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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM 10-Q
-----------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-9919
PSC INC.
(Exact name of Registrant as Specified in Its Charter)
New York 16-0969362
----------------------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4800 SW Meadows Rd. Suite 300, Portland, Oregon 97035
----------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
503-534-3550
------------
(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 12 months preceding (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 May 3, 2001, there were 12,458,071 shares of common stock outstanding.
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PSC INC. AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION
Item 1 Financial Statements Page Number
-----------
Consolidated Balance Sheets as of
March 30, 2001 (Unaudited) and December 31, 2000 3-4
Consolidated Statements of Operations and
Accumulated Deficit for the three months ended:
March 30, 2001 (Unaudited) and March 31, 2000 (Unaudited) 5
Consolidated Statements of Cash Flows
for the three months ended:
March 30, 2001 (Unaudited) and March 31, 2000 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-12
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-15
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 15
PART II: OTHER INFORMATION
Item 1 Legal Proceedings 16
Item 2 Changes in Securities 16
Item 3 Defaults upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
2
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
PSC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except per share data)
March 30, 2001 December 31, 2000
--------------- -----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,282 $ 5,461
Accounts receivable, net of allowance for doubtful
accounts of $1,249 and $793, respectively 38,465 39,404
Inventories 22,562 22,286
Prepaid expenses and other 3,372 4,489
---------------- ----------------
TOTAL CURRENT ASSETS 67,681 71,640
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of $29,635 and $28,692,
respectively 15,015 15,809
INTANGIBLE AND OTHER ASSETS, net of accumulated
amortization of $42,424 and $39,515, respectively 85,392 87,958
---------------- ----------------
TOTAL ASSETS $168,088 $175,407
================ ================
See accompanying notes to the Consolidated Financial Statements.
3
PSC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except per share data)
(Continued)
March 30, 2001 December 31, 2000
---------------- -----------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,215 $ 7,580
Accounts payable 26,957 25,729
Accrued expenses 11,819 11,128
Accrued payroll and related employee benefits 6,032 6,899
----------------- ----------------
TOTAL CURRENT LIABILITIES 52,023 51,336
LONG-TERM DEBT, less current maturities 122,544 125,029
OTHER LONG-TERM LIABILITIES 1,964 2,013
SHAREHOLDERS' EQUITY/(DEFICIT):
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
12,461 and 12,313 shares issued and outstanding 126 123
Additional paid-in capital 74,004 73,909
Accumulated deficit (77,567) (73,127)
Accumulated other comprehensive loss (3,650) (2,520)
Less treasury stock repurchased at cost, 180 shares (1,357) (1,357)
----------------- ----------------
TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) (8,443) (2,971)
----------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
$168,088 $175,407
================= ================
See accompanying notes to the Consolidated Financial Statements.
4
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(All amounts in thousands, except per share data)
Three Months Ended
----------------------------------------
March 30, 2001 March 31, 2000
--------------- ---------------
(Unaudited) (Unaudited)
NET SALES $ 50,474 $ 61,439
COST OF SALES 31,022 37,869
---------------- ----------------
Gross profit 19,452 23,570
OPERATING EXPENSES:
Engineering, research and development 4,889 5,822
Selling, general and administrative 14,161 14,414
Severance and other costs 513 1,974
Amortization of intangibles resulting from business
acquisitions 2,764 2,581
---------------- ----------------
Loss from operations (2,875) (1,221)
INTEREST AND OTHER INCOME/(EXPENSE):
Interest expense (4,332) (3,423)
Interest income 62 146
Gain on asset sale 3,164 -
Other income 50 9
---------------- ----------------
(1,056) (3,268)
---------------- ----------------
Loss before income tax provision/(benefit) (3,931) (4,489)
Income tax provision/(benefit) 509 (1,339)
---------------- ----------------
Net loss ($4,440) ($ 3,150)
================ ================
NET LOSS PER COMMON AND COMMON
EQUIVALENT SHARE:
Basic ($0.36) ($0.26)
Diluted ($0.36) ($0.26)
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Basic 12,280 12,022
Diluted 12,280 12,022
ACCUMULATED DEFICIT:
Accumulated deficit, beginning of period ($73,127) ($18,065)
Net loss (4,440) (3,150)
---------------- ----------------
Accumulated deficit, end of period ($77,567) ($21,215)
================ ================
See accompanying notes to the Consolidated Financial Statements.
5
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
Three Months Ended
---------------------------------------------
March 30, 2001 March 31, 2000
----------------- -----------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($4,440) ($3,150)
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation and amortization 4,213 4,351
Gain on disposition of assets (3,164) -
Loss on royalty settlement - 729
Deferred tax assets - (1,170)
(Increase)/decrease in assets:
Accounts receivable 939 1,718
Inventories (576) (152)
Prepaid expenses and other 1,028 631
Increase/(decrease) in liabilities:
Accounts payable 1,181 (25)
Accrued expenses 659 (1,137)
Accrued payroll and related employee benefits (906) (1,281)
------------------ ------------------
Net cash (used in)/provided by operating activities (1,066) 514
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (300) (1,295)
Net cash paid for business - (53,486)
Proceeds from sale of assets 3,800 -
Additions to intangible and other assets (681) (464)
------------------ ------------------
Net cash provided by/(used in) investing activities 2,819 (55,245)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt - 112,000
Payments of long-term debt (2,850) (54,854)
Additions/(Reductions) to other long-term liabilities, net (49) 188
Exercise of options and issuance of common shares 98 777
Tax benefit from exercise or disposition of stock options - 28
------------------ ------------------
Net cash (used in)/provided by financing activities (2,801) 58,139
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (1,131) (733)
------------------ ------------------
NET (DECREASE)/ INCREASE IN CASH AND
CASH EQUIVALENTS (2,179) 2,675
CASH AND CASH EQUIVALENTS:
Beginning of period 5,461 1,402
------------------ ------------------
End of period $ 3,282 $ 4,077
================== ==================
See accompanying notes to the Consolidated Financial Statements.
6
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 30, 2001 AND MARCH 31, 2000
(All amounts in thousands, except per share data)
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared by the
Company without audit. In the opinion of management, these financial
statements include all adjustments necessary to present fairly the Company's
financial position as of March 30, 2001, the results of operations for the
three months ended March 30, 2001 and March 31, 2000 and its cash flows for
the three months ended March 30, 2001 and March 31, 2000. The results of
operations for the three months ended March 30, 2001 are not necessarily
indicative of the results to be expected for the full year.
Certain information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted. The accompanying financial statements should be
read in conjunction with the financial statements and notes thereto included
in the Company's December 31, 2000 annual report on Form 10-K.
(2) INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Inventory costs include material, direct labor and
overhead and consist of the following:
March 30, 2001 December 31, 2000
-------------- -----------------
Raw materials $12,150 $12,078
Work-in-process 4,854 4,699
Finished goods 5,558 5,509
$22,562 $22,286
============= =============
(3) LONG-TERM DEBT
Long-term debt consists of the following:
March 30, 2001 December 31, 2000
-------------- -----------------
Term loan $ 64,695 $ 67,500
Senior revolving credit 34,000 34,000
Subordinated term loan 29,682 29,667
Subordinated promissory note 938 938
Other 444 504
------------- -------------
129,759 132,609
Less: current maturities 7,215 7,580
------------- -------------
$122,544 $125,029
============= =============
7
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 30, 2001 AND MARCH 31, 2000
(All amounts in thousands, except per share data)
(Unaudited)
(4) ACQUISITION
On January 19, 2000, the Company acquired all of the outstanding shares of
Percon, a manufacturer of wireless and batch portable data terminals,
decoders, input devices and data management software, for approximately $57.0
million. The acquisition was accounted for under the purchase method of
accounting and accordingly, the results of Percon's operations are included
in the 2000 consolidated statements of operations since the date of
acquisition. The excess purchase price over the fair value of net assets
acquired was approximately $46.0 million and is being amortized on a
straight-line basis over 10 years.
The following unaudited pro forma condensed results of operations combine the
operations of the Company with those of Percon as if the acquisition was
consummated on January 1, 2000. The pro forma information is presented after
giving effect to certain adjustments for amortization of goodwill,
incremental interest expense on acquisition financing and the related income
tax effects. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results that would
have been achieved during the periods indicated and are not intended to be
indicative of future results.
Pro Forma Three Months Ended
----------------------------------------
March 30, 2001 March 31, 2000
--------------- ---------------
Net sales $50,474 $62,198
Loss from operations (2,875) (2,597)
Net loss (4,440) (4,559)
Net loss per common and
common equivalent share:
Basic ($0.36) ($0.38)
Diluted ($0.36) ($0.38)
Weighted average number of common and
common equivalent shares outstanding:
Basic 12,280 12,022
Diluted 12,280 12,022
(5) ASSET SALE
As part of the Company's overall restructuring plans, the Company sold its
verification and imager product lines on February 16, 2001 for $3.8 million.
The gain realized on the sale was approximately $3.2 million.
In connection with the sale, the Company was required to use 50% of the net
cash proceeds to repay amounts borrowed under its senior credit facilities.
8
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 30, 2001 AND MARCH 31, 2000
(All amounts in thousands, except per share data)
(Unaudited)
(6) SEVERANCE AND OTHER COSTS
During the first quarter of 2001, the Company recorded a pretax charge of
$0.5 million for employee severance and benefit costs associated with the
elimination of positions resulting primarily from its plans to consolidate
the Webster, New York operations with its Eugene, Oregon operations.
As of December 31, 2000, the amount of the severance accruals was
approximately $2.7 million. As of March 30, 2001, the amount of the
severance accruals was approximately $2.1 million, which relates to current
contractual obligations.
(7) SHAREHOLDERS' EQUITY
Other comprehensive loss reports changes in equity that result from
transactions and economic events other than transactions with owners. Other
comprehensive loss is the total of net loss and all other non-owner changes
in equity.
Three Months Ended
-----------------------------------------
March 30, 2001 March 31, 2000
-------------- --------------
Net loss ($4,440) ($3,150)
Foreign currency translation adjustment (1,130) (733)
------------- -------------
Comprehensive loss ($5,570) ($3,883)
============= =============
During the three month period ended March 30, 2001, employees purchased 149
shares at approximately $0.64 per share under the provisions of the Company's
Employee Stock Purchase Plan.
Changes in the status of options under the Company's stock option plans are
summarized as follows:
January 1,2001 Weighted January 1, 2000 Weighted
to Average to Average
March 30, 2001 Price December 31, 2000 Price
-------------- ----------- ----------------- ----------
Options outstanding at
beginning of period 3,222 $4.00 3,221 $7.84
Options granted 52 1.41 1,025 2.83
Options exercised - - (78) 6.38
Options forfeited/canceled (173) 4.15 (946) 8.35
Options outstanding at
end of period 3,101 $3.95 3,222 $4.00
========= ==========
Number of options at end
of period:
Exercisable 1,900 $4.99 1,969 $5.02
Available for grant 263 255
9
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 30, 2001 AND MARCH 31, 2000
(All amounts in thousands, except per share data)
(Unaudited)
During the three month period ended March 30, 2001, 113 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.
(8) NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Basic EPS was computed by dividing reported earnings available to common
shareholders by weighted average shares outstanding during the year. Diluted
EPS was the same as basic EPS for the three-month period ended March, 30,
2001.
The following options, warrants and preferred shares were not included in the
computation of diluted EPS since the effect of these securities would have
been antidilutive. Options to purchase 3,101 and 3,243 shares of common
stock at a weighted average price of $3.95 and $7.84 per share were
outstanding for the three months ended March 30, 2001 and March 31, 2000,
respectively. Warrants and preferred shares to purchase 1,155 and 1,375
common shares at a weighted average price of $5.68 and $8.00 per share,
respectively, were outstanding for the three months ended March 30, 2001 and
March 31, 2000.
Three Months Ended
-------------------------------------------------------------------------------------------------------------
March 30, 2001 March 31, 2000
---------------------------------------------------- ----------------------------------------------------
Per Per
Net loss Shares Share Net loss Shares Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
-------------- ---------------- ---------- ------------- ---------------- -----------
Basic and Diluted
EPS:
Net loss available
to common
shareholders
($4,440) 12,280 ($0.36) ($3,150) 12,022 ($0.26)
======= ====== ======= ======== ====== =======
10
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 30, 2001 AND MARCH 31, 2000
(All amounts in thousands, except per share data)
(Unaudited)
(9) DERIVATIVES
The Company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") as
amended as of January 1, 2001 and the effect was not material.
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 up to
60 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.
The foreign exchange contracts have not been designated as hedging instruments
and the gains and losses on forward contracts are recorded in the consolidated
statements of operations.
(10) SUBSEQUENT EVENTS
On March 31, 2001, the Company obtained a waiver from its senior lenders which
extended the expiration date of the credit facilities until April 13, 2001,
and on the same date, the Company received a waiver from its subordinated
lenders which deferred interest payments on the subordinated notes until April
13, 2001.
On April 13, 2001, the Company obtained an agreement from its senior lenders
extending the maturity date of the credit facility to April 1, 2002. The
agreement modifies certain provisions of the amended credit facilities
including financial covenants and is subject to certain terms and conditions.
Among other provisions, the commitment for its working capital facility was
reduced from $45.0 million to $42.0 million, and the interest rate for the
senior credit facilities was increased to prime + 2.25% from April 1, 2001 to
September 30, 2001, prime + 2.50% from October 1, 2001 to December 31, 2001
and prime + 3.50% from January 1, 2002 to April 1, 2002. As of the current
date, the Company has $34.0 million outstanding under its working capital
facility excluding foreign exchange contracts and is restricted from borrowing
additional amounts as working capital advances except that prior to September
30, 2001, the Company will be permitted to borrow an amount not to exceed $2.0
million to bridge the closings on certain non-core asset sales. The Company
is required to use at least 50% of the net cash proceeds of the sale of
certain non-core assets to repay amounts borrowed under its senior credit
facilities. The Company will be required to pay from $1.5 million to $4.5
million in bank modification fees subject to certain terms and conditions. As
of March 30, 2001, the Company had $64.7 million outstanding under its term
loan. The term loan and senior revolving credit facilities are due and
payable on April 1, 2002.
11
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 30, 2001 AND MARCH 31, 2000
(All amounts in thousands, except per share data)
(Unaudited)
In connection with the subordinated credit facilities, the agreement obtained
on April 13, 2001 modifies certain provisions of the credit facilities
including financial covenants as well as providing for repricing of the
warrants to purchase 975 Common Shares of the Company held by subordinated
lenders to $1.15 per share. The Company has agreed to pay the subordinated
lenders on a pro rata basis for fees up to a maximum payment of $1.5 million
based upon the average prevailing per share market price of the Company's
Common Shares on the 15 trading days immediately prior to April 2, 2002, or,
if the subordinated lenders elect, April 2, 2003. Such payment will be made
in sequential installments of 30, 90 and 150 days after April 1, 2002 or April
1, 2003, as applicable. The Company also agreed to pay all interest being
accrued from September 30, 2000 until March 31, 2002 on April 2, 2002.
The Company is required to meet certain financial covenants in relation to its
amended senior and subordinated credit facilities including, but not limited
to minimum earnings before interest, taxes, depreciation, amortization, and
certain non-recurring charges, as defined in the agreements, maximum capital
expenditures, and minimum eligible accounts receivable and inventory balances.
The Company will be seeking further amendments to its senior and subordinated
credit facilities or refinancing with debt and/or equity. If the Company is
unsuccessful in obtaining such further amendments or refinancing prior to
April 1, 2002, management believes that the Company will be unable to pay the
amounts that would be due and payable at that time.
On May 3, 2001, the Company entered into a contract to sell its Webster, New
York facility. In November 2000, the Company announced the consolidation of
its Webster, New York headquarters with its operations in Eugene, Oregon. As
a result, the Company recorded an $8.6 million write-down in connection with
the anticipated sale of the Webster, New York facility in accordance with
Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed of". SFAS No. 121 requires an impairment loss to be recognized
if the carrying amount of an asset held for disposal exceeds the fair value of
the asset less the cost to sell the asset. The facility now approximates fair
market value less any commissions or fees to be paid upon disposal. The loss
recognized in 2000 was $7.9 million on the facility and related leasehold
improvements and $0.6 million on other assets and is included in the
consolidated statements of operations. The Company expects the sale to be
completed soon.
12
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
-------
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
of the Company's December 31, 2000 annual report on Form 10-K.
Overview
--------
As part of a previously announced restructuring plan to reduce debt and achieve
greater profitability, certain non-core assets were identified for disposition.
On February 16, 2001, the Company sold its verification and imager product lines
for $3.8 million.
Results of Operations: Three Months ended March 30, 2001 and March 31, 2000
----------------------------------------------------------------------------
Net Sales. Net sales during the three months ended March 30, 2001 decreased
----------
$10.9 million or 17.9% compared with the same period in 2000. The decrease in
net sales is attributed primarily to the loss of the sales of the U-Scan(R)
Express Self-Checkout System of $10.8 million and decreased sales of handheld
scanners of $0.8 million, offset by increased sales of Mobile & Wireless
products of $1.4 million.
Gross Profit. Gross profit during the three months ended March 30, 2001
-------------
decreased $4.1 million or 17.5% compared with the same period in 2000. As a
percentage of sales, gross profit did not change. The decrease in gross profit
dollars is primarily due to the loss of sales of the U-Scan(R) Express Self-
Checkout System.
Engineering, Research and Development. Engineering, Research and Development
--------------------------------------
(ER&D) expenses decreased $0.9 million or 16.0%, compared to the same period in
2000. As a percentage of sales, ER&D was 9.7% in the first quarter of 2001
versus 9.5% of net sales in the first quarter of 2000. The decrease in ER&D is
primarily attributable to cost savings efforts brought about by business
restructuring.
Selling, General and Administrative. Selling, General and Administrative (SG&A)
------------------------------------
expenses decreased $0.3 million compared to the first quarter of 2000. As a
percentage of sales, SG&A was 28.1% in 2001 versus 23.5% in 2000. The dollar
decrease is primarily attributable to cost savings resulting from restructuring
activities of $2.4 million offset by increased legal and professional fees of
$1.8 million associated with securing recent debt waivers and amendments and
increased foreign exchange losses of $0.3 million. The percentage increase is
due to costs being spread over a lower sales base.
Severance and Other Costs. During the first quarter of 2001, the Company
-------------------------
recorded a pretax charge of $0.5 million for employee severance and benefit
costs resulting primarily from its plans to consolidate the Webster, New York
operations with its Eugene, Oregon operations. During the first quarter of
2000, the Company recorded a pretax charge of $2.0 million associated with the
acquisition of Percon and reorganization actions in connection with the
Company's sales force.
Interest Expense. Interest expense increased $0.9 million versus the comparable
----------------
period in 2000. The increase is primarily due to a 2% default penalty assessed
as part of the waiver amendments reached with senior debt holders and accrued by
the Company for the three months ended March 30, 2001.
13
Gain on asset sale. As part of the Company's overall restructuring plans, the
------------------
Company sold its verification and imager product lines on February 16, 2001 for
$3.8 million. The gain realized on the sale was approximately $3.2 million.
The disposition of these product lines did not have a material effect on the
Company's results of operations for the three months ended March 30, 2001, nor
will the disposition of these product lines materially impact the full year
2001.
Income Tax Provision/(Benefit). The Company's effective tax rate was (13.0%) in
-------------------------------
2001 versus 29.8% in 2000 as the Company has not reflected the tax benefit
associated with current operating losses by placing a full valuation allowance
against its deferred tax assets.
Liquidity and Capital Resources:
--------------------------------
Current assets decreased $4.0 million from December 31, 2000 primarily due a
decrease in cash, accounts receivable and prepaid expenses. Current liabilities
increased $0.7 million from December 31, 2000 primarily due to an increase in
accounts payable and accrued expenses offset by a decrease in accrued payroll
and related employee benefits. As a result, working capital decreased $3.3
million from December 31, 2000.
Property, plant and equipment expenditures totaled $0.3 million for the three
months ended March 30, 2001 compared with $1.3 million for the three months
ended March 31, 2000. The 2001 expenditures are related to new product tooling,
manufacturing equipment, and computer software and hardware.
On March 31, 2001, the Company obtained a waiver from its senior debt holders
which extended the expiration date of the credit facilities until April 13, 2001
and on the same date, the Company received a waiver from the subordinated
lenders which deferred interest payments until April 13, 2001.
On April 13, 2001, the Company obtained an agreement from its senior lenders
extending the maturity date of the credit facility to April 1, 2002. The
agreement modifies certain provisions of the amended credit facilities including
financial covenants and is subject to certain terms and conditions. Among other
provisions, the commitment for its working capital facility was reduced from
$45.0 million to $42.0 million, and the interest rate for the senior credit
facilities was increased to prime + 2.25% from April 1, 2001 to September 30,
2001, prime + 2.50% from October 1, 2001 to December 31, 2001 and prime + 3.50%
from January 1, 2002 to April 1, 2002. As of the current date, the Company has
$34.0 million outstanding under its working capital facility excluding foreign
exchange contracts and is restricted from borrowing additional amounts as
working capital advances except that prior to September 30, 2001, the Company
will be permitted to borrow an amount not to exceed $2.0 million to bridge the
closings on certain non-core asset sales. The Company is required to use at
least 50% of the net cash proceeds of the sale of the non-core assets to repay
amounts borrowed under its senior credit facilities. The Company will be
required to pay from $1.5 million to $4.5 million in bank modification fees
subject to certain terms and conditions. The term loan and senior revolving
credit facilities are due and payable on April 1, 2002.
In connection with the subordinated credit facilities, the agreement obtained on
April 13, 2001 modifies certain provisions of the credit facilities including
financial covenants as well as providing for repricing of the warrants to
purchase 975 Common Shares of the Company held by subordinated lenders to $1.15
per share. The Company has agreed to pay the subordinated lenders on a pro rata
basis for fees up to a maximum payment of $1.5 million based upon the average
prevailing per share market price of the Company's Common Shares on the 15
trading days immediately prior to April 2, 2002, or if the subordinated lenders
elect, April 2, 2003. Such payment will be made in sequential installments of
30, 90 and 150 days after April 1, 2002 or April 1, 2003, as applicable. The
Company also agreed to pay all interest being accrued from September 30, 2000
until March 31, 2002 on April 2, 2002.
14
The Company's liquidity is dependent upon its ability to successfully generate
positive cash flow from operations and complete non-core asset sales. Provided
that the Company continues to meet the performance targets from its restructured
operating plan, management believes the Company will generate sufficient cash
flows in 2001 to meet its obligations. The Company will be required to pay up
to $6.0 million in bank fees as indicated above.
The Company will be seeking further amendments to its senior and subordinated
credit facilities or refinancing with debt and/or equity. If the Company is
unsuccessful in obtaining such further amendments or refinancing prior to
April 1, 2002, management believes that the Company will be unable to pay the
amounts that would be due and payable at that time.
In the opinion of management, inflation has not had a material effect on the
operations of the Company.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
None.
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
----------------------------------------------------------------------
Certain statements contained in this Management's Discussion and Analysis may be
forward-looking in nature, or "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Management cautions that
these statements are estimates of future performance and are highly dependent
upon a variety of important factors, which could cause actual results to differ
materially from the estimate. These factors include the market acceptance of
products, competitive product offerings, the disposition of legal issues and the
successful completion of non-core asset sales. Profits and available cash flows
also will be affected by the Company's ability to control manufacturing and
operating costs. Reference should be made to filings with the Securities and
Exchange Commission for further discussion of factors that could affect the
Company's future results.
15
PART II: OTHER INFORMATION
Item 1: Legal Proceedings:
-----------------
The description of the Company's legal proceedings set forth in Item 3 of the
Company's Annual Report on Form 10-K for the fiscal period ended December 31,
2000 is incorporated herein by reference.
Item 2: Changes in Securities: None
---------------------
Item 3: Defaults upon Senior Securities: None
-------------------------------
Item 4: Submission of Matters of Shareholders to a Vote of Security Holders:
-------------------------------------------------------------------
None
Item 5: Other Information: None
-----------------
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
---------
10.1 Amendment to Borey Employment Agreement, dated February 2, 2001
(b) Reports on Form 8-K: None
-------------------
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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.
PSC Inc.
DATE: May 8, 2001 By: /s/ Edward J. Borey
-------------------------------
Edward J. Borey
President, Chief Executive Officer and Director
DATE: May 8, 2001 By: /s/ Paul M. Brown
-------------------------------
Paul M. Brown
Vice President and Chief Financial Officer
(Principal Financial Officer)
17