<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 JUNE 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 August 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
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
Condensed Consolidated Balance Sheets at
June 30, 1999 and December 31, 1998 ......................................... 1
Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 1999 and 1998 ................... 2
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 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 ............................... 6
Item 3. Quantitative and Qualitative Disclosure
About Market Risk ........................................................... 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.......................... 11
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>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash ........................................................... $ 575 $ 940
Accounts receivable, net ....................................... 16,968 19,212
Inventories, net ............................................... 26,272 22,031
Other current assets ........................................... 2,978 2,824
-------- --------
Total current assets .................................... 46,793 45,007
Property and equipment, net ...................................... 14,080 15,081
Other assets, net ................................................ 2,483 2,646
-------- --------
Total assets ............................................. $ 63,356 $ 62,734
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $ 16,169 $ 14,058
Accrued liabilities ............................................ 7,655 9,129
Current installments of obligations under capital leases ....... 1,366 1,399
Revolving line of credit ....................................... -- 14,229
-------- --------
Total current liabilities ........................................ 25,190 38,815
Long-term debt-revolving line of credit .......................... 13,487 --
Obligations under capital leases ................................. 2,001 2,677
Deferred income taxes ............................................ 1,102 1,102
Stockholders' equity ............................................. 21,576 20,140
-------- --------
Total liabilities and stockholders' equity .................. $ 63,356 $ 62,734
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PC SERVICE SOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 , June 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues ................................ $ 37,450 $ 38,309 $ 77,870 $ 76,806
Cost of revenues ............................ 27,168 30,583 57,416 59,542
-------- -------- -------- --------
Gross margin .............................. 10,282 7,726 20,454 17,264
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative ....... 7,474 9,829 14,897 17,751
Depreciation and amortization ............. 1,245 1,145 2,452 2,175
-------- -------- -------- --------
Total operating expenses ................ 8,719 10,974 17,349 19,926
-------- -------- -------- --------
Earnings (loss) from operations ............. 1,563 (3,248) 3,105 (2,662)
Net interest expense ........................ 368 315 798 634
-------- -------- -------- --------
Earnings (loss) before income taxes ......... 1,195 (3,563) 2,307 (3,296)
Income tax benefit .......................... -- (1,322) -- (1,223)
-------- -------- -------- --------
Net earnings (loss) ......................... $ 1,195 $ (2,241) $ 2,307 $ (2,073)
======== ======== ======== ========
Earnings (loss) per share:
Basic ................................... $ 0.21 $ (0.39) $ .40 $ (0.36)
======== ======== ======== ========
Diluted ................................. $ 0.21 $ (0.39) $ .39 $ (0.36)
======== ======== ======== ========
Weighted average common shares outstanding:
Basic ................................... 5,654 5,758 5,714 5,758
======== ======== ======== ========
Diluted ................................. 5,796 5,758 5,852 5,758
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PC SERVICE SOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ........................................... $ 2,307 $ (2,073)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization ............................. 2,452 2,175
Deferred income taxes ..................................... -- (845)
Changes in operating assets and liabilities:
Accounts receivable ....................................... 2,244 (2,501)
Inventories ............................................... (4,241) (4,348)
Other current assets ...................................... (154) (799)
Accounts payable .......................................... 2,111 4,700
Accrued liabilities ....................................... (1,474) 2,551
Other, net ................................................ 70 108
-------- --------
Net cash provided by (used in) operating activities .. 3,315 (1,032)
-------- --------
Cash flows from investing activities:
Capital expenditures .......................................... (1,359) (2,962)
-------- --------
Net cash used in investing activities ................. (1,359) (2,962)
-------- --------
Cash flows from financing activities:
Purchase of treasury shares ................................... (870) --
Net revolving line of credit borrowings (repayments) .......... (742) 4,979
Payments under capital lease obligations ...................... (709) (557)
Proceeds from exercise of stock options ....................... -- 4
-------- --------
Net cash provided by (used in) financing activities ............. (2,321) 4,426
-------- --------
Net increase (decrease) in cash ................................. (365) 432
Cash at beginning of period ..................................... 940 717
-------- --------
Cash at end of period ........................................... $ 575 $ 1,149
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PC SERVICE SOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS 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")
as of June 30, 1999 and December 31, 1998, and for the three and six
months ended June 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 (SHARES IN THOUSANDS)
Basic earnings (loss) per share is computed by dividing net earnings
(loss) by the weighted average number of common shares outstanding
during the period. Diluted earnings (loss) 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 (loss) per share.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 , June 30,
---------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) .................... $ 1,195 $ (2,241) $ 2,307 $ (2,073)
======== ======== ======== ========
Weighted average common shares
outstanding - basic .................. 5,654 5,758 5,714 5,758
Employee stock options and other ....... 142 -- 138 --
-------- -------- -------- --------
Weighted average common shares
outstanding - diluted ............... 5,796 5,758 5,852 5,758
======== ======== ======== ========
Earnings (loss) per share:
Basic ................................. $ 0.21 $ (0.39) $ 0.40 $ (0.36)
Diluted ............................... $ 0.21 $ (0.39) $ 0.39 $ (0.36)
</TABLE>
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PC SERVICE SOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
The weighted average common shares outstanding-diluted computation for
both the three and six months ended June 30, 1999, excluded 613
employee stock options and other common stock equivalents because this
impact would be anti-dilutive.
(3) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) 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 (loss) is equal to net
earnings (loss) as presented on the Condensed Consolidated Statements
of Operations for the three months and six months ended June 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>
Six Months Ended
June 30,
----------------------
1999 1998
<S> <C> <C>
Interest paid ................................... $ 782 $ 524
Income taxes paid (refunded), net................. -- (13)
</TABLE>
(5) SUBSEQUENT EVENT
On July 30, 1999, the Company announced the adoption of an amendment to
its 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.
The repurchased stock will become treasury shares available for general
corporate purposes.
As of July 30, 1999, the Company had repurchased 532,500 shares at an
aggregate cost of approximately $2,130.
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<PAGE> 8
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Beginning with the consolidated results of operations for the three months ended
March 31, 1999, the Company has reclassified how it reports all purchasing and
distribution expenses, as well as certain facility costs. Those items are now
reported by the Company in cost of revenues instead of selling, general and
administrative expenses. Management believes that the reclassification of these
expenses better reflects the actual gross margin of the Company's consolidated
operations. The consolidated results of operations for the three and six months
ended June 30, 1998, have been restated to conform with the 1999 presentation.
The following table displays the Company's statements of operations as a
percentage of net revenues for the three and six months ended June 30, 1999 and
1998:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues .......................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues ...................................... 72.5 79.8 73.7 77.5
----- ----- ----- -----
Gross margin ..................................... 27.5 20.2 26.3 22.5
----- ----- ----- -----
Operating expenses:
Selling, general and administrative .............. 20.0 25.7 19.2 23.2
Depreciation and amortization .................... 3.3 3.0 3.1 2.8
----- ----- ----- -----
Total operating expenses ..................... 23.3 28.7 22.3 26.0
----- ----- ----- -----
Earnings (loss) from operations .......... 4.2 (8.5) 4.0 (3.5)
Net interest expense .................................. 1.0 0.8 1.0 0.8
----- ----- ----- -----
Earnings (loss) before income taxes ...... 3.2 9.3 3.0 (4.3)
Income tax benefit .................................... -- (3.4) -- (1.6)
----- ----- ----- -----
Net earnings (loss) .......................... 3.2% (5.9)% 3.0% (2.7)%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Net revenues were $37.5 million for the second quarter of 1999, representing a
decrease of $0.8 million or 2% from the second quarter of 1998. This decrease
was the result of lower distribution revenue, which was
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<PAGE> 9
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
offset to some degree by an increase in revenues from the notebook repair
services business of the Company's PCSS Repair Services subsidiary.
Gross margin as a percentage of net revenues increased in the second quarter of
1999 to 27.5% from 20.2% in the same period in 1998. The increase in gross
margin was partially attributable to a decrease in freight expenses compared to
those incurred in the second quarter of 1998. During the second quarter of 1998,
the Company identified and resolved deficiencies in its freight monitoring and
control systems. The increase in gross margin was also attributable to an
increase in the Company's OEM outsourcing and repair services business. Finally,
the gross margin realized by the Company is different for each line of computer
spare parts which the Company sells. Consequently, a change in the mix of parts
sold by the Company during a particular period affects the Company's overall
gross margin.
Selling, general and administrative expenses as a percentage of net revenues
decreased to 20.0% in the second quarter of 1999 compared to 25.7% in the same
period of 1998. The decrease was primarily due to the following three factors:
(a) the 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; 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 second quarter of 1999 compared to 3.0% in the same period of 1998. The
increase was due to a higher asset base in 1999 resulting from the significant
capital expenditures made by the Company in 1998.
Net interest expense as a percentage of net revenues increased to 1.0% during
the second quarter of 1999 from 0.8% during the same period of 1998 due to a
higher average outstanding balance on the Company's revolving line of credit
during the second quarter of 1999.
The second quarter of 1999 does not include a provision for income taxes due to
the utilization of net operating loss carryforwards.
In February 1999, Vanstar (which was subsequently merged with InaCom), the
Company's largest customer, notified the Company of its intention to terminate
the exclusive contract with the Company effective as of June 1999. The Company
continues to do business with Vanstar, but neither on an exclusive basis nor
pursuant to the terms of a written agreement.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net revenues were $77.9 million for the first six months of 1999, representing
an increase of $1.1 million or 1.4% increase over the first six months of 1998.
This increase was mainly the result of the additional notebook repair services
business by the Company's PCSS Repair Services subsidiary.
Gross margin as a percentage of net revenues increased in the first half of 1999
to 26.3% from 22.5% in the same period of 1998. The increase in gross margin was
partially attributable to a decrease in freight expenses
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<PAGE> 10
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
compared to those incurred in the second quarter of 1998. During the second
quarter of 1998, the Company identified and resolved deficiencies in its freight
monitoring and control systems. The increase in gross margin was also
attributable to an increase in the Company's OEM outsourcing and repair services
business. Finally, the gross margin realized by the Company is different for
each line of computer spare parts which the Company sells. Consequently, a
change in the mix of parts sold by the Company during a particular period
affects the Company's overall gross margin.
Selling, general and administrative expenses as a percentage of net revenues
decreased to 19.2% in the first half of 1999 compared to 23.2% in the same
period of 1998. The decrease was primarily due to the following three factors:
(a) the 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; 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 3.1%
in the second quarter of 1999 compared to 2.8% in the same period of 1998. The
increase was due to a higher asset base in 1999 resulting from the capital
expenditures made by the Company in 1998.
Net interest expense as a percentage of net revenues increased to 1.0% during
the second quarter of 1999 from 0.8% during the same period of 1998 due to a
higher average outstanding balance and interest rate on the Company's revolving
line of credit during the second quarter of 1999.
The six months ended June 30, 1999 does not include a provision for income taxes
due to the utilization of net operating loss carryforwards.
In February 1999, the Company's largest customer Vanstar (which has subsequently
merged with InaCom) notified the Company of its intention to terminate the
exclusive contract with the Company effective as of June 1999. The Company
continues to do business with Vanstar, but neither on an exclusive basis nor
pursuant to the terms of a written agreement.
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 its covenants at July 31, 1999.
The Company finances its working capital, capital expenditure requirements and
stock repurchase program from its revolving bank credit facility, lease
financing agreements, equity financing and internally generated funds. Cash
provided by operating activities during the first six months of 1999 was $3.3
million compared to $1.0 million used in the same period of 1998. The cash
provided by operating activities in 1999 was due primarily to the $2.3 million
net income for the period and the $2.3 million reduction in accounts receivable.
The cash used in operating activities for the same period of 1998 was due
primarily to the net loss of $2.1 million.
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PC SERVICE SOURCE, INC. AND SUBSIDIARIES
Capital expenditures totaled $1.4 million in the first half of 1999 compared to
$3.0 million in 1998. Expenditures in the 1999 period were primarily for
improvements in the Company's management information systems and building
improvements for the additional warehouse facility.
In accordance with its stock repurchase program, in the second quarter of 1999,
the Company purchased 218,600 shares of common stock on the open market at an
average price of $3.98 per share. The repurchased stock became treasury shares
and is available for general corporate purposes. On July 30, 1999, the Company
amended its stock repurchase program by increasing the number of shares it is
authorized to purchase thereunder from 600,000 shares to 1,000,000. As of that
date, 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 will be sufficient to meet its 1999 working
capital and capital expenditure requirements.
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. Except for the telephone equipment, which is scheduled to be replaced
later in 1999, 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 support. The Company has adopted this program 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 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 June 30, 1999, approximately $300,000
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
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<PAGE> 12
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
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.
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 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: QUANTATIVE 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 $13.5 million as of June 30, 1999. A 1.0% change in the underlying
LIBOR or prime rate would result in a $135,000 change 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 June 30, 1999.
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<PAGE> 13
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
As contemplated in the Company's Proxy Statement which was mailed to
stockholders beginning on April 21, 1999, the Company's stockholders elected
Robert J. Boutin and Edward C. Raymund as Class I directors of the Company, each
to serve until the annual meeting of stockholders to be held in 2002, and Jay
Haft as a Class III director of the Company to serve until the annual meeting of
stockholders in 2001. The Company's stockholders also considered a proposal to
ratify the selection of Ernst & Young LLP as the independent auditor of the
Company for the year ending December 31, 1999.
Each of the foregoing proposals were approved at the Company's annual meeting of
stockholders on May 11, 1999. Each Board nominee received the number of votes
indicated below.
<TABLE>
<CAPTION>
No. of Votes Cast No. of Votes Cast
Nominee For Election Against or Withheld
------- ----------------- -------------------
<S> <C> <C>
Robert J. Boutin (Class I) 5,426,552 60,380
Edward C. Raymund (Class I) 5,419,952 66,980
Jay Haft (Class III) 5,426,552 60,380
</TABLE>
With respect to the approval of the proposal to ratify the selection of Ernst &
Young LLP, the votes cast for, against and abstaining were as follows:
<TABLE>
<S> <C>
Votes For 5,470,539
Votes Against or Withheld 16,393
</TABLE>
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<PAGE> 14
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
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
10.2v+ 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 Form8-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.
-12-
<PAGE> 15
PC SERVICE SOURCE, INC. AND SUBSIDIARIES
B. REPORTS ON FORM 8-K
On April 21, 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 to repurchase up to 600,000 shares of
the Company's outstanding common stock in the open market or
through privately negotiated transactions.
-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)
August 12, 1999 /s/ Robert J. Boutin
--------------------------------------------------
Robert J. Boutin
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-14-
<PAGE> 17
EXHIBIT INDEX
<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
10.2v+ 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 Form8-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 JUNE 30, 1999 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 575
<SECURITIES> 0
<RECEIVABLES> 17,836
<ALLOWANCES> (868)
<INVENTORY> 26,272
<CURRENT-ASSETS> 46,793
<PP&E> 27,567
<DEPRECIATION> (13,487)
<TOTAL-ASSETS> 63,356
<CURRENT-LIABILITIES> 25,190
<BONDS> 13,487
0
0
<COMMON> 59
<OTHER-SE> 21,517
<TOTAL-LIABILITY-AND-EQUITY> 63,356
<SALES> 68,955
<TOTAL-REVENUES> 77,870
<CGS> 46,318
<TOTAL-COSTS> 57,416
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 798
<INCOME-PRETAX> 2,307
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,307
<EPS-BASIC> .40
<EPS-DILUTED> .39
<FN>
<F1>PROVISION FOR DOUBTFUL ACCOUNTS AND INVENTORY PROVISION INCLUDED IN TOTAL
COSTS.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,149
<SECURITIES> 0
<RECEIVABLES> 19,748
<ALLOWANCES> (1,274)
<INVENTORY> 21,859
<CURRENT-ASSETS> 46,169
<PP&E> 23,518
<DEPRECIATION> (9,031)
<TOTAL-ASSETS> 64,849
<CURRENT-LIABILITIES> 31,230
<BONDS> 10,514
0
0
<COMMON> 59
<OTHER-SE> 30,206
<TOTAL-LIABILITY-AND-EQUITY> 64,849
<SALES> 71,869
<TOTAL-REVENUES> 76,806
<CGS> 50,807
<TOTAL-COSTS> 57,416
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 634
<INCOME-PRETAX> (3,296)
<INCOME-TAX> (1,223)
<INCOME-CONTINUING> (2,073)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,073)
<EPS-BASIC> (.36)
<EPS-DILUTED> (.36)
<FN>
<F1>PROVISION FOR DOUBTFUL ACCOUNTS AND INVENTORY PROVISION INCLUDED IN TOTAL
COSTS.
</FN>
</TABLE>
