================================================================================

                                 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 October 1, 1999

                                       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.)


675 Basket Road, Webster, New York                                 14580
(Address of principal executive offices)                        (Zip Code)

                                 (716) 265-1600
              (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  November  5,  1999,  there  were  12,080,550  shares  of  common  stock
outstanding.
================================================================================

<PAGE>


                            PSC Inc. AND SUBSIDIARIES

                                      INDEX

                                                                     PAGE NUMBER
PART I:  FINANCIAL INFORMATION

Item 1    -Financial Statements

           Consolidated Balance Sheets as of
           October 1, 1999 (Unaudited) and
           December 31, 1998...............................................3-4

           Consolidated Statements of Income and
           Retained Earnings for the three and nine months ended:
           October 1, 1999 (Unaudited) and
           October 2, 1998 (Unaudited) ....................................5-6

           Consolidated Statements of Cash Flows for the nine months ended:
           October 1, 1999 (Unaudited) and
           October 2, 1998 (Unaudited) ......................................7

           Notes to Consolidated Financial
           Statements (Unaudited) ........................................8-12

Item 2    -Management's Discussion and Analysis of
               Financial Condition and Results of
               Operations ...............................................13-17

PART II:  OTHER INFORMATION

Item 1    -Legal Proceedings ...............................................18

Item 2    -Changes in Securities  ..........................................18

Item 3    -Defaults upon Senior Securities .................................18

Item 4    -Submission of Matters to a Vote of Security Holders  ............18

Item 5    -Other Information................................................18

Item 6    -Exhibits and Reports on Form 8-K  ...............................18

<PAGE>



                         PART I - FINANCIAL INFORMATION

Item 1:  Financial Statements

                            PSC Inc. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                (All amounts in thousands, except per share data)

                                                              Oct. 1,    Dec.31,
                                                               1999        1998
                                                            ----------   -------
                                                            (Unaudited)
ASSETS

CURRENT ASSETS:
        Cash and cash equivalents ......................    $  5,924    $  6,180
        Accounts receivable, net of allowance
          for doubtful accounts of $1,558
          and $1,492, respectively .....................      36,857      37,121
        Inventories ....................................      23,970      17,250
        Prepaid expenses and other .....................       2,876       2,946
                                                            --------    --------

       TOTAL CURRENT ASSETS ............................      69,627      63,497

PROPERTY, PLANT AND EQUIPMENT, net
        of accumulated depreciation of $22,144
        and $18,639, respectively ......................      26,454      35,397

DEFERRED TAX ASSETS ....................................      18,738      21,244

INTANGIBLE AND OTHER ASSETS, net of accumulated
  amortization of $25,890 and $20,419, respectively ....      50,449      51,125
                                                            --------    --------


TOTAL ASSETS ...........................................    $165,268    $171,263
                                                            ========    ========

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


<PAGE>

<TABLE>


                            PSC Inc. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                (All amounts in thousands, except per share data)
                                   (Continued)
<CAPTION>
                                                                Oct. 1,      Dec. 31,
                                                                 1999          1998
                                                                 ----          ----
                                                              (Unaudited)
<S>                                                           <C>          <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
       Current portion of long-term debt ..................   $  15,804    $  14,402
       Accounts payable ...................................      18,883       18,190
       Accrued expenses ...................................       6,752        8,035
       Accrued payroll and related employee benefits ......       5,651        5,628
       Accrued acquisition related restructuring costs ....         125          415
                                                              ---------    ---------

     TOTAL CURRENT LIABILITIES ............................      47,215       46,670

LONG-TERM DEBT, less current maturities ...................      61,632       78,806

OTHER LONG-TERM LIABILITIES ...............................       1,957        1,588

SHAREHOLDERS' EQUITY:
     Series A convertible preferred shares, par value $.01;           1            1
       110 shares authorized, issued and outstanding
       ($11,000 aggregate liquidation value)
     Series B preferred shares, par value $.01; 175
       authorized, 0 shares issued and outstanding ........        --           --
     Undesignated preferred shares, par value $.01;
       9,715 authorized, 0 shares issued and outstanding ..        --           --
     Common shares, par value $.01;
          40,000 authorized 12,080 and 11,869
          shares issued and outstanding ...................         121          119
       Additional paid-in capital .........................      71,766       70,068
       Retained earnings/(Accumulated deficit) ............     (16,606)     (26,027)
       Accumulated other comprehensive income/(loss) ......        (509)         275
       Less treasury stock repurchased at cost,
       46 and 39 shares ...................................        (309)        (237)
                                                              ---------    ---------
       TOTAL SHAREHOLDERS' EQUITY .........................      54,464       44,199
                                                              ---------    ---------

TOTAL LIABILITIES AND SHAREHOLDERS'
     EQUITY ...............................................   $ 165,268    $ 171,263
                                                              =========    =========

</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


<PAGE>
                            PSC Inc. AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
                (All amounts in thousands, except per share data)
                                   (Unaudited)

                                                      Three Months Ended
                                                    ---------------------
                                                    Oct. 1,       Oct. 2,
                                                     1999          1998
                                                     ----          ----
NET SALES .......................................   $ 59,031    $ 52,807

COST OF SALES ...................................     34,130      30,339
                                                    --------    --------
         Gross profit ...........................     24,901      22,468

OPERATING EXPENSES:
         Engineering, research and development ..      4,622       3,877
         Selling, general and administrative ....     11,435      10,180
         Amortization of intangibles resulting
              from business acquisitions ........      1,603       1,683
                                                    --------    --------
         Income from operations .................      7,241       6,728

INTEREST AND OTHER INCOME:
         Interest expense .......................     (1,826)     (2,479)
         Interest income ........................         70          65
         Other income ...........................        425          14
                                                    --------    --------
                                                      (1,331)     (2,400)
                                                    --------    --------
         Income before income tax provision .....      5,910       4,328
         Income tax provision ...................      2,068       1,601
                                                    --------    --------
         Net income .............................   $  3,842    $  2,727
                                                    ========    ========

NET INCOME PER COMMON AND COMMON
        EQUIVALENT SHARE:
         Basic ..................................   $   0.32    $   0.23
         Diluted ................................   $   0.27    $   0.20

WEIGHTED AVERAGE NUMBER OF
    COMMON AND COMMON EQUIVALENT
    SHARES OUTSTANDING:
         Basic ..................................     12,019      11,817
         Diluted ................................     14,021      13,331

RETAINED EARNINGS/(ACCUMULATED DEFICIT):
         Retained earnings/(Accumulated deficit)
           beginning of period ..................   ($20,448)   ($31,618)
         Net income .............................      3,842       2,727
                                                    --------    --------
         Retained earnings/(Accumulated deficit),
           end of period ........................   ($16,606)   ($28,891)
                                                    ========    ========



SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.


<PAGE>
                            PSC Inc. AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
                (All amounts in thousands, except per share data)
                                   (Unaudited)

                                                       Nine Months Ended
                                                     -----------------------
                                                     Oct. 1,      Oct. 2,
                                                       1999         1998
                                                       ----         ----
NET SALES .......................................   $ 176,177    $ 158,312

COST OF SALES ...................................     101,649       92,293
                                                    ---------    ---------
         Gross profit ...........................      74,528       66,019

OPERATING EXPENSES:
         Engineering, research and development ..      13,169       11,617
         Selling, general and administrative ....      34,593       29,458
         Severance and other costs ..............       2,103         --
         Amortization of intangibles resulting
              from business acquisitions ........       4,815        5,108
                                                    ---------    ---------
         Income from operations .................      19,848       19,836

INTEREST AND OTHER INCOME /(EXPENSE):
         Interest expense .......................      (5,908)      (8,037)
         Interest income ........................         209          185
         Other income/(expense) .................         337          161
                                                    ---------    ---------
                                                       (5,362)      (7,691)
                                                    ---------    ---------
         Income before income tax provision .....      14,486       12,145
         Income tax provision ...................       5,065        4,493
                                                    ---------    ---------
         Net income .............................   $   9,421    $   7,652
                                                    =========    =========

NET INCOME PER COMMON AND COMMON
        EQUIVALENT SHARE:
         Basic ..................................   $    0.79    $    0.66
         Diluted ................................   $    0.68    $    0.55

WEIGHTED AVERAGE NUMBER OF
    COMMON AND COMMON EQUIVALENT
    SHARES OUTSTANDING:
         Basic ..................................      11,948       11,677
         Diluted ................................      13,873       14,026

RETAINED EARNINGS/(ACCUMULATED DEFICIT):
         Retained earnings/(Accumulated deficit)
           beginning of period ..................   ($ 26,027)   ($ 36,543)
         Net income .............................       9,421        7,652
                                                    ---------    ---------
         Retained earnings/(Accumulated deficit),
           end of period ........................   ($ 16,606)   ($ 28,891)
                                                    =========    =========


SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
                            PSC Inc. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (All amounts in thousands)
                                   (Unaudited)
<CAPTION>
                                                                              Nine Months Ended
                                                                              -----------------
                                                                            Oct. 1,        Oct. 2,
                                                                              1999          1998
                                                                              ----          ----
<S>                                                                         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income ..........................................................   $  9,421    $  7,652
       Adjustments to reconcile net income to net cash
       provided by operating activities:
         Depreciation and amortization ..................................     10,056       9,890
         Loss on disposition of assets ..................................       --             9
         Deferred tax assets ............................................      2,506         528
         (Increase) decrease in assets:
             Accounts receivable ........................................        255      (2,867)
             Inventories ................................................     (6,720)     (3,313)
             Prepaid expenses and other .................................         70        (596)
         Increase (decrease) in liabilities:
             Accounts payable ...........................................        693        (950)
             Accrued expenses ...........................................     (1,283)      1,682
             Accrued payroll and related employee benefits ..............        (46)       (731)
             Accrued acquisition related restructuring costs ............       (290)       (508)
                                                                            --------    --------

                Net cash provided by operating activities ...............     14,662      10,796
                                                                            --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures, net ...........................................     (3,682)     (4,067)
    Additions to intangible and other assets ............................     (4,842)     (1,440)
    Proceeds from sale/leaseback and land sale ..........................      8,620        --
    Repayment of notes for stock option activity ........................       --           325
                                                                            --------    --------
                      Net cash provided by (used in) investing activities         96      (5,182)
                                                                            --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Addition to long-term debt ..........................................      7,000       6,500
     Payment of long-term debt ..........................................    (22,772)    (15,759)
    Addition to (payment of) other long-term liabilities, net ...........         81        (110)
    Purchase of treasury stock ..........................................        (72)       --
    Exercise of options and issuance of common shares ...................      1,515       2,727
    Tax benefit from exercise or early disposition of stock options .....         43         464
                                                                            --------    --------
                       Net cash used in financing activities ............    (14,205)     (6,178)
                                                                            --------    --------

FOREIGN CURRENCY TRANSLATION ............................................       (809)        782
                                                                            --------    --------

NET (DECREASE)/INCREASE IN CASH AND CASH
         EQUIVALENTS ....................................................       (256)        218

CASH AND CASH EQUIVALENTS:
         Beginning of period ............................................      6,180       2,271
                                                                            --------    --------
         End of period ..................................................   $  5,924    $  2,489
                                                                            ========    ========

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>


<PAGE>


                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         FOR THE THREE MONTHS ENDED October 1, 1999 and October 2, 1998
                (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  October  1,  1999,  the  results of
      operations for the three and nine months ended October 1, 1999 and October
      2, 1998 and its cash flows for the nine months  ended  October 1, 1999 and
      October 2, 1998.  The results of operations  for the three and nine months
      ended October 1, 1999 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, 1998 annual report on
      Form 10-K.

      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:

                                                  Oct. 1, 1999     Dec. 31, 1998
                                             ------------------  ---------------
     Raw materials                                    $14,863            $11,231
     Work-in-process                                    4,604              2,888
     Finished goods                                     4,503              3,131
                                                  ============       ===========
                                                      $23,970            $17,250
                                                  ============       ===========

(2)   LONG-TERM DEBT

      Long-term debt consists of the following:

                                                 Oct. 1, 1999      Dec. 31, 1998
                                             ------------------  ---------------
     Senior term loan A                               $25,004            $37,000
     Senior term loan B                                20,246             23,000
     Subordinated term loan                            29,592             29,547
     Subordinated promissory note                       2,500              3,438
     Other                                                 94                223
                                                  ------------       -----------
                                                       77,436             93,208
     Less:  current maturities                         15,804             14,402
                                                  ------------       -----------
                                                      $61,632            $78,806
                                                  ============       ===========

<PAGE>


                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         FOR THE THREE MONTHS ENDED October 1, 1999 and October 2, 1998
                (All amounts in thousands, except per share data)
                                   (Unaudited)


(3)   SEVERANCE AND OTHER COSTS

      During the first quarter of 1999, the Company  recorded a pretax charge of
      $2.1 million for  severance  and other costs.  Of the total  charge,  $1.4
      million was for employee  severance and benefit costs for the  elimination
      of  approximately  140  positions  primarily  at  the  Webster,  New  York
      manufacturing facility resultant from the consolidation of all high volume
      handheld scanner  manufacturing at the Company's Eugene,  Oregon facility.
      The remaining $0.7 is for early  termination of the lease on the Company's
      Webster  offsite storage and repair  facility.  As of October 1, 1999, the
      amount of the severance and other accruals was approximately $0.5 million,
      which relates to current contractual obligations. These costs reduced 1999
      income before income tax provision,  net income, basic EPS and diluted EPS
      by $2.1 million, $1.4 million, $0.11 and $0.10, respectively.

(4)   SALE LEASEBACK

      During May 1999, the Company sold its  facilities and property  located in
      Eugene,  Oregon and simultaneously  entered into a lease agreement for the
      facilities for a fifteen year period.  The lease is being accounted for as
      an  operating  lease,  and the  resulting  gain of $0.5  million  is being
      amortized  over the life of the lease.  The annual rental  expense will be
      $0.8  million,  which  will  be paid in  quarterly  installments.  The net
      proceeds  from the sale totaled $8.0 million which were utilized to reduce
      the senior credit facilities.

(5)   SHAREHOLDERS' EQUITY

      Comprehensive   income,  which  includes  net  income,   foreign  currency
      translation adjustments and unrealized gain/loss on securities, was $3,960
      and $3,392 for the three months ended October 1, 1999 and October 2, 1998,
      respectively,  and $8,300 and $8,321 for the nine months ended  October 1,
      1999 and October 2, 1998, respectively.

      During the nine month period ended  October 1, 1999,  employees  purchased
      approximately  129 shares at an average price of $7.49 per share under the
      provisions of the Company's Employee Stock Purchase Plan.

<PAGE>
                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         FOR THE THREE MONTHS ENDED October 1, 1999 and October 2, 1998
                (All amounts in thousands, except per share data)
                                   (Unaudited)


      Changes in the status of options  under the  Company's  stock option plans
are summarized as follows:

<TABLE>

                                         January 1, 1999        Weighted          January 1, 1998           Weighted
                                               To                Average                 To                 Average
                                         October 1, 1999          Price          December 31, 1998           Price
                                       --------------------    ------------    -----------------------    -------------
<S>                                          <C>                  <C>                   <C>                   <C>
     Options outstanding at
        beginning of period                   3,027                $7.98                 3,046                 $7.76
     Options granted                             84                 9.23                   391                  8.92
     Options exercised                         (75)                 7.32                 (310)                  6.42
     Options forfeited/canceled                (58)                 7.80                 (100)                  7.28
                                            ========             ========              ========              ========
     Options outstanding at
        end of period                         2,978                $8.03                 3,027                 $7.98
                                            ========             ========              ========              ========

     Number of options at end
        of period:
        Exercisable                           1,984                                     1,820
        Available for grant                     953                                         4
</TABLE>

      On May 12, 1999,  the  shareholders  approved an increase in the number of
      common shares  available for the issuance of stock options and  restricted
      stock awards under the 1994 Stock Option Plan by 1,000 shares.

      During the nine month period ended October 1, 1999,  25 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.

(6)   NET INCOME 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 for the three months ended October 1, 1999 and October 2, 1998
      was  determined on the  following  assumptions:  (1) Preferred  Shares and
      related warrants issued in connection with the private placement of equity
      were converted upon issuance on January 1, 1998 and (2) warrants issued in
      connection  with the  acquisition  of Spectra were converted on January 1,
      1998.

      The following  options were not included in the computation of diluted EPS
      since the exercise  prices were  greater than the average  market price of
      Common  Shares.  Options to  purchase  497 and 1,524  common  shares at an
      average price of $10.76 and $7.87 per share were outstanding for the three
      months ended October 1, 1999 and October 2, 1998, respectively. Options to
      purchase 512 and 469 common shares at an average price of $10.25 and $9.65
      per share were  outstanding  for the nine months ended October 1, 1999 and
      October 2, 1998, respectively.


<PAGE>


                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         FOR THE THREE MONTHS ENDED October 1, 1999 and October 2, 1998
                (All amounts in thousands, except per share data)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                            Three Months Ended
                                       ---------------------------------------------------------------------------------------------
                                                     October 1, 1999                                  October 2, 1998
                                       ---------------------------------------------    --------------------------------------------
                                                                            Per                                              Per
                                          Income           Shares          Share           Income           Shares          Share
                                        (numerator)     (denominator)      Amount        (numerator)     (denominator)      Amount

<S>                                       <C>                <C>          <C>              <C>                <C>          <C>
Basic EPS:
Income available to common
shareholders                              $3,842             12,019       $0.32            $2,727             11,817       $0.23
                                                                          =====                                            =====
Effect of dilutive securities:
   Options                                    --                448                            --                139
   Warrants                                   --                179                            --                 --
   Preferred Shares                           --              1,375                            --              1,375
                                     ------------ ------------------                -------------- ------------------
Diluted EPS:
Income available to common
shareholders and assumed
conversions                               $3,842             14,021       $0.27            $2,727             13,331       $0.20
                                          ======             ======       =====            ======             ======       =====



                                                                         Nine Months Ended
                                     -------------------------------------------------------------------------------------------
                                                 October 1, 1999                                  October 2, 1998
                                     -------------------------------------------    --------------------------------------------
                                                                          Per                                              Per
                                        Income           Shares          Share           Income           Shares          Share
                                      (numerator)     (denominator)      Amount        (numerator)     (denominator)      Amount
Basic EPS:
Income available to common
shareholders                              $9,421             11,948       $0.79            $7,652             11,677       $0.66
                                                                          =====                                            =====
Effect of dilutive securities:
   Options                                    --                406                            --                767
   Warrants                                   --                144                            --                207
   Preferred Shares                           --              1,375                            --              1,375
                                     ------------ ------------------                -------------- ------------------
Diluted EPS:
Income available to common
shareholders and assumed
conversions                               $9,421             13,873       $0.68            $7,652             14,026       $0.55
                                          ======             ======       =====            ======             ======       =====


</TABLE>

<PAGE>


                            PSC Inc. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         FOR THE THREE MONTHS ENDED October 1, 1999 and October 2, 1998
                (All amounts in thousands, except per share data)
                                   (Unaudited)


(7)      DERIVATIVES

     In June 1998, the Financial  Accounting  Standards Board issued  Statement
     of Financial Accounting  Standards No. 133 (SFAS No. 133),  "Accounting for
     Derivative  Instruments and Hedging  Activities".  SFAS No. 133 establishes
     accounting  and  reporting   standards   requiring  that  every  derivative
     instrument be recorded in the balance sheet as either an asset or liability
     measured  at its fair  value.  SFAS No. 133  requires  that  changes in the
     derivative's  fair value be recognized in earnings  unless  specific  hedge
     accounting   criteria  are  met.  As  amended  by  Statement  of  Financial
     Accounting  Standards No. 137,  "Accounting for Derivative  Instruments and
     Hedging  Activities - Deferral of the Effective  Date of FASB Statement No.
     133",  SFAS No. 133 is  effective  for all fiscal  quarters of fiscal years
     beginning  after June 15,  2000 and cannot be  applied  retroactively.  The
     Company has not yet  quantified the impacts of adopting SFAS No. 133 on the
     financial  statements  and has not  determined  the  timing of or method of
     adopting SFAS No. 133.

     The Company  monitors  its exposure to interest  rate and foreign  currency
     exchange  risk.  The  Company  has  limited   involvement  with  derivative
     financial  instruments  and does not use them  for  trading  purposes.  The
     Company uses derivative  instruments  solely to reduce the financial impact
     of these risks.  Cash flows from interest rate swap  agreements and foreign
     currency forward exchange  contracts are classified in the same category as
     the item being hedged.

     Interest Rate Risk:

     The  Company's  exposure to interest  rate changes relates to its long-term
     debt. The Company has entered into interest rate swap  agreements  with its
     senior  lending  banks in  accordance  with the terms of the senior  credit
     agreement.  The Company uses these interest rate swap  agreements to reduce
     its exposure to interest rate changes.  The differentials to be received or
     paid  under  these  interest  rate  swap  agreements  are  recognized  as a
     component of interest expense in the Consolidated Statements of Income.

     Foreign Currency Exchange Rate Risk:

     The  Company's  exposure  to  foreign  currency  relates  primarily  to its
     international  subsidiaries.  Sales to certain countries are denominated in
     their local  currency.  The Company  enters into foreign  currency  forward
     exchange contracts to minimize the effect of foreign currency  fluctuations
     relating  to these  transactions  and  commitments  denominated  in foreign
     currencies. The foreign exchange contracts generally  have  maturities  of
     approximately   30  days  and  require  the  Company  to  exchange  foreign
     currencies  for  U.S.  dollars  at  maturity,  at  rates  agreed  to at the
     inception  of the  contracts.  Gains and  losses on forward  contracts  are
     offset  against the  foreign  exchange  gains and losses on the  underlying
     hedged items and are recorded in the Consolidated Statements of Income.

<PAGE>


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, 1998 annual report on Form 10-K.

Results of Operations:  Three Months ended October 1, 1999 and October 2, 1998
------------------------------------------------------------------------------

Net Sales.  Consolidated net sales during the three months ended October 1, 1999
increased   $6.2  million  or  12%  compared  with  the  same  period  in  1998.
International  net sales increased 6% and represented  approximately 47% of net
sales in the third  quarter of 1999 versus 50% of net sales in the third quarter
of 1998. The overall increase in consolidated net sales is attributed  primarily
to  increased  sales  in  the  handheld  product  lines  and  U-Scan(R)  Express
Self-Checkout  Systems.  The increase in international sales is primarily due to
new products and the continued growth in European customer sales.

Gross Profit. Consolidated gross profit during the three months ended October 1,
1999  increased  $2.4 million or 11% compared with the same period in 1998. As a
percentage of sales,  gross profit  decreased  slightly from 42.5% to 42.2%. The
decrease  in gross  profit  percentage  is  primarily  due to  negative  foreign
currency impact and costs incurred to transition  manufacturing  activities from
Webster, New York to Eugene, Oregon.

Engineering,  Research and  Development.  Engineering,  Research and Development
(ER&D) expenses increased $0.7 million or 19%, as compared to the same period in
1998.  As a  percentage  of sales,  ER&D was 7.8% in the third  quarter  of 1999
versus 7.3% of net sales in the third quarter of 1998.

Selling, General and Administrative.  Selling, General and Administrative (SG&A)
expenses  increased $1.3 million or 12%, as compared to the same period in 1998.
As a  percentage  of sales,  SG&A was 19.4% in 1999  versus  19.3% in 1998.  The
dollar  increase is  primarily  due to an increase  in the  international  sales
infrastructure   and   additional   investments   in  the  Company's   marketing
organization and marketing programs.

Interest Expense.  Interest expense decreased $0.7 million versus the comparable
period in 1998. The decrease is due to lower principal balances  outstanding and
a  reduction  in the  Company's  interest  rates on its senior term loans as the
Company achieved key milestones under certain financial  covenants  contained in
the bank credit agreements.

Provision  for Income Taxes.  The  Company's  effective tax rate was 35% in 1999
versus 37% in 1998 due to larger anticipated Foreign Sales Corporation benefits.
<PAGE>

Results of Operations:  Nine Months ended October 1, 1999 and October 2, 1998
-----------------------------------------------------------------------------

Net Sales.  Consolidated  net sales during the nine months ended October 1, 1999
increased  $17.9  million  or  11%  compared  with  the  same  period  in  1998.
International  net sales increased 9% and represented  approximately 49% of net
sales  in 1999  versus  50% of net  sales  in  1998.  The  overall  increase  in
consolidated  net sales is attributed  primarily to increased sales in the fixed
position retail product lines and U-Scan(R) Express  Self-Checkout  Systems. In
1995, the Company  entered into a contract with Optimal  Robotics Corp. to manu-
facture and sell the U-Scan(R)  Express  Self-Checkout  System.   During October
1999, the Company received notification that the relationship would terminate on
December 31, 2000.  The Company  anticipates  manufacturing  and selling its own
self-checkout   product   commencing  on  January  1,  2001.   The  increase  in
international sales is primarily due to new products and the continued growth in
the Company's European and Asian Pacific customer sales.

Gross Profit.  Consolidated gross profit during the nine months ended October 1,
1999  increased  $8.5 million or 13% compared with the same period in 1998. As a
percentage of sales, gross profit increased from 41.7% to 42.3%. The increase in
gross  profit  percentage  is primarily  due to improved  product mix and higher
manufacturing  volume  offset by  negative  foreign  currency  impact  and costs
incurred to transition certain  manufacturing  activities from Webster, New York
to Eugene, Oregon.

Engineering,  Research and  Development.  Engineering,  Research and Development
(ER&D) expenses increased $1.6 million or 13%, as compared to the same period in
1998.  As a  percentage  of sales,  ER&D was 7.5% in 1999 and 7.3% in 1998.  The
dollar increase is due to additional investments in developing new products.

Selling, General and Administrative.  Selling, General and Administrative (SG&A)
expenses  increased $5.1 million or 17%, as compared to the same period in 1998.
As a  percentage  of sales,  SG&A was 19.6% in 1999  versus  18.6% in 1998.  The
dollar  increase is  primarily  due to an increase  in the  international  sales
infrastructure   and   additional   investments   in  the  Company's   marketing
organization and marketing programs.

Severance  and Other  Costs.  During  the first  quarter  of 1999,  the  Company
recorded a pretax charge of $2.1 million for  severance and other costs.  Of the
total charge,  $1.4 million was for employee severance and benefit costs for the
elimination of approximately  140 positions  primarily at the Webster,  New York
manufacturing  facility  resultant  from the  consolidation  of all high  volume
handheld scanner  manufacturing at the Company's  Eugene,  Oregon facility.  The
remaining $0.7 is for early  termination  of the lease on the Company's  Webster
offsite  storage and repair  facility.  As of October 1, 1999, the amount of the
severance and other accruals was  approximately  $0.5 million,  which relates to
current contractual  obligations.  These costs reduced 1999 income before income
tax  provision,  net income,  basic EPS and diluted  EPS by $2.1  million,  $1.4
million, $0.11 and $0.10, respectively.

Interest Expense.  Interest expense decreased $2.1 million versus the comparable
period in 1998. The decrease is due to lower principal balances  outstanding and
a  reduction  in the  Company's  interest  rates on its senior term loans as the
Company achieved key milestones under certain financial  covenants  contained in
the bank credit agreements.

Provision  for Income Taxes.  The  Company's  effective tax rate was 35% in 1999
versus 37% in 1998 due to larger anticipated Foreign Sales Corporation benefits.

Liquidity and Capital Resources:

Current assets increased $6.1 million from December 31, 1998 primarily due to an
increase  in  inventory  resulting  from  newly  introduced  products.   Current
liabilities  increased  $0.5  million  primarily  due to an  increase in current
portion of long-term  debt and accounts  payable offset by a decrease in accrued
expenses. As a result,  working capital increased $5.6 million from December 31,
1998.

Property,  plant and  equipment  expenditures  totaled $3.7 million for the nine
months  ended  October 1, 1999  compared  with $4.1  million for the nine months
ended October 2, 1998. The 1999  expenditures  primarily  related to new product
tooling, manufacturing equipment and computer hardware.

<PAGE>

The  long-term  debt to capital  percentage  was 53.1% at October 1, 1999 versus
64.1% at December 31, 1998  primarily  due to a reduction  in long-term  debt by
$17.2 million and an increase in retained earnings  resultant from net income of
$9.4 million in 1999. At October 1, 1999, liquidity immediately available to the
Company consisted of cash and cash equivalents of $5.9 million.  The Company has
a revolving line of credit of $20.0 million,  of which,  there is no outstanding
balance.  The Company  believes that its cash  resources  and  available  credit
facilities,  in addition to its operating cash flows, are sufficient to meet its
requirements for the next 12 months.

Year 2000

The Year 2000 problem is the result of many existing  computer  programs written
in two digits,  rather than four, to define the  applicable  year.  Accordingly,
date-sensitive  software or hardware may not be able to distinguish  between the
year 1900 and year  2000,  and  programs  that  perform  arithmetic  operations,
comparisons or sorting of date fields may begin yielding incorrect results. This
potentially could cause a system failure or  miscalculations  that could disrupt
operations, including, among other things, an inability to process transactions,
send invoices,  or engage in normal business activities.  These Year 2000 issues
affect virtually all companies and organizations.

The Company has developed a three-phase plan to address its Year 2000 issues:

         (1)  Identification  of  software  and  hardware.   This  includes  the
              following:

               (a)  Applications  and  information  technology  (IT)  equipment,
                    which includes all mainframe,  network and desktop  software
                    and  hardware,  custom  and  packaged  applications,  and IT
                    embedded systems;

               (b)  Non-information  technology (non-IT) embedded systems.  This
                    includes  non-IT  equipment and machinery.  Non-IT  embedded
                    systems,  such as  security,  fire  prevention  and  climate
                    control systems typically include embedded technology; and

               (c)  Vendor relationships.  This includes significant third-party
                    vendors and supplier interfaces.

Both domestically and internationally,  the Company has substantially  completed
the identification stage.

        (2)    Assessment  of the software and hardware  identified.  This phase
               includes the  evaluation of the software and hardware  identified
               for Year 2000  compliance,  the  determination of the remediation
               method  and  resources  required,   and  the  development  of  an
               implementation plan. The Company has substantially  completed the
               assessment stage.

         (3)   Implementation of a remediation plan. This phase includes testing
               some  modifications/upgrades in a Year 2000 simulated environment
               and vendor  interface  testing,  if  necessary.  The  Company has
               substantially  completed the remediation  phase both domestically
               and internationally.

<PAGE>


Overall,  at this time, the Company  believes that its systems will be Year 2000
compliant in a timely manner for several reasons.  Several significant operating
systems  are  already  compliant.  Internationally,  the  Company  is  currently
implementing  new computer  systems that were developed in the United States and
are currently Year 2000 compliant.  To the extent that current systems that will
not be replaced have been determined to be non-compliant, the Company is working
with the suppliers of such systems to obtain  upgrades  and/or  enhancements  to
ensure Year 2000 compliance. Also, the Company successfully completed comprehen-
sive testing of all critical systems in a simulated Year 2000 environment.

The  Company  believes  that  it will  not be  required  to  modify  or  replace
significant  portions of the  products it  presently  develops  and  provides to
customers  as such  products  are not  date  dependent  and,  accordingly,  will
function  properly with respect to dates in the Year 2000. All new products will
be Year 2000 ready when released.

At this stage in the process,  the Company has not  identified  any  significant
risks.  However,  the Company  believes that the area of the greatest  potential
risk relates to  significant  suppliers'  failing to  remediate  their Year 2000
issues in a timely manner. The Company is conducting formal  communications with
its significant suppliers to determine the extent to which it may be affected by
those parties' plans to remediate  their own Year 2000 issue in a timely manner.
If a number of  significant  suppliers are not Year 2000  compliant,  this could
have a material adverse effect on the Company's results of operations, financial
position or cash flow.  At this point,  the Company has not been  advised by any
significant supplier that it will not be Year 2000 compliant.

The  Company  is  finalizing  its  contingency  plans and  expects  to have them
completed  by  November  1999.  To  mitigate  the  effects of the  Company's  or
significant  suppliers'  potential failure to remediate the Year 2000 issue in a
timely  manner,  the Company  will take  appropriate  actions.  Such actions may
include having arrangements for alternate  suppliers,  using manual intervention
to ensure the continuation of operations where necessary and scheduling activity
in December 1999 that would  normally occur at the beginning of January 2000. If
it becomes  necessary for the Company to take these  corrective  actions,  it is
uncertain, until the contingency plans are finalized,  whether this would result
in significant  delays in business  operations or have a material adverse effect
on the Company's results of operations, financial position or cash flows.

Based upon the Company's current estimates,  incremental  out-of-pocket costs of
its Year 2000 program are expected not to be material. These costs were incurred
primarily in fiscal 1999 and were  associated  primarily with the remediation of
existing  computer  software  and  hardware.  Such  costs  are  estimated  to be
approximately $0.5 million.  Such costs do not include internal management time,
which the Company does not separately track, nor the deferral of other projects,
the effects of which are not expected to be material to the Company's results of
operations or financial  condition.  The Company's total Year 2000 project costs
include the estimated  costs and time  associated with the impact of third-party
Year 2000 issues based on presently available information. However, there can be
no guarantee that other  companies upon which the Company relies will be able to
address in a timely  manner their Year 2000  compliance  issues,  the effects of
which may be an adverse impact on the Company's results of operations.

Euro Conversion

On  January  1,  1999,  11 of the 15  member  countries  of the  European  Union
established  fixed conversion rates between their existing legacy currencies and
the euro.  The legacy  currencies  will remain in effect until July 1, 2002,  at
which  time,  the  legacy  currencies  will no  longer be legal  tender  for any
transactions.  The Company  believes  that the euro  conversion  will not have a
material  adverse  impact to results of operations,  financial  position or cash
flows.
<PAGE>

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, the
ability of the Company to identify and address successfully the Year 2000 issues
in a timely manner and at costs that are  reasonably  in line with  projections,
and the ability of the  Company's  vendors to identify and address  successfully
their own Year 2000 issues in a timely manner.  Profits 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.


<PAGE>


PART II:  OTHER INFORMATION

Item 1:   Legal Proceedings:

      The  description  of  the  Company's  legal   proceedings  with  Symbol
Technologies, Inc. ("Symbol") set forth in Item 3 of the Company's Annual Report
on Form 10-K for the fiscal  period ended  December 31, 1998 (the  "Litigation")
and in Item 1 of Part II of the Company's  Quarterly Report on Form 10-Q for the
quarter ended July 2, 1999 are incorporated herein by reference. Pursuant to the
Court's  scheduling  order dated  October 6, 1999,  the  contract  issues in the
Litigation will be presented as cross-motions for summary judgment.  The motions
are  scheduled to be filed with the Court on November 17, 1999 and oral argument
is scheduled for January 11, 2000.

         The  description of the Company's legal  proceedings  with the Lemelson
Partnership set forth in Item 1 of Part II of the Company's  Quarterly Report on
Form  10-Q  for the  quarter  ended  July  2,  1999 is  incorporated  herein  by
reference.  In  response  to the action  commenced  by the Company and the other
Plaintiffs on July 21, 1999 in the U.S.  District Court of Nevada,  the Lemelson
Partnership  has  moved  to  dismiss,  transfer  and/or  stay  the  proceedings.
Plaintiffs' responsive papers to the Lemelson Partnership motion have been filed
and the motion is pending. The litigation is in the early stages of discovery.

         The description of the Company's legal  proceedings with  International
Automated  Systems  ("IAS")  set  forth  in Item 1 of  Part II of the  Company's
Quarterly  Report on Form 10Q for the quarter ended July 2, 1999 is incorporated
herein by  reference.  The Company was served with the summons and  complaint in
that  action on August 23,  1999.  An answer and  counterclaim  on behalf of the
Company  and Optimal  Robotics  Inc.  ("Optimal")  was served on IAS on or about
October 22, 1999. Optimal has retained counsel to represent both Optimal and the
Company.  The  Company's  contract  with Optimal  provides  for  indemnification
obligations on the part of Optimal.

         On October  13,  1999,  Metrologic  Instruments,  Inc.  commenced  suit
against the Company in the United States  District Court for the District of New
Jersey alleging patent  infringement and seeking damages and injunctive  relief.
The complaint was served on the Company on October 21, 1999 and the Company will
be filing its responsive  papers shortly.  The Company  believes that the claims
against it are without merit and intends to vigorously defend the action.

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:  None

(b)     Reports on Form 8-K:   None


<PAGE>


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:    November 8, 1999              By:  /s/ Robert C. Strandberg
                                        Robert C. Strandberg
                                        President and Chief Executive Officer



DATE:    November 8, 1999              By: /s/  William J. Woodard
                                        William J. Woodard
                                        Vice President & Chief Financial Officer



DATE:    November 8, 1999              By  /s/ Michael J. Stachura
                                        Michael J. Stachura
                                        Vice President of Finance
                                        (Principal Accounting Officer)