<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- -----------------------------------------------------------------
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 29, 1995, or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
-------- --------
-----------------------------
Commission File Number 1-7744
-----------------------------
PACIFIC SCIENTIFIC COMPANY
(Exact name of Registrant as specified in its charter)
94-0744970
(IRS Employer ID Number)
CALIFORNIA
(State or other jurisdiction of incorporation or organization)
620 Newport Center Drive, Suite 700
Newport Beach, California
(Address of principal executive offices)
92660
(Zip Code)
714/720-1714
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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 / /
Shares outstanding of the Registrant's common stock
as of September 29, 1995
11,022,702
CLASS
Common Stock, $1.00 par value
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACIFIC SCIENTIFIC COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)
- ---------------------------------------------------------------------------
SEPTEMBER 29, SEPTEMBER 30,
1995 1994
------------- -------------
(unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash.................................... $ 3,522 $ 1,655
Short-term investments ................. 1,434 1,758
Trade receivables (less allowance
for doubtful accounts of $1,736
and $929, respectively) .............. 47,960 43,435
Inventories, lower of cost
(principally average) or market:
Finished goods ..................... 4,289 4,263
Work-in-progress ................... 14,420 11,866
Raw materials and purchased parts .. 28,275 21,151
Deferred income taxes .................. 4,085 4,205
Other current assets ................... 2,498 2,100
----------- -----------
Total Current Assets ................. 106,483 90,433
----------- -----------
PROPERTY AT COST:
Land and buildings ..................... 13,404 13,187
Machinery and equipment ................ 82,787 70,630
----------- -----------
Total Property ....................... 96,191 83,817
Less accumulated depreciation .......... 57,904 52,649
----------- -----------
Net Property ......................... 38,287 31,168
----------- -----------
RESTRICTED CASH ............................ 6,143 6,071
NOTE RECEIVABLE ............................ 851 711
PROPERTY HELD FOR SALE ..................... 3,300 3,300
NOTES, PATENTS AND OTHER ................... 8,761 8,272
EXCESS OF COST OVER NET ASSETS ACQUIRED .... 40,121 32,714
----------- -----------
TOTAL ASSETS ........................... $203,946 $172,669
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings .................. $ 4,500 $ 3,700
Accounts payable ....................... 18,606 15,826
Accrued employee compensation & benefits 6,518 5,717
Note payable for business acquisition .. 2,225 0
Other current liabilities .............. 3,916 9,904
----------- -----------
Total Current Liabilities ............ 35,765 35,147
----------- -----------
BANK BORROWING ............................. 42,009 19,400
CONVERTIBLE SUBORDINATED DEBENTURES ........ 17,246 17,286
INDUSTRIAL DEVELOPMENT BONDS ............... 5,625 5,625
OTHER LONG-TERM LIABILITIES ................ 4,531 4,073
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value ............. 11,023 10,939
Additional paid-in-capital ............. 1,367 727
Currency translation adjustment ........ (405) 0
Retained earnings ...................... 86,785 79,472
----------- -----------
Total Stockholders' Equity ........... 98,770 91,138
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................... $203,946 $172,669
=========== ===========
The accompanying notes to consolidated financial statements are an integral
part of this statement.
- 2 -
<PAGE>
PART I (Continued)
ITEM 1. FINANCIAL STATEMENTS
PACIFIC SCIENTIFIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(in thousands, except per share amounts)
- ---------------------------------------------------------------------------
QUARTER ENDED YEAR-TO-DATE
-------------------- --------------------
SEPT 29, SEPT 30, SEPT 29, SEPT 30,
1995 1994 1995 1994
--------- --------- --------- ---------
SALES:
Electrical Equipment ........ $49,043 $43,739 $150,153 $120,787
Safety Equipment............. 17,202 16,101 49,829 47,826
--------- --------- --------- ---------
Total Sales ............... 66,245 59,840 199,982 168,613
COST OF SALES ................. 43,625 40,033 134,812 114,357
--------- --------- --------- ---------
Gross Profit ................ 22,620 19,807 65,170 54,256
--------- --------- --------- ---------
EXPENSES:
Selling and marketing ....... 7,342 6,175 21,365 17,980
General and administration .. 6,404 6,123 18,579 16,852
Research and development .... 3,597 3,128 9,897 7,485
--------- --------- --------- ---------
Total Expenses ............ 17,343 15,426 49,841 42,317
--------- --------- --------- ---------
OPERATING INCOME .............. 5,277 4,381 15,329 11,939
INTEREST AND OTHER (Net) ...... (705) (470) (2,044) (1,607)
--------- --------- --------- ---------
INCOME BEFORE
INCOME TAX PROVISION .......... 4,572 3,911 13,285 10,332
INCOME TAX PROVISION .......... (1,714) (1,629) (4,982) (4,133)
--------- --------- --------- ---------
NET INCOME .................... $ 2,858 $ 2,282 $ 8,303 $ 6,199
========= ========= ========= =========
EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE ... $0.25 $0.21 $0.72 $0.56
========= ========= ========= =========
CASH DIVIDENDS PER COMMON SHARE $0.030 $0.015 $0.090 $0.045
========= ========= ========= =========
The accompanying notes to consolidated financial statements are an integral
part of this statement.
- 3 -
<PAGE>
PART I (Continued)
ITEM 1. FINANCIAL STATEMENTS
PACIFIC SCIENTIFIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
- ----------------------------------------------------------------------------
NINE MONTHS ENDED
--------------------------------
SEPTEMBER 29, SEPTEMBER 30,
1995 1994
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................... $ 8,303 $ 6,199
Depreciation and amortization ....... 8,065 8,680
Deferred income taxes ............... 120 0
Decrease in accrued employee
benefit plan liabilities .......... (1,543) (1,172)
Los on disposal of property ......... 59 190
Effect on cash of changes in assets
and liabilities, net of the effects
of business acquisition:
Trade receivables ................. (1,856) (2,925)
Inventories ....................... (6,316) (4,759)
Other current assets .............. (351) (505)
Accounts payable .................. 1,561 (280)
Accrued employee
compensation and benefits ....... 796 760
Other current liabilities ......... (3,641) 1,603
Net cash flows
from operating activities ........... 5,197 7,791
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for business acquisitions,
net of cash acquired .............. (11,949) (1,410)
Purchases of property ............... (13,051) (6,544)
Decrease (increase)
in short-term investments ......... 324 (197)
Increase in restricted
cash and other assets ............. (1,352) (160)
Net cash flows form
investing activities .............. (26,028) (8,311)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of convertible
subordinated debentures ........... (40) 0
Issuance (repayments)
of short-term debt ................ 800 (1,250)
Issuance of long-term debt .......... 22,609 1,950
Cash dividends on common stock ...... (990) (489)
Issuances of common stock ........... 724 865
Net cash flows from
financing activities .............. 23,103 1,076
EFFECT OF EXCHANGE RATE CHANGES ......... (405) 0
NET INCREASE IN CASH .................... 1,867 556
CASH, Beginning of Period ............... 1,655 2,081
CASH, End of Period ..................... $ 3,522 $ 2,637
============ ============
The accompanying notes to consolidated financial statements are an integral
part of this statement.
- 4 -
<PAGE>
PART I (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
PACIFIC SCIENTIFIC COMPANY
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.
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<PAGE>
PART I (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
PACIFIC SCIENTIFIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2) 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.
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
SEPT 29, SEPT 30, SEPT 29, SEPT 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
PRIMARY
- -------
AVERAGE NUMBER OF
SHARES OUTSTANDING 11,016,163 10,880,528 10,995,465 10,847,164
AVERAGE NUMBER
OF SHARES ASSUMING
EXERCISE OF
DILUTIVE EMPLOYEE
STOCK OPTIONS 555,357 305,900 510,714 314,488
COMMON AND COMMON
EQUIVALENT SHARES 11,571,520 11,186,428 11,506,179 11,161,652
========== ========== ========== ==========
- ----------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
SEPT 29, SEPT 30, SEPT 29, SEPT 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
FULLY DILUTED
- -------------
AVERAGE NUMBER OF
SHARES OUTSTANDING 11,016,163 10,880,528 10,995,465 10,847,164
CONVERTIBLE
DEBENTURES 908,798 ---* 909,308 ---*
AVERAGE NUMBER
OF SHARES ASSUMING
EXERCISE OF
DILUTIVE EMPLOYEE
STOCK OPTIONS 585,510 347,678 597,176 361,688
COMMON AND COMMON
EQUIVALENT SHARES 12,510,471 11,228,206 12,501,949 11,208,854
========== ========== ========== ==========
*NOTE: The Company has outstanding convertible subordinated
debentures issued April 26, 1983. Inclusion of these
debentures would be antidilutive and, accordingly, they
have been excluded from the above totals for the
periods ended September 30, 1994.
3) RECLASSIFICATIONS
Certain reclassifications have been made to the 1994
amounts to conform to the 1995 financial statement presentation.
- 6 -
<PAGE>
PART I (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRD QUARTER 1995 VS. THIRD QUARTER 1994
- -----------------------------------------
Net sales were $66,245,000 in the third quarter of 1995, an 11%
or $6,405,000 increase in sales over the same period in the prior
year. Third quarter sales in the Electrical Equipment segment
were $49,043,000, a 12% or $5,304,000 increase over the same
period of the prior year. The acquisition of Eduard Bautz GmbH
in the first quarter of 1995 accounted for $5,153,000 of the
increase in sales of the Electrical Equipment segment. Sales of
aerospace generators declined $2,200,000 during the third quarter
of 1995 compared to the same period in 1994. This decline is due
to the completion of a contract to produce generators and power
supplies for the Mark-48 weapon system. A quarterly decline in
sales was also experienced in products for the electric utility
industry. However, the Company does not believe this decline
represents a trend and continues to expect a long term growth in
this product line and all other product lines within the Electric
Equipment segment.
The sales from the Safety Equipment segment were $17,202,000, a
7% or $1,101,000 increase compared to the same period of the
prior year.
Gross margin on sales increased $2,813,000 to 34.1% of sales in
the third quarter of 1995 from 33.l% in the prior year reflecting
improved margins mainly within the Automation Technology Group.
Selling, general and administrative expenses were less than 21%
of sales in the third quarter of 1995. This was approximately
the same percentage as in the same period of the prior year.
Research and development expenses increased $469,000 or 15% in
the third quarter of 1995 over the same period in the prior year.
R&D expenses are now equal to 5.4% of sales reflecting continued
emphasis on new product development.
Interest and Other (Net) increased $235,000 in the current
quarter compared to the third quarter of 1994 due primarily to
higher borrowings resulting from acquisitions and the funding of
the startup and capital requirements of the Solium subsidiary.
The average rate of interest paid on the bank debt during the
third quarter of 1995 was 6.1%.
Income before taxes increased 17% due to an 11% increase in
sales, improvements in gross margins, and control of operating
expenses.
The estimated annual effective tax rate for 1995 is 37.5% as
compared to the prior year's effective rate of 41.7% for the
third quarter.
Net income was improved during the third quarter of 1995 by
approximately $600,000 due to acquisition of Eduard Bautz, GmbH
and reduced by an equal amount due to development, production
startup and product introduction expenses at the Solium
subsidiary. Net income of $0.25 per share in 1995 compares to
$0.21 per share in the third quarter of 1994. The 1994 earnings
reflect the 2 for 1 stock split effective December 16, 1994. In
addition to the stock split, the remaining increase in the number
of shares used in calculations of earnings per share is accounted
for by the exercise of employee stock options and the effect of
options outstanding at stock prices below the current market
price.
Total orders received in the third quarter of 1995 were
$70,254,000, up 26% from the prior year and the backlog at the
end of the quarter was $97,860,000. Orders for the Electrical
Equipment segment during the third quarter totaled $51,303,000,
up 20% while orders for the Safety Equipment segment totaled
$18,951,000, up 44% as compared to the same quarter of the prior
year. The Safety Equipment segment received several significant
orders from the manufacturers of commercial aircraft and defense
products which accounts for the increased level of bookings.
- 7 -
<PAGE>
PART I (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION (Continued)
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.
NINE MONTHS COMPARISON
FIRST NINE MONTHS 1995 VS. FIRST NINE MONTHS 1994
- -------------------------------------------------
Net sales were $199,982,000 in the first nine months of 1995, a
19% or $31,369,000 increase in sales over the same period in the
prior year. First nine months sales in the Electrical Equipment
segment were $150,153,000, a 24% or $29,366,000 increase over the
same period of the prior year. The acquisitions of Royce
Thompson Ltd. in the second quarter of 1994 and Eduard Bautz GmbH
in the first quarter of 1995 accounted for $16,659,000 of the
increase in sales of the Electrical Equipment segment. During
the nine month period, sales of aerospace generators declined
$3,400,000 due to the completion of the contract to produce
generators and power supplies for the Mark-48 weapon system.
The sales from the Safety Equipment segment were $49,829,000, a
4% or $2,003,000 increase compared to the same nine month period
of the prior year.
Gross margin on sales increased $10,914,000 to 32.6% of sales in
the first nine months of 1995 compared to 32.2% in the prior year
reflecting improved margins mainly within the Automation
Technology Group. Selling, general and administrative expenses
were less than 20% of sales the first nine months of 1995. This
is a decline from approximately 20.7% in the same period of the
prior year reflecting control of expenses and the economies of
scale associated with the higher sales base.
Research and development expenses increased $2,412,000 or 32% in
the first nine months of 1995 over the same period in the prior
year. R&D expenses are equal to 4.9% of the first nine months
sales reflecting continued emphasis on new product development.
Interest and Other (Net) increased for the first nine months of
1995 by $437,000 compared to the same period in the prior year
due primarily to higher borrowings resulting from acquisitions
and the funding of the startup and capital requirements of the
Solium subsidiary. The average rate of interest paid on bank
debt during the first nine months of 1995 was 6.9%.
Income before taxes increased 29% primarily due to a 19% increase
in sales, improved gross margins, and control of operating
expenses.
The estimated annual effective tax rate for 1995 is 37.5% as
compared to the prior year's effective rate of 40% for the first
nine months.
Net income of $0.72 per share in 1995 compares to $0.56 per share
in the first nine months of 1994. Net income was improved during
1995 by $1,800,000 due to acquisitions and reduced by
approximately $800,000 due to development, production startup and
product introduction expenses of the Solium subsidiary. The 1994
earnings reflect the 2 for 1 stock split effective December 16,
1994. In addition to the stock split, the remaining increase in
the number of shares used in calculations of earnings per share
is accounted for by the exercise of employee stock options and
the effect of options outstanding at stock prices below the
current market price.
- 8 -
<PAGE>
PART I (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION (Continued)
Orders for the Electrical Equipment segment during the first nine
months totaled $158,188,000 up 27% while total orders received in
the first nine months of 1995 total $206,901,000, up 22% from the
prior year.
Orders for the Safety Equipment segment totaled $48,714,000 up 9%
as compared to the same period of the prior year. The increase
in Safety Equipment orders is due to significant orders received
from manufacturers of commercial aircraft and defense products.
FINANCIAL POSITION AND LIQUIDITY
- --------------------------------
Debt less cash, restricted cash, and short-term investments was
$53,781,000 at the end of the first nine months in 1995 as
compared to the $35,172,000 in the same period of the prior year.
This increase of $18,609,000 resulted principally from the cost
of acquisitions, increased capital expenditures, startup and
capital equipment for the new Solium subsidiary, and increased
working capital to support the increased level of sales.
Operations provided cash of $5,197,000 in the first nine months
of 1995 as compared to $7,791,000 in the same period of the prior
year.
The decrease in cash flow from operations is primarily due to:
Decrease in other
current liabilities.......................... $(2,815,000)
Final payment due to prior owners of
High Yield Technology, acquired in 1990...... (2,429,000)
Increase in income........................... 2,104,000
Other........................................ 546,000
------------
Decrease in Cash Flow
from Operating Activities.................... $(2,594,000)
============
The Company's working capital was $70,718,000 on September 29,
1995 for a current ratio of 3.0:1. On September 30, 1994 working
capital was $57,174,000.
As of September 29, 1995, the Company had approximately
$2,128,000 of outstanding foreign exchange contracts in which
foreign currencies could be purchased, and approximately
$12,136,000 in which foreign currencies could be sold. At the
end of September, 1995, approximately 85% or approximately
$12,136,000 of outstanding foreign exchange contracts served to
hedge assets and liabilities; approximately 15% or approximately
$2,128,000 hedged from purchase commitments.
At the end of the third quarter of 1995, the Company had unused
lines of credit of $16,300,000.
The Company believes that internally generated funds will provide
sufficient capital resources to finance operations, fund planned
capital expenditures, and pay interest and dividends on
outstanding debt and common stock.
- 9 -<PAGE>
PART I (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION (Continued)
ACQUISITION DISCUSSIONS
- -----------------------
The Registrant is in negotiations to acquire a company which
would become part of the Electrical Equipment segment. Due to
the uncertainties of negotiations and requirement for approval of
governmental agencies, there is no assurance this acquisition
will be completed. Should the acquisition be completed, it is
expected that between 800,000 and 1,150,000 shares of the
Registrant's common stock would be issued in exchange for all the
outstanding shares of the acquired company. Currently, it is
planned that the acquisition would be accounted for as a pooling
of interests and completed before the end of FY 1995.
PART II - OTHER INFORMATION
None
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
---------------------------------------
Richard V. Plat
Executive Vice President
Date: November 10, 1995
----------------------------------------
- 10 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH (B) FORM 10-Q FOR NINE MONTHS ENDED SEPTEMBER 29, 1995.
</LEGEND>
<CIK> 0000075608
<NAME> PACIFIC SCIENTIFIC COMPANY
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1994
<PERIOD-START> DEC-31-1994
<PERIOD-END> SEP-29-1995
<EXCHANGE-RATE> 1.00
<CASH> 3,522,000
<SECURITIES> 1,434,000
<RECEIVABLES> 49,696,000
<ALLOWANCES> 1,736,000
<INVENTORY> 46,984,000
<CURRENT-ASSETS> 106,483,000
<PP&E> 96,191,000
<DEPRECIATION> 57,904,000
<TOTAL-ASSETS> 203,946,000
<CURRENT-LIABILITIES> 35,765,000
<BONDS> 64,880,000
<COMMON> 11,023,000
0
0
<OTHER-SE> 87,747,000
<TOTAL-LIABILITY-AND-EQUITY> 203,946,000
<SALES> 199,982,000
<TOTAL-REVENUES> 199,982,000
<CGS> 134,812,000
<TOTAL-COSTS> 49,841,000
<OTHER-EXPENSES> 2,044,000
<LOSS-PROVISION> 822,000
<INTEREST-EXPENSE> 3,355,000
<INCOME-PRETAX> 13,283,000
<INCOME-TAX> 4,982,000
<INCOME-CONTINUING> 8,303,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,303,000
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.71
</TABLE>
