<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
**************
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
**************
For Quarter Ended September 30, 1994 Commission File No. 1-7744
PACIFIC SCIENTIFIC COMPANY
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-0744970
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
620 Newport Center Drive, Suite 700, Newport Beach, California 92660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 720-1714
Former address:
(Former name, address and fiscal year, if changed since last report)
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 .
--- ---
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
5,455,998 shares
1
<PAGE> 2
PACIFIC SCIENTIFIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
(In $000's)
<TABLE>
<CAPTION>
SEPT. 30 DECEMBER 31
1994 1993
-------- -----------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash............................................... $ 2,637 $ 2,081
Short-term investments............................. 2,159 1,962
Trade receivables (less allowance for doubtful
accounts of $836 and $668, respectively)....... 40,511 36,666
Inventories, lower of cost (principally average)
or market:
Finished goods................................. 5,181 3,914
Work-in-process................................ 12,967 13,244
Raw materials and purchased parts.............. 20,713 16,335
Deferred income taxes.............................. 3,733 3,733
Other current assets............................... 2,363 1,797
-------- --------
Total Current Assets..................... 90,264 79,732
-------- --------
PROPERTY AT COST:
Land and buildings................................. 12,455 9,160
Machinery and equipment............................ 68,056 65,967
-------- --------
Total......................................... 80,511 75,127
Less accumulated depreciation...................... 49,555 43,677
-------- --------
Net Property.................................. 30,956 31,450
-------- --------
RESTRICTED CASH........................................ 6,088 6,092
NOTE RECEIVABLE........................................ 1,300 1,112
PROPERTY HELD FOR SALE................................. 3,356 3,356
NOTES, PATENTS AND OTHER............................... 5,850 6,579
EXCESS OF COST OVER NET ASSETS ACQUIRED................ 32,771 32,936
-------- --------
TOTAL............................... $170,585 $161,257
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings.............................. $ 4,000 $ 5,250
Accounts payable................................... 15,253 14,426
Accrued employee compensation and benefits......... 5,618 4,859
Other current liabilities.......................... 8,219 6,580
-------- --------
Total Current Liabilities................ 33,090 31,115
-------- --------
LONG-TERM DEBT:
Notes payable...................................... 28,575 26,625
Convertible subordinated debentures................ 17,481 17,481
DEFERRED ITEMS:
Accrued employee benefit plan liabilities.......... 2,375 3,547
Deferred income taxes.............................. 1,533 1,533
-------- --------
Total Noncurrent Liabilities............. 49,964 49,186
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value......................... 5,456 5,398
Additional paid-in-capital......................... 5,598 4,791
Retained earnings.................................. 76,477 70,767
-------- --------
Total Stockholders' Equity............... 87,531 80,956
-------- --------
TOTAL............................... $170,585 $161,257
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
2
<PAGE> 3
PACIFIC SCIENTIFIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPT. 30, 1994 AND SEPT. 24, 1993
(In $000's)
<TABLE>
<CAPTION>
QUARTER ENDED YEAR-TO-DATE
---------------------- ------------------------
SEPT. 30 SEPT. 24 SEPT. 30 SEPT. 24
1994 1993 1994 1993
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES................................. $59,840 $47,931 $168,613 $139,237
------- ------- -------- --------
COSTS AND EXPENSES:
Cost of sales ........................ 40,033 32,760 114,357 96,625
Selling and marketing................. 6,176 4,832 17,981 13,754
General and administrative............ 6,121 4,901 16,850 14,935
Research and development ............. 3,128 2,138 7,485 5,998
------- ------- -------- --------
Total Costs and Expenses..... 55,458 44,631 156,673 131,312
------- ------- -------- --------
OPERATING INCOME ......................... 4,382 3,300 11,940 7,925
------- ------- -------- --------
Interest expense-net...................... (627) (317) (1,946) (1,212)
Other (expense)/income.................... 156 243 338 1,193
------- ------- -------- --------
Net Other Expense............ (471) (74) (1,608) (19)
------- ------- -------- --------
INCOME BEFORE INCOME TAX PROVISION........ 3,911 3,226 10,332 7,906
INCOME TAX PROVISION...................... (1,629) (1,059) (4,133) (2,978)
------- ------- -------- --------
NET INCOME BEFORE ACCOUNTING CHANGE....... 2,282 2,167 6,199 4,928
CUMULATIVE ACCOUNTING CHANGE.............. 1,060
------- ------- -------- --------
NET INCOME ............................... $ 2,282 $ 2,167 $ 6,199 $ 5,988
======= ======= ======== ========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE........ $ 0.41 $ 0.40 $ 1.11 $ 0.91
CUMULATIVE EFFECT ON PRIOR YEARS OF
CHANGE IN METHOD OF ACCOUNTING FOR
INCOME TAXES.......................... 0.20
------- ------- -------- --------
NET INCOME PER SHARE.................. $ 0.41 $ 0.40 $ 1.11 $ 1.11
======= ======= ======== ========
CASH DIVIDENDS PER COMMON SHARE $ 0.03 $ 0.03 $ 0.09 $ 0.09
======= ======= ======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of this statement.
3
<PAGE> 4
PACIFIC SCIENTIFIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPT. 30, 1994 AND SEPT. 24, 1993
(In $000's)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
SEPT. 30 SEPT. 24
1994 1993
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income including cumulative gain in 1993 ........... $ 6,199 $ 5,988
Depreciation and amortization........................... 8,680 7,594
Deferred income taxes................................... (1,841)
Decrease in accrued employee benefit plan liabilities... (1,172) (539)
Loss on disposal of property............................ 190 676
Effect on cash of changes in assets and liabilities,
net of the effects of acquisitions:
Trade receivables.................................... (2,925) 699
Inventories.......................................... (4,759) (1,704)
Other current assets................................. (505) (454)
Accounts payable..................................... (280) (1,394)
Accrued employee compensation and benefits........... 760 1,117
Other current liabilities............................ 1,603 (2,636)
---------- ----------
Net cash flows provided by operating activities...... 7,791 7,506
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:#
Payment for business acquisition, net of cash acquired.. (1,410) (23,451)
Net increase in short-term investments.................. (197) (497)
Purchase of property.................................... (6,544) (4,046)
Net decrease (increase) in restricted cash and other
assets................................................ (160) 271
---------- ----------
Net cash flows used in investing activities.......... (8,311) (27,723)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:#
Short-term debt (repayments) issuance................... (1,250) 10,400
Issuance of long-term debt.............................. 1,950 8,000
Net issuances of common stock........................... 865 268
Cash dividends on common stock.......................... (489) (482)
---------- ----------
Net cash flows provided by financing activities...... 1,076 18,186
---------- ----------
NET INCREASE (DECREASE) IN CASH........................... 556 (2,031)
BEGINNING CASH............................................ 2,081 4,567
---------- ----------
ENDING CASH............................................... $ 2,637 $ 2,536
---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
4
<PAGE> 5
PACIFIC SCIENTIFIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) INTERIM ACCOUNTING POLICY
Interim periods are viewed as an integral part of the annual period.
Accordingly, the results for each of the interim periods presented are
based on the accounting principles and practices followed by the
Company in the preparation of its annual financial statements.
Certain costs and expenses are assigned to the periods presented so
that the interim periods bear a reasonable portion of the anticipated
annual amount. Included among these are estimated amounts for
inventory adjustments, performance bonuses, employee fringe benefits
and income taxes. The financial statements presented, in the opinion
of management, include all adjustments necessary to present fairly the
Company's interim financial statements.
2) SHORT-TERM INVESTMENTS
Effective as of the beginning of fiscal year 1994, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
The adoption of this standard required the Company to classify and
account for investments in equity securities that have readily
determinable fair values and for all debt securities into three
categories; (1) debt securities that the Company has the intent and
the ability to hold to maturity are classified as "held-to-maturity
securities" and reported at amortized cost; (2) debt and equity
securities that are bought and held principally for the purpose of
selling them in the near term are classified as "trading securities"
and reported at fair value, with unrealized gains and losses included
in earnings; and (3) debt and equity securities not classified as
held-to-maturity securities or trading securities are classified as
"available-for-sale securities" and reported at fair value, with
unrealized gains and losses excluded from earnings and reported in a
separate component of stockholders' equity.
At January 1, 1994 and at September 30, 1994, all of the Company's
investments represent short-term available-for-sale securities and
have been recorded at fair value which approximates the historical
cost of the investments. These investments are primarily composed of
debt securities of municipalities of the Commonwealth of Puerto Rico
with contractual maturities beginning in 1998 or later. The Company's
adoption of SFAS 115 did not have a material effect on the financial
statements of the Company.
5
<PAGE> 6
3) EARNINGS PER SHARE
Earnings per common and common equivalent share were computed by
dividing net income by the weighted average number of common and
common equivalent shares outstanding during each period. Common
equivalent shares consist of the estimated number of shares issuable
upon exercise of dilutive stock options reduced by the number of
common shares assumed to have been reacquired with the proceeds from
exercise of the options.
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
---------------------- ----------------------
Sept 30, Sept 24, Sept 30, Sept 24,
1994 1993 1994 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
AVERAGE NUMBER OF
SHARES OUTSTANDING 5,440,264 5,355,431 5,423,582 5,348,509
AVERAGE NUMBER OF
SHARES ASSUMING EXERCISE
OF DILUTIVE EMPLOYEE
STOCK OPTIONS 152,950 33,786 157,244 32,428
--------- --------- --------- ---------
COMMON AND COMMON
EQUIVALENT SHARES 5,593,214 5,389,217 5,580,826 5,380,937
========= ========= ========= =========
</TABLE>
NOTE: The Company has outstanding convertible subordinated
debentures. Inclusion of these debentures would be
antidilutive and, accordingly, they have been excluded from
the above totals.
4) RECLASSIFICATIONS
Certain reclassifications have been made to the 1993 amounts to
conform to the 1994 financial statement presentation.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
QUARTERLY COMPARISON (THIRD QUARTER 1994 VS. THIRD QUARTER 1993)
Net sales were $59,840,000 in the third quarter of 1994, a 25% or $11,909,000
increase in sales over the same period in the prior year. Third quarter sales
in the Electrical Equipment segment were up 43% or $13,180,000. The
acquisitions of Powertec Industrial Corporation and Automation Intelligence,
Inc. in the third quarter of 1993 and Royce Thompson Electric Ltd. in the
second quarter of 1994 accounted for $5,540,000 of the increase in sales of
Electrical Equipment. The sales from the Safety Equipment segment decreased by
7% or $1,271,000.
Gross margin on sales increased 1.5% in the current quarter from the prior year
reflecting control of costs and expenses, and the progress of the Fisher Pierce
Division in moving from a loss to a profit. Selling and marketing expenses
remained at approximately 10% of sales. Included in general and administrative
expense in the third quarter of 1994 is $1,094,000 of non-recurring costs and
expenses involved with the final settlement of a litigation matter in Texas.
Excluding this settlement, general and administrative expenses increased by 3%
over the level of the prior year. Research and development expenses increased
by 46% reflecting continued emphasis on new product development.
Income before taxes increased 21% primarily due to a 25% increase in sales and
improved gross margins. Excluding the settlement of litigation in the third
quarter, pre-tax income would have increased $1,779,000 or 55% Acquisitions
made in 1993 and 1994 accounted for $202,000 or 29% of the increase in pre-tax
income.
The effective tax rate for the third quarter of 1994 is 41.7% which adjusts the
year-to-date to an estimated annual rate of 40%. The increase in the annual
estimated effective tax rate for 1994 reflects the impact of recent tax
legislation and the non-deductibility of certain intangibles. In the same
quarter of 1993, the tax rate was 32.8%. The actual annual effective tax rate
for 1993 was approximately 35% reflecting principally the settlement of an IRS
examination for 1986, 1987 and 1988.
Net income of $0.41 per share in 1994 compares to $0.40 per share in the third
quarter of 1993. The settlement of the Texas litigation and related legal
expenses reduced earnings by $0.12 per share.
Orders for Electrical Equipment totaled $42,774,000, up 28% as compared to the
same period in the prior year. Orders for Safety Equipment during the third
quarter totaled $13,118,000, down 35% as compared to the same quarter of the
prior year. Year-to-date orders for Safety Equipment are down 9%. This
decline reflects both delays and reduction in military procurement and
reductions within the total aerospace industry.
The backlog of orders at September 30, 1994 and September 24, 1993 were
$92,807,000 and 95,502,000, respectively.
The Company's inertia reels, used as personnel restraints on military aircraft,
which were temporarily suspended in 1991, have not yet been requalified by the
U.S. Air Force and relisted on the "Qualified Product List" (QPL). However,
certain military agencies are again purchasing the Company's inertia reels by
waiving the QPL requirement. Although the Company continues to believe, after
more than thirty years experience, that its inertia reels are designed and
manufactured to meet all known requirements, it is not possible to project when
the U.S. Air Force will approve our products for the QPL.
7
<PAGE> 8
NINE MONTHS COMPARISON (NINE MONTHS 1994 VS. NINE MONTHS 1993)
Net sales were $168,613,000 in the first nine months of 1994, a 21% or
$29,376,000 increase in sales over the same period in the prior year. Net
sales for the first nine months in the Electrical Equipment segment were up 34%
or $30,323,000. The acquisitions of Powertec Industrial Corporation and
Automation Intelligence, Inc. in the third quarter of 1993 and Royce Thompson
Electric Ltd. in the second quarter of 1994 accounted for $17,666,000 of the
increase in sales. The sales from the Safety Equipment segment decreased by 2%
or $947,000. The acquisition of the Unidynamics product line in April, 1993
increased sales by $2,512,000.
Gross margin on sales increased 1.6% in the first nine months from the prior
year reflecting control of costs and expenses and the progress of the Fisher
Pierce Division in moving from a loss to a profit. Selling and marketing
expenses remained at approximately 10% of sales. Included in general and
administrative expenses in the nine months of 1994 is $1,250,000 of
non-recurring costs and expenses involved with the final settlement of a
litigation matter in Texas. Excluding the settlement, general and
administrative expenses increased by 4% over the level of the prior year.
Research and development expenses increased 25% to 4.4% of sales reflecting
continued emphasis on new product development.
Income before income tax provision increased 31% primarily due to a 21%
increase in sales and improvement in gross margin and control of operating
expenses. Excluding the settlement of litigation in the third quarter, pre-tax
income would have increased by $3,676,000 or 46%. Acquisitions made in 1993
and 1994 accounted for $756,000 or 31% of the increase in pre-tax income. The
estimated annual effective tax rate for the nine months was adjusted from 39%
to 40%.
Net income of $1.11 per share in 1994 compares to $1.11 per share in the first
nine months of 1993 including the cumulative effect of a required accounting
change which accounted for $0.20 per share in the first quarter of 1993. The
settlement of the Texas litigation and related legal expenses in the third
quarter reduced earnings by $0.13 per share for the nine months.
Orders for Electrical Equipment totaled $124,791,000, up 36% as compared to the
same period in the prior year. Orders for Safety Equipment during the first
half totaled $31,692,000, up 9% as compared to the same period of the prior
year. Orders for Safety Equipment during the first nine months totaled
$44,810,000 down 9% as compared to the same period of the prior year.
The Company remains positive concerning the outlook for its business for the
balance of the fiscal year, expects to report record sales in the fourth
quarter of 1994 and anticipates continued sales increases during the next two
fiscal years. As previously announced, the target markets for the Company's
new Solium(TM) product line, first announced on October 3, 1994, could increase
the Company's annual sales in the next 24 months by as much as $50 to $100
million over 1994 levels. Through its ongoing research and development
program, the Company is seeking other proprietary products to complement and
expand its current product line.
FINANCIAL POSITION AND LIQUIDITY
Debt less cash, restricted cash, and short-term investments was $39,172,000 at
the end of the first nine months in 1994 as compared to the $38,891,000 in the
prior year quarter. Operations provided cash of $7,791,000 in the first nine
months of 1994 as compared to providing cash of $7,506,000 in the same period
of the prior year.
8
<PAGE> 9
FINANCIAL POSITION AND LIQUIDITY - Continued
This increase in cash flow from operations is primarily due to:
<TABLE>
<S> <C>
Increase in other current liabilities $ 4,239,000
Increase in trade receivables (3,624,000)
Increase in inventories (3,055,000)
Deferred income taxes 1,841,000
Increase in accounts payable 1,114,000
Increase in depreciation and amortization 1,086,000
Other (1,316,000)
-----------
Increase in Cash Flow from Operating Activities $ 285,000
===========
</TABLE>
The Company's working capital was $57,174,000 on September 30, 1994 for a
current ratio of 2.7:1. On September 24, 1993 working capital was $38,116,000.
At the end of the third quarter of 1994, the Company had unused lines of credit
of $30,000,000.
The Company believes that internally generated funds will provide sufficient
capital resources to finance operations, fund planned capital expenditures, pay
interest and dividends on outstanding debt and common stock, and reduce
outstanding debt.
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
The Company settled a Federal Court lawsuit initiated by a
Texas-based company. The cost of the settlement, including all legal
expenses, reduced third quarter 1994 earnings by $0.12 per share.
The settlement precludes any further action by the plaintiff.
ITEM 6 Exhibits and Reports on Form 8-K
None
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PACIFIC SCIENTIFIC COMPANY, Registrant
By: RICHARD V. PLAT
-------------------------------------
Richard V. Plat
Executive Vice President
Date: November 11, 1994
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEETS (UNAUDITED) SEP-30-1994 AND CONSOLIDATED STATEMENTS
OF INCOME (UNAUDITED) FOR NINE MONTHS SEP-30-1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR QUARTER ENDED SEP-30-1994.
</LEGEND>
<CIK> 0000075608
<NAME> PACIFIC SCIENTIFIC CO.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 2,637,000
<SECURITIES> 2,159,000
<RECEIVABLES> 41,347,000
<ALLOWANCES> 836,000
<INVENTORY> 38,861,000
<CURRENT-ASSETS> 90,264,000
<PP&E> 80,511,000
<DEPRECIATION> 49,555,000
<TOTAL-ASSETS> 170,585,000
<CURRENT-LIABILITIES> 33,090,000
<BONDS> 46,056,000
<COMMON> 5,456,000
0
0
<OTHER-SE> 82,075,000
<TOTAL-LIABILITY-AND-EQUITY> 170,585,000
<SALES> 168,613,000
<TOTAL-REVENUES> 168,951,000
<CGS> 114,357,000
<TOTAL-COSTS> 156,673,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,946,000
<INCOME-PRETAX> 10,332,000
<INCOME-TAX> 4,133,000
<INCOME-CONTINUING> 6,199,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,199,000
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
</TABLE>
