<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 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: 0-23686
PC SERVICE SOURCE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1703687
-------- ----------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2350 VALLEY VIEW LANE, DALLAS, TEXAS 75234
------------------------------------ --------
(Address of principal executive offices) (Zip Code)
</TABLE>
(972) 481-4000
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the 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
--- ---
As of November 1, 1999, there were 5,269,320 shares of the registrant's common
stock outstanding.
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PC SERVICE SOURCE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 1999 and December 31, 1998 ................ 1
Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended
September 30, 1999 and 1998 ............................. 2
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and 1998 ... 3
Notes to Condensed Consolidated Financial Statements..... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........... 7
Item 3. Quantitative and Qualitative Disclosure
About Market Risk ....................................... 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................... 12
SIGNATURES.................................................................. 14
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash ........................................................... $ 1,466 $ 940
Accounts receivable, net ....................................... 17,479 19,212
Inventories, net ............................................... 32,503 22,031
Other current assets ........................................... 3,279 2,824
------- -------
Total current assets .................................... 54,727 45,007
Property and equipment, net ...................................... 14,510 15,081
Other assets, net ................................................ 2,388 2,646
------- -------
Total assets ............................................. $71,625 $62,734
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $20,441 $14,058
Accrued liabilities ............................................ 8,806 9,129
Current installments of obligations under capital leases ....... 1,360 1,399
Revolving line of credit ....................................... -- 14,229
------- -------
Total current liabilities ........................................ 30,607 38,815
Long-term debt-revolving line of credit .......................... 17,256 --
Obligations under capital leases ................................. 1,672 2,677
Deferred income taxes ............................................ 1,102 1,102
Stockholders' equity ............................................. 20,988 20,140
------- -------
Total liabilities and stockholders' equity .................. $71,625 $62,734
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues .............................. $ 36,213 $ 42,865 $ 114,083 $ 119,671
Cost of revenues .......................... 26,820 32,957 84,236 92,499
--------- --------- --------- ---------
Gross margin ............................ 9,393 9,908 29,847 27,172
--------- --------- --------- ---------
Operating expenses:
Selling, general and administrative ..... 7,023 8,264 21,920 26,015
Depreciation and amortization ........... 1,323 1,130 3,775 3,305
--------- --------- --------- ---------
Total operating expenses .............. 8,346 9,394 25,695 29,320
--------- --------- --------- ---------
Earnings (loss) from operations ........... 1,047 514 4,152 (2,148)
Net interest expense ...................... 399 451 1,197 1,085
--------- --------- --------- ---------
Earnings (loss) before income taxes ....... 648 63 2,955 (3,233)
Income tax expense (benefit) .............. -- 17 -- (1,206)
--------- --------- --------- ---------
Net earnings (loss) ....................... $ 648 $ 46 $ 2,955 $ (2,027)
========= ========= ========= =========
Earnings (loss) per share:
Basic ................................. $ 0.12 $ 0.01 $ 0.53 $ (0.35)
========= ========= ========= =========
Diluted ............................... $ 0.12 $ 0.01 $ 0.52 $ (0.35)
========= ========= ========= =========
Weighted average common shares outstanding:
Basic ................................. 5,357 5,760 5,594 5,760
========= ========= ========= =========
Diluted ............................... 5,502 5,832 5,687 5,760
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
---------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ............................................. $ 2,955 $ (2,027)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization ............................... 3,775 3,305
Deferred income taxes ....................................... -- (1,033)
Changes in operating assets and liabilities:
Accounts receivable .......................................... 1,733 (3,832)
Inventories .................................................. (10,472) (5,264)
Other current assets ......................................... (455) (582)
Accounts payable ............................................. 6,383 1,914
Accrued liabilities .......................................... (323) 3,570
Other, net ................................................... 124 162
-------- --------
Net cash provided by (used in) operating activities 3,720 (3,787)
-------- --------
Cash flows from investing activities:
Capital expenditures ............................................. (3,070) (4,073)
Acquisition of noncash net assets ................................ -- 424
-------- --------
Net cash used in investing activities ................... (3,070) (4,497)
-------- --------
Cash flows from financing activities:
Net revolving line of credit borrowings .......................... 3,027 8,295
Purchase of treasury shares ...................................... (2,134) --
Payments under capital lease obligations ......................... (1,044) (832)
Proceeds from sale-leaseback transaction ......................... -- 963
Proceeds from exercise of stock options .......................... 27 18
-------- --------
Net cash provided by (used in) financing activities ................ (124) 8,444
-------- --------
Net increase in cash ............................................... 526 160
Cash at beginning of period ........................................ 940 717
-------- --------
Cash at end of period .............................................. $ 1,466 $ 877
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(1) BASIS OF PRESENTATION
These unaudited condensed consolidated financial statements of PC
Service Source, Inc. and its subsidiaries (collectively the
"Company"), for the three and nine months ended September 30, 1999 and
1998, have been prepared in accordance with generally accepted
accounting principles for interim financial reporting. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements and should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1998. All
significant intercompany balances and transactions have been
eliminated in consolidation. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation of the interim financial
information have been included. The results of operations for any
interim period are not necessarily indicative of the results of
operations for a full year. Certain 1998 items have been restated to
conform with the 1999 presentation. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) EARNINGS (LOSS) PER SHARE
Basic earnings per share is computed by dividing net income (loss)
available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings per
share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted
into common stock.
The following table sets forth the computation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net earnings (loss) ................... $ 648 $ 46 $ 2,955 $(2,027)
======= ======= ======= =======
Weighted average common shares
outstanding - basic ................ 5,357 5,760 5,594 5,760
Employee stock options and other ...... 145 72 93 --
------- ------- ------- -------
Weighted average common shares
outstanding - diluted .............. 5,502 5,832 5,687 5,760
======= ======= ======= =======
Earnings (loss) per share:
Basic .............................. $ 0.12 $ 0.01 $ 0.53 $ (0.35)
Diluted ............................ $ 0.12 $ 0.01 $ 0.52 $ (0.35)
</TABLE>
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<PAGE> 7
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
The weighted average common shares outstanding-diluted computation for
the three and nine months ended September 30, 1999, respectively
excluded 596,000 and 644,000 employee stock options and other common
stock equivalents because this impact would be anti-dilutive. For the
three and nine months ended September 30, 1998, respectively excluded
370,000 and 536,000 employee stock options and other common stock
equivalents because this impact would be anti-dilutive.
(3) COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity during a
period from transactions and other events and circumstances from
non-ownership sources. It includes all changes in equity during a
period, except those resulting from investments by owners and
distributions to owners. Comprehensive income is equal to net earnings
(loss) as presented on the Consolidated Statements of Operations for
the three months and nine months ended September 30, 1999 and 1998.
(4) SUPPLEMENTAL CASH FLOW INFORMATION
Net cash flow from operating activities reflects cash payments for
interest and income taxes as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1999 1998
------- -------
<S> <C> <C>
Interest paid ................. $ 1,188 $ 962
Income taxes paid, net.......... 60 19
</TABLE>
During the nine months ended September 30, 1999 and 1998, the Company
acquired $0 and $963 of assets through non-cash capital lease
transactions.
(5) STOCK REPURCHASE PROGRAM
On July 30, 1999, the Company announced the adoption of an amendment
to its stock repurchase program pursuant to which the Company
increased the number of shares the Company is authorized to repurchase
in the open market or through privately negotiated transactions from
600,000 to 1,000,000. The repurchased stock will become treasury
shares available for general corporate purposes.
As of September 30, 1999, the Company had repurchased 532,500 shares
at an aggregate cost of approximately $2.1 million during 1999.
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<PAGE> 8
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(6) CONTINGENCIES
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of the Company's
management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's consolidated financial
position and results of operations, taken as a whole.
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<PAGE> 9
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table displays the Company's statements of operations as a
percentage of net revenues:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues ........................................ 100.0% 100.0% 100.0% 100.0%
Cost of revenues .................................... 74.1 76.9 73.8 77.3
----- ----- ----- -----
Gross margin ................................... 25.9 23.1 26.2 22.7
----- ----- ----- -----
Operating expenses:
Selling, general and administrative ............ 19.4 19.3 19.2 21.7
Depreciation and amortization .................. 3.6 2.6 3.3 2.8
----- ----- ----- -----
Total operating expenses ................... 23.0 21.9 22.5 24.5
----- ----- ----- -----
Earnings (loss) from operations ........ 2.9 1.2 3.6 (1.8)
Net interest expense ................................ 1.1 1.1 1.0 0.9
----- ----- ----- -----
Earnings (loss) before income taxes .... 1.8 0.1 2.6 (2.7)
Income tax expense (benefit) ........................ -- -- -- (1.0)
----- ----- ----- -----
Net earnings (loss) ........................ 1.8% 0.1% 2.6% (1.7)%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net revenues were $36.2 million for the third quarter of 1999, representing a
decrease of $6.7 million or 15.5% from the third quarter of 1998. The decrease
in revenue was due to significantly less revenue from the Company's service
providers, including Vanstar (which was subsequently acquired by InaCom).
Management expected Vanstar's purchases to decline after the acquisition. The
decrease in revenue, however, was partially offset by an increase in revenue
from the Company's OEM outsourcing and repair business.
Gross margins as a percentage of net revenues increased in the third quarter of
1999 to 25.9% from 23.1% in the same period of 1998. One contributory factor to
the increase in gross margin was the higher percentage of OEM outsourcing and
repair business, which was offset in part by higher purchasing and handling
costs necessary to support the increase in the Company's OEM revenues. In
addition, the gross margin is different for each line of computer parts which
the Company sells, therefore, changes in the mix of parts sold by the Company
during a particular period affect the Company's gross margin.
-7-
<PAGE> 10
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Selling, general and administrative expenses as a percentage of net revenues
remained flat in the third quarter of 1999 at 19.4% compared to 19.3% in the
same period in 1998.
Depreciation and amortization increased as a percentage of net revenues to 3.6%
in the third quarter of 1999 compared to 2.6% in the same period of 1998. This
increase was due to a higher asset base in 1999 resulting from the significant
capital expenditures made by the Company in 1998 and through the first nine
months of 1999 and the decrease in net revenues.
Net interest expense as a percentage of net revenues remained flat at 1.1%
during the third quarter of 1999 compared to 1.1% during the same period of
1998.
The first nine months of 1999 does not include a provision for income taxes due
to the utilization of net operating loss carryforwards.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net revenues were $114.1 million for the first nine months of 1999,
representing a decrease of $5.6 million or 4.7% from the same period of 1998.
This decrease in revenue was due to significantly less revenue from the
Company's service providers, which was partially offset by an increase in
revenue from the Company's OEM outsourcing business.
Gross margin as a percentage of net revenues increased in the first nine months
of 1999 to 26.2% from 22.7% in the same period of 1998. The increase in gross
margin was attributable to the following three factors: (a) a higher percentage
of the Company's business being from its OEM outsourcing and repair services
businesses, which was offset by a higher percentage of purchasing and handling
costs; (b) additional freight expenses incurred by the Company in the second
quarter of 1998 from deficiencies in the Company's monitoring and control of
its freight expenses, which were identified and corrected in 1998; and (c) a
different gross margin for each line of computer parts sold by the Company and,
therefore, a change in the mix of parts sold by the Company during a particular
period affects the Company's gross margin.
Selling, general and administrative expenses as a percentage of net revenues
decreased to 19.2% in the first nine months of 1999 compared to 21.7% in the
same period in 1998. The decrease was primarily due to the following three
factors: (a) a non-recurring charge related to the termination of an
unprofitable warranty processing program in the second quarter of 1998; (b) the
closure of the West Coast repair operations of the Company's PCSS Repair
Services subsidiary in the fourth quarter of 1998; and (c) the Company's
adoption of additional expense reduction programs which were announced in the
fourth quarter of 1998, which included a workforce reduction and implementation
of tighter controls on discretionary expenses.
Depreciation and amortization increased as a percentage of net revenues to 3.3%
in the first nine months of 1999 compared to 2.8% in the same period of 1998.
This increase was due to a higher asset base in 1999 resulting from the
significant capital expenditures made by the Company in 1998 and through the
first nine months of 1999, as well as the decrease in net revenues.
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<PAGE> 11
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Net interest expense as a percentage of net revenues increased to 1.0% during
the first nine months of 1999 compared to 0.9% during the same period of 1998
due to a higher average outstanding balance on the revolving line of credit
during the first nine months of 1999.
In February 1999, the Company's largest customer Vanstar notified the Company
of its intention to terminate the exclusive contract with the Company effective
as of June 1999. Although the Company anticipates that it will continue to do
business with Vanstar after June 1999, any such business will not be on an
exclusive basis and has been significantly less than in 1998.
The first nine months of 1999 does not include a provision for income taxes due
to the utilization of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a $25 million revolving bank credit facility with PNC
Bank, National Association, which matures in March 2002 and is secured by
substantially all of the assets of the Company. The Company was in compliance
with all covenants revolving bank credit facility at September 30, 1999. As of
September 30, 1999, the Company had $17.3 million outstanding under its
revolving bank credit facility and approximately $3.8 million of availability.
The Company finances its working capital and capital expenditure requirements
from a revolving bank credit facility, lease financing agreements, equity
financing and internally generated funds. Cash provided by operating activities
during the first nine months of 1999 was $3.7 million compared to $3.8 million
used in the same period of 1998. The cash provided by operating activities in
1999 was due primarily to the $3.0 million net income for the period, the
increase in accounts payable and the reduction of accounts receivable, which
were offset by the increase in inventory to provide OEM outsourcing services
for new and existing OEM customer. The cash used in operating activities in
1998 was due primarily to the net loss of $2.0 million, as well as the increase
in inventory and accounts receivable necessary to support higher revenues of
the Company.
In accordance with its stock repurchase program in the third quarter of 1999,
the Company purchased 313,900 shares of common stock on the open market at an
average price of $4.02 per share. The repurchased stock became treasury shares
which will be available for general corporate purposes. On July 30, 1999, the
Company amended its stock repurchase program from 600,000 shares to 1,000,000
shares of its common stock. In the nine months ended September 30, 1999, the
Company has repurchased 532,500 shares at an aggregate cost of $2.1 million.
The Company believes that the cash generated from operations combined with its
revolving bank credit facility should be sufficient to meet its 1999 working
capital and capital expenditure requirements.
-9-
<PAGE> 12
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
YEAR 2000 COMPLIANCE
The Company's management recognizes the need to ensure that its operations and
relationships with vendors, customers and other third parties will not be
adversely impacted by the Year 2000 issue. The Year 2000 problem is a result of
computer programs being written using two digits rather than four to define the
applicable year. Based on its assessment, the Company determined a portion of
its software and certain hardware will require modification or replacement so
that those systems will properly utilize dates beyond December 31, 1999.
Although the Company's assessment indicated that the significant information
technology systems would not be affected, that assessment however, indicated
that the software and hardware used in the Company's telephone equipment would
be at risk. The affected systems are the Company's primary sources of receiving
orders. The Company believes it has mitigated the Year 2000 issue by modifying
or replacing the affected hardware and software.
The Company has also established a program to review its product line and
identify date-sensitive parts and the level of Year 2000 compliance that the
parts supports. This program is to ensure that customers receive products that
are Year 2000 compliant, or at a minimum, are aware of products that are not
compliant. The Company also depends on the systems of its suppliers and
customers. Consequently, the Company is in the process of receiving adequate
assurances from its suppliers and customers that those systems on which the
Company relies are or will be Year 2000 compliant before the end of 1999.
To the extent possible, the Company will develop and implement contingency
plans designed to allow continued operations in the event of failure of the
Company's or third party systems to be Year 2000 compliant. These contingency
plans have been developed and will be fully implemented by the end of 1999.
Management estimates that the total cost of the above initiatives to be
$500,000. The Company is expensing all costs associated with these systems
changes as the costs are incurred. As of September 30, 1999, approximately
$400,000 has been expensed.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 program. Should the
critical applications fail to perform properly in response to the Year 2000
issue, the Company could be unable to receive and ship a substantial number of
orders received by its telephone systems. The amount of potential lost revenue
cannot be reasonably estimated at this time. Further, the failure of the
Company or third parties upon which the Company relies, to identify Year 2000
issues and successfully and timely resolve them could have a material adverse
impact on the results of operations and financial condition of the Company.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
The Company occasionally makes forward-looking statements concerning its plans,
goals, product and service offerings, and anticipated financial performance.
These forward-looking statements may generally be identified by introductions
such as "outlook" for an upcoming period of time, or words and phrases such as
"should", "expect", "hope", "plans", "projected", "believes", "forward-looking"
(or variants of those words and phrases) or similar language indicating the
expression of an opinion or view concerning the future.
-10-
<PAGE> 13
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
These forward-looking statements are subject to risks and uncertainties based
on a number of factors and actual results or events may differ materially from
those anticipated by such forward-looking statements. These factors include,
but are not limited to: the growth rate of the Company's revenue and market
share; the consummation of new and the non-termination of existing OEM
outsourcing arrangements and service provider alliances; the Company's ability
to effectively manage its business functions while growing the Company's
business in a rapidly changing environment; the ability of the Company to adapt
and expand its services in such an environment; the effective and efficient
purchasing of parts, including managing inventory levels and carrying values of
the parts, and processing of sales orders; and the quality of the Company's
plans and strategies, and the ability of the Company to execute such plans and
strategies.
In addition, forward-looking statements concerning the Company's expected
revenue or earnings levels are subject to many additional uncertainties
applicable to competitors generally and to general economic conditions over
which the Company has no control. The Company does not plan to generally
publicly update prior forward-looking statements for unanticipated events or
otherwise and, accordingly, prior forward-looking statements should not be
considered to be "fresh" simply because the Company has not made additional
comments on those forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings are affected by changes in interest rates due
to the impact those changes have on the interest expense payable by the Company
under its variable rate debt revolving line of credit, for which the
outstanding balance was $17.3 million as of September 30, 1999. A 1.0% charge
in the underlying LIBOR or prime rate would result in a $173,000 charge in the
annual amount of interest on such debt. This amount is determined by
considering the impact on the hypothetical interest rates on the Company's
revolving line of credit outstanding as of September 30, 1999.
-11-
<PAGE> 14
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS
The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit
No. Description
-------- -----------
<S> <C>
3.1+++ Restated Certificate of Incorporation of the Company
3.2++ Amended and Restated Bylaws of the Company
4.1+ Specimen Certificate evidencing Common Stock
4.2v+ Certificate of Designations of Series A Junior
Participating Preferred Stock
10.1v+ Revolving Credit and Security Agreement by and among the
Company, its subsidiaries and PNC Bank, National
Association, as lender and as agent
10.2+v Stock Option Plan, including form of Stock Option
Agreements, as amended
10.3v+ Rights Plan
10.4v+ Stock Price Appreciation Plan
10.5+v Director Compensation Plan
10.6v Employee Stock Purchase Plan
10.7v+ Fifth Amendment to Stock Option Plan
27.1* Financial Data Schedule
27.2* Restated Financial Data Schedule
</TABLE>
- ------------------
+ Previously filed as an exhibit to the Company's Registration
Statement on Form SB-2, registration Number 33-76068-D, initially
filed with the Securities and Exchange Commission on March 4, 1994,
and declared effective on March 28.
++ Previously filed as an exhibit to the Company's report on Form 8-K
filed with the Securities and Exchange Commission on December 9,
1998.
+++ Previously filed as an exhibit to the Company's report on Form S-8,
Registration Number 33-98176, filed with the Securities and Exchange
Commission on October 17, 1995.
+v Previously filed as an exhibit to the Company's report on Form 10-K
for the year ended December 31, 1995, filed with the Securities and
Exchange Commission on March 31, 1996.
v Previously filed as an exhibit to the Company's Registration
Statement on Form S-1, Registration Number 333-03977, initially filed
with the Securities and Exchange Commission on May 17, 1996, and
declared effective on May 28, 1996.
v+ Previously filed as an exhibit to the Company's report on Form 10-K
for the year ended December 31, 1998, filed with the Securities and
Exchange Commission on March 31, 1999.
* Filed herewith.
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<PAGE> 15
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
B. REPORTS ON FORM 8-K
On July 30, 1999, the company filed a report on Form 8-K pursuant to
Item 5 thereof in connection with the approval by the Board of Directors of an
amendment to the Company's stock repurchase program increasing the number of
shares the Company is authorized to repurchase thereunder in the open market or
through privately negotiated transactions from 600,000 to 1,000,000.
-13-
<PAGE> 16
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PC SERVICE SOURCE, INC.
------------------------------------------
(Registrant)
November 12, 1999 /s/ Robert J. Boutin
------------------------------------------
Robert J. Boutin
Senior Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
-14-
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
3.1+++ Restated Certificate of Incorporation of the Company
3.2++ Amended and Restated Bylaws of the Company
4.1+ Specimen Certificate evidencing Common Stock
4.2v+ Certificate of Designations of Series A Junior
Participating Preferred Stock
10.1v+ Revolving Credit and Security Agreement by and among the Company,
its subsidiaries and PNC Bank, National Association, as lender
and as agent
10.2+v Stock Option Plan, including form of Stock Option Agreements, as
amended
10.3v+ Rights Plan
10.4v+ Stock Price Appreciation Plan
10.5+v Director Compensation Plan
10.6v Employee Stock Purchase Plan
10.7v+ Fifth Amendment to Stock Option Plan
27.1* Financial Data Schedule
27.2* Restated Financial Data Schedule
</TABLE>
- ------------------
+ Previously filed as an exhibit to the Company's Registration
Statement on Form SB-2, registration Number 33-76068-D, initially
filed with the Securities and Exchange Commission on March 4, 1994,
and declared effective on March 28.
++ Previously filed as an exhibit to the Company's report on Form 8-K
filed with the Securities and Exchange Commission on December 9,
1998.
+++ Previously filed as an exhibit to the Company's report on Form S-8,
Registration Number 33-98176, filed with the Securities and Exchange
Commission on October 17, 1995.
+v Previously filed as an exhibit to the Company's report on Form 10-K
for the year ended December 31, 1995, filed with the Securities and
Exchange Commission on March 31, 1996.
v Previously filed as an exhibit to the Company's Registration
Statement on Form S-1, Registration Number 333-03977, initially filed
with the Securities and Exchange Commission on May 17, 1996, and
declared effective on May 28, 1996.
v+ Previously filed as an exhibit to the Company's report on Form 10-K
for the year ended December 31, 1998, filed with the Securities and
Exchange Commission on March 31, 1999.
* Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1999 (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,466
<SECURITIES> 0
<RECEIVABLES> 18,200
<ALLOWANCES> 721
<INVENTORY> 35,503
<CURRENT-ASSETS> 54,727
<PP&E> 29,259
<DEPRECIATION> (14,749)
<TOTAL-ASSETS> 71,625
<CURRENT-LIABILITIES> 30,607
<BONDS> 17,256
0
0
<COMMON> 59
<OTHER-SE> 20,929
<TOTAL-LIABILITY-AND-EQUITY> 71,625
<SALES> 99,026
<TOTAL-REVENUES> 114,083
<CGS> 65,617
<TOTAL-COSTS> 84,236
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 1,197
<INCOME-PRETAX> 2,955
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,955
<EPS-BASIC> .53
<EPS-DILUTED> .52
<FN>
<F1>PROVISION FOR DOUBTFUL ACCOUNTS AND INVENTORY PROVISION INCLUDED IN TOTAL
COSTS.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 877
<SECURITIES> 0
<RECEIVABLES> 20,836
<ALLOWANCES> (1,031)
<INVENTORY> 22,775
<CURRENT-ASSETS> 48,006
<PP&E> 24,629
<DEPRECIATION> (10,066)
<TOTAL-ASSETS> 67,037
<CURRENT-LIABILITIES> 32,816
<BONDS> 13,830
0
0
<COMMON> 59
<OTHER-SE> 30,266
<TOTAL-LIABILITY-AND-EQUITY> 67,037
<SALES> 111,520
<TOTAL-REVENUES> 119,671
<CGS> 78,994
<TOTAL-COSTS> 92,449
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 1,085
<INCOME-PRETAX> (3,233)
<INCOME-TAX> (1,206)
<INCOME-CONTINUING> (2,027)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,027)
<EPS-BASIC> (.35)
<EPS-DILUTED> (.35)
<FN>
<F1>PROVISION FOR DOUBTFUL ACCOUNTS AND INVENTORY PROVISION INCLUDED IN TOTAL
COSTS.
</FN>
</TABLE>
