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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the FISCAL YEAR ENDED DECEMBER 29, 1995
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to
__________
COMMISSION FILE NO. 1-7744
PACIFIC SCIENTIFIC COMPANY
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of incorporation or organization)
94-0744970
(I.R.S. Employer Identification No.)
620 NEWPORT CENTER DRIVE, SUITE 700
NEWPORT BEACH, CALIFORNIA 92660
(Address of Principal Executive Offices) (Zip Code)
(714) 720-1714
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
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COMMON STOCK, PAR VALUE $1.00 PER SHARE NEW YORK STOCK EXCHANGE
7-3/4% CONVERTIBLE SUBORDINATED
DEBENTURES DUE JUNE 15, 2003 NEW YORK STOCK EXCHANGE
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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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed on the basis of $22.50 per share, which was the last sale
price on the New York Stock Exchange on March 1, 1996, was $273,117,555.
As of March 1, 1996, there were 12,138,558 shares of registrant's common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Stockholders for the fiscal year ended December 29, 1995 (only
specific portions of which are incorporated by reference in Parts I and II);
definitive Proxy Statement to be filed pursuant to Regulation 14A relating to
the 1996 Annual Meeting of Stockholders (incorporated by reference in Part
III).
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PART I
ITEM 1 BUSINESS
GENERAL DESCRIPTION OF BUSINESS
Pacific Scientific Company ("Registrant" or the "Company") was incorporated in
California in 1937 as successor to a company in business since 1919. It has
used the name Pacific Scientific Company since 1923. Registrant's business is
manufacturing and selling the products of its two segments, Electrical
Equipment and Safety Equipment.
Financial information about industry segments is presented on Page 28 of the
Annual Report and is incorporated herein by reference in accordance with the
provisions of Rule 12b-23.
ELECTRICAL EQUIPMENT
The Electrical Equipment segment produces: 1) electric motors and generators
and related motion control devices such as controllers and drives, 2)
electro-mechanical and electronic controls for use mainly by electric utilities
including the controls for street and highway lighting, 3) electronic
instruments and 4) electronic ballasts for fluorescent lights. The products
are predominantly proprietary and, once designed, tend to be produced in
quantity and sold based on unique specifications. After receipt of an order,
deliveries are usually made within a relatively short period of time, ranging
from one day to several weeks. The production process typically involves the
fabrication of special components and the assembly of components produced by
other suppliers. Fabrication processes include cutting, stamping, machining,
winding, molding, soldering, welding, annealing and painting. Products are
sold both to end-users and to original equipment manufacturers.
The various operating divisions and wholly-owned subsidiaries of Registrant,
under the Electrical Equipment segment are organized as follows:
AUTOMATION TECHNOLOGY GROUP INSTRUMENTS GROUP
Motor Products Division Hiac/Royco Division
Motion Technology Division High Yield Technology, Inc.
Eduard Bautz GmbH Met One, Inc.
Powertec Industrial Corporation Pacific Scientific GmbH
Automation Intelligence, Inc. Pacific Scientific Ltd.
Wermex Corporation Pacific Scientific S.A.R.L.
Bobinas del Sur Pacific Scientific Service Corp.
FISHER PIERCE DIVISION SOLIUM INC.
Royce Thompson Ltd.
ELECTRO KINETICS DIVISION
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SAFETY EQUIPMENT
The Safety Equipment segment produces: 1) fire detection and suppression
equipment, 2) personnel safety restraints, 3) mechanical and electro-mechanical
flight control components, 4) pyrotechnics and 5) provides service for products
already delivered to customers. These products are used mainly in commercial
and military aircraft and vehicles, but are also used in a variety of other
commercial and industrial applications. In most cases, the Registrant's
products are reconfigured to meet specific customer needs. The Registrant
generally receives long-term purchase orders but also responds to spot buyers,
particularly for spare parts. Manufacturing typically involves processes such
as cutting, machining, welding, mixing, blending and sewing, with some assembly
of components produced by other suppliers. Products in this segment are sold
to end-users and original equipment manufacturers.
The various operating divisions and wholly-owned subsidiaries of Registrant,
under the Safety Equipment segment, are organized as follows:
HTL/KIN-TECH DIVISION
Pacific Scientific Ltd.
ENERGY DYNAMICS DIVISION
ACQUISITIONS
Effective December 29, 1995, the Registrant acquired Met One, Inc., a
privately-held company, in an exchange of approximately 983,000 shares of the
Registrant's common stock which had an approximate market value of $27.1
million. Met One produces instruments that detect, count and measure
contaminant particles mainly in air. The Registrant manufactures and sells a
similar product line mainly for liquid, vacuum and solids. The merger will
allow the Registrant to offer its customers a more comprehensive product line.
The merger was accounted for as a pooling of interests, and accordingly, all
prior periods have been restated as if Pacific Scientific and Met One had
always been one company. In order to obtain federal regulatory approval for
the merger, the Registrant agreed to promptly divest its drinking water quality
monitoring assets to another company. The terms of any divestiture of the
Registrant's drinking water monitoring assets is subject to approval by the
Department of Justice. The Registrant's sales of monitors for drinking water
quality represent less than one half of one percent of the Registrant's total
sales. Until the Registrant has divested its drinking water quality monitoring
assets, it will be required to operate Met One as a separate and distinct
business, except for consolidation of financial information.
On the first day of fiscal year 1995, the Registrant purchased all the
outstanding shares of Eduard Bautz GmbH, located in Weiterstadt, Germany.
Bautz is a German manufacturer of high performance motors and controls. The
acquisition was made to expand the prospects for all of the Registrant's
electric motors and related products
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throughout Europe. Europe is a strong market for brushless servo motor systems
such as the ones produced by the Registrant. The purchase price was
approximately $13,500,000 and resulted in the recognition of excess cost over
net assets of acquired businesses of $7,300,000.
SOLIUM(R) PRODUCTS
At the end of the 1995 fiscal year, the Registrant's investment in Solium
exceeded $12 million for fixed assets, working capital and operating losses. In
1996 the Registrant anticipates that it will have the production capacity to
produce at the rate of up to eight million Solium lighting products per year,
depending on the mix and types of products manufactured. To date, the
Registrant has not received orders for its Solium products which would fully
utilize such capacity. Demand for Solium products will depend on a number of
factors, including, but not limited to customer acceptance of the Solium
technology, the rate at which customers replace existing lighting products with
Solium products and the development and introduction by competitors of
alternative competing technologies.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information regarding industry segments is included on page 28 of the
Annual Report and is incorporated herein by reference in accordance with the
provisions of Rule 12b-23.
EMPLOYEES
Registrant and its subsidiaries employ 2,360 persons as of December 29, 1995.
Of these employees, 2,177 are employed in North America, none of which are
subject to collective bargaining agreements and the Registrant has never
experienced a work stoppage. Management believes that its employee
relationships are good.
RESEARCH AND DEVELOPMENT
Research and development is conducted by the Registrant at its various United
States divisions for its own account and at some locations for customers on a
contract basis. For its own account, Registrant spent $15,750,000, $11,793,000
and $9,911,000 in 1995, 1994 and 1993, respectively. Additional information
regarding Research and Development is included in Management's Discussion and
Analysis beginning on Page 19 of the Annual Report and incorporated herein by
reference in accordance with Rule 12b-23.
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MAJOR CUSTOMERS
For the fiscal year ended December 29, 1995, approximately 10% of Registrant's
sales were attributable to United States defense contracts, of which 3% were
awarded directly by the United States government and 7% through subcontracting
procedures. Virtually all defense programs are subject to curtailment or
cancellation due to the annual nature of the government appropriations and
allocations process. A material reduction in United States government
appropriations for defense programs may have an adverse effect on the
Registrant's business, depending on the specific defense programs affected by
any such reduction. Currently, the Registrant is not aware of the curtailment
or cancellation of any United States defense program, under which Registrant is
performing as either a prime contractor or subcontractor, that would have a
material adverse effect on the Registrant's business. Government contracts are
subject to termination by the government without cause, but in the event of
such termination, Registrant would ordinarily be entitled to reasonable
compensation for work completed prior to termination.
GOVERNMENT CONTRACTS
The Company's net sales under prime contracts to defense agencies of the U.S.
Government were $7,256,000 in 1995, $8,096,000 1994 and $9,471,000 in 1993.
Further information with regard to government contracts is contained in section
Major Customers above.
INTERNATIONAL SALES
International sales represented approximately 28% ($80,695,000) in 1995, 21%
($52,652,000) in 1994 and 18% ($37,102,000) in 1993 of Registrant's total
sales. In the opinion of Registrant, there is no significant risk attendant to
its foreign operations.
MARKETING AND SALES
Marketing and sales activity of the Registrant is assigned to its operating
units, groups, divisions and subsidiaries. Generally, customer-related
operations are organized by product lines or markets. Markets would be, for
example, the semiconductor industry, health sciences or users of fluid power.
Within product lines or markets, sales activities are generally organized
geographic regions. Selling is through a combination of the Registrant's own
sales personnel, sales representatives and distributors in the Americas,
Europe, Asia and the Pacific. Where appropriate, the Registrant uses
telemarketing. Advertising, direct mail, catalogs and periodic publications
support the marketing and sales effort. Trade shows are also used to highlight
the Registrant's products. A continued program of technical training is
supplied for salespersons, representatives and distributors.
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SOURCES OF RAW MATERIAL
Registrant's manufacturing operations consist primarily of fabricating and
assembling parts, components and units into finished products and then testing
the products. Raw materials, parts, components and assemblies are obtained
from independent suppliers. Except as described in the following paragraph,
the Registrant generally has not experienced any serious difficulty in
obtaining adequate supplies of required materials and services, and continues
to seek secondary sources of supply in the few cases where it relies upon a
single supplier.
Within the Safety Equipment segment, Halon 1301, the fire suppression agent
used in all aircraft fire suppression systems, contains chlorofluorocarbon, an
ozone depleting chemical. By international agreement, the production of Halon
1301 was discontinued in 1993. In anticipation of the discontinuance of Halon
1301 production, the Registrant introduced TriodideTM and developed a system
capable of recovering and recycling Halon 1301. The Registrant has been able
to maintain a level of supply for this agent that management believes is
adequate to meet near-term demands. It is expected that long-term demands will
be satisfied by Triodide. To date, Triodide has not been approved by the
United States Federal Aviation Authority or Department of Defense, which
approval process could take up to two years. In the meantime, the Registrant
is seeking approval from foreign certifying agencies for use of Triodide-based
fire suppression systems abroad.
EFFECT OF PATENTS, TRADEMARKS, LICENSES, ETC.
Registrant owns numerous United States and foreign patents expiring at various
dates to 2011. Registrant also owns a number of trademarks. Although, in the
opinion of the Registrant, these patents and trademarks have been and are
expected to be of value, the loss of any single such item or group of related
items would not have a material effect on the conduct of the existing business.
However, the granting of patents applied for concerning Solium technology could
have a significant positive impact on the future growth rate and financial
performance of the Company.
BACKLOG
The backlog of unfilled purchase orders, believed by the Registrant to be firm,
amounted to $98 million on December 29, 1995, compared with a backlog of $87
million and $93 million at the end of 1994 and 1993, respectively. Registrant
considers an unfilled purchase order to be firm when a specific delivery date
has been established by the parties. Of the backlog, approximately 80% is
expected to be shipped in the current fiscal year. The amount of the
Registrant's backlog at any time does not reflect expected revenues for any
fiscal period. Additional information concerning backlog is included in
Management's Discussion and Analysis on Page 18 of the Annual Report and is
incorporated herein by reference in accordance with the provisions of Rule
12b-23.
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ENVIRONMENTAL COMPLIANCE
In the opinion of Registrant, compliance with existing federal, state and local
provisions which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, has had no material adverse impact upon the Registrant's financial
position, capital expenditures, operating results, competitive position or
liquidity of the Registrant and its subsidiaries. The Registrant regularly
makes routine capital expenditures for environmental control facilities. For
the fiscal year ended December 29, 1995, the Registrant has not incurred any
material amount of capital expenditures for environmental control facilities,
and for future periods does not expect such capital expenditures to be material
to current operations.
Additional information concerning environmental compliance is included in
"Management's Discussion and Analysis" on Page 22 and in Note 9 on Page 37 of
the Annual Report and incorporated herein by reference in accordance with Rule
12b-23.
COMPETITION
A number of companies, some of which are significantly larger than Registrant,
manufacture products which compete directly with those Registrant produces. No
single company competes with Registrant across its entire product line. The
Registrant's competitive strategy is to achieve cost and quality advantages,
offer excellent customer service, and broaden the markets in which its core
competence can be applied. Competition by major product line is as follows:
Electrical Equipment
Electric Motors and Generators
The Registrant's five industrial and commercial motor lines are primarily sold
for industrial applications with some motors being used in consumer products.
The market for permanent magnet brush-type DC motors is extremely fragmented
and none of the three main domestic competitors, Baldor Electric Co., Magnetek,
Inc. and Leeson Electric Corporation, has a dominant market share. The
emerging market for brushless DC servo motors, drives and controls has many
competitors vying for market share in industrial markets, although Registrant
believes it has the highest share of the U.S. market (excluding the machine
tool area, in which it does not compete). Major competitors in the brushless
DC motor market area include Reliance Electric Co., a part of Rockwell
International Corporation, Kollmorgen Corporation, Indramat, a division of
Rexroth Corporation and Yasakawa Electric America, Inc. The Registrant knows
of no competitor that offers a product similar to its Powertec line of
high-horsepower variable-speed brushless DC motors and drives. In stepper
drives and motors, there are many competitors, with the three largest being
Superior Electric Co., a division of Dana Corporation, Oriental Motors USA
Corporation and Compumotor, a division of Parker-Hannifin Corporation. The
Registrant has a major share of the market for low inertia motors used in
applications requiring very fast starting and stopping. The generator product
line, for use mainly in aircraft and missiles, has several significant domestic
competitors making air cooled generators with output of up to 50kw.
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Motion Controls
Motion technology products (control products and drives) are mainly sold in
conjunction with Registrant's brushless servo and stepper motor products and
they, therefore, have similar competitors. The major competitor in multi-axis
system control is Allen- Bradley Company, Inc., a subsidiary of Rockwell
International Corporation.
Products for Electrical Utilities
The Registrant and at least four major competitors account for virtually all of
the United States market for outdoor lighting controls. However, Registrant
has a major share of the United States market for controls used in street and
highway lighting. A major share of the market for capacitor controls is also
held by the Registrant. Lesser shares are held in the markets for fault
indicators and the Registrant's line of metering devices. No single competitor
has a product line offering similar to Registrant's.
Particle Monitoring Instruments
In particle monitoring, Registrant has a leading market position for sensing
particulate contamination in liquid, air and vacuum environments. There are at
least six direct global competitors for particle monitoring. The major U.S.
competitor is PMS, Inc. Registrant is the only supplier of the Optical
Production Profiler, a non-destructive quality assurance system that images
defects within silicon wafers.
Solium Ballast
The Registrant has applied for a patent on its Solium dimming technology (a
two-wire system) and, therefore, there are no competitors with this specific
technology. Using other technology, (generally, a four-wire system) there are
manufacturers of dimming ballast for conventional fluorescent lighting,
including Motorola, Inc. and Advanced Transformer Co., a subsidiary of Philips
Electronics N.V. and Lutron Electronics Co., Inc. In addition to the dimming
capability, the Solium technology offers other important advantages, on which
the Registrant has applied for patents. The Registrant has also applied for a
patent on the integral dimming of screw-in compact fluorescent lamps.
Safety Equipment
Fire Detection, Suppression and Restraints
Registrant has a leading position in the aircraft market for its aircraft fire
suppression product line. There is one significant domestic competitor in the
fire suppression product line, Walter Kidde, Inc., with three other competitors
sharing a smaller portion of the market. There are at least five other
competitors for fire detection equipment sold to the aerospace and military
vehicle markets with the leader being Santa Barbara Research, a division of
Hughes Aircraft Co. Registrant's ballistic and inertia reels, which are used
mainly in aircraft for the safety restraint of the crews, has, at minimum, two
major competitors in the United States and two in Europe. However, Registrant
has maintained a significant share of this market. For passenger lap belts,
the Registrant's major competitor is Am-Safe Inc. There are two principal
competitors for the cable tension regulator, the Registrant's principal flight
control component.
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Pyrotechnics
The pyrotechnic product line addresses multiple niches within the domestic
aerospace and commercial oil well marketplace, and the Registrant has at least
two competitors in each segment. Among its largest competitors are OEA, Inc.
and Special Devices, Inc.
ITEM 2 PROPERTIES
The Registrant's executive offices are located in leased office space in
Southern California. The Registrant also leases office space and facilities
related to product development, domestic marketing and sales and production in
various locations throughout the U.S. The Registrant's foreign subsidiaries
lease office space for their operations. International production is performed
in leased facilities in England and Germany.
The Registrant owns substantially all equipment used in its facilities.
Management believes all manufacturing facilities and manufacturing equipment
are adequate, with minor changes and additions, for conducting operations as
presently contemplated. To the extent the above referenced leases expire and
are not renewed, Registrant believes it has the ability to acquire adequate
space for conducting its operations.
ITEM 3 LEGAL PROCEEDINGS
There are no material legal, administrative or judicial proceedings to which
the Registrant or any of its subsidiaries is a party or of which any of their
property is the subject.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of 1995.
Executive Officers
Information regarding the Company's executive officers appears below:
Edgar S. Brower (65) Chairman of the Board of Directors (since
1990), President, Chief Executive Officer and
Director (since 1985)
Richard V. Plat (66) Executive Vice President (since 1994) and
Secretary (since 1977)
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Steven L. Breitzka (38) Corporate Vice President (since 1992) and
President, Fisher Pierce Division (since
1994)
Robert L. Day (64) Corporate Vice President and President,
Energy Dynamics Division (since 1993)
William T. Fejes, Jr. (39) Corporate Vice President (since 1994) and
President, Automation Technology Group (since
1995)
Richard G. Knoblock (55) Corporate Vice President (since 1989),
President, Electro Kinetics Division (since
1988) and President, HTL/Kin-Tech Division
(since 1994)
Joseph R. Monkowski (41) Corporate Vice President and President,
Instruments Group (since 1994)
Ronald B. Nelson (56) Corporate Vice President and President, Motor
Products Division (since 1990)
John M. Ossenmacher (36) Corporate Vice President (since 1993) and
President, Solium Inc. (since 1994)
William L. Nothwang (58) Controller and Assistant Secretary (since
1978)
Peer A. Swan (51) Treasurer (since 1982)
No executive officer of the Registrant is related to any other executive
officer of the Registrant. All executive officers of the Registrant serve at
the discretion of the Board of Directors. No understanding or arrangement
exists between any executive officer and any other person pursuant to which he
was chosen as an officer.
Mr. Brower was elected Chairman of the Board of Directors of the Registrant in
1990. He was hired as President and Chief Operating Officer in 1985 and was
named Chief Executive Officer later that year.
Mr. Plat was hired as Vice President of Finance and Administration and
Secretary in 1977 and was promoted to Senior Vice President in 1983 and
Executive Vice President in 1994.
Mr. Breitzka joined Pacific Scientific Company in 1982. He was promoted in
1992 to Corporate Vice President and President of the HTL/Kin-Tech Division
and, in 1994, he was appointed President of the Fisher Pierce Division.
Mr. Day was promoted in 1993 to Corporate Vice President and President of the
newly formed Energy Dynamics Division. Previously, Mr. Day was General Manager
of the Company's Energy Systems Division. With the acquisition of
Unidynamics/Phoenix, Inc. and its subsequent merger into the Energy Systems
product lines, the Energy Dynamics Division was formed. Mr. Day has held
various management positions within Pacific Scientific Company since 1981.
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Mr. Fejes was promoted in 1995 to Corporate Senior Vice President and President
of the newly formed Automation Technology Group. Mr. Fejes was promoted to
Corporate Vice President and President of the Motion Technology Division in
1994. He has held various management positions with the Company since 1981,
except for a brief period in 1985 when he was Product Development Manager for
EG&G Torque Systems.
Mr. Knoblock joined the Company in 1988 as President of the Electro-Kinetics
Division and was promoted in 1989 to Corporate Vice President. In 1994, Mr.
Knoblock was appointed President of the HTL/Kin-Tech Division and will also
continue as President of the Electro-Kinetics Division.
Dr. Monkowski was hired in 1994 as Corporate Vice President and President of
the Instruments Group. From 1985 to 1994, he was associated with Photon
Dynamics, Inc., Lam Research Corporation, Monkowski-Rhine Inc. and Schumacher
Company. In these companies, he held various management positions including
Division President, Executive Vice President, Chief Technical Officer and Vice
President of Research and Development.
Mr. Nelson was hired in 1990 as Corporate Vice President and President of the
Motor Products Division. He was General Manager of the Motor Division of
Barber Colman Co. from 1982 to 1990.
Mr. Ossenmacher joined the Company in 1992 as Product Line Director for the
HTL/Kin-Tech Division. In 1993, he was promoted to Corporate Vice President
and President of the Fisher Pierce Division. In 1994, Mr. Ossenmacher was
named President of the newly established subsidiary, Solium Inc. Previously,
he was with Parker-Hannifin Corporation, where he held various management
positions since 1981.
Mr. Nothwang was hired as Corporate Controller in 1978 and later appointed
Assistant Secretary.
Mr. Swan was hired in 1977 as Assistant Treasurer and promoted to Treasurer in
1982.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The text and tabular presentations appearing under the captions "Dividends and
Quarterly Information" beginning on Page 38 of the Annual Report are
incorporated herein by reference in accordance with the provisions of Rule
12b-23. At the end of fiscal 1995, there were 1,508 stockholders of record. The
total number of beneficial holders of Registrant's common stock is estimated at
approximately 8,500. Registrant's common stock is traded on the New York,
Midwest and Pacific Stock Exchanges. See note 2 of the Registrant's notes to
consolidated financial statements for information concerning restrictions on the
aggregate amount of common stock dividends payable and the repurchase of the
registrant's common stock.
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ITEM 6 SELECTED FINANCIAL DATA
The material appearing under the caption "Five Year Financial Summary" on Page
17 of the Annual Report is incorporated herein by reference in accordance with
the provisions of Rule 12b-23. See note 6 of the Registrant's notes to
consolidated financial statements concerning business acquisitions.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The text under the caption "Management's Discussion and Analysis" appearing on
Pages 18 through 22 of the Annual Report is incorporated herein by reference in
accordance with the provisions of Rule 12b-23.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements for the fiscal years ended December 29, 1995,
December 30, 1994 and December 31, 1993 appearing on Pages 24 through 38; the
Independent Auditors' Report appearing on Page 23; and Management's Report
appearing on Page 16 of the Annual Report are incorporated herein by reference
in accordance with the provisions of Rule 12b-23.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Registrant has not had disagreements with, nor has the Registrant changed,
independent accountants during the past two years.
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PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors and all persons nominated or
chosen to become directors, as well as information regarding compliance with
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") by
the directors, officers and beneficial owners of more than 10% of any class of
equity securities of the Registrant, is incorporated by reference from
Registrant's definitive proxy statement to be filed by Registrant with the
Commission pursuant to Regulation 14A of the Exchange Act no later than 120
days after the end of Registrant's fiscal year ended December 29, 1995.
The information regarding executive officers is included in this report
following Item 4, under the caption "Executive Officers."
ITEM 11 EXECUTIVE COMPENSATION
The information with respect to executive compensation is incorporated by
reference from Registrant's definitive proxy statement to be filed by
Registrant with the Commission pursuant to Regulation 14A no later than 120
days after the end of Registrant's fiscal year ended December 29, 1995.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information with respect to security ownership of certain beneficial owners
and management is incorporated by reference from Registrant's definitive proxy
statement to be filed by Registrant with the Commission pursuant to Regulation
14A no later than 120 days after the end of Registrant's fiscal year ended
December 29, 1995.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information with respect to security ownership of certain beneficial owners
and management is incorporated by reference from Registrant's definitive proxy
statement to be filed by Registrant with the Commission pursuant to Regulation
14A no later than 120 days after the end of Registrant's fiscal year ended
December 29, 1995.
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PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of the Report:
1 FINANCIAL STATEMENTS
Consolidated Financial Statements for the fiscal years ended December
29, 1995, December 30, 1994 and December 31, 1993 appearing on Pages 24
through 38; the Independent Auditors' Report appearing on Page 23 and
Management's Report appearing on Page 16 of the Annual Report are
incorporated herein by reference in accordance with the provisions of
Rule 12b-23. With the exception of the pages referred to in the
preceding sentence and other information specifically incorporated by
reference in this Form 10-K, the Annual Report is not to be deemed filed
as part of this report.
2 FINANCIAL STATEMENT SCHEDULE
Included in 14(a)1 above.
3 EXHIBITS
3.0 Restated Articles of Incorporation, as amended. Incorporated by
reference to Registrant's Quarterly Report on Form 10-Q for
period ending June 30, 1995 and filed on July 28, 1995.
3.1 Bylaws, as amended.
4.0 Indenture, dated as of April 25, 1983, for Registrant's 7-3/4%
Convertible Subordinated Debentures, due 2003. Incorporated by
reference to Form S-3 (Registration Statement No. 2-82947) filed
April 8, 1983.
4.1 Registrant's Shareholders Protection Agreement, dated November
7, 1988. Incorporated by reference to Registrant's Form 8-K
filed November 22, 1988.
4.2 Amendment to Registrant's Shareholders Protection Agreement,
dated August 22, 1990. Incorporated by reference to Registrant's
Annual Report on Form 10-K filed March 28, 1991.
10.0 Indenture, dated as of October 1, 1989, for Registrant's
California Statewide Communities Development Authority
Industrial Development Revenue Bonds, due 2019. Incorporated by
reference to Registrant's Annual Report on Form 10-K filed March
28, 1990.
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10.1 Judgement of Foreclosure and Order of Sale of property at 1350
South State College Blvd., Anaheim, California. Incorporated by
reference to Registrant's Annual Report on Form 10-K filed March
17, 1995.
10.2 Registrant's 1995 Stock Option Plan.* Incorporated by reference
to Registrant's Definitive Proxy Statement filed March 16, 1995.
10.3 Directors' Retirement Plan.* Incorporated by reference to
Registrant's Annual Report on Form 10-K filed March 24, 1988.
10.4 First Amendment to Directors' Retirement Plan, dated December 8,
1994.* Incorporated by reference to Registrant's Annual Report on
Form 10-K filed March 17, 1995.
10.5 Severance Agreement by and between Registrant and Edgar S.
Brower, effective December 27, 1985.* Incorporated by reference
to Registrant's Annual Report on Form 10-K filed March 24, 1987.
10.6 Severance Agreement by and between Registrant and Richard V.
Plat, effective May 24, 1983.* Incorporated by reference to
Registrant's Annual Report on Form 10-K filed March 28, 1984.
10.7 Restricted Stock Agreement by and between Registrant and Edgar S.
Brower, effective April 23, 1986.* Incorporated by reference to
Registrant's Annual Report on Form 10-K filed March 24, 1987.
10.8 Agreement for the acquisition of certain assets of
Royce-Thompson Electric Limited, pursuant to an asset purchase
agreement dated April 29, 1994. Incorporated by reference to
Registrant's Annual Report on Form 10-K filed March 17, 1995.
10.9 Agreement for the acquisition of certain assets of Eduard Bautz
GmbH, pursuant to an asset purchase agreement dated December 31,
1994. Incorporated by reference to Registrant's Annual Report on
Form 10-K filed March 17, 1995.
10.10 Agreement and Plan of Merger dated December 29, 1995, concerning
the acquisition of Met One, Inc. Incorporated by reference to
Registrant's Form 8-K filed on February 13, 1996.
14
<PAGE> 16
10.11 Registration Rights Agreement, dated December 29, 1995.
Incorporated by reference to Registrant's Form 8-K filed on
February 13, 1996.
11.0 Computation of Primary Earnings Per Share.
11.1 Computation of Earnings Per Share Assuming Full Dilution.
13.0 Annual Report to Stockholders for the fiscal year ended December
29, 1995 (parts not incorporated by reference are not filed
herewith).
21.0 Subsidiaries of the Registrant. Incorporated by reference to
"Operational Units" appearing on Page 39 of the Annual Report.
23.0 Independent Auditors' Consent.
27.0 Financial Data Schedule.
- -------------
* Indicates management contract or compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by Registrant during the fourth quarter of
the fiscal year ended December 29, 1995.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PACIFIC SCIENTIFIC COMPANY
By /s/ Richard V. Plat March 13, 1996
-------------------------------------- --------------------------
Richard V. Plat
Executive Vice President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
/s/ Edgar S. Brower Principal Executive March 13, 1996
- -------------------------------- Officer and Director
Edgar S. Brower
/s/ Richard V. Plat Principal Financial March 13, 1996
- -------------------------------- Officer
Richard V. Plat
/s/ William L. Nothwang Controller March 13, 1996
- --------------------------------
William L. Nothwang
/s/ Walter F. Beran Director March 13, 1996
- --------------------------------
Walter F. Beran
/s/ Ralph O. Briscoe Director March 13, 1996
- --------------------------------
Ralph O. Briscoe
/s/ Ralph D. Ketchum Director March 13, 1996
- --------------------------------
Ralph D. Ketchum
/s/ William A. Preston Director March 13, 1996
- --------------------------------
William A. Preston
/s/ Millard H. Pryor, Jr. Director March 13, 1996
- --------------------------------
Millard H. Pryor, Jr.
/s/ Thomas P. Stafford Director March 13, 1996
- --------------------------------
Thomas P. Stafford
/s/ Harry W. Todd Director March 13, 1996
- --------------------------------
Harry W. Todd
</TABLE>
16
<PAGE> 18
INDEX TO EXHIBITS
3.0 Restated Articles of Incorporation, as amended. Incorporated by
reference to Registrant's Quarterly Report on Form 10-Q for period
ending June 30, 1995 and filed on July 28, 1995.
3.1 Bylaws, as amended.
4.0 Indenture, dated as of April 25, 1983, for Registrant's 7-3/4%
Convertible Subordinated Debentures, due 2003. Incorporated by
reference to Form S-3 (Registration Statement No. 2-82947) filed
April 8, 1983.
4.1 Registrant's Shareholders Protection Agreement, dated November 7,
1988. Incorporated by reference to Registrant's Form 8-K filed
November 22, 1988.
4.2 Amendment to Registrant's Shareholders Protection Agreement, dated
August 22, 1990. Incorporated by reference to Registrant's Annual
Report on Form 10-K filed March 28, 1991.
10.0 Indenture, dated as of October 1, 1989, for Registrant's California
Statewide Communities Development Authority Industrial Development
Revenue Bonds, due 2019. Incorporated by reference to Registrant's
Annual Report on Form 10-K filed March 28, 1990.
10.1 Judgement of Foreclosure and Order of Sale of property at 1350 South
State College Blvd., Anaheim, California. Incorporated by reference
to Registrant's Annual Report on Form 10-K filed March 17, 1995.
10.2 Registrant's 1995 Stock Option Plan.* Incorporated by reference to
Registrant's Definitive Proxy Statement filed March 16, 1995.
10.3 Directors' Retirement Plan.* Incorporated by reference to
Registrant's Annual Report on Form 10-K filed March 24, 1988.
10.4 First Amendment to Directors' Retirement Plan, dated December 8,
1994.* Incorporated by reference to Registrant's Annual Report
on Form 10-K filed March 17, 1995.
10.5 Severance Agreement by and between Registrant and Edgar S. Brower,
effective December 27, 1985.* Incorporated by reference to
Registrant's Annual Report on Form 10-K filed March 24, 1987.
17
<PAGE> 19
10.6 Severance Agreement by and between Registrant and Richard V. Plat,
effective May 24, 1983.* Incorporated by reference to
Registrant's Annual Report on Form 10-K filed March 28, 1984.
10.7 Restricted Stock Agreement by and between Registrant and Edgar S.
Brower, effective April 23, 1986.* Incorporated by reference to
Registrant's Annual Report on Form 10-K filed March 24, 1987.
10.8 Agreement for the acquisition of certain assets of Royce-Thompson
Electric Limited, pursuant to an asset purchase agreement dated
April 29, 1994. Incorporated by reference to Registrant's Annual
Report on Form 10-K filed March 17, 1995.
10.9 Agreement for the acquisition of certain assets of Eduard Bautz
GmbH, pursuant to an asset purchase agreement dated December 31,
1994. Incorporated by reference to Registrant's Annual Report on
Form 10-K filed March 17, 1995.
10.10 Agreement and Plan of Merger dated December 29, 1995, concerning the
acquisition of Met One, Inc. Incorporated by reference to
Registrant's Form 8-K filed on February 13, 1996.
10.11 Registration Rights Agreement, dated December 29, 1995. Incorporated
by reference to Registrant's Form 8-K filed on February 13, 1996.
11.0 Computation of Primary Earnings Per Share
11.1 Computation of Earnings Per Share Assuming Full Dilution.
13.0 Annual Report to Stockholders for the fiscal year ended December 29,
1995 (parts not incorporated by reference are not filed herewith).
21.0 Subsidiaries of the Registrant, incorporated by reference to
"Operational Units" appearing on Page 39 of the Annual Report.
23.0 Independent Auditors' Consent.
27.0 Financial Data Schedule.
- ------------
* Indicates management contract or compensatory plan or arrangement.
18
<PAGE> 1
EXHIBIT 3.1
BYLAWS
PACIFIC SCIENTIFIC COMPANY
ARTICLE I
OFFICES
Section 1 - PRINCIPAL OFFICES
The board of directors shall fix the location of the principal executive office
of the corporation at any place within or outside the State of California. If
the principal executive office is located outside this state, and the
corporation has one or more business offices in this state, the board of
directors shall fix and designate a principal business office in the State of
California.
Section 2 - OTHER OFFICES
The board of directors may at any time establish, or may designate an officer
of the corporation to establish branch or subordinate offices at any place or
places where the corporation is qualified to do business.
ARTICLE II
MEETING OF SHAREHOLDERS
Section 1 - PLACE OF MEETINGS
Meetings of shareholders shall be held at any place within or outside the State
of California designated by the board of directors. In the absence of any such
designation, shareholders' meetings shall be held at the principal executive
office of the corporation.
Section 2 - ANNUAL MEETING
The annual meeting of shareholders shall be held each year on a date and at a
time designated by the board of directors. At each annual meeting, directors
shall be elected, and any other proper business may be transacted.
Section 3 - SPECIAL MEETING
A special meeting of the shareholders may be called at any time by the board of
directors, or by the chairman of the board, or by the president, or by one or
more shareholders holding shares in the aggregate entitled to cast not less
than 10% of the votes at that meeting.
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<PAGE> 2
If a special meeting is called by any person or persons other than the board of
directors, the request shall be in writing, specifying the time of such meeting
and the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president, or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the shareholders entitled to
vote, in accordance with the provisions of Sections 4 and 5 of this Article II,
that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within
twenty (20) days after receipt of the request, the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
Section 4 - NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meeting of shareholders shall be sent or otherwise given in
accordance with Section 5 of this Article II not less than ten (10) nor more
than sixty (60) days before the date of the meeting. The notice shall specify
the place, date and hour of the meeting and (i) in the case of a special
meeting, the general nature of the business to be transacted or (ii) in the
case of the annual meeting, those matters which the board of directors, at the
time of giving the notice, intends to present for action by the shareholders.
The notice of any meeting at which directors are to be elected shall include
the name of any nominee or nominees whom, at the time of the notice, management
intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a contract
or transaction in which a director has a direct or indirect financial interest,
pursuant to Section 310 of the Corporations Code of California, (ii) an
amendment of the Articles of Incorporation, pursuant to Section 902 of that
Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of
that Code, (iv) a voluntary dissolution of the corporation, pursuant to Section
1900 of that Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of that Code, the notice shall also state the general nature of that
proposal.
2
<PAGE> 3
Section 5 - MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Notice of any meeting of shareholders shall be given either personally or by
first-class mail or telegraphic or other written communication, charges
prepaid, addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by first-class mail or telegraphic or other written
communication to the corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other
means of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices or report shall be deemed to have been duly given without
further mailing if these shall be available to the shareholder on written
demand of the shareholder at the principal executive office of the corporation
for a period of one year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the secretary, assistant secretary,
or any transfer agent of the corporation giving the notice, and shall be filed
and maintained in the minute book of the corporation.
Section 6 - QUORUM
The presence in person or by proxy of the holders of a majority of the shares
entitled to vote at any meeting of shareholders shall constitute a quorum for
the transaction of business. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave
less than a quorum, if any action taken (other than adjournment) is approved by
at least a majority of the shares required to constitute a quorum.
3
<PAGE> 4
Section 7 - ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy, but in the
absence of a quorum, no other business may be transacted at that meeting,
except as provided in Section 6 of this Article II.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at a meeting at which the adjournment is taken,
unless a new record date for the adjourned meeting is fixed, or unless the
adjournment is for more than forty-five (45) days from the date set for the
original meeting, in which case the board of directors shall set a new record
date. Notice of any such adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 4 and 5 of this Article II. At any adjourned meeting
the corporation may transact any business which might have been transacted at
the original meeting.
Section 8 - VOTING
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 11 of this Article II,
subject to the provisions of Sections 702 to 704, inclusive, of the
Corporations Code of California (relating to voting shares held by a fiduciary,
in the name of a corporation, or in joint ownership). The shareholders' vote
may be by voice vote or by ballot; provided, however, that any election for
directors must be by ballot if demanded by any shareholder before the voting
has begun. On any matter other than elections of directors, any shareholder
may vote part of the shares in favor of the proposal and refrain from voting
the remaining shares or vote them against the proposal, but, if the shareholder
fails to specify the number of shares which the shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to all shares that the shareholder is entitled
to vote. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on any matter (other
than the election of directors) shall be the act of the shareholders, unless
the vote of a greater number or voting by classes is required by California
General Corporation Law or by the Articles of Incorporation.
4
<PAGE> 5
At a shareholders' meeting at which directors are to be elected, no shareholder
shall be entitled to cumulate votes (i.e., cast for any one or more candidates
a number of votes greater than the number of the shareholder's shares) unless
the candidates' names have been placed in nomination prior to commencement of
the voting and a shareholder has given notice prior to commencement of the
voting of the shareholder's intention to cumulate votes. If any shareholder
has given such a notice, then every shareholder entitled to vote may cumulate
votes for candidates in nomination and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of
votes to which that shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among any or all of the candidates,
as shareholder thinks fit. The candidates receiving the highest number of
votes, up to the number of directors to be elected, shall be elected.
Section 9 - WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS
The transactions of any meeting of shareholders, either annual or special,
however called and notice, and wherever held, shall be as valid as though had
at a meeting duly held after regular call and notice, if a quorum, be present
either in person or by proxy, and if, either before or after the meeting, each
person entitled to vote, who was not present in person or by proxy, signs a
written waiver of notice or a consent to a holding of the meeting, or an
approval of the minutes. The waiver of notice or consent need not specify
either the business to be transacted for the purpose of any annual or special
meeting of shareholders, except that, if action is taken or proposed to be
taken for approval of any of those matters specified in the second paragraph of
Section 4 of this Article II, the waiver of notice or consent shall state the
general nature of the proposal. All such waivers, consents or approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Attendance by a person at a meeting shall also constitute a waiver of notice of
that meeting, except when the person objects, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called
or convened, and except that attendance at a meeting is not a waiver of any
right to object to the consideration of matters not included in the notice of
the meeting if that objection is expressly made at the meeting.
5
<PAGE> 6
Section 10 - SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action which may be taken at any annual or special meeting of shareholders
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take that action at a meeting at which all shares
entitled to vote thereon were present and voted. In the case of election of
directors, such a consent shall be effective only if signed by the holders of
all outstanding shares entitled to vote for the election of directors;
provided, however, that a director may be elected at any time to fill a vacancy
on the board of directors that has not been filled by directors, by the written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed with the
secretary of the corporation and shall be maintained in the corporate records.
Any shareholder giving a written consent, or the shareholder's proxy holders,
or a transferee of the shares or a personal representative of the shareholder
or their respective proxy holders, may revoke the consent by a writing received
by the secretary of the corporation before written consents of the number of
shares required to authorize the proposed action have been filed with the
secretary.
If the consents of all shareholders entitled to vote have not been solicited in
writing, and if the unanimous written consent of all such shareholders shall
not have been received, the secretary shall give prompt notice of the corporate
action approved by the shareholders without a meeting. This notice shall be
given in the manner specified in Section 5 of this Article II. In the case of
approval of (i) contracts or transactions in which a director has a direct or
indirect financial interest, pursuant to Section 310 of the Corporations Code
of California, (ii) indemnification of agents of the corporation, pursuant to
Section 317 of that Code, (iii) a reorganization of the corporation, pursuant
to Section 1201 of that Code, and (iv) a distribution in dissolution other than
in accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of that Code, the notice shall be given at least ten (10) days
before the consummation of any action authorized by that approval.
6
<PAGE> 7
Section 11 - RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING CONSENTS
For purposes of determining the shareholders entitled to notice of any meeting
or to vote or entitled to give consent to corporate action without a meeting,
the board of directors may fix, in advance, a record date which shall not be
more than sixty (60) days nor less than ten (10) days before the date of any
such meeting nor more than sixty (60) days before any such action without a
meeting, and in this event only shareholders of record on the date so fixed are
entitled to notice and to vote or to give consents, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation
after the record date, except as otherwise provided in the California General
Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business
on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give consent
to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first
written consent is given or (ii) when prior action of the board has
been taken, shall be at the close of business on the day on which the
board adopts the resolution relating to that action, or the sixtieth
(60th) day before the date of such other action, whichever is later.
Section 12 - PROXIES
Every person entitled to vote for directors or on any other matter shall have
the right to do so either in person or by one or more agents authorized by a
written proxy signed by the person and filed with the secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission, or otherwise) by the shareholder or the shareholder's attorney in
fact. A validly executed proxy which does not state that it is irrevocable
shall continue in full force and effect unless (i) revoked by the person
executing it, before the vote pursuant to that proxy, by a writing delivered to
the corporation stating that the proxy is revoked, or by a subsequent proxy
executed by, or attendance at the meeting and voting in person by, the person
executing the proxy;
7
<PAGE> 8
or (ii) written notice of the death or incapacity of the maker of that proxy is
received by the corporation before the vote pursuant to that proxy is counted;
provided, however, that no proxy shall be valid after the expiration of eleven
(11) months from the date of the proxy, unless otherwise provided in the proxy.
The revocability of a proxy that states on its face that it is irrevocable
shall be governed by the provisions of Sections 705(e) and 705(f) of the
Corporations Code of California.
Section 13 - INSPECTORS OF ELECTION
Before any meeting of shareholders, the board of directors may appoint any
persons other than nominees for office to act as inspectors of election at the
meeting or its adjournment. If no inspectors of election are so appointed, the
chairman of the meeting may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders or proxies,
the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed.
If any person appointed as inspector fails to appear or fails or refuses to
act, the chairman of the meeting may, and upon the request of any shareholder
or a shareholder's proxy shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
8
<PAGE> 9
ARTICLE III
DIRECTORS
Section 1 - POWERS
Subject to the provisions of the California General Corporation Law and any
limitations in the Articles of Incorporation and these Bylaws relating to
action required to be approved by the shareholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.
Without prejudice to these general powers, and subject to the same limitations,
the directors shall have the power to:
(a) Select and remove all officers, agents, and employees of the
corporation; prescribe any powers and duties for them that are
consistent with law, with the Articles of Incorporation, and with these
Bylaws; fix their compensation; and require from them security for
faithful service.
(b) Change the principal executive office or the principal business office
in the State of California from one location to another; cause the
corporation to be qualified to do business in any other state,
territory, dependency, or country and conduct business within or
without the State of California; and designate any place within or
without the State of California for the holding of any shareholders'
meeting, or meetings, including annual meetings.
(c) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
(d) Authorize the issuance of shares of stock of the corporation on any
lawful terms, in consideration of money paid, labor done, services
actually rendered, debts or securities canceled, or tangible or
intangible property actually received.
(e) Borrow money and incur indebtedness on behalf of the corporation, and
cause to be executed and delivered for the corporation's purposes, in
the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations, and other evidences of debt
and securities.
9
<PAGE> 10
(f) Designate a director to be chairman of the board if that office is not
filled by an officer of the Company, said chairman to exercise and
perform those powers and duties as are set forth in Article V Section 6
of these Bylaws.
Section 2 - NUMBER AND QUALIFICATION OF DIRECTORS
The number of directors of the corporation shall not be less than five (5) nor
more than eight (8). The exact number of directors shall be seven (7) until
changed, within the limits specified above by a bylaw amending this Section 2,
duly adopted by the board of directors or by the shareholders. The indefinite
number of directors may be changed, or a definite number fixed without
provision for an indefinite number, by a duly adopted amendment to the Articles
of Incorporation or by an amendment to this Bylaw duly adopted by a vote or
written consent of holders of a majority of the outstanding shares entitled to
vote; provided, however, that any such amendment reducing the fixed number or
the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting of the
shareholders, or the shares not consenting in the case of action by written
consent, are equal to more than 16-2/3 percent of the outstanding shares
entitled to vote. No amendment may change the stated maximum number of
authorized directors to a number greater than two times the stated minimum
number of directors minus one.
Section 3 - ELECTION AND TERM OF OFFICE OF DIRECTORS
Directors shall be elected at each annual meeting of the shareholders to hold
office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
Section 4 - VACANCIES
Vacancies in the board of directors may be filled by a majority of the
remaining directors, though less than a quorum, or by a sole remaining
director, except that a vacancy created by the removal of a director by the
vote or written consent of the shareholders or by court order may be filled
only by the vote of a majority of the shares entitled to vote represented at a
duly held meeting at which a quorum is present, or by the written consent of
holders of a majority of the outstanding shares entitled to vote. Each
director so elected shall hold office until the next annual meeting of the
shareholders and until a successor has been elected and qualified.
10
<PAGE> 11
A vacancy or vacancies in the board of directors shall be deemed to exist in
the event of the death, resignation, or removal of any director, or if the
board of directors by resolution declares vacant the office of a director who
has been declared of unsound mind by an order of court or convicted of a
felony, or if the authorized number of directors is increased, or if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the number of directors to be voted for at that
meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective on giving written notice to the chairman of
the board, the president, the secretary, or the board of directors, unless the
notice specifies later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
Section 5 - PLACE OF MEETINGS AND MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place within or
outside the State of California that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board shall be held at any place within or outside the
State of California that has been designated in the notice of the meeting or,
if not stated in the notice or there is no notice, at the principal executive
office of the corporation. Any meeting, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
directors participating in the meeting can hear one another, and all such
directors shall be deemed to be present in person at the meeting.
Section 6 - ANNUAL MEETING
Immediately following each annual meeting of shareholders, the board of
directors shall hold a regular meeting for the purpose of organization, any
desired election of officers, and the transaction of other business. Notice of
this meeting shall not be required.
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<PAGE> 12
Section 7 - OTHER REGULAR MEETINGS
Other regular meetings of the board of directors shall be held without call at
such time as shall from time to time be fixed by the board of directors. Such
regular meetings may be held without notice.
Section 8 - SPECIAL MEETINGS
Special meetings of the board of directors for any purpose or purposes may be
called at any time by the chairman of the board or the president or any vice
president or the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered personally
or by telephone to each director or sent by first- class mail or telegram,
charges prepaid, addressed to each director at that director's address as it is
shown on the records of the corporation. In case the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. In case the notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours before
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held at the
principal executive office of the corporation.
Section 9 - QUORUM
A majority of the authorized number of directors shall constitute a quorum for
the transaction of business, except to adjourn as provided in Section 11 of
this Article III. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Corporations Code of California (as to approval of contracts
or transactions in which a director has a direct or indirect material financial
interest), Section 311 of that Code (as to appointment of committees), and
Section 317(e) of that Code (as to indemnification of directors). A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for that meeting.
12
<PAGE> 13
Section 10 - WAIVER OF NOTICE
The transactions of any meeting of the board of directors, however called and
noticed or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice if a quorum is present and if, either before
or after the meeting, each of the directors not present signs a written waiver
of notice, a consent to holding the meeting or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents, and approvals shall be filed with the corporate records
or made a part of the minutes of the meeting. Notice of a meeting shall also
be deemed given to any director who attends the meeting without protesting
before or at its commencement, the lack of notice to that director.
Section 11 - ADJOURNMENT
A majority of the directors present, whether or not constituting a quorum, may
adjourn any meeting to another time and place.
Section 12 - NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not be given,
unless the meeting is adjourned for more than twenty-four (24) hours, in which
case notice of the time and place shall be given before the time of the
adjourned meeting, in the manner specified in Section 8 of this Article III, to
the directors who were not present at the time of the adjournment.
Section 13 - ACTION WITHOUT MEETING
Any action required or permitted to be taken by the board of directors may be
taken without a meeting, if all members of the board shall individually or
collectively consent in writing to that action. Such action by written consent
shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent or consents shall be filed with the minutes of
the proceedings of the board.
Section 14 - FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any, for
their services, and such reimbursement of expenses, as may be fixed or
determined by resolution of the board of directors. This Section 14 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee, or otherwise, and receiving
compensation for those services.
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<PAGE> 14
ARTICLE IV
COMMITTEES
Section 1 - COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the board.
The board may designate one or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
Any committee, to the extent provided in the resolution of the board, shall
have all the authority of the board, except with respect to:
(a) the approval of any action which, under the General Corporation Law of
California, also requires shareholders' approval or approval of the
outstanding shares;
(b) the filling of vacancies on the board of directors or in any committee;
(c) the fixing of compensation of the directors for serving on the board or
on any committee;
(d) the amendment or repeal of bylaws or the adoption of new bylaws;
(e) the amendment or repeal of any resolution of the board of directors
which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a rate
or in a periodic amount or within a price range determined by the board
of directors; or
(g) the appointment of any other committees of the board of directors or
the members of these committees.
Section 2 - MEETINGS AND ACTION OF COMMITTEES
Meetings and action of committees shall be governed by, and held and taken in
accordance with, the provisions of Article III of these Bylaws, Sections 5
(Place of Meetings), 7 (Regular Meetings), 8 (Special Meetings and Notice), 9
(Quorum), 10 (Waiver of Notice), 11 (Adjournment), 12 (Notice of
Adjournment), and 13 (Action Without
14
<PAGE> 15
Meeting), with such changes in the context of those bylaws as are necessary to
substitute the committee and its members for the board of directors and its
members, except that the time of regular meetings of committees may be
determined either by resolution of the board of directors or by resolution of
the committee; special meetings of committees may also be called by resolution
of the board of directors; and notice of special meetings of committees shall
also be given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
Bylaws.
ARTICLE V
OFFICERS
Section 1 - OFFICERS
The officers of the corporation shall be a president, a secretary, and a chief
financial officer. The corporation may also have, at the discretion of the
board of directors, a chairman of the board, one or more vice presidents, one
or more assistant secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article V. Any number of offices may be held by the same person.
Section 2 - ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be appointed in
accordance with the provisions of Section 3 or Section 5 of this Article V,
shall be chosen by the board of directors, and each shall serve at the pleasure
of the board, subject to the rights, if any, of an officer under any contract
of employment.
Section 3 - SUBORDINATE OFFICERS
The board of directors may appoint, and may empower the president to appoint,
such other officers as the business of the corporation may require, each of
whom shall hold office for such period, have such authority and perform such
duties as are provided in the Bylaws or as the board of directors may from time
to time determine.
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<PAGE> 16
Section 4 - REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of employment,
any officer may be removed, either with or without cause, by the board of
directors, at any regular or special meeting of the board, or except in case of
an officer chosen by the board of directors, by any officer upon whom such
power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the corporation.
Any resignation shall take effect at the date of the receipt of that notice or
at any later time specified in that notice; and, unless otherwise specified in
that notice, the acceptance of the resignation shall not be necessary to make
it effective. Any resignation is without prejudice to the rights, if any, of
the corporation under any contract to which the officer is a party.
Section 5 - VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to that office.
Section 6 - CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if present,
preside at meetings of the board of directors and exercise and perform such
other powers and duties as may be from time to time assigned to him by the
board of directors or prescribed by the Bylaws. If there is no president, the
chairman of the board shall, in addition, be the chief executive officer of the
corporation and shall have the powers and duties prescribed in Section 7 of
this Article V.
Section 7 - PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence of the
chairman of the board, or if there be none, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the board of directors or the Bylaws.
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<PAGE> 17
Section 8 - VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if any, in
order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president, and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors or the
Bylaws, and the president, or the chairman of the board.
Section 9 - SECRETARY
The secretary shall keep or cause to be kept, at the principal executive office
or such other place as the board of directors may direct, a book of minutes of
all meetings and actions of directors, committees of directors, and
shareholders, with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice given, the names of those present
at directors' meetings or committee meetings, the number of shares present or
represented at shareholders' meetings, and the proceedings.
The secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, as
determined by resolution of the board of directors, a share register, or a
duplicate share register, showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the number and date
of certificates issued for the same and the number and date of cancellation of
every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of the
shareholders and of the board of directors required by the Bylaws or by law to
be given, and he shall keep the seal of the corporation if one be adopted, in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by the Bylaws.
Section 10 - CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
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<PAGE> 18
The chief financial officer shall deposit all moneys and other valuables in the
name and to the credit of the corporation with such depositories as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have other powers and perform such other duties as may
be prescribed by the board of directors or the Bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS EMPLOYEES AND OTHER AGENTS
Section 1 - DIRECTORS
The corporation shall, to the maximum extent permitted by California law,
indemnify each of its directors against expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with any
proceeding arising by reason of the fact that any such person is or was a
director of the corporation. Expenses incurred by any director in defending
any proceedings shall be advanced by the corporation to the maximum extent
permitted by California law.
Section 2 - AGENTS
The corporation shall have the authority to the maximum extent authorized by
the Articles of Incorporation and not expressly prohibited by the California
General Corporations Code, to indemnify each of its agents (as defined below)
against expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that any such person is or was an agent of the corporation. The
corporation shall also have the authority, to the maximum extent permitted by
California law, to enter into indemnity agreements with its agents and to
advance expenses incurred by any agent of the corporation in defending any
proceeding.
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Section 3 - OTHER RIGHTS
The indemnification provided by this Article shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled under
California law, any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to be a benefit of the heirs, executors and administrators of the person.
Section 4 - INSURANCE
The corporation shall have the authority to purchase and maintain insurance on
behalf of agents of the corporation against any liability asserted against or
incurred by any agent in such capacity or arising out of the agent's status as
agent.
Section 5 - DEFINITIONS
For the purposes of this Article, an "agent" of the corporation includes any
person who is or was a director, officer, employee, or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, or other enterprise; or was a
director, officer, employee or agent of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation. For purposes of this Article, "proceeding" means any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative. For purposes of this Article, "expenses"
includes, without limitation, attorneys' fees and any expenses of establishing
a right to indemnification.
ARTICLE VII
RECORDS AND REPORTS
Section 1 - MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep at its principal executive office, or at the office
of its transfer agent or registrar, if either be appointed and as determined by
resolution of the board of directors, a record of its shareholders, giving and
names and addresses of all shareholders and the number of class of shares held
by each shareholder.
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A shareholder or shareholders of the corporation holding at least five percent
(5%) in the aggregate of the outstanding voting shares of the corporation may
(i) inspect and copy the records of shareholders' names and addresses and
shareholdings during usual business hours on five days prior written demand on
the corporation, and (ii)) obtain from the transfer agent of the corporation,
on written demand and on the tender of such transfer agent's usual charges for
such list, a list of the shareholders' names and addresses, who are entitled to
vote for the election of directors, and their shareholdings, as of the most
recent record date for which that list has been compiled or as of a date
specified by the shareholder after the date of demand. This list shall be made
available to any such
shareholder by the transfer agent on or before the later of five (5) days after
the demand is received or the date specified in the demand as the date as of
which the list is to be compiled. The record of shareholders shall also be
open to inspection on the written demand of any shareholder or holder of a
voting trust certificate, at any time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. Any inspection and copying under this
Section 1 may be made in person or by an agent or attorney of the shareholder
or holder of a voting trust certificate making the demand.
Section 2 - MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office, or if its
principal executive office is not in the State of California, at its principal
business office in this state, the original or a copy of the Bylaws as amended
to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in this state, the Secretary shall, upon the written
request of any shareholder, furnish to that shareholder a copy of the Bylaws as
amended to date.
Section 3 - MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
The accounting books and records and minutes of proceedings of the shareholders
and the board of directors and any committee or committees of the board of
directors shall be kept at such place or places designated by the board of
directors, or, in the absence of such designation, at the principal executive
office of the corporation.
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<PAGE> 21
The minutes shall be kept either in written form or any other form capable of
being converted into written form. The minutes and accounting books and
records shall be open to inspection upon the written demand of any shareholder
or holder of a voting trust certificate, at any reasonable time during usual
business hours, for a purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate. The inspection may
be made in person or by an agent or attorney, and shall include the right to
copy and make extracts. These rights of inspection shall extend to the records
of each subsidiary corporation of the corporation.
Section 4 - INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to inspect
all books, records, and documents of every kind and the physical properties of
the corporation and each of its subsidiary corporations. This inspection by a
director may be made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of documents.
Section 5 - ANNUAL REPORT TO SHAREHOLDERS
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of
the fiscal year adopted by the corporation. This report shall be sent at least
fifteen (15) days before the annual meeting of shareholders to be held during
the next fiscal year and in the manner specified in Section 5 of Article II of
these Bylaws for giving notice to shareholders of the corporation. The annual
report shall contain a balance sheet as of the end of the fiscal year and an
income statement and statement of changes in financial position for the fiscal
year, accompanied by any report of independent accountants or, if there is no
such report, the certificate of an authorized officer of the corporation that
the statements were prepared without audit from the books and records of the
corporation.
Section 6 - FINANCIAL STATEMENTS
A copy of any annual financial statement and any income statement of the
corporation for each quarterly period of each fiscal year, and any accompanying
balance sheet of the corporation as of the end of each such period, that has
been prepared by the corporation shall be kept on file in the principal
executive office of the corporation for twelve (12) months and each such
statement shall be exhibited at all reasonable times to any shareholder
demanding an examination of any such statement or a copy shall be mailed to any
such shareholder.
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<PAGE> 22
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and a balance
sheet of the corporation as of the end of that period, the chief financial
officer shall cause that statement to be prepared, if not already prepared, and
shall deliver personally or mail that statement or statements to the person
making the request within thirty (30) days after the receipt of the request.
If the corporation has not sent to the shareholders its annual report for the
last fiscal year, this report shall likewise be delivered or mailed to the
shareholder or shareholders within thirty (30) days after the request.
The corporation shall also, on the written request of any shareholder, mail to
the shareholder a copy of the last annual, semi- annual, or quarterly income
statement which it has prepared, and a balance sheet as of the end of that
period.
The quarterly income statement and balance sheets referred to in this section
shall be accompanied by the report, if any, of any independent accountants
engaged by the corporation or the certificate of an authorized officer of the
corporation that the financial statements were prepared without audit from the
books and records of the corporation.
Section 7 - ANNUAL STATEMENT OF GENERAL INFORMATION
The corporation shall, during the period commencing on January 1 and ending on
June 30 of each year, file with the Secretary of State of the State of
California, on the prescribed form, a statement setting forth the authorized
number of directors, the names and complete business or residence addresses of
all incumbent directors, the names and complete business or residence addresses
of the chief executive officer, secretary, and chief financial officer, the
street address of its principal executive office or principal business office
in this state, and the general type of business constituting the principal
business activity of the corporation, together with a designation of the agent
of the corporation for the purpose of service of process, all in compliance
with Section 1502 of the Corporations Code of California.
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ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1 - RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only shareholders of record on the
date so fixed are entitled to receive the dividend, distribution or allotment
of rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date, the record date for
determining shareholders for any such purpose shall be at the close of business
on the day on which the board adopts the applicable resolution or the sixtieth
(60th) day before the date of that action, whichever is later.
Section 2 - CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS
All checks, drafts, or other orders for payment of money, notes, or other
evidences of indebtedness, issued in the name of or payable to the corporation,
shall be signed or endorsed by such person or persons and in such manner as,
from time to time, shall be determined by resolution of the board of directors.
Section 3 - CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these Bylaws, may
authorize an officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name of and on behalf of the corporation, and
this authority may be general or confined to specific instances; and, unless so
authorized or ratified by the board of directors or within the agency power of
an officer, no officer, agent, or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or
to render it liable for any purpose or for any amount.
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Section 4 - CERTIFICATES FOR SHARES
A certificate or certificates for shares of the capital stock of the
corporation shall be issued to each shareholder when any of these shares are
fully paid, and the board of directors may authorize the issuance of
certificates or shares as partly paid provided that these certificates shall
state the amount of the consideration to be paid for them and the amount paid.
All certificates shall be signed in the name of the corporation by the chairman
of the board or vice chairman of the board or the president or vice president
and by the chief financial officer or the treasurer or any assistant treasurer
or the secretary or any assistant secretary, certifying the number of shares
and the class or series of shares owned by the shareholder. Any or all of the
signatures on the certificate may be facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
on a certificate shall have ceased to be that officer, transfer agent, or
registrar before that certificate is issued, it may be issued by the
corporation with the same effect as if that person were an officer, transfer
agent, or registrar at the date of issue.
Section 5 - LOST CERTIFICATES
Except as provided in this Section 5, no new certificates for shares shall be
issued to replace an old certificate unless the latter is surrendered to the
corporation and canceled at the same time. The board of directors may, in case
any share certificate or certificate for any other security is lost, stolen, or
destroyed, authorize the issuance of a replacement certificate on such terms
and conditions as the board may require, including provision for
indemnification of the corporation secured by a bond or other adequate security
sufficient to protect the corporation against any claim that may be made
against it, including any expense or liability, on account of the alleged loss,
theft, or destruction of the certificate or the issuance of the replacement
certificate.
Section 6 - REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, or any vice president, or any other
person authorized by resolution of the board of directors or by any of the
foregoing designated officers, is authorized to vote on behalf of the
corporation any and all shares of any other corporation or corporations,
foreign or domestic, standing in the name of the corporation. The authority
granted to these officers to vote or represent on behalf of the corporation any
and all shares held by the corporation in any other corporation or corporations
may be exercised by any of these officers in person or by any person authorized
to do so by a proxy duly executed by these officers.
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Section 7 - CONSTRUCTION AND DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the California General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
ARTICLE IX
AMENDMENTS
Section 1 - AMENDMENT BY SHAREHOLDERS
New bylaws may be adopted or these Bylaws may be amended or repealed by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the Articles of Incorporation of
the corporation set forth the number of authorized directors of the
corporation, the authorized number of directors may be changed only by an
amendment of the Articles of Incorporation.
Section 2 - AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 1 of this
Article IX, to adopt, amend, or repeal bylaws, bylaws may be adopted, amended
or repealed by the board of directors provided, however, that the board of
directors may adopt a bylaw or amendment of a bylaw changing the authorized
number of directors only for the purpose of fixing the exact number of
directors within the limits specified in the Articles of Incorporation or in
Section 2 of Article III of these Bylaws.
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<PAGE> 1
EXHIBIT 11.0
PACIFIC SCIENTIFIC COMPANY
COMPUTATION OF PRIMARY EARNINGS PER SHARE
FOR THE FISCAL YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994 AND
DECEMBER 31, 1993
(in thousands except for share and per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------------
<S> <C> <C> <C>
DATA AS TO EARNINGS:
Income before cumulative effect of
change in accounting principle $ 12,750 $ 10,261 $ 7,283
Cumulative effect of change in method
of accounting for income taxes 1,060
------------------------------------------------
Net income applicable to common
and common equivalent shares $ 12,750 $ 10,261 $ 8,343
================================================
DATA AS TO NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES:
Weighted average number of shares outstanding 11,992,473 11,851,087 11,692,614
Common equivalent shares assuming issuance
of shares represented by outstanding
employee's stock options:
Additional shares assumed to be issued less
reduction of additional shares assuming
proceeds invested in treasury stock (at
average market prices during each year) 521,275 364,326 104,972
------------------------------------------------
Average number of common and common
equivalent shares outstanding 12,513,748 12,215,413 11,797,586
================================================
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE OUTSTANDING:
Earnings before cumulative effect of
change in accounting principle $ 1.02 $ 0.84 $ 0.62
Cumulative effect of change in method
of accounting for income taxes 0.09
------------------------------------------------
Net earnings $ 1.02 $ 0.84 $ 0.71
================================================
</TABLE>
<PAGE> 1
EXHIBIT 11.1
PACIFIC SCIENTIFIC COMPANY
COMPUTATION OF EARNINGS PER SHARE ASSUMING FULL DILUTION
FOR THE FISCAL YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994
AND DECEMBER 31, 1993
(in thousands except for share and per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------------
<S> <C> <C> <C>
NET INCOME APPLICABLE TO COMMON AND
COMMON EQUIVALENT SHARES (see Exhibit 11) $ 12,750 $ 10,261 $ 8,343
Interest on 7 3/4% Convertible Subordinated
Debentures, net of tax effect 864 823 814
---------------------------------------------------
Net income applicable to common and common
equivalent shares asuming full dilution $ 13,614 $ 11,084 $ 9,157
===================================================
DATA AS TO NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES ASSUMING FULL DILUTION:
Average number of common and common equivalent
shares outstanding (see exhibit 11) 12,513,748 12,215,413 11,797,586
Additional shares of common stock resulting from
assumed conversion of 7 3/4% convertible
subordinated debentures 908,794 918,785 920,052
Excess of incremental shares assumed to be issued
under stock options (using market prices at the
end of each year) over shares used in computing
primary earnings per share (using average market
prices during each year) 78,537 203,176 195,170
---------------------------------------------------
Average number of common and common equivalent
shares outstanding assuming full dilution 13,501,079 13,337,374 12,912,808
===================================================
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE OUTSTANDING ASSUMING FULL DILUTION:
Earnings before cumulative effect of
change in accounting principle $ 0.63
Cumulative effect of change in method
of accounting for income taxes 0.08
-----------
Net earnings as computed (2) $ 0.71
===========
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE OUTSTANDING ASSUMING FULL DILUTION:
Earnings before cumulative effect of
change in accounting principle $ 1.01 $ 0.83 $ 0.61
Cumulative effect of change in method
of accounting for income taxes 0.09
---------------------------------------------------
Net earnings for Statements of Consolidated
Earnings (1) $ 1.01 $ 0.83 $ 0.70
===================================================
</TABLE>
(1) For the year ended December 29, 1995, the Company assumed the conversion of
the 7 3/4% Convertible Subordinated Debentures because the effect of such
conversion is dilutive in computing earnings per share assuming full
dilution. In 1994 and 1993, the computation of earnings per share assuming
full dilution does not assume conversion of the 7 3/4% Convertible
Subordinated Debentures because the effect would be anti-dilutive.
(2) This computation is submitted in accordance with Regulation S-K, Item
601(b)(11) although it is contrary to paragraph 40 of Accounting Principles
Board Opinion No. 15 because it produces an anti-dilutive result.
<PAGE> 1
EXHIBIT 13.0
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1995 1994 1993
================================================================================================
<S> <C> <C> <C>
SALES
Electrical Equipment $217,896,000 $180,248,000 $139,886,000
Safety Equipment 66,916,000 67,435,000 66,723,000
- ------------------------------------------------------------------------------------------------
Total $284,812,000 $247,683,000 $206,609,000
- -----------------------------------------------------------------------------------------------
EARNINGS
Income from Operations before
Income Taxes and Accounting Change $ 20,090,000 $ 16,742,000 $ 11,141,000
Income before Accounting Change 12,750,000 10,261,000 7,283,000
Accounting Change - - 1,060,000
- -----------------------------------------------------------------------------------------------
Net Income $ 12,750,000 $ 10,261,000 $ 8,343,000
- -----------------------------------------------------------------------------------------------
PER SHARE DATA (Fully Diluted)*
Income before Accounting Change $ 1.01 $ 0.83 $ 0.61
Accounting Change - - 0.09
- -----------------------------------------------------------------------------------------------
Net Income per Share $ 1.01 $ 0.83 $ 0.70
- -----------------------------------------------------------------------------------------------
AT YEAR-END
Total Assets $225,018,000 $180,635,000 $168,588,000
Stockholders' Equity $106,486,000 $ 92,773,000 $ 81,977,000
Shares Outstanding* 12,071,000 11,922,000 11,780,000
- -----------------------------------------------------------------------------------------------
STOCK PRICE*
High $ 27.38 $ 23.75 $ 11.94
Low 14.13 10.69 6.07
Close at year-end 25.00 20.25 11.07
================================================================================================
</TABLE>
* Adjusted for 1994 stock split
Sales
(Dollars in millions)
<TABLE>
<S> <C>
1993 206.6
1994 247.7
1995 284.8
</TABLE>
Earnings per Share
(Fully diluted - in dollars)
<TABLE>
<CAPTION>
Cumulative Effect
Operations of Accounting Change
<S> <C> <C>
1993 .61 .09
1994 .83
1995 1.01
</TABLE>
Stock Price
(Dollars per share)
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
High 11.94 23.75 27.38
Close 6.07 10.69 14.13
Low 11.07 20.25 25.00
</TABLE>
1
<PAGE> 2
MANAGEMENT'S REPORT
The responsibility for the integrity and objectivity of the financial data
contained in this annual report rests with the Company's management. The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and reflect management's best judgments
and estimates.
The Company maintains a system of internal accounting controls designed
to provide reasonable assurance that assets are safeguarded against loss or
unauthorized use, and that the financial records are adequate and can be relied
upon to produce financial statements in accordance with generally accepted
accounting principles. The system of internal controls consists, in part, of
organizational arrangements with clearly defined lines of responsibility and
delegation of authority to well trained and qualified people. We believe this
structure provides reasonable assurance that transactions are executed in
accordance with management's authorization. An important element of the control
environment is an ongoing quarterly internal audit program.
To assure the effective administration of a system of internal
accounting controls, we disseminate written policies and procedures and develop
an environment conducive to the effective functioning of internal controls.
These policies and procedures are structured in such a manner to foster the
highest ethical standards in the conduct of the Company's business affairs and
to comply with all laws.
The annual audit by the independent auditors provides an objective,
independent review of management's discharge of its responsibilities as they
relate to the fairness of reported operating results and financial condition.
The auditors obtain and maintain an understanding of the Company's accounting
and financial controls and conduct such tests and related procedures as they
deem necessary.
The Company has an Audit Committee of the Board of Directors, which is
composed solely of outside directors. The Audit Committee meets periodically and
privately with the independent accountants, the internal auditors and the
Company management to review accounting and financial reporting practices, the
work of the independent and internal auditors and the structure and
effectiveness of the system of internal accounting controls.
/s/ Edgar S. Brower
Edgar S. Brower
Chairman, President and
Chief Executive Officer
/s/ Richard V. Plat
Richard V. Plat
Executive Vice President
Chief Financial Officer
16
<PAGE> 3
FIVE-YEAR FINANCIAL SUMMARY
Pacific Scientific Company and Subsidiaries
<TABLE>
<CAPTION>
For the Fiscal Years Ended December 29, 1995, December 30, 1994, (in thousands except ratios, per share and employee data)
----------------------------------------------------------------
December 31, 1993, December 25, 1992 and December 27, 1991 1995 1994 1993 1992 1991
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA
Sales:
Electrical Equipment $217,896 $180,248 $139,886 $125,454 $117,387
Safety Equipment 66,916 67,435 66,723 57,854 64,451
- ----------------------------------------------------------------------------------------------------------------------------------
Total sales 284,812 247,683 206,609 183,308 181,838
Operating income from:
Electrical Equipment 21,899 18,263 8,605 9,070 5,935
Safety Equipment 7,556 6,568 8,813 5,302 4,229
Sale of product lines/division - - - - 9,225
- ----------------------------------------------------------------------------------------------------------------------------------
Total 29,455 24,831 17,418 14,372 19,389
Less:
Interest Expense 4,281 2,913 2,166 2,206 3,164
Corporate Expense (net of other income) 5,084 5,176 4,111 3,766 4,090
- ----------------------------------------------------------------------------------------------------------------------------------
Income before taxes 20,090 16,742 11,141 8,400 12,135
Taxes on income 7,340 6,481 2,798 3,069 4,434
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 12,750 10,261 8,343 5,331 7,701
- ----------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 10,448 11,949 10,768 9,122 9,164
Average number of common or
common equivalent shares outstanding* 12,514 12,215 11,798 11,673 11,651
- ----------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE*
Net sales $ 23.60 $ 20.78 $ 17.54 $ 15.72 $ 15.60
Income before accounting change (fully diluted) 1.01 .83 .61 .45 .66
Accounting change - - .09 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (fully diluted) 1.01 .83 .70 .45 .66
Dividends .12 .07 .06 .06 .02
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total assets $225,018 $180,635 $168,588 $141,614 $141,847
Net property 44,613 33,610 34,096 31,272 31,768
Long-term debt 63,719 42,936 44,840 29,206 33,980
Stockholders' equity 106,486 92,773 81,977 73,332 69,004
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Current ratio 2.5 2.3 2.2 2.3 2.4
Long-term debt-to-capitalization 37% 31% 35% 28% 33%
Employees at year-end 2,360 2,090 1,711 1,471 1,479
Net sales per employee $129,700 $127,800 $124,500 $123,800 $111,400
Sales backlog at year-end 98,265 86,809 92,771 78,641 79,585
Capital expenditures 19,302 9,561 7,882 7,887 7,698
==================================================================================================================================
</TABLE>
*Amounts adjusted to reflect a two-for-one stock split in the form of a 100%
stock dividend effective December 16, 1994.
(The above summary should be read in conjunction with the consolidated
financial statements)
17
<PAGE> 4
MANAGEMENT'S DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS
Effective December 29, 1995, the Company acquired privately-held Met One, Inc.
in exchange for approximately 983,000 shares of the Company's common stock. Met
One is a leader in the supply of instruments that detect, count and measure
contaminant particles mainly in air. The merger was accounted for as a pooling
of interests, and accordingly, all prior periods have been restated as if
Pacific Scientific and Met One had always been one company. All financial data
in this Management's Discussion and Analysis include the effects of the Met One,
Inc. merger.
The financial results for 1995 improved substantially over those for 1994
as the Company continued to focus on quality, customer service, competitiveness
and cost efficiency in both its segments -- Electrical Equipment and Safety
Equipment. The accompanying graph shows sales over the last five years for each
of these segments.
Sales in 1995 totaled $284.8 million, a 15 percent increase from the prior
year. This amount includes $21.5 million from acquisitions which occurred during
1994 and 1995 and which were accounted for as purchases. Without these
acquisitions, sales would have been up six percent. Sales in the Electrical
Equipment segment were up 21 percent in 1995, and sales in the Safety Equipment
segment were approximately equal to those of the prior year. Combined and
separate results of Pacific Scientific and Met One, during the periods preceding
the merger, are shown in Note 6 to the accompanying Consolidated Financial
Statements.
During 1995, the Company exceeded its objective of achieving 20 percent of
sales in the international market. In 1995, 28 percent of total sales were made
outside the U.S., compared to 20 percent in 1994 and 17 percent in 1993. Sales
under U.S. defense contracts (as either a prime contractor or a subcontractor)
continue to decline as a percentage of total sales. Such sales fell to 10
percent in 1995 from 15 percent and 18 percent in 1994 and 1993, respectively.
The order backlog at the end of 1995 was $98 million as compared to $87
million and $93 million at the end of 1994 and 1993, respectively. The backlog
of orders for both Electrical Equipment and Safety Equipment increased between
1994 and 1995. The Company continues to obtain large orders in competitive
situations -- the result of its demonstrated ability to rapidly produce and
deliver quality products at low prices.
Gross profit margins, as a percentage of sales, are as follows for the past
three years:
<TABLE>
<CAPTION>
1995 1994 1993
===============================================================================
<S> <C> <C> <C>
Gross profit margin 34.6% 33.4% 32.0%
- -------------------------------------------------------------------------------
</TABLE>
The improvement in gross profit margin in 1995 is attributable to
continuing gains in productivity and reductions in manufacturing costs.
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,
Sales by Market Area
(By percentage)
<TABLE>
<S> <C>
U.S. 62
International 28
Defense 10
</TABLE>
Sales of Continuing Businesses
(Dollars in millions)
<TABLE>
<CAPTION>
Electrical Safety Divested
Equipment Equipment Total Businesses
<S> <C> <C> <C> <C>
1991 109.8 64.5 174.3 7.6
1992 125.4 57.9 183.3
1993 139.9 66.7 206.6
1994 180.3 67.4 247.7
1995 217.9 66.9 284.8
</TABLE>
18
<PAGE> 5
Allocation of Sales Dollar
(In cents)
<TABLE>
<S> <C>
Wages/Salaries/Benefits 32
Material 32
Net Income 4
All Taxes 5
Depreciation &
Amortization 4
Services & Supplies 23
</TABLE>
Operating Income Before Gains
on Sale of Product Lines
(Dollars in millions)
<TABLE>
<S> <C>
1991 5.315
1992 9.287
1993 11.666
1994 18.982
1995 23.319
</TABLE>
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 Company has now learned that it can bid on future U.S.
Air Force procurements of inertia reels based on the present lack of multiple
competitors and based on the Company's demonstration of current compliance with
certain technical and procurement specifications established by the military.
The suspension of inertia reel deliveries has reduced sales by $0.5 million
to $1.0 million per year over the past four years.
Selling and marketing expenses, as a percentage of sales, are as follows
for the past three years:
<TABLE>
<CAPTION>
1995 1994 1993
===============================================================================
<S> <C> <C> <C>
Selling and marketing expense 11.2% 11.0% 10.8%
- -------------------------------------------------------------------------------
</TABLE>
Selling and marketing expenses, as a percentage of sales, increased in
1995, owing to increased marketing and advertising within the Automation
Technology Group, made up of several divisions of the Company's Electrical
Equipment segment. It is the Company's objective to fully understand the
customer's needs and to meet those needs with a high-quality product, a
competitive price and a rapid and on-schedule delivery. The Company uses direct
salespeople, licensed representatives and distributors to sell its products.
Some products are "private branded" for distribution by others. Direct
salespeople are employed in both the U.S. and Europe; the trend is toward direct
selling where this practice can be economically justified.
General and administrative expenses, as a percentage of sales, are as
follows for the past three years:
<TABLE>
<CAPTION>
1995 1994 1993
===============================================================================
<S> <C> <C> <C>
General and administrative expense 9.7% 10.0% 10.8%
- -------------------------------------------------------------------------------
</TABLE>
General and administrative expenses, as a percentage of sales, continued to
decline in 1995. Included in these expenses is the amortization of patents,
trademarks and other intangibles and the excess of cost over net assets of
acquired businesses. Such amortization amounted to $2.1 million, $1.9 million
and $1.7 million in 1995, 1994 and 1993, respectively. Excluding these noncash
amortization expenses, general and administrative expenses, as a percentage of
sales, would have been 8.9 percent, 9.2 percent and 10 percent for 1995, 1994
and 1993, respectively. The decline in the percentage is due to effective
expense control and economies of scale which spread corporate expense over a
larger sales base.
Research and development expenses, as a percentage of sales, are as follows
for the past three years:
<TABLE>
<CAPTION>
1995 1994 1993
===============================================================================
<S> <C> <C> <C>
Research and development expense 5.5% 4.8% 4.8%
- -------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 6
MANAGEMENT'S DISCUSSION & ANALYSIS
Total spending on research and development was higher in 1995 than in 1994.
Spending for research and development rose during 1995 in the Electrical
Equipment segment, primarily due to expenses in development of the Solium(R)
product line. Research and development expense amounted to 7.2 percent of sales
in Electrical Equipment and 2.4 percent of sales in Safety Equipment. The ratio
of R&D expense to sales is believed to be at the high end of the range for this
expense at similar companies for similar product lines. The Company invests
heavily in R&D because it intends to remain a leader in the technologies in
which it competes. It is the objective of the Company that 25 percent and 50
percent of current annual sales be from products developed in the past three and
five years, respectively. Revenues from R&D efforts funded by others are
included in net sales in the accompanying financial statements, and the related
expenses are included in cost of sales.
Net interest expense for the past three years is as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Net interest expense $4.3 $2.9 $2.2
- --------------------------------------------------------------------------------
</TABLE>
The increase in net interest expense in 1995 was due to higher levels of
average net borrowings in 1995, resulting primarily from the acquisition of
Eduard Bautz GmbH at the beginning of the year. At year-end, the cash investment
in Solium(R) exceeded $12 million for fixed assets, working capital and
operating losses. Average rates on bank borrowings at the end of 1995, 1994 and
1993 were 6.1 percent, 7.2 percent and 4.6 percent, respectively.
Income before income taxes and the cumulative effect of a change in
accounting principle in 1993 has been as follows for the past three years:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Income before income taxes $20.1 $16.7 $11.1
- --------------------------------------------------------------------------------
</TABLE>
Operating losses at the Solium subsidiary in 1995 were $2.7 million.
The effective income tax rate, as a percentage of pretax income, is as
follows for the past three years:
<TABLE>
<CAPTION>
1995 1994 1993
===============================================================================
<S> <C> <C> <C>
Effective income tax rate 36.5% 38.7% 34.6%
- -------------------------------------------------------------------------------
</TABLE>
The effective tax rate declined in 1995 due to the availability of certain
tax credits and benefits, including the availability of certain German tax
credits resulting from the acquisition of Eduard Bautz GmbH.
The effective tax rates were favorably impacted in 1993 by the recognition
of tax loss carryovers. The 1993 rate also benefitted from a favorable
settlement of certain items questioned by the Internal Revenue Service in
connection with a now-completed examination of the Company's federal tax returns
for 1986, 1987 and 1988.
Research and Development Expense
(Dollars in millions)
<TABLE>
<S> <C>
1991 9.6
1992 9.5
1993 9.9
1994 11.8
1995 15.8
</TABLE>
Inventory as Percentage of Sales
<TABLE>
<S> <C>
1991 16.8
1992 15.2
1993 16.9
1994 15.9
1995 18.8
</TABLE>
20
<PAGE> 7
Sales per Employee
(Dollars in thousands)
<TABLE>
<S> <C>
1991 111.4
1992 123.8
1993 124.5
1994 127.8
1995 129.7
</TABLE>
Total Assets
(Dollars in millions)
<TABLE>
<S> <C>
1991 141.9
1992 141.6
1993 168.6
1994 180.6
1995 225.0
</TABLE>
As further described in Note 4 to the financial statements, in 1993 the
Company adopted a newly issued accounting standard which changed the Company's
previous method of accounting for income taxes. This change resulted in a
nonrecurring benefit equal to $1.1 million.
The Company estimates that its effective tax rate in 1996 will be
approximately 38 percent.
Net income, before the cumulative effect of a change in accounting
principle in 1993, as a percentage of sales, is as follows for the past three
years:
<TABLE>
<CAPTION>
1995 1994 1993
===============================================================================
<S> <C> <C> <C>
Net income before cumulative effect
of change in accounting principle 4.5% 4.1% 3.5%
- -------------------------------------------------------------------------------
</TABLE>
Excluding the operating losses realized at the Solium subsidiary, the 1995
net income as a percent of sales would have exceeded the near-term goal of five
percent.
Common and common-equivalent shares used in computing primary earnings per
share increased by 2.4 percent in 1995. This increase was due to the exercise of
stock options and the dilutive effect of stock options granted but not
exercised, based on the average price of the Company's common stock traded on
the New York Stock Exchange throughout 1995. The fully diluted earnings per
share reflect the maximum extent of dilution resulting from outstanding stock
options based on the closing price of the Company's common stock traded on the
New York Stock Exchange on December 29, 1995, and the assumed conversion of the
Company's outstanding convertible debentures. Shares used for calculating fully
diluted earnings were 13,501,000 in 1995 and 12,419,000 in 1994. The difference
in shares is primarily due to the fact that the convertible debentures were
anti-dilutive in 1994 and dilutive in 1995.
Pacific Scientific had 2,360 employees at the end of 1995. Over the past
three years, sales per employee (based on the average number of employees,
including part-time employees) have been as follows:
<TABLE>
<CAPTION>
1995 1994 1993
================================================================================
<S> <C> <C> <C>
Sales per employee $129,700 $127,800 $124,500
- --------------------------------------------------------------------------------
</TABLE>
Sales per employee in 1995 increased as a result of improvements in
procedures and other actions to improve efficiency.
LIQUIDITY AND CAPITAL RESOURCES
The balance sheet of the Company remained strong at the end of 1995. The current
ratio of the Company continues to improve, as shown in the following table:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Current Assets $119.4 $94.1 $82.3
Current Liabilities $ 48.0 $40.9 $36.7
Working Capital $ 71.4 $53.2 $45.6
Current Ratio 2.5 2.3 2.2
- --------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 8
MANAGEMENT'S DISCUSSION & ANALYSIS
The Company's experience in collecting receivables from customers has been
relatively constant. At the end of 1995, average collections of accounts
receivable took 63 days compared to 57 days in 1994 and 59 days in 1993.
Inventories were $53.4 million at the end of 1995 compared to $39.3 million
at the end of 1994, an increase of 35.9 percent compared to a sales increase of
15 percent. Of the $14.1 million increase in inventory, $3.2 million was at the
new Solium subsidiary in anticipation of high volume shipments of electronic
ballasts in early 1996. Inventory turns were 3.4 times per year at the end of
1995 compared to 4.7 at the end of 1994 and 4.5 at the end of 1993.
The Company is continuing environmental remediation at one, and monitoring
at another of its former plant sites, and has been designated as potentially
responsible, along with other companies, for future remediation at five waste
disposal sites. The Company establishes reserves for such costs as are probable
and reasonably able to be estimated, and believes that the ultimate liability
incurred will not have a material adverse effect on the liquidity, operating
results or financial position of the Company. Additional information concerning
contingent liabilities for environmental matters is disclosed in Note 9 to the
accompanying Consolidated Financial Statements.
At the end of 1995, the Company had cash of $6.1 million, plus $6.1 million
of restricted cash representing the proceeds of Industrial Revenue Bonds that
the Company issued in 1989 in anticipation of building a new manufacturing
facility. Total debt at the end of 1995 -- including both short- and long-term
bank debt, convertible subordinated debt and Industrial Revenue Bonds -- totaled
$78.6 million, for a debt-less-cash balance of $66.4 million. Among the major
cash expenditures in 1995 were $11.9 million for acquisitions, $13.8 million for
capital expenditures (excluding Solium) and $12.2 million of net negative cash
flow at Solium. The ratio of long-term debt to capitalization was 37 percent at
the end of 1995 as compared to 31 percent and 35 percent at the end of 1994 and
1993, respectively.
The Company continued to invest in plant and equipment in 1995 as part of
its drive to improve productivity and make its products more competitive. During
1995, 1994 and 1993, the Company invested $13.8 million, $9.6 million and $7.9
million, respectively, excluding capital investment in the Solium subsidiary.
Total depreciation and amortization was $10.4 million in 1995, $11.9 million in
1994 and $10.8 million in 1993.
At the end of 1995, the Company had unused lines of credit of $6.5 million.
The Company believes that it has the ability to expand its existing lines of
credit and, together with internally generated funds, will have sufficient
capital to finance operations, fund planned capital expenditures and pay
interest and dividends.
22
<PAGE> 9
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Pacific Scientific Company:
We have audited the accompanying consolidated balance sheets of Pacific
Scientific Company and subsidiaries as of December 29, 1995, December 30, 1994
and December 31, 1993, and the related consolidated statements of operations,
cash flows and stockholders' equity for each of the fiscal years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Pacific Scientific Company and
subsidiaries as of December 29, 1995, December 30,1994 and December 31, 1993,
and the results of their operations and their cash flows for each of the fiscal
years then ended, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Costa Mesa, California
February 2, 1996
23
<PAGE> 10
CONSOLIDATED STATEMENTS OF OPERATIONS
Pacific Scientific Company and Subsidiaries
<TABLE>
<CAPTION>
For the Fiscal Years Ended December 29, 1995,
December 30, 1994 and December 31, 1993 1995 1994 1993
=========================================================================================================
<S> <C> <C> <C>
NET SALES $284,812,000 $247,683,000 $206,609,000
- ---------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 186,224,000 164,941,000 140,463,000
Selling and marketing 31,993,000 27,218,000 22,232,000
General and administrative 27,526,000 24,749,000 22,337,000
Research and development 15,750,000 11,793,000 9,911,000
- ---------------------------------------------------------------------------------------------------------
Total costs and expenses 261,493,000 228,701,000 194,943,000
- ---------------------------------------------------------------------------------------------------------
OPERATING INCOME 23,319,000 18,982,000 11,666,000
- ---------------------------------------------------------------------------------------------------------
OTHER EXPENSE
Interest expense - net (4,281,000) (2,913,000) (2,166,000)
Other income 1,052,000 673,000 1,641,000
- ---------------------------------------------------------------------------------------------------------
Net other expense (3,229,000) (2,240,000) (525,000)
- ---------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect
of change in accounting principle 20,090,000 16,742,000 11,141,000
Income taxes (7,340,000) (6,481,000) (3,858,000)
- ---------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in
accounting principle 12,750,000 10,261,000 7,283,000
Cumulative effect of change in accounting principle - - 1,060,000
- ---------------------------------------------------------------------------------------------------------
NET INCOME $ 12,750,000 $ 10,261,000 $ 8,343,000
=========================================================================================================
EARNINGS PER SHARE
Primary
Before accounting change $ 1.02 $ 0.84 $ 0.62
Change in method of accounting for income taxes - - 0.09
- ---------------------------------------------------------------------------------------------------------
Primary earnings per share $ 1.02 $ 0.84 $ 0.71
- ---------------------------------------------------------------------------------------------------------
Fully Diluted
Before accounting change $ 1.01 $ 0.83 $ 0.61
Change in method of accounting for income taxes - - 0.09
- ---------------------------------------------------------------------------------------------------------
Fully diluted earnings per share $ 1.01 $ 0.83 $ 0.70
=========================================================================================================
</TABLE>
(See accompanying notes to consolidated financial statements)
24
<PAGE> 11
CONSOLIDATED BALANCE SHEETS
Pacific Scientific Company and Subsidiaries
<TABLE>
<CAPTION>
As of December 29, 1995, December 30, 1994
and December 31, 1993 1995 1994 1993
====================================================================================================
<S> <C> <C> <C>
ASSETS
Current Assets
Cash $ 6,123,000 $ 1,727,000 $ 2,093,000
Trade receivables - net 52,253,000 45,864,000 38,854,000
Inventories 53,447,000 39,337,000 34,845,000
Deferred income taxes 4,970,000 4,667,000 4,178,000
Other current assets 2,655,000 2,517,000 2,295,000
- ----------------------------------------------------------------------------------------------------
Total current assets 119,448,000 94,112,000 82,265,000
Net property 44,613,000 33,610,000 34,096,000
Restricted cash 6,143,000 6,070,000 6,092,000
Note receivable 844,000 711,000 4,468,000
Property held for sale 3,300,000 3,300,000 -
Other assets - net 50,670,000 42,832,000 41,667,000
- ----------------------------------------------------------------------------------------------------
Total assets $225,018,000 $180,635,000 $168,588,000
====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 14,897,000 $ 6,150,000 $ 7,671,000
Accounts payable 19,659,000 16,543,000 15,214,000
Accrued employee
compensation and benefits 6,841,000 6,108,000 5,065,000
Other current liabilities 6,627,000 12,051,000 8,741,000
- ----------------------------------------------------------------------------------------------------
Total current liabilities 48,024,000 40,852,000 36,691,000
- ----------------------------------------------------------------------------------------------------
Bank borrowings 41,050,000 20,025,000 21,734,000
7-3/4% convertible subordinated debentures 17,044,000 17,286,000 17,481,000
Industrial development bonds 5,625,000 5,625,000 5,625,000
Other long-term liabilities 6,789,000 4,074,000 5,080,000
- ----------------------------------------------------------------------------------------------------
Stockholders' equity
Common stock, $1 par value 12,071,000 11,922,000 5,890,000
Additional paid-in capital 3,007,000 610,000 5,165,000
Cumulative translation adjustment (261,000) - -
Notes receivable from shareholders (125,000) (125,000) -
Retained earnings 91,794,000 80,366,000 70,922,000
- ----------------------------------------------------------------------------------------------------
Total stockholders' equity 106,486,000 92,773,000 81,977,000
- ----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $225,018,000 $180,635,000 $168,588,000
====================================================================================================
</TABLE>
(See accompanying notes to consolidated financial statements)
25
<PAGE> 12
CONSOLIDATED STATEMENTS OF CASH FLOWS
Pacific Scientific Company and Subsidiaries
<TABLE>
<CAPTION>
For the Fiscal Years Ended December 29, 1995,
December 30, 1994 and December 31, 1993 1995 1994 1993
====================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 12,750,000 $ 10,261,000 $ 8,343,000
Depreciation and amortization 10,448,000 11,949,000 10,768,000
Deferred income taxes 915,000 (187,000) (457,000)
Decrease in accrued employee benefit plan liabilities (504,000) (1,308,000) (1,038,000)
Loss (gain) on disposal of property (249,000) 58,000 580,000
Cumulative effect of change in accounting principle - - (1,060,000)
Effect on cash of changes in operating assets and liabilities,
net of the effects of business acquisitions and dispositions
Trade receivables (3,720,000) (6,090,000) (60,000)
Inventories (10,722,000) (3,883,000) (1,941,000)
Other current assets (91,000) (161,000) (950,000)
Accounts payable 1,897,000 223,000 118,000
Accrued employee compensation and benefits 728,000 1,044,000 715,000
Other current liabilities (5,302,000) 3,274,000 (5,453,000)
- --------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 6,150,000 15,180,000 9,565,000
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property (19,302,000) (9,561,000) (7,882,000)
Payments for business acquisitions, net of cash acquired (11,949,000) (1,461,000) (23,452,000)
Proceeds from disposition of property 638,000 360,000 254,000
Decrease in restricted cash and other assets (1,634,000) (1,994,000) (17,000)
- --------------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities (32,247,000) (12,656,000) (31,097,000)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance/repayments of long-term debt 20,783,000 (1,904,000) 15,634,000
Issuance/repayments of short-term debt 8,747,000 (1,521,000) 3,110,000
Issuances of common stock 2,304,000 1,282,000 945,000
Cash dividends on common stock (1,322,000) (817,000) (643,000)
Conversion of convertible debentures 242,000 195,000 -
Note receivable from shareholders - (125,000) -
- --------------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities 30,754,000 (2,890,000) 19,046,000
- --------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes (261,000) - -
Net increase (decrease) in cash 4,396,000 (366,000) (2,486,000)
Cash, Beginning of Year 1,727,000 2,093,000 4,579,000
- --------------------------------------------------------------------------------------------------------------------
Cash, End of Year $ 6,123,000 $ 1,727,000 $ 2,093,000
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION
Interest payments $ 4,918,000 $ 3,450,000 $ 2,867,000
Income tax payments 6,144,000 5,412,000 6,267,000
Assets acquired 6,682,000 5,103,000 29,364,000
Liabilities assumed 1,220,000 1,142,000 5,677,000
====================================================================================================================
</TABLE>
(See accompanying notes to consolidated financial statements)
26
<PAGE> 13
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Pacific Scientific Company and Subsidiaries
<TABLE>
<CAPTION>
Additional Cumulative Shareholders
For the Fiscal Years Ended December 29, 1995, Common Paid-In Translation Notes Retained
December 30, 1994 and December 31, 1993 Stock Capital Adjustment Receivable Earnings Total
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Stockholders' Equity, December 25, 1992 $ 5,832,000 $ 4,278,000 - - $63,222,000 $ 73,332,000
Net Income for the Year - - - - 8,343,000 8,343,000
Common Stock Dividends - - - - (643,000) (643,000)
Exercise of Stock Options 58,000 793,000 - - - 851,000
Amortization of Restricted Stock Award - 94,000 - - - 94,000
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity, December 31, 1993 5,890,000 5,165,000 - - 70,922,000 81,977,000
Two-for-One Stock Split 5,960,000 (5,960,000) - - - -
Net Income for the Year - - - - 10,261,000 10,261,000
Common Stock Dividends - - - - (817,000) (817,000)
Exercise of Stock Options 67,000 1,120,000 - - - 1,187,000
Conversion of Debentures 5,000 190,000 - - - 195,000
Amortization of Restricted Stock Award - 95,000 - - - 95,000
Note Receivable - Shareholder - - - $(125,000) - (125,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity, December 30, 1994 11,922,000 610,000 - (125,000) 80,366,000 92,773,000
Net Income for the Year - - - - 12,750,000 12,750,000
Common Stock Dividends - - - - (1,322,000) (1,322,000)
Exercise of Stock Options 136,000 1,965,000 - - - 2,101,000
Conversion of Debentures 13,000 229,000 - - - 242,000
Amortization of Restricted Stock Award - 55,000 - - - 55,000
Restricted Stock Benefit - 148,000 - - - 148,000
Cumulative Translation Adjustment - - $(261,000) - - (261,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity, December 29, 1995 $12,071,000 $ 3,007,000 $(261,000) $(125,000) $91,794,000 $106,486,000
===================================================================================================================================
</TABLE>
(See accompanying notes to consolidated financial statements)
27
<PAGE> 14
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Pacific Scientific Company and Subsidiaries
<TABLE>
<CAPTION>
Corporate
Electrical Safety Expense Net
(Dollars in thousands) Consolidated Equipment Equipment Net of Other Income Interest
==================================================================================================================
<S> <C> <C> <C> <C> <C>
Year Ended December 29, 1995
Net Sales $284,812 $217,896 $66,916 - -
Pretax Income 20,090 21,899 7,556 $(5,084) $(4,281)
Depreciation and Amortization 10,448 7,406 2,952 90 -
Capital Spending 19,302 15,624 2,634 1,044 -
Identifiable Assets 225,018 151,341 51,015 22,662 -
- ------------------------------------------------------------------------------------------------------------------
Year Ended December 30, 1994
Net Sales 247,683 180,248 67,435 - -
Pretax Income 16,742 18,263 6,568 (5,176) (2,913)
Depreciation and Amortization 11,949 8,069 3,751 129 -
Capital Spending(2) 9,561 6,193 3,348 20 -
Identifiable Assets(1) 180,635 118,219 46,645 15,771 -
- ------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993
Net Sales 206,609 139,886 66,723 - -
Pretax Income 11,141 8,605 8,813 (4,111) (2,166)
Depreciation and Amortization 10,768 7,445 3,188 135 -
Capital Spending 7,882 4,840 3,035 7 -
Identifiable Assets 168,588 105,825 50,203 12,560 -
==================================================================================================================
</TABLE>
(1) Identifiable assets are those used by the industry segment involved or an
allocated portion of assets used jointly by two or more segments. Intangibles
and other assets arising from acquisitions of businesses are allocated to the
related segment. General corporate assets primarily consist of cash and certain
other property.
(2) Capital spending is shown exclusive of property purchased in conjunction
with the acquisition of businesses (Note 6).
(See accompanying notes to consolidated financial statements)
28
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pacific Scientific Company and Subsidiaries
For the Fiscal Years Ended December 29, 1995, December 30, 1994 and December 31,
1993
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pacific Scientific Company and its subsidiaries (the Company) was incorporated
in California in 1937 as a successor to a company in business since 1919. The
Company's business is manufacturing and selling the products of its two
segments, Electrical Equipment and Safety Equipment.
The Electrical Equipment segment produces: 1) electric motors and
generators and related motion control devices such as controllers and drivers,
2) electro-mechanical and electronic controls for use mainly by electric
utilities including the controls for street and highway lighting, 3) electronic
instruments and 4) electronic ballasts for fluorescent lights. The products are
predominately proprietary and once designed, tend to be produced in quantity and
sold based on unique specifications. After receipt of an order, deliveries are
usually made within a relatively short period of time, ranging from one day to
several weeks. The production process typically involves fabrication of special
components and the assembly of components produced by other suppliers.
Fabrication processes include cutting, stamping, machining, winding, molding,
soldering, welding, annealing and painting. Products are sold both to end-users
and to original equipment manufacturers.
The Safety Equipment segment produces: 1) fire detection and suppression
equipment, 2) personnel safety restraints, 3) mechanical and electro-mechanical
flight control components, 4) pyrotechnics and 5) provides service for products
already delivered to customers. These products are used mainly in commercial
and military aircraft and vehicles, but are also used in a variety of other
commercial and industrial applications. In most cases, the Company's products
are reconfigured to meet specific customer needs. The Company generally receives
long-term purchase orders but also responds to spot buyers, particularly for
spare parts. Manufacturing typically involves processes such as cutting,
machining, welding, mixing, blending and sewing, with some assembly of
components produced by other suppliers. Products in this segment are sold to
end-users and original equipment manufacturers.
Accounting policies of the Company conform to generally accepted accounting
principles and are summarized below for the convenience of financial statement
readers.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and all its subsidiaries. All material intercompany balances and
transactions have been eliminated. Most foreign subsidiary accounts are stated
as of November 30 of each year.
As discussed in Note No. 6, the Company merged with privately-held Met One,
Inc. during 1995 in a transaction accounted for as a pooling-of-interests. As a
result, all of the accompanying financial data and per share amounts have been
restated as if Met One, Inc. had always been a part of the Company.
Foreign Currency Translation
The financial position and results of operations of the Company's foreign
subsidiaries are principally measured using local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
exchange rate in effect at each year-end.
Income statement accounts are translated at the average rate of exchange
prevailing during the year. Translation adjustments arising from differences in
exchange rates from period to period are included in the cumulative translation
adjustments account in stockholders' equity.
Fiscal Year
The Company's fiscal year ends on the last Friday in December. References to
1995, 1994 and 1993 in these financial statements refer to the fiscal years
ended December 29, 1995, December 30, 1994 and December 31, 1993, respectively.
Use of Estimates
The preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles necessarily requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the balance
sheet dates and the reported amounts of revenue and expense during the reporting
periods.
29
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pacific Scientific Company and Subsidiaries
Revenue Recognition
Generally, sales are recorded when products are shipped or services are rendered
with the following exceptions: 1) the unit-of-delivery method is used for
contracts for products substantially reconfigured to the customers' need and
where many units are delivered over an extended period of time, these types of
contracts generally exist in sales to the Company's aerospace customers, 2) the
percentage of completion method is used for significant contracts for relatively
few deliverable units produced over a period in excess of six months and 3)
revenue for maintenance contracts is deferred and recognized ratably over the
period of the agreement.
In the unit-of-delivery method, sales and estimated average cost of the
units to be produced under a contract are recognized as deliveries are made or
accepted. Changes in estimates for sales, cost and profit are recognized in the
period in which they are determined, using the cumulative catch-up method of
accounting. Any anticipated losses on contracts are charged to operations as
soon as they are determinable.
In the percentage of completion method, revenue and income are recognized
at the completion of measurable tasks rather than upon delivery of individual
units.
Progress payments are netted against work-in-process inventory balances and
were $1,655,000, $856,000 and $2,346,000 at the end of 1995, 1994 and 1993,
respectively.
Fair Value of Financial Instruments
The recorded amounts of cash, trade receivables, accounts payable and short-
and long-term borrowings approximate their fair values. Fair values are
estimated using quoted market prices based on information available as of year
end.
At December 29, 1995, all of the Company's investments represent
available-for-sale securities and have been recorded at fair value which
approximates historical cost of the investments. These investments consist
primarily of debt securities of municipalities of the Commonwealth of Puerto
Rico with contractual maturities beginning in 1998 or later, and are included in
other assets in the accompanying consolidated financial statements.
Trade Receivables
Trade receivables are presented net of the related allowance for doubtful
accounts, which at year-end totaled $1,151,000, $942,000 and $689,000 in 1995,
1994 and 1993, respectively. Allowances are determined principally on the basis
of past collection experience.
Inventories
Inventories are stated at the lower of average cost or market and, at year-end,
consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Finished goods $ 5,102 $ 4,904 $ 4,445
Work-in-process 15,299 12,302 13,417
Raw material and
purchased parts 33,046 22,131 16,983
- --------------------------------------------------------------------------------
Total inventories $53,447 $39,337 $34,845
- --------------------------------------------------------------------------------
</TABLE>
Property and Depreciation
Property is recorded at cost. Additions, major renewals and improvements which
extend the useful life of the property are capitalized. Maintenance, repairs
and minor renewals are expensed.
Depreciation of property is computed generally by the straight-line method
over the useful lives of the various classes of assets. Such lives range from 5
to 30 years for buildings and improvements and from 3 to 20 years for machinery
and equipment. When property is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the appropriate accounts and any gain
or loss is included in the results of current operations.
Net property at year-end consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Land, building and
improvements $ 15,905 $15,640 $11,738
Machinery and
equipment 89,451 72,338 67,673
- --------------------------------------------------------------------------------
Total 105,356 87,978 79,411
- --------------------------------------------------------------------------------
Less accumulated
depreciation 60,743 54,368 45,315
- --------------------------------------------------------------------------------
Net property $ 44,613 $33,610 $34,096
- --------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 17
Other Assets
Other assets at year-end consist of the following, net of accumulated
amortization:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Excess of cost over net
assets of acquired businesses $39,641 $32,714 $32,936
Patents, trademarks,
purchased technology and
other intangibles 8,107 6,559 4,952
Notes receivable and
other assets 2,922 3,559 3,779
- --------------------------------------------------------------------------------
Total other assets - net $50,670 $42,832 $41,667
- --------------------------------------------------------------------------------
</TABLE>
The excess of cost over net assets of acquired businesses is amortized,
using the straight-line method, over periods not ex-ceeding 40 years. Patents,
trademarks, purchased technology and other intangibles are amortized, using the
straight-line method, over estimated useful lives of 5 to 17 years. The Company
periodically reviews intangible assets to assure recoverability, based on
discounted expected future operating cash flow derived from related assets, and
any impairment in the value of the assets would be recognized in operating
results, if a permanent diminution in value were to occur. Accumulated
amortization of other assets at year-end totaled $12,613,000, $11,815,000 and
$9,874,000 in 1995, 1994 and 1993, respectively.
Earnings per Share
Earnings per common and common equivalent share is computed by dividing net
income by the average number of shares of common stock and dilutive common stock
equivalents (stock options) outstanding each year, totaling 12,514,000 in 1995,
12,215,000 in 1994 and 11,798,000 in 1993. Fully diluted net income per share
for 1995 reflects the maximum dilution, based on the closing price of the
Company's common stock as traded on the New York Stock Exchange on December 29,
1995, and is computed based on 13,501,000 shares. Shares used for calculating
fully diluted earnings per share in 1994 and 1993 totaled 12,419,000 and
11,993,000, respectively. Fully diluted earnings per share in 1995 includes the
assumed conversion of the Company's convertible subordinated debentures. In
1994 and 1993, the assumed conversion of the debentures was not considered a
common stock equivalent and was omitted from the computation of fully diluted
earnings per share as it was anti-dilutive.
New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995, and adoption of the
recognition and measurement provisions for nonemployee transactions entered into
after December 15, 1995. The new standard defines a fair value method of
accounting for stock options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period.
Pursuant to the new standard, companies are encouraged but are not
required, to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but would be required to disclose in a note to the
financial statements pro forma net earnings and earnings per share as if the
Company had applied the new method of accounting.
The accounting requirements of the new method are effective for all
employee awards granted after the beginning of the fiscal year of adoption. The
Company has not yet determined if it will elect to change to the fair value
method, nor has it determined the effect the new standard will have on net
earnings and earnings per share, should it elect to make such a change.
Adoption of the new standard will have no effect on the Company's consolidated
cash flows.
Reclassifications
Certain amounts previously reported for 1994 and 1993 have been reclassified to
conform to the 1995 financial statement presentation.
31
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pacific Scientific Company and Subsidiaries
2) BORROWINGS
Long-term debt at year-end, excluding the current portion, consists of the
following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Bank borrowings $41,050 $20,025 $21,734
Convertible
subordinated debentures 17,044 17,286 17,481
Industrial development bonds 5,625 5,625 5,625
- --------------------------------------------------------------------------------
Total long-term debt $63,719 $42,936 $44,840
- --------------------------------------------------------------------------------
</TABLE>
In 1983, the Company issued $30,000,000 of 7 3/4% convertible subordinated
debentures, which are convertible into common stock at any time prior to
maturity at a conversion price of $19 per share. The Company is required to
commence annual sinking fund payments in 2001, sufficient to retire $2,044,000
of the debentures by 2002, with all remaining debentures becoming due on June
15, 2003. Interest is payable semi annually on June 15 and December 15. The
debentures can be redeemed by the Company at par. The debentures are
subordinated to all of the Company's existing and future senior debt. The
indenture agreement places restrictions on the aggregate amount of common stock
dividends payable and the repurchase of the Company's common stock. At December
29, 1995, over $70,000,000 of retained earnings were unrestricted under these
provisions.
The Company maintains $65,000,000 of unsecured lines of credit, of which
$55,947,000 was outstanding and an additional $2,517,000 was committed to back
standby letters of credit on December 29, 1995. All $65,000,000 can be borrowed
at rates that do not exceed one percent (1%) over the London Interbank Offered
Rate (LIBOR) or at the bank's prime rate. The average interest rate on borrowed
bank funds at the end of 1995 was 6.1%. Of the unsecured lines of credit at
December 29, 1995, $20,000,000 was considered as a short-term working capital
line, of which $14,897,000 is outstanding; and $45,000,000 was a long-term
committed credit line, of which $43,567,000 was either outstanding or committed.
The long-term credit line expires on July 31, 1997.
In October 1989, the Company issued $7,500,000 of 30 year industrial
development bonds to finance the construction of an industrial facility in the
city of Oxnard, California, for use by the Company's Electro Kinetics Division.
These bonds have a floating interest rate, adjusted weekly, based on current
market rates for tax-exempt bonds. The Company is obligated to pay the remaining
principal balance of $5,625,000 in 2019. The portion of the bond proceeds not
yet expended for construction costs is held in trust and classified as
restricted cash of $6,143,000 in the accompanying consolidated balance sheet at
December 29, 1995.
The bank agreement and industrial development bonds have loan covenants
which require the Company to maintain certain financial statement ratios. The
Company is in compliance with all required ratios at December 29, 1995.
Debt, including the short-term portion at December 29, 1995, matures as
follows: 1996, $14,897,000; 1997, $41,050,000; 1998, none; 1999, none; 2000,
none; later years, $22,669,000.
3) EMPLOYEE RETIREMENT BENEFIT PLANS
The Company has noncontributory defined benefit pension plans covering
substantially all of its U.S. employees. Non-U.S. subsidiaries have separate
plans. Benefits are generally determined by a formula based on years of service,
final average salary and estimated social security benefits. In addition, the
Company also has a non-qualified supplemental defined benefit plan applicable to
certain senior executives and a directors retirement plan both of which provide
unfunded benefits. Pension expense for the qualified plan totaled $1,417,000,
$1,116,000 and $728,000 in 1995, 1994 and 1993, respectively.
Pension expense consists of the following components:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
===============================================================================
<S> <C> <C> <C>
Benefits earned during
the year $ 1,866 $ 1,792 $ 1,486
Interest on projected
benefit obligation 4,084 3,555 3,468
Gain on plan assets (8,793) (4,132) (4,189)
Net amortization and
deferral 4,260 (99) (37)
- -------------------------------------------------------------------------------
Net pension expense $ 1,417 $ 1,116 $ 728
- -------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 19
The following is a reconciliation of the funded status of the qualified
plans, including the amount included in current and non-current employee benefit
plan liabilities in the accompanying consolidated balance sheets. Pension plan
assets consist of corporate equity and debt securities, unallocated insurance
contracts, real estate and short-term investments. The amounts shown for 1995
are estimates made by the plans' actuary, while the amounts for 1994 and 1993
have been adjusted to actuals based on final calculations performed by the
plans' actuary.
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
===============================================================================
<S> <C> <C> <C>
Actuarial present value
of accumulated plan benefits:
Vested $ 50,001 $ 43,834 $ 42,720
Non-vested 1,495 1,248 1,549
- -------------------------------------------------------------------------------
Total 51,496 45,082 44,269
Effect of estimated
future salary increase 6,376 4,468 4,586
- -------------------------------------------------------------------------------
Projected benefit obligation 57,872 49,550 48,855
Plan assets at fair market value (55,200) (48,559) (45,094)
- -------------------------------------------------------------------------------
Projected benefit obligation
over plan assets 2,672 991 3,761
Unrecognized transition asset 441 923 1,072
Unrecognized net actuarial
experience loss (2,219) (309) (2,319)
- -------------------------------------------------------------------------------
Recorded pension liabilities $ 894 $ 1,605 $ 2,514
- -------------------------------------------------------------------------------
</TABLE>
Significant assumptions used in the determination of pension expense
consist of the following:
<TABLE>
<CAPTION>
1995 1994 1993
===============================================================================
<S> <C> <C> <C>
Discount rate on projected
benefit obligation 8.5% 7.5% 8.5%
Long-term rate of return
on plan assets 9.0% 8.75% 9.25%
Rate of future salary increases 4.5% 4.5% 5.0%
- -------------------------------------------------------------------------------
</TABLE>
During 1995, the Company changed the expected rate of return on pension
assets from 8.8% to 9.0%. The effect of this change was a decrease in 1995
pension expense of $120,000. At the end of 1995, The Company changed the assumed
discount rate from 8.5% to 7.5% and revised its demographic assumptions. These
changes caused a net increase of $6,500,000 in the projected benefit obligation.
The Company uses the projected unit credit method for determining both
pension expense and the annual contribution to the plans. The Company's funding
policy is to contribute an amount between the minimum and maximum contributions
allowed for federal income tax purposes. The difference between cumulative
pension expense and contributions has been classified in current and non-current
liabilities in the accompanying consolidated balance sheets, based on expected
contribution funding dates.
4) INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
===============================================================================
<S> <C> <C> <C>
Current
Federal income taxes $3,534 $5,074 $3,308
State and foreign income taxes 2,891 1,594 1,007
- -------------------------------------------------------------------------------
Total current tax provision 6,425 6,668 4,315
Deferred 915 (187) (457)
- -------------------------------------------------------------------------------
Total income tax provision $7,340 $6,481 $3,858
- -------------------------------------------------------------------------------
</TABLE>
The differences between the income tax provision and income taxes computed
using the U.S. Federal statutory income tax rates (35%) consist of the
following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
===============================================================================
<S> <C> <C> <C>
Tax at U.S. Federal rate $7,032 $5,860 $3,899
State income taxes, net of
Federal tax benefit 474 794 566
Amortization of certain
other assets 332 330 253
Tax benefit of foreign sales
corporation (257) (200) (220)
Effect of foreign operations 346 187 193
Tax benefit of research and
development credits (261) (240) (562)
Tax benefit of IRS
examination settlement - - (264)
Other (326) (250) (7)
- -------------------------------------------------------------------------------
Income tax provision $7,340 $6,481 $3,858
- -------------------------------------------------------------------------------
</TABLE>
The Company has available tax net operating losses, subject to certain
limitations, of approximately $1,608,000 which expire at various dates through
2006.
33
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pacific Scientific Company and Subsidiaries
Net deferred taxes of $1,917,000 at December 29, 1995, $2,832,000 at
December 30, 1994, and $2,645,000 at December 31, 1993, were related to:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------------------------------------
(In thousands) Current Long-Term Current Long-Term Current Long-Term
==================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Assets
Inventories $ 2,604 - $ 2,127 - $ 2,117 -
Employee Benefits - $ 455 - $ 877 - $ 1,156
Accrued Liabilities 1,257 - 1,376 - 1,035 -
Net Operating Losses 112 430 344 585 - 800
Warranty Liabilities 498 - 569 - 551 -
Environmental Liabilities - 200 - 301 - 403
Receivables 425 - 345 - 248 -
Other 124 - 183 - 359 84
Valuation Allowance (50) (430) (277) (332) (50) (272)
Liabilities
Property - (1,839) - (2,615) - (2,897)
Patents/Trademarks - (1,687) - (633) - (807)
Other - (182) - (18) (82) -
- ------------------------------------------------------------------------------------------------------------------
Net Deferred Tax Asset (Liability) $ 4,970 $(3,053) $ 4,667 $(1,835) $ 4,178 $(1,533)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The valuation allowance was decreased by $129,000 during 1995 and increased
by $287,000 during 1994. The Company's 1992, 1993 and 1994 federal income tax
returns are currently under examination by the Internal Revenue Service.
Management believes that the ultimate outcome of this examination will not have
a material adverse impact on the Company's financial position.
5) STOCKHOLDERS' EQUITY
The Company has authorized 2,000,000 shares of preferred stock and 30,000,000
shares of common stock, of which 12,071,000 shares of common stock were
outstanding at December 29, 1995.
The Company maintains a stock option plan which provides for the granting
of options for the purchase of common stock to the officers and certain other
key employees. No compensation expense has been recorded because the options
have exercise prices which are equal to the fair market value of the stock on
the respective dates of grant. During 1995, the stockholders approved a new
stock option plan (1995 Plan) to replace three previous stock option plans. The
1995 Plan expires in 2005. Stock options outstanding represent cumulative grants
of options from the 1995 Plan and the predecessor plans.
The maximum number of shares of common stock that may be granted in any
calendar year for all purposes under the 1995 Plan shall be one percent (1%) of
the shares of common stock outstanding (excluding any shares of such common
stock held in the Company's treasury) on the first day of such calendar year
provided however that, in the event that fewer than the full aggregate number of
shares of common stock available for issuance in any calendar year are issued in
such year, the shares not issued shall be added to the shares available for
issuance in any subsequent year or years. If any shares of common stock to which
options have been granted cease to be subject to exercise or purchase, such
underlying shares of common stock shall thereafter be available forgrants under
the 1995 Plan during any calendar year until expiration of the 1995 Plan in
2004. Substantially all available options were granted during 1995. Stock option
activity during 1995, 1994 and 1993 consists of the following:
34
<PAGE> 21
<TABLE>
<CAPTION>
1995 1994 1993
===============================================================================
<S> <C> <C> <C>
Stock options outstanding,
beginning of year 992,772 832,312 657,002
Options granted
(per share: $5.125 to $17.50) 108,600 324,800 345,960
Options canceled
(per share: $4.375 to $16.75) (43,199) (30,750) (54,650)
Options exercised
(per share: $4.375 to $13.81) (134,656) (133,590) (116,000)
- -------------------------------------------------------------------------------
Stock options outstanding,
end of year 923,517 992,772 832,312
- -------------------------------------------------------------------------------
Stock options exercisable,
end of year 463,387 385,058 449,252
- -------------------------------------------------------------------------------
Options available for grant,
end of year 117,675 6,214 300,264
- -------------------------------------------------------------------------------
</TABLE>
In November 1988, the Company adopted a Stockholder Protection Plan (the
Plan) and declared a dividend distribution of one Right for each outstanding
share of common stock. Under certain conditions, each Right may be exercised to
purchase one one-hundredth of a share of Series A Junior Participating
Preferred Stock at a purchase price of $45, subject to adjustment. The Rights
will become exercisable 20 days after a person or group has acquired, or
obtained the right to acquire, 20% or more of the outstanding shares of common
stock, or following the commencement of a tender or exchange offer for 35% or
more of such outstanding shares of common stock (except pursuant to an offer
which the independent members of the Company's Board of Directors determine to
be fair and otherwise in the best interests of the Company and its
stockholders).
Prior to becoming exercisable, the Rights are attached to and trade
together with the common stock. Each share of Series A Junior Participating
Preferred Stock issued under this Plan will entitle its holder to receive
dividends equal to the greater of $4 or 100 times the dividend on common stock,
a liquidation preference of $100, and voting rights approximately 100 times
greater than the voting rights of one share of common stock. The Company will be
entitled to redeem the Rights at $0.01 per Right at any time prior to the
earlier of the expiration of the Rights in November 1998 or the time that the
Rights become exercisable. The Rights do not have voting, liquidation or
dividend rights and, until they become exercisable, have no dilutive effect on
the earnings per share of the Company. The Stockholder Protection Plan expires
in November 1998.
6) BUSINESS ACQUISITIONS
Effective December 29, 1995, the Company acquired Met One, Inc., a
privately-held company, in an exchange of approximately 983,000 shares of the
Company's common stock which had an approximate market value of $27.1 million.
Met One is a leader in the supply of instruments that detect, count and measure
contaminant particles mainly in air. The Company manufactures and sells a
similar product line mainly for liquid, vacuum and solids. The merger will allow
the Company to offer its customers a more comprehensive product line. The merger
was accounted for as a pooling of interests, and accordingly, all prior periods
have been restated as if Pacific Scientific and Met One had always been one
company.
In order to obtain federal regulatory approval for the merger, the Company
agreed to promptly divest its drinking water quality monitoring assets to
another company. The Company's sales of monitors for drinking water quality
represent less than one half of one percent of the Company total sales. Until
the Company has divested its drinking water quality monitoring assets, it will
be required to operate Met One as a separate and distinct business, except for
consolidation of financial information.
Combined and separate results of the Company and Met One during the periods
preceding the merger were as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Pacific Scientific
Net Sales $267,306 $234,737 $195,553
Net Income 11,353 9,522 8,295
- --------------------------------------------------------------------------------
Met One
Net Sales $ 17,506 $ 12,946 $ 11,056
Net Income 1,397 739 48
- --------------------------------------------------------------------------------
Combined
Net Sales $284,812 $247,683 $206,609
Net Income 12,750 10,261 8,343
- --------------------------------------------------------------------------------
</TABLE>
The combined financial results presented above include adjustments to
conform accounting policies of the two companies; such adjustments were not
considered material. Intercompany transactions between the two companies for
the periods presented were not material. In the fourth quarter, the Company
recorded a one-time charge of $350,000 to reflect the costs to combine
operations of the two companies.
35
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pacific Scientific Company and Subsidiaries
On the first day of fiscal year 1995, the Company purchased all the
outstanding shares of Eduard Bautz GmbH, located in Weiterstadt, Germany. Bautz
is a German manufacturer of high performance motors and controls. The
acquisition was made to expand the prospects for all of the Company's electric
motors and related products throughout Europe. Europe is a strong market for
brushless servo motor systems such as the ones produced by Pacific Scientific.
The purchase price was approximately $13,500,000 and resulted in the recognition
of excess cost over net assets of acquired businesses of $7,300,000.
Had the acquisition of Bautz occurred as of the beginning of fiscal year
1994, unaudited pro forma net sales, income from operations before taxes and
cumulative effect of a change in accounting principle, net income and net income
per common and common equivalent share would have been as follows:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1994
================================================================================
<S> <C>
Net sales $262,428
Income from operations before taxes
and cumulative effect of a change
in accounting principle 19,106
Net income 11,325
Net income per common and
common equivalent share $ 0.93
- --------------------------------------------------------------------------------
</TABLE>
The pro forma operating results include the results of operations of the
acquired company for the year presented with estimated increased depreciation
and amortization of property and excess cost over net assets acquired along with
other relevant adjustments to reflect the fair value of the acquired assets and
pro forma interest expense on the assumed acquisition borrowings.
The results of operations reflected in the pro forma information above are
not necessarily indicative of the results which would have been reported if the
acquisition had been effected at the beginning of fiscal 1994.
In April 1994, the Company purchased the business and assets of Royce
Thompson Electric Limited for $1,500,000. The acquisition extends the Company's
participation into the outdoor lighting control market in the United Kingdom.
The purchase price exceeded the fair market value of the net tangible assets
acquired by approximately $400,000.
In August 1993, the Company purchased all the outstanding shares of capital
stock of Automation Intelligence, Inc. for $3,400,000 plus contingent
considerations dependant on the sales growth of the acquired company over a
three-year period.
This acquisition was made to acquire the capability to develop automation
software and systems using the Company's motors. The purchase price exceeded the
fair market value of the net tangible assets acquired by approximately
$3,600,000.
In July 1993, the Company purchased all the outstanding shares of capital
stock of Powertec Industrial Corporation for $14,100,000. The Company also paid
$600,000 to the founder of Powertec in exchange for a five-year non-competition
agreement. The acquisition was made to extend the power range of the Company's
product line of brushless motors and controls. The purchase price exceeded the
fair market value of the net tangible assets acquired by approximately
$10,800,000.
In April 1993, the Company purchased certain operating assets,excluding the
real estate, of Unidynamics/Phoenix, Inc. for approximately $6,000,000, which
approximated the fair value of the assets acquired.
7) SALE OF REAL ESTATE
In December 1989, the Company sold real property in Anaheim, California for
$6,375,000, of which $2,000,000 was received in cash and $4,375,000 was received
in the form of a note secured by a first trust deed covering the property.
In September 1991, the maker of the note, a real estate developer, alleged
various matters and filed an action in the Superior Court of the State of
California naming the Company as a defendant.
In November 1993, the California Superior Court, as a result of a jury
decision, found in favor of the Company and ordered the judicial foreclosure on
the property in satisfaction of the unpaid principal and interest on the note.
The court also awarded damages to the Company. In August 1994, the Company
acquired the property at an auction in exchange for a reduction in the note
receivable of $2,800,000 and paid $500,000 in delinquent property taxes and
related expenses. The real estate is now recorded as "property held for sale" at
$3,300,000, which approximates fair value based on current appraisals. The
unpaid interest and principal in the note was reduced by the value of the
reacquired property.
The Company is seeking full recovery of the amounts awarded by the Court.
36
<PAGE> 23
8) OPERATING LEASES
The Company leases certain facilities and equipment under non-cancelable
operating leases which require the following minimum future rental payments:
1996, $5,386,000; 1997, $4,899,000; 1998, $4,079,000; 1999, $3,314,000; 2000,
$2,205,000; later years, $8,864,000. Rental expense was $6,706,000, $5,719,000
and $5,061,000 in 1995, 1994 and 1993, respectively.
9) PROTECTION OF THE ENVIRONMENT
The Company is currently named a potentially responsible party (PRP) under the
Comprehensive Environmental Response, Compensation and Liability Act
("Superfund") at five (5) sites. As a PRP, the Company has voluntarily agreed to
fund, in participation with others, the required investigation and remediation
at each site. The Company has been currently allocated responsibility at these
five sites for between 0.02% and 0.26% of the waste disposed of at these sites.
Although current law seeks to impose joint and several liability on all
responsible parties at any Superfund site, the Company anticipates that any
potential liability or required contribution to the remediation of these sites
will be limited by its small percent contribution to each site. No accrual has
been made under the joint and several liability concept since the Company
believes that the probability that it will have to pay material costs above its
share is remote due to the fact that the other PRPs generally have substantial
assets available to satisfy their obligation and are participating in the
overall clean-up obligation.
The Company is also involved in a remedial response and voluntary
environmental clean-up expenditure at one former facility and monitoring
activity at another former site; neither site is currently subject to any
Superfund law proceeding. In addition, the Company is litigating its
responsibility for environmental remediation of a site never directly operated
by the Company. This site was sold by Sigma Instruments, Inc. prior to the
acquisition of Sigma by Pacific Scientific Company in 1987. The Company believes
that it has a number of defenses to this claim and its current potential
exposure is not material.
In many cases, future environmental related expenditures cannot be
quantified with a reasonable degree of accuracy. Accordingly, the cost of
clean-up for which the Company remains primarily liable may be in excess of the
current environmental related accrual of $475,000 as of December 29, 1995.
It is the Company's policy to accrue environmental clean-up cost if it is
probable that a liability has been incurred and an amount is reasonably
estimatable. As assessment and clean-up proceeds, these liabilities are reviewed
and adjusted if necessary. The Company continues to evaluate possible insurance
claims for both past and future remediation cost. Ongoing environmental
compliance cost, including maintenance and monitoring costs, are expensed as
incurred and are not material.
While it is not feasible to predict the outcome of all pending suits and
claims involving environmental matters, the Company is of the opinion that the
ultimate disposition of these matters will not have a material adverse effect
upon the consolidated financial position, operating results and liquidity of the
Company.
10) FOREIGN EXCHANGE INSTRUMENTS
The Company enters into forward exchange and option contracts to hedge foreign
currency transactions on a continuing basis for periods consistent with its
committed exposure. The objective of the hedging is to minimize the impact of
foreign exchange rate movements on the Company's earnings and financial
position. Generally, gains and losses on these contracts offset losses and gains
on the assets and liabilities being hedged. The Company does not engage in
currency speculation.
As of December 29, 1995, the Company had approximately $13,359,000 of
outstanding foreign exchange contracts in which foreign currencies could be
purchased. There were no outstanding foreign exchange contracts in which foreign
currencies could be sold at December 29,1995. At year-end 1995, all outstanding
foreign exchange contracts served to hedge assets and liabilities.
11) INFORMATION BY INDUSTRY SEGMENT
Financial information by industry segment for fiscal years 1995, 1994 and 1993
is summarized on page 28 of this report.
International sales totaled $80,695,000 in 1995, $52,652,000 in 1994 and
$37,102,000 in 1993.
The Company's net sales under prime contacts to defense agencies of the
U.S. Government were $7,256,000 in 1995, $8,096,000 in 1994 and $9,471,000 in
1993.
37
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pacific Scientific Company and Subsidiaries
12) DIVIDENDS AND QUARTERLY INFORMATION
(Unaudited)
Cash dividends of $0.015 per share were paid each quarter until December 1994
when, concurrent with the two-for-one stock split, the dividend was raised to
$0.03 per share.
Selected quarterly information for fiscal years 1995, 1994 and 1993
follows:
<TABLE>
<CAPTION>
(in thousands, except per share data) Q-1 Q-2 Q-3 Q-4 Year
============================================================================================================================
<S> <C> <C> <C> <C> <C>
1995
Net sales $68,959 $72,979 $70,455 $72,419 $284,812
Gross profit 22,234 24,984 24,948 26,422 98,588
Net income 2,946 3,259 3,183 3,362 12,750
Net income per common share (primary) 0.24 0.26 0.25 0.27 1.02
Net income per common share (fully diluted) 0.24 0.26 0.25 0.26 1.01
- ----------------------------------------------------------------------------------------------------------------------------
Stock Price
High $ 24.13 $ 21.75 $ 26.50 $ 27.38 $ 27.38
Low 16.50 14.13 17.88 19.50 14.13
Close 20.50 18.00 24.13 25.00 25.00
- ----------------------------------------------------------------------------------------------------------------------------
1994
Net sales $54,444 $60,287 $63,160 $69,792 $247,683
Gross profit 17,588 20,142 21,828 23,184 82,742
Net income 1,728 2,325 2,534 3,674 10,261
Net income per common share (primary) 0.14 0.19 0.21 0.30 0.84
Net income per common share (fully diluted) 0.14 0.19 0.20 0.30 0.83
- ----------------------------------------------------------------------------------------------------------------------------
Stock Price
High $ 13.32 $ 14.25 $ 13.94 $ 23.75 $ 23.75
Low 10.69 10.88 11.19 14.00 10.69
Close 11.19 12.50 13.82 20.25 20.25
- ----------------------------------------------------------------------------------------------------------------------------
1993
Net sales $43,859 $52,658 $50,710 $59,382 $206,609
Gross profit 13,968 16,285 16,724 19,169 66,146
Income before accounting change 1,210 1,798 2,103 2,172 7,283
Accounting change 1,060 - - - 1,060
- ----------------------------------------------------------------------------------------------------------------------------
Net income 2,270 1,798 2,103 2,172 8,343
Net income per common share (primary)
Before accounting change 0.11 0.15 0.18 0.18 0.62
Accounting change 0.09 - - - 0.09
- ----------------------------------------------------------------------------------------------------------------------------
Total net income per common share 0.20 0.15 0.18 0.18 0.71
Net income per common share (fully diluted)
Before accounting change 0.10 0.15 0.18 0.18 0.61
Accounting change 0.09 - - - 0.09
- ----------------------------------------------------------------------------------------------------------------------------
Total net income per common share 0.19 0.15 0.18 0.18 0.70
- ----------------------------------------------------------------------------------------------------------------------------
Stock Price
High $ 8.00 $ 7.75 $ 8.82 $ 11.94 $ 11.94
Low 7.00 6.07 7.32 8.44 6.07
Close 7.63 7.44 8.82 11.07 11.07
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 25
- --------------------------------------------------------------------------------
C O R P O R A T E I N F O R M A T I O N
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
B O A R D O F D I R E C T O R S
(Listed in order of election)
<S> <C> <C>
William A. Preston (1979) Edgar S. Brower (1985) Millard H. Pryor, Jr. (1992)
Chairman Chairman of the Board Managing Director
APM, Inc. Pryor & Clark Company
Harry W. Todd (1983) Thomas S. Stafford (1987) Ralph D. Ketchum (1994)
Managing Partner Chairman President
Carlisle Enterprises L.P. Omega Watch Corporation of America RDK Capital, Inc.
Ralph O. Briscoe (1985) Walter F. Beran (1987)
Business Consultant Chairman
Pacific Alliance Group
<CAPTION>
O F F I C E R S
<S> <C> <C>
Edgar S. Brower Robert L. Day Ronald B. Nelson
President and Vice President and Vice President and
Chief Executive Officer President of Energy Dynamics Division President of Motor Products Division
Richard V. Plat Richard G. Knoblock John M. Ossenmacher
Executive Vice President Vice President and Vice President and
Chief Financial Officer and Secretary President of HTL/Kin-Tech President of Solium Inc.
and Electro Kinetics Divisions
William T. Fejes William L. Nothwang
Senior Vice President and Joseph R. Monkowski Controller
President of Automation Technology Group Vice President and
President of Instruments Group Peer A. Swan
Steven L. Breitzka Treasurer
Vice President and
President of Fisher Pierce Division
<CAPTION>
O P E R A T I O N A L U N I T S
E l e c t r i c a l E q u i p m e n t
<S> <C> <C>
Automation Technology Group Instruments Group Fisher Pierce Division
Weymouth, Massachusetts
Motor Products Division Hiac/Royco Division
Rockford, Illinois Silver Spring, Maryland Royce Thompson Ltd.
Broomfield, Colorado Birmingham, England
High Yield Technology, Inc.
Motion Technology Division Sunnyvale, California Electro Kinetics Division
Wilmington, Massachusetts Santa Barbara, California
Met One, Inc.
Eduard Bautz GmbH Grants Pass, Oregon Solium Inc.
Weiterstadt, Germany Randolph, Massachusetts
Pacific Scientific GmbH
Powertec Industrial Corporation Leonberg, Germany
Rock Hill, South Carolina S a f e t y E q u i p m e n t
Pacific Scientific Ltd.
Automation Intelligence, Inc. Buckinghamshire, England HTL/Kin-Tach Division
Duluth, Georgia Duarte, California
Pacific Scientific S.A.R.L. Yorba Linda, California
Wermex Corporation Palaiseau, France Portland, Maine
El Paso, Texas
Pacific Scientific Service Corp. Energy Dynamics Division
Bobinas del Sur Silver Spring, Maryland Chandler, Arizona
Juarez, Mexico
</TABLE>
39
<PAGE> 1
EXHIBIT 23.0
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
2-61247, No. 2-59224, No. 2-98688, No. 2-83138, No. 2-98687 and No. 33-21836
of Pacific Scientific Company on Form S-8 of our report dated February 2, 1996,
incorporated by reference in this Annual Report on Form 10-K of Pacific
Scientific Company for the year ended December 29, 1995.
/s/ Deloitte & Touche LLP
- ---------------------------------------
Costa Mesa, California
March 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 29, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> DEC-29-1995
<CASH> 6,123
<SECURITIES> 0
<RECEIVABLES> 53,404
<ALLOWANCES> 1,151
<INVENTORY> 53,447
<CURRENT-ASSETS> 119,448
<PP&E> 105,356
<DEPRECIATION> 60,743
<TOTAL-ASSETS> 225,018
<CURRENT-LIABILITIES> 48,024
<BONDS> 63,719
0
0
<COMMON> 12,071
<OTHER-SE> 94,415
<TOTAL-LIABILITY-AND-EQUITY> 225,018
<SALES> 284,812
<TOTAL-REVENUES> 284,812
<CGS> 186,224
<TOTAL-COSTS> 75,269
<OTHER-EXPENSES> 3,229
<LOSS-PROVISION> 386
<INTEREST-EXPENSE> 4,281
<INCOME-PRETAX> 20,090
<INCOME-TAX> 7,340
<INCOME-CONTINUING> 12,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,750
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.01
</TABLE>
