<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 March 29, 1996, 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 March 29, 1996
12,145,451
CLASS
Common Stock, $1.00 par value
- -----------------------------------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
PACIFIC SCIENTIFIC COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)
- ---------------------------------------------------------------------------
<S> <C> <C>
MARCH 29, DECEMBER 29,
1996 1995
------------- -------------
(unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash.................................... $ 2,482 $ 6,123
Short-term investments ................. 1,443 0
Trade receivables (less allowance
for doubtful accounts of $1,209
and $1,151, respectively) ............ 53,989 52,253
Inventories, lower of cost
(principally average) or market:
Finished goods ..................... 6,981 5,102
Work-in-progress ................... 16,811 15,299
Raw materials and purchased parts .. 30,637 33,046
Deferred income taxes .................. 4,970 4,970
Other current assets ................... 2,952 2,655
----------- -----------
Total Current Assets ................. 120,265 119,448
----------- -----------
PROPERTY, AT COST:
Land and buildings ..................... 16,485 15,905
Machinery and equipment ................ 94,772 89,451
----------- -----------
Total Property ....................... 111,257 105,356
Less accumulated depreciation .......... 62,810 60,743
----------- -----------
Net Property ......................... 48,447 44,613
----------- -----------
RESTRICTED CASH ............................ 6,165 6,143
NOTE RECEIVABLE ............................ 844 844
PROPERTY HELD FOR SALE ..................... 3,300 3,300
NOTES, PATENTS AND OTHER ................... 9,184 11,029
EXCESS OF COST OVER NET ASSETS ACQUIRED .... 39,203 39,641
----------- -----------
TOTAL ASSETS ........................... $227,408 $225,018
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings .................. $ 20,024 $ 14,897
Accounts payable ....................... 19,871 19,659
Accrued employee compensation & benefits 5,723 6,841
Other current liabilities .............. 2,829 6,627
----------- -----------
Total Current Liabilities ............ 48,447 48,024
----------- -----------
BANK BORROWING ............................. 40,518 41,050
CONVERTIBLE SUBORDINATED DEBENTURES ........ 17,044 17,044
INDUSTRIAL DEVELOPMENT BONDS ............... 5,625 5,625
OTHER LONG-TERM LIABILITIES ................ 6,850 6,789
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value ............. 12,146 12,071
Additional paid-in-capital ............. 3,895 3,007
Currency translation adjustment ........ (313) (261)
Notes receivable from shareholders ..... (125) (125)
Retained earnings ...................... 93,321 91,794
----------- -----------
Total Stockholders' Equity ........... 108,924 106,486
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................... $227,408 $225,018
=========== ===========
- ---------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral
part of this statement.
</TABLE>
- 2 -
<PAGE>
PART I (Continued)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
PACIFIC SCIENTIFIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(in thousands, except per share amounts)
- ---------------------------------------------------------------------------
<S> <C> <C>
QUARTER ENDED
-----------------------
MARCH 29, MARCH 31,
1996 1995
--------- ---------
SALES:
Electrical Equipment ........................... $55,778 $53,070
Safety Equipment................................ 18,916 15,889
--------- ---------
Total Sales .................................. 74,694 68,959
COST OF SALES .................................... 50,857 46,725
--------- ---------
Gross Profit ................................... 23,837 22,234
--------- ---------
EXPENSES:
Selling and marketing .......................... 8,285 7,456
General and administration ..................... 7,403 6,406
Research and development ....................... 4,020 3,312
--------- ---------
Total Expenses ............................... 19,708 17,174
--------- ---------
OPERATING INCOME ................................. 4,129 5,060
INTEREST AND OTHER (Net) ......................... (1,079) (419)
--------- ---------
INCOME BEFORE INCOME TAX PROVISION ............... 3,050 4,641
INCOME TAX PROVISION ............................. (1,159) (1,695)
--------- ---------
NET INCOME ....................................... $ 1,891 $ 2,946
========= =========
EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE ...................... $0.15 $0.24
========= =========
CASH DIVIDENDS PER COMMON SHARE .................. $0.03 $0.03
========= =========
- ---------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral
part of this statement.
</TABLE>
- 3 -
<PAGE>
PART I (Continued)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
PACIFIC SCIENTIFIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
- ----------------------------------------------------------------------------
<S> <C> <C>
THREE MONTHS ENDED
--------------------------------
MARCH 29, MARCH 31,
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................. $ 1,891 $ 2,946
Depreciation and amortization ........... 2,555 2,819
Deferred income taxes ................... 0 582
Decrease (increase) in accrued employee
benefit plan liabilities .............. 61 (160)
Loss on disposal of property ............ 71 92
Effect on cash of changes in assets
and liabilities, net of the effects
of business acquisition in 1995:
Trade receivables ..................... (1,736) (4,585)
Inventories ........................... (982) 490
Other current assets .................. (297) (244)
Accounts payable ...................... 212 293
Accrued employee
compensation and benefits ........... (1,118) (374)
Other current liabilities ............. (3,798) 5,647
----------- -----------
Net cash flows
from operating activities ............... (3,141) 7,506
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for business acquisitions,
net of cash acquired .................. 0 (11,625)
Purchases of property ................... (5,983) (2,815)
Increase (decrease)
in short-term investments ............. (1,443) 0
Increase (decrease) in restricted
cash and other assets ................. 1,784 (246)
----------- -----------
Net cash flows from
investing activities .................. (5,642) (14,686)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of convertible
subordinated debentures ............... 0 (5)
Issuance of short-term debt ............. 5,127 359
Issuance (repayment) of long-term debt .. (532) 11,117
Cash dividends on common stock .......... (364) (330)
Issuances of common stock ............... 963 346
----------- -----------
Net cash flows from
financing activities .................. 5,194 11,487
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ............. (52) 1,209
----------- -----------
NET INCREASE (DECREASE) IN CASH ............. (3,641) 5,516
CASH, Beginning of Period ................... 6,123 1,727
----------- -----------
CASH, End of Period ......................... $ 2,482 $ 7,243
=========== ==========
- ---------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral
part of this statement.
</TABLE>
- 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.
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.
<TABLE>
<S> <C> <C>
For the Three Months Ended
--------------------------------
MARCH 29, MARCH 31,
1996 1995
------------ ------------
PRIMARY
- -------
AVERAGE NUMBER OF SHARES OUTSTANDING 12,109,683 11,956,436
AVERAGE NUMBER OF SHARES ASSUMING
EXERCISE OF DILUTIVE EMPLOYEE STOCK OPTIONS 479,073 513,896
COMMON AND COMMON EQUIVALENT SHARES 12,588,756 12,470,332
- ---------------------------------------------------------------------------
FULLY DILUTED
- -------------
AVERAGE NUMBER OF SHARES OUTSTANDING 12,109,683 11,956,436
AVERAGE NUMBER OF SHARES ASSUMING
EXERCISE OF DILUTIVE EMPLOYEE STOCK OPTIONS 446,914 518,404
COMMON AND COMMON EQUIVALENT SHARES 12,556,597 12,474,840
- ---------------------------------------------------------------------------
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.
</TABLE>
3) RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 amounts to
conform to the 1996 financial statement presentation.
- 5 -
<PAGE>
PART I (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER 1996 vs. FIRST QUARTER 1995
Net sales were $74,694,000 in the first quarter of 1996, an 8% or
$5,735,000 increase in sales over the same period in the prior
year. First quarter sales in the Electrical Equipment segment were
$55,778,000, a 5% or $2,708,000 increase over the same period of
the prior year. The sales from the Safety Equipment segment were
$18,916,000, a 19% or $3,027,000 increase compared to the same
period of the prior year.
Gross margin on sales increased $1,603,000 to 31.9% of sales in the
first quarter of 1996 from 32.2% in the prior year, reflecting
negative gross margins at the Solium start-up. Without Solium, the
gross margin would have been 32.6% of sales.
Selling, general and administrative expenses were 21% of sales in
the first quarter of 1996, compared to 20% of sales in the prior
year.
Research and development expenses increased $708,000 or 21% in the
first quarter of 1996 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 $660,000 in the current quarter
compared to the first quarter of 1995, due primarily to higher
borrowings resulting from acquisitions and the funding of the
start-up and capital requirements of the Solium subsidiary. The
average rate of interest paid on the bank debt during the first
quarter of 1996 was 6.11%.
Income before taxes decreased 34% primarily due to losses at the
Solium operation and below prior year performance at the High Yield
Technology Division (HYT) as compared to the prior year same
period.
The estimated annual effective tax rate for 1996 is 38% as compared
to the prior year's effective rate of 36.5%.
Net income per share for the first quarter of 1996 was 15 cents as
compared to 24 cents in the prior year. The start-up of the Solium
operation contributed a loss of 10 cents per share in the first
quarter of 1996 as compared to first quarter of 1995. The net
income from HYT was 5 cents per share, lower than the prior year
same period. The reduced year-to-year earnings at HYT were due to
delays in product development programs as resources were devoted to
completing and enhancing the reliability and ease of use of
products already in the field.
Total orders received in the first quarter of 1996 were
$79,091,000, up 12% from the prior year, and the backlog at the end
of the quarter was $102,663,000. Orders for the Electrical
Equipment segment during the first quarter totaled $63,350,000, up
13%, while orders for the Safety Equipment segment totaled
$15,741,000, up 6% as compared to the same quarter of the prior
year.
As reported in previous years, the Company learned in 1991 that it
did not comply with all U.S. military testing and certification
requirements for certain of its inertia reels used in military
aircraft since the 1950s. This occurred because the Company had
believed that it was supplying a completely proprietary product
and, therefore, was not subject to such certification requirements.
As a result, the delivery of certain inertia reels to the U.S. Air
Force has been suspended since mid-1991. Similar products,
however, are being purchased by the U.S. Navy under a procurement
waiver. The suspension of inertia reel deliveries has reduced
sales by $0.5 million to $1.0 million per year over the past four
years.
- 6 -
<PAGE>
PART I (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION (Continued)
FINANCIAL POSITION AND LIQUIDITY
Debt less cash, restricted cash, and short-term investments was
$53,097,000 at the end of the first three months in 1996 as
compared to $39,234,000 in the same period of the prior year. The
main reason for the increased debt is the cash required for fixed
assets, working capital and operational losses at Solium.
Net cash flow used in operating activities of $3,141,000 in the
first three months of 1996 as compared to providing cash of
$7,506,000 in the same period of the prior year. The cash used in
operations in the first quarter of 1996 includes $2,198,000
previously accrued in 1995 as a final payment for the acquisition
of Eduard Bautz GmbH. The favorable cash from operations in 1995
included the recording of an expected $5.5 million tax refund which
is expected to be received in the second quarter of 1996. The
expected tax refund is currently classified as a credit to other
current liabilities.
The Company's working capital was $71,818,000 on March 29, 1996 for
a current ratio of 2.5:1. On March 31, 1995 working capital was
$61,675,000.
As of March 29, 1996, the Company had approximately $16,885,000 of
outstanding foreign exchange contracts in which foreign currencies
could be sold. These contracts serve to hedge foreign currency
exposures.
At the end of the first quarter of 1996, the Company had unused
lines of credit of $7.3 million.
The Company believes that internally generated funds plus the
existing lines of credit will provide sufficient capital resources
to finance operations, fund planned capital expenditures, and pay
interest and dividends on outstanding debt and common stock.
DIVESTITURE DISCUSSIONS
Divestiture of the Company's drinking water quality monitoring
assets was a condition for governmental approval of the
Registrant's merger with Met One, Inc. in 1995. Sales of monitors
for drinking water quality represented less than one-half of one
percent of the Registrant's total sales in 1995. An agreement to
sell these assets was negotiated and signed subject to governmental
approval which was obtained on April 16, 1996. The sale of the
assets will not be material to the future financial performance of
the Company.
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: May 6, 1996
--------------------------------------
- 7 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED MARCH 29,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000075608
<NAME> PACIFIC SCIENTIFIC COMPANY
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-START> DEC-30-1995
<PERIOD-END> MAR-29-1996
<EXCHANGE-RATE> 1.00
<CASH> 2,482,000
<SECURITIES> 1,443,000
<RECEIVABLES> 55,198,000
<ALLOWANCES> 1,209,000
<INVENTORY> 54,429,000
<CURRENT-ASSETS> 120,265,000
<PP&E> 111,257,000
<DEPRECIATION> 62,810,000
<TOTAL-ASSETS> 227,408,000
<CURRENT-LIABILITIES> 48,447,000
<BONDS> 63,187,000
0
0
<COMMON> 12,146,000
<OTHER-SE> 96,778,000
<TOTAL-LIABILITY-AND-EQUITY> 227,408,000
<SALES> 74,694,000
<TOTAL-REVENUES> 74,694,000
<CGS> 50,857,000
<TOTAL-COSTS> 19,708,000
<OTHER-EXPENSES> 1,079,000
<LOSS-PROVISION> 134,000
<INTEREST-EXPENSE> 1,326,000
<INCOME-PRETAX> 3,050,000
<INCOME-TAX> 1,159,000
<INCOME-CONTINUING> 1,891,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,891,000
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
