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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarter Ended April 1, 1994 Commission File No. 1-7744
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PACIFIC SCIENTIFIC COMPANY
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(Exact name of Registrant as specified in its charter)
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CALIFORNIA 94-0744970
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(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
620 Newport Center Drive, Suite 700, Newport Beach, California 92660
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (714) 720-1714
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Former address:
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(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.
5,419,635 shares
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PACIFIC SCIENTIFIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 1, 1994 AND DECEMBER 31, 1993
(In $000's)
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<CAPTION>
APRIL 1
1994 DECEMBER 31
(UNAUDITED) 1993
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ASSETS
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CURRENT ASSETS:
Cash............................................... $ 5,646 $ 2,081
Short-term investments............................. 1,961 1,962
Trade receivables (less allowance for doubtful
accounts of $729 and $668, respectively)......... 33,289 36,666
Inventories, lower of cost (principally average)
or market:
Finished goods................................... 3,939 3,914
Work-in-process.................................. 15,301 13,244
Raw materials and purchased parts................ 17,006 16,335
Deferred income taxes.............................. 3,733 3,733
Other current assets............................... 1,713 1,797
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Total Current Assets........................... 82,588 79,732
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PROPERTY AT COST:
Land and buildings................................. 9,258 9,160
Machinery and equipment............................ 67,955 65,967
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Total............................................ 77,213 75,127
Less accumulated depreciation...................... 45,768 43,677
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Net Property..................................... 31,445 31,450
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RESTRICTED CASH...................................... 6,091 6,092
NOTE RECEIVABLE...................................... 4,468 4,468
NOTES, PATENTS AND OTHER............................. 6,308 6,579
EXCESS OF COST OVER NET ASSETS ACQUIRED.............. 32,707 32,936
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TOTAL....................................... $163,607 $161,257
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Short-term borrowings.............................. $ 4,750 $ 5,250
Accounts payable................................... 12,680 14,426
Accrued employee compensation and benefits......... 4,866 4,859
Other current liabilities.......................... 7,467 6,580
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Total Current Liabilities...................... 29,763 31,115
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LONG-TERM DEBT:
Notes payable...................................... 28,625 26,625
Convertible subordinated debentures................ 17,481 17,481
DEFERRED ITEMS:
Accrued employee benefit plan liabilities.......... 3,423 3,547
Deferred income taxes.............................. 1,533 1,533
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Total Noncurrent Liabilities................... 51,062 49,186
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STOCKHOLDERS' EQUITY:
Common stock, $1 par value......................... 5,420 5,398
Additional paid-in-capital......................... 5,084 4,791
Retained earnings.................................. 72,278 70,767
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Total Stockholders' Equity..................... 82,782 80,956
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TOTAL....................................... $163,607 $161,257
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The accompanying notes to financial statements are an integral part of this
statement.
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PACIFIC SCIENTIFIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 1, 1994 AND MARCH 26, 1993
(In $000's)
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QUARTER ENDED
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APRIL 1 MARCH 26
1994 1993
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NET SALES ......................................... $51,585 $41,379
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COSTS AND EXPENSES:
Cost of sales ................................. 35,640 28,769
Selling and marketing ......................... 5,374 4,200
General and administrative .................... 5,156 4,581
Research and development ...................... 2,124 1,883
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Total Costs and Expenses ............. 48,294 39,433
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OPERATING INCOME .................................. 3,291 1,946
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Interest expense-net .............................. (642) (404)
Other income ...................................... 96 370
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Net Other Expense .................... (546) (34)
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INCOME BEFORE INCOME TAX PROVISION ................ 2,745 1,912
INCOME TAX PROVISION .............................. (1,071) (784)
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NET INCOME BEFORE ACCOUNTING CHANGE ............... 1,674 1,128
CUMULATIVE ACCOUNTING CHANGE ...................... 1,060
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NET INCOME ........................................ $ 1,674 $ 2,188
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EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE ....................... $ 0.30 $ 0.21
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE
IN METHOD OF ACCOUNTING FOR INCOME TAXES ...... 0.20
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NET INCOME PER SHARE .......................... $ 0.30 $ 0.41
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CASH DIVIDENDS PER COMMON SHARE ................... $ 0.03 $ 0.03
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</TABLE>
The accompanying notes to financial statements are an integral part of
this statement.
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PAFIFIC SCIENTIFIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 1, 1994 AND MARCH 26, 1993
(In $000's)
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<CAPTION> THREE MONTHS ENDED
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APRIL 1 MARCH 26
1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income including cumulative gain.......... $ 1,674 $ 2,188
Depreciation and amortization................. 2,817 2,303
Deferred income taxes......................... (1,842)
Decrease in accrued employee benefit
plan liabilities............................ (124) (627)
Loss on disposal of property.................. 25 11
Effect on cash of changes in assets and
liabilities net of the effects of
acquisitions and dispositions:
Trade receivables..................... 3,377 (388)
Inventories........................... (2,753) (1,959)
Other current assets.................. 84 (307)
Accounts payable...................... (1,746) (2,173)
Accrued employee compensation
and benefits........................ 7 879
Other current liabilities............. 887 666
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Net cash flows provided by (used in)
operating activities................ 4,248 (1,249)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property.......................... (2,337) (1,343)
Net decrease (increase) in short-term
investments................................. 1 (2,898)
Net decrease in restricted cash and other
assets...................................... 1 765
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Net cash flows used in investing
activities................................ (2,335) (3,476)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (repayments) issuance......... (500) 900
Issuance of long-term debt.................... 2,000 1,500
Net issuances of common stock................. 315 30
Cash dividends on common stock................ (163) (160)
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Net cash flows provided by financing
activities................................ 1,652 2,270
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NET INCREASE (DECREASE) IN CASH................. 3,565 (2,455)
BEGINNING CASH.................................. 2,081 4,567
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ENDING CASH..................................... $ 5,646 $ 2,112
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The accompanying notes to financial statements are an integral part of
this statement.
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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 April 1, 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 of the financial
statements of the Company.
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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.
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FOR THE THREE MONTHS ENDED
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April 1, March 26,
1994 1993
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AVERAGE NUMBER OF
SHARES OUTSTANDING 5,407,747 5,339,785
AVERAGE NUMBER OF
SHARES ASSUMING EXERCISE
OF DILUTIVE EMPLOYEE
STOCK OPTIONS 157,702 38,239
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COMMON AND COMMON
EQUIVALENT SHARES 5,565,449 5,378,024
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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.
5) SUBSEQUENT EVENTS
The Company acquired the business and assets of Birmingham, UK based
Royce Thompson Electric Limited, the leading UK supplier of outdoor
lighting controls for street lighting, on April 29, 1994 for
approximately $1.5 million in cash.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
QUARTERLY COMPARISON (FIRST QUARTER 1994 VS. FIRST QUARTER 1993)
Net sales were $51,585,000 in the first quarter of 1994, a 25% or $10,206,000
increase in sales over the same period in the prior year. First quarter sales
in the Electrical Equipment segment were up 29% or $8,449,000. The
acquisitions of Powertec and Automated Intelligence in the third quarter of
1993 accounted for $5,235,000 of the increase in sales of Electrical Equipment.
The sales from the Safety Equipment segment increased by 14% or $1,757,000.
The acquisition of Unidynamics/Phoenix, Inc. in April, 1993 accounted for
$2,512,000 of the increase in sales of Safety Equipment.
Gross margin on sales increased 1% in the current quarter from the prior year
reflecting control of costs and expenses. Selling, general and administrative
expenses declined from 21% of sales in 1993 to 20% in 1994 reflecting the
economics of scale associated with the higher sales base. Research and
development expenses increased in total, but declined slightly as a percent of
sales. The decline in these expenses was based on a decreasing requirement to
develop safety equipment for aircraft applications.
Income before taxes increased 44% primarily due to a 25% increase in sales and
control of operating expenses. Acquisitions made in 1993 accounted for
$309,000 of the increase in pre-tax income.
The estimated annual effective tax rate for 1994 is 39% as compared to last
year's estimate of 41% for the first quarter. The actual annual effective tax
rate for 1993 was approximately 35% reflecting principally the settlement of an
IRS examination for 1986, 1987 and 1988 and the refinement of estimates made
during the first quarter of 1993. The increase in the estimated effective tax
rate for 1994 to 39% reflects the impact of recent tax legislation and the non
deductibility of certain intangibles acquired after the first quarter of 1993.
Net income of $0.30 per share in 1994 compares to $0.21 per share before an
accounting change in the first quarter of 1993 equal to $0.20 per share.
Orders for Safety Equipment during the first quarter totaled $15,386,000 up 59%
as compared to the same quarter of the prior year. Orders for Electrical
Equipment totaled $38,807,000 up 26% as compared to the same period in the
prior year.
The backlog of orders at April 1, 1994 and March 26, 1993 was $94,832,000 and
$75,966,000, respectively. The current backlog includes $10,099,000 as a
result of the acquisition of Unidynamics/Phoenix in April 1993 and $3,927,000
as a result of the acquisitions of Powertec and Automated Intelligence during
the third quarter of fiscal 1993.
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.
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On April 29, 1994, the Company acquired the business and assets of Birmingham,
UK-based Royce Thompson Electric Limited, the leading UK supplier of outdoor
lighting controls (OLCs) for street lights. The US, the UK and Latin America
are the largest markets for OLCs on individual street lights, with other
markets tending to centralized controls of street lights. With the Company's
US-based Fisher Pierce Division and Royce Thompson, Pacific Scientific Company
should be a formidable competitive force in two of those three markets. Royce
Thompson has current sales of approximately $5 million per year. Had this
acquisition occurred at the beginning of 1993, there would have been no
material impact upon the Company's results of operations on either 1993 or in
the first quarter of 1994.
FINANCIAL POSITION AND LIQUIDITY
Debt less cash, restricted cash, and short-term investments was $37,158,000 at
the end of the first three months in 1994 as compared to the $20,909,000 in the
prior year quarter. This increase of $16,249,000 resulted principally from the
acquisition of certain businesses in 1993 and by increases in working capital
to support the growth of the Company.
Operations provided cash of $4,248,000 in the first three months of 1994 as
compared to using cash of $1,249,000 in the prior year.
This increase in cash flow from operations is primarily due to:
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Decrease in trade receivables $3,765,000
Deferred income taxes 1,842,000
Other (110,000)
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Increase in Cash Flow from Operating Activities $5,497,000
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The Company's working capital was $52,825,000 on April 1, 1994 for a current
ratio of 2.8:1. On March 26, 1993 working capital was $45,675,000.
At the end of the first quarter of 1994, the Company had unused lines of credit
of $18,750,000.
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 6 Exhibits and 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 caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PACIFIC SCIENTIFIC COMPANY, Registrant
By: /s/ Richard V. Plat
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Richard V. Plat
Executive Vice President
Date: May 13, 1994
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