase, sell or
lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to
make payment of such Debt or to assure the holder of such Debt
against loss, (iii) to supply funds to or in any other manner
invest in the debtor (including any agreement to pay for
property or services irrespective of whether such property is
received or such services are rendered) or (iv) otherwise to
assure a creditor against loss, and (j) all Debt referred to
in clauses (a) through (i) above of another Person secured by
(or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any Lien on
property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Debt;
provided however that for the purposes of Section 5.02(b) of
the Agreement, Debt shall not be deemed to include amounts
payable to George A. Plesko pursuant to and in accordance with
the GEO/GAP Term Sheet.
2.3 Section 5.02(d) of the Credit Agreement is amended by making the
following correction in clause (v) thereof: the reference to "Section 5.01(f)(i)
and (vii)" is changed to "Section 5.02(f)(i) and (vii)".
3. Consent and Waiver. The undersigned Lender Parties hereby consent to the
GEO/GAP Acquisition and waive the right to deem the GEO/GAP Acquisition to be a
violation of Section 5.02(b) of the Credit Agreement or a Default or Event of
Default under the Credit Agreement by reason of the GEO/GAP Acquisition
resulting in noncompliance with such Sections; provided and on the conditions
that: (1) the GEO/GAP Acquisition is made within the terms set forth on the
GEO/GAP Term Sheet, (2) Borrower shall be in compliance with all terms,
conditions and covenants of the Credit Agreement, as amended hereby, immediately
after giving effect to the GEO/GAP Acquisition, and (3) immediately upon the
consummation of the GEO/GAP Acquisition, the chief financial officer of the
Borrower shall deliver to the Administrative Agent a certificate stating that
the Borrower has complied with and remains in compliance with each of these
conditions.
4. Effect on the Credit Agreement. Except as specifically amended above, the
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed. The Borrower and PSC each acknowledge and agree that the Credit
Agreement (as amended by this Amendment) and each other Loan Document to which
each is a party is in full force and effect, that its Obligations thereunder and
under this Amendment are its legal, valid and binding obligations enforceable
against it in accordance with the terms thereof and hereof, and it has no
defense, whether legal or equitable, setoff or counterclaim to the payment and
performance of such Obligations.
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5. Expenses. The Borrower shall pay promptly when billed all reasonable
out-of-pocket expenses of each of the Lender Parties and the Agent (including,
but not limited to, reasonable fees, charges and disbursements of counsel to
each of the Lender Parties and the Agent) incident to the preparation,
negotiation, execution, administration and enforcement of the this Amendment
Seven and Consent and Waiver and all documents and transactions required in
connection with this Amendment Seven and Consent and Waiver.
6. Execution in Counterparts and Effectiveness. This Amendment Seven and Consent
and Waiver may be executed in any number of counterparts and by the different
parties hereto on separate counterparts, each of which shall be deemed to be an
original, and all of which taken together shall constitute one and the same
Amendment Seven and Consent and Waiver, regardless of whether or not the
execution by all parties shall appear on any single counterpart. Delivery of an
executed counterpart of a signature page to this Amendment Seven and Consent and
Waiver by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment Seven and Consent and Waiver. This Amendment Seven
and Consent and Waiver will become effective (subject to the terms of Sections 3
and 4 above) when the Administrative Agent shall have received counterparts of
this Amendment Seven and Consent and Waiver which, when taken together, bear the
signatures of the Borrower, PSC, the Administrative Agent and all of the
Required Lenders.
7. Applicable Law. Pursuant to Section 5-1401 of the New York General
Obligations Law, the laws of the State of New York shall govern the validity,
construction, enforcement and interpretation of this Amendment Seven and Consent
and Waiver in whole without regard to any rules of conflicts-of-laws that would
require the application of the laws of any jurisdiction other than the State of
New York.
8. Headings. The headings of this Amendment Seven and Consent and Waiver are for
the purposes of reference only and shall not limit or otherwise affect the
meanings hereof.
IN WITNESS WHEREOF, the parties hereto have caused a counterpart of
this Amendment Seven and Consent and Waiver to be executed and delivered by
their respective representatives thereunto duly authorized, as of the date first
above written.
PSC INC. PSC SCANNING, INC.
By: By:
Title: Vice President, Chief Financial Title: Vice President and Chief
Officer & Treasurer Financial Officer
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FLEET NATIONAL BANK, as Initial FLEET NATIONAL BANK, as
Issuing Bank Administrative Agent
By: By:
Title: Title:
FLEET NATIONAL BANK FIRST UNION NATIONAL BANK
By: By:
Title: Title:
MANUFACTURERS & TRADERS KEY BANK NATIONAL
TRUST COMPANY ASSOCIATION
By: By:
Title: Title:
THE CHASE MANHATTAN BANK
By:
Title:
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Variance to Credit Agreement
This Variance is dated as of October 28, 1999 and is made in respect of
the Credit Agreement dated as of July 12, 1996 as amended and in effect
immediately prior to the date hereof (the "Credit Agreement") by and among PSC
Scanning, Inc., a Delaware corporation formerly known as SpectraScan, Inc.,
which is the successor by merger to PSC Acquisition, Inc., (the "Borrower"), PSC
Inc. ("PSC"), the financial institutions party to the Credit Agreement (the
"Lender Parties"), Fleet National Bank (formerly known as Fleet Bank) as the
"Initial Issuing Bank", and Fleet National Bank, as administrative agent (the
"Administrative Agent") under the Credit Agreement. All terms defined in the
Credit Agreement are used herein with the same meanings.
Statement of the Premises
The Borrower's Total Debt Ratio, determined according to the financial
statements of Borrower for the quarterly period ending October 1, 1999, has
improved from "Level III" to "Level IV" as described under the Applicable
Margin. The Borrower has requested that the corresponding change in the
Applicable Margin become effective as soon as possible rather than at the end of
the current Interest Period, as provided in the Credit Agreement, and the Lender
Parties are willing to grant such variance in this specific instance.
Statement of Consideration
Accordingly, in consideration of the premises, and under the authority
of Section 5-1103 of the New York General Obligations Law, the parties hereto
agree as follows.
Agreement
1. Variance. Effective on the date on which the Administrative Agent shall have
received all signatures to this Variance by all Lender Parties, PSC and the
Borrower, the Applicable Margin shall be deemed to be at Level IV. Immediately
upon receiving all such signatures, the Administrative Agent shall execute this
Variance and shall notify all parties to the Credit Agreement in writing of such
effective date.
2. Effect on the Credit Agreement. Except as specifically varied above, the
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed. No obligation to make any similar variance in the future is
expressed or implied.
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3. Expenses. The Borrower shall pay promptly when billed all reasonable
out-of-pocket expenses of each of the Lender Parties and the Administrative
Agent (including, but not limited to, reasonable fees, charges and disbursements
of counsel to each of the Lender Parties and the Administrative Agent) incident
to this Variance.
4. Execution in Counterparts. This Variance may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which shall be deemed to be an original, and all of which taken together
shall constitute one and the same agreement, regardless of whether or not the
execution by all parties shall appear on any single counterpart. Delivery of an
executed counterpart of a signature page to this Variance by telecopier shall be
effective as delivery of a manually executed counterpart of this Variance.
IN WITNESS WHEREOF, the parties hereto have caused a counterpart of
this Variance to be executed and delivered by their respective representatives
thereunto duly authorized, as of the date first above written.
PSC Inc. PSC Scanning, Inc.
By: By:
Title: Vice President, Chief Financial Title: Vice President and Chief
Officer & Treasurer Financial Officer
Fleet National Bank, as Initial Fleet National Bank, as
Issuing Bank Administrative Agent
By: By:
Title: Title:
Fleet National Bank First Union National Bank
By: By:
Title: Title:
The Chase Manhattan Bank Key Bank National Association
By: By:
Title: Title:
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Manufacturers & Traders Trust Company
By:
Title:
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PSC INC.
PSC SCANNING, INC.
675 Basket Road
Webster, New York 14580
December 20, 1999
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
200 Clarendon Street
Boston, Massachusetts 02117
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
LINCOLN NATIONAL INCOME FUND, INC.
c/o Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Ft. Wayne, Indiana 46802
SECURITY-CONNECTICUT LIFE INSURANCE COMPANY
c/o ReliaStar Investment Research, Inc.
100 Washington Avenue South
Suite 800
Minneapolis, Minnesota 55401
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
c/o Alliance Capital Management L.P.
1345 Avenue of the Americas, 37th Floor
New York, New York 10105
Re: Amendment No. 5 and Consent Under Securities Purchase Agreements
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Ladies and Gentlemen:
PSC INC., a New York corporation (the "Holding Company"), and PSC
SCANNING, INC., a Delaware corporation (formerly named SpectraScan, Inc.) and a
Wholly-Owned Subsidiary of the Holding Company (the "Operating Company") (the
Holding Company and the Operating Company are sometimes collectively referred to
herein as the "Companies" and each as a "Company"), jointly and severally agree
with you as follows:
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1. Definitions; Background.
(a) Reference is hereby made to those certain Securities Purchase
Agreements dated July 12, 1996, as amended, modified and supplemented by (i)
Amendment No. 1 to Securities Purchase Agreements dated October 10, 1996, (ii)
Amendment No. 2 and Waivers Under Securities Purchase Agreements dated as of
July 4, 1997, (iii) Amendment No. 3 to Securities Purchase Agreements and
Warrants dated August 18, 1997, (iv) Consent and Waiver Under Securities
Purchase Agreements and Warrants dated December 29, 1997 and (v) Amendment No.
4, Consent and Waiver Under Securities Purchase Agreements dated March 1, 1999
(as the same may be amended, modified or supplemented from time to time, the
"Securities Purchase Agreements"), among the Holding Company, the Operating
Company and each of you. Capitalized terms used herein without definition have
the meanings ascribed to them in the Securities Purchase Agreements.
(b) The Companies have requested that the holders of the Securities issued
pursuant to the Securities Purchase Agreements (i) consent to the acquisition of
the assets of GEO Labs, Inc. and GAP Technologies, Inc. (the "GEO/GAP
Acquisition") on the terms set forth in the term sheet for the GEO/GAP
Acquisition attached as Exhibit 1 hereto (the "GEO/GAP Term Sheet") and (ii)
amend certain provisions of the Securities Purchase Agreements as applied to the
GEO/GAP Acquisition upon the terms and provisions set forth herein.
2. Amendment to the Securities Purchase Agreements. Section 15.1 of the
Securities Purchase Agreements is hereby amended:
(a) to insert the following definitions in appropriate alphabetical order:
""GEO/GAP Acquisition" and "GEO/GAP Term Sheet" shall have the respective
meanings specified in that certain Amendment No. 5, Consent and Waiver Under
Securities Purchase Agreements dated December 20, 1999."
(b) to amend the definition of "Capital Expenditures" to insert the
following immediately before the "." at the end of such definition:
"; provided that for purposes of section 14.7(a) of this Agreement, Capital
Expenditures shall not include those expenditures which are funded by Current
Debt and/or Funded Debt and which are made to accomplish the GEO/GAP
Acquisition."
(c) to amend the definition of "Current Debt" to insert the following
immediately before the "." at the end of such definition:
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"; provided that for purposes of section 14.5 of this Agreement, Current
Debt shall not include amounts payable to George A. Plesko pursuant to and in
accordance with the GEO/GAP Term Sheet."
(d) to amend the definition of "Funded Debt" to insert the following
immediately before the "." at the end of such definition:
"; provided that for purposes of section 14.5 of this Agreement, Funded
Debt shall not include amounts payable to George A. Plesko pursuant to and in
accordance with the GEO/GAP Term Sheet."
3. Consent. Each of you hereby consents to the consummation of the GEO/GAP
Acquisition upon the terms set forth in the GEO/GAP Term Sheet; provided that,
after giving effect to the provisions of this Letter Agreement and to the
GEO/GAP Acquisition, no Default or Event of Default shall exist and, immediately
upon the consummation of the GEO/GAP Acquisition, the chief financial officer of
the Companies shall deliver to each of you a certificate stating that the
Companies have complied with and remain in compliance with the provisions
hereof.
4. No Default, Representations and Warranties, etc.
(a) The Companies represent and warrant that, except as otherwise modified
by (i) the documents referred to in section 5(a)(i) of Amendment No. 3 to
Securities Purchase Agreements and Warrants dated August 18, 1997, (ii) the
projections referred to on Exhibit B attached to Amendment No. 2 and Waivers
under Securities Purchase Agreements dated as of July 4, 1997, (iii) the
information delivered to the Purchasers on June 11, 1997, which is attached to
Amendment No. 2 and Waivers Under Securities Purchase Agreements dated as of
July 4, 1997 as Exhibit C, (iv) the documents referred to in Section 3(a)(iv) of
Consent and Waiver Under Securities Purchase Agreements and Warrants dated
December 29, 1997, (v) the documents referred to in section 4(a)(v) of Amendment
No. 4, Consent and Waiver under Securities Purchase Agreements, and (vi) the
following documents filed by the Holding Company with the Commission under the
Exchange Act: (A) Form 10-K for the year ended December 31, 1998, (B) Form 10-Q
for the quarters ended April 2, 1999, July 2, 1999 and October 1, 1999 and (C)
Form 8-K filed on November 10, 1999 (true, correct and complete copies of all of
which items have been furnished to you), the representations and warranties
contained in the Securities Purchase Agreements and the other Operative
Documents are in all material respects correct on and as of the date hereof as
if made on such date (except to the extent affected by the consummation of
transactions permitted by the Securities Purchase Agreements). The Companies
further represent and warrant that, after giving effect to the provisions of
this Letter Agreement, no Default or Event of Default exists.
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(b) The Companies each ratify and confirm the Securities Purchase
Agreements and each of the other Operative Documents to which each is a party
and agree that each such agreement, document and instrument is in full force and
effect, that its obligations thereunder and under this Letter Agreement are its
legal, valid and binding obligations enforceable against it in accordance with
the terms thereof and hereof and that it has no defense, whether legal or
equitable, setoff or counterclaim to the payment and performance of such
obligations.
(c) The Companies agree that (i) if any default shall be made in the
performance or observance of any covenant, agreement or condition contained in
this Letter Agreement or in any agreement, document or instrument executed in
connection herewith or pursuant hereto or (ii) if any representation or warranty
made by the Companies herein or therein shall prove to have been false or
incorrect on the date as of which made, the same shall constitute an Event of
Default under the Securities Purchase Agreements and the other Operative
Documents and, in such event, you and each other holder of any of the Notes
shall have all rights and remedies provided by law and/or provided or referred
to in the Securities Purchase Agreements and the other Operative Documents. The
Companies further agree that this Letter Agreement is an Operative Document and
all references thereto in the Securities Purchase Agreements and in any other of
the other Operative Documents shall include this Letter Agreement.
(d) On December 31, 1997, each of Laserdata Holdings, Inc., PSC S.A., Inc.
and PSC Scanning Systems, Inc. was merged into the Holding Company.
5. Payment of Transaction Costs. The Companies shall pay all reasonable
fees and disbursements incurred by you in connection herewith, including,
without limitation, the reasonable fees, expenses and disbursements of your
special counsel.
6. Governing Law. This Letter Agreement, including the validity hereof and
the rights and obligations of the parties hereunder, shall be construed in
accordance with and governed by the domestic substantive laws of the State of
New York without giving effect to any choice of law or conflicts of law
provision or rule that would cause the application of the domestic substantive
laws of any other jurisdiction.
7. Miscellaneous. The headings in this Letter Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof. This
Letter Agreement embodies the entire agreement and understanding among the
parties hereto and supersedes all prior agreements and understandings relating
to the subject matter hereof. In case any provision in this Letter Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. This Letter Agreement may be executed in any number of
counterparts and by the parties hereto on separate counterparts but all such
counterparts shall together constitute but one and the same instrument.
[The remainder of this page is intentionally left blank.]
-88-
<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart hereof, whereupon this Letter
Agreement shall become a binding agreement under seal among the parties hereto.
Please then return one of such counterparts to the Companies.
Very truly yours,
PSC INC.
By: _____________________________
PSC SCANNING, INC.
By: _____________________________
(Title)
Each of the undersigned (a) acknowledges and assents to the terms and
provisions of the foregoing Letter Agreement and (b) ratifies and confirms each
of the Operative Documents to which it is a party and agrees that each such
Operative Document is in full force and effect, that its obligations thereunder
are its legal, valid and binding obligations enforceable against it in
accordance with the terms thereof and that it has no defense, whether legal or
equitable, setoff or counterclaim, to the payment and performance of such
obligations.
INSTAREAD CORPORATION
By: _____________________________
(Title)
PSC AUTOMATION, INC.
(formerly named Laserdata Corporation)
By: _____________________________
-89-
<PAGE>
The foregoing is hereby accepted and agreed to:
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By: _____________________________
(Title)
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
By: _______________________________
(Title)
-90-
<PAGE>
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
By: Lincoln Investment Management, Inc.
Its Attorney-in-Fact
By: ___________________________
(Title)
LINCOLN NATIONAL INCOME FUND, INC.
By: _______________________________
(Title)
-91-
<PAGE>
SECURITY-CONNECTICUT LIFE
INSURANCE COMPANY
By: _______________________________
(Title)
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By: _______________________________
(Title)
-92-
<PAGE>
Exhibit 1
GEO/GAP Term Sheet
See attached.
-93-
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 Barbados)
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)
GAP Technologies, Inc. (100% owned by the Company
and incorporated in Delaware)
GEO Labs, Inc. (100% owned by the Company
and incorporated in Delaware)
Percon Incorporated (100% owned by the Company
and incorporated in Washington)
-94-
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
April 14, 2000
-95-
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