ITEM 1. BUSINESS
(a) 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 making and selling electrical equipment and safety equipment. In addition to six main United States operating divisions, the Registrant has wholly-owned sales subsidiaries in Germany, France, England and the U. S. Virgin Islands. In July and August of 1993, the Company purchased all the outstanding shares of common stock of Powertec Industrial Corporation and Automation Intelligence, Inc., respectively. In April 1993, the Company purchased certain operating assets of Unidynamics/Phoenix, Inc., a subsidiary of Crane Co. Additional information regarding these acquisitions is presented in Note 6 on Page 25 of Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1993, a copy of which has been delivered to the Securities and Exchange Commission (the "Commission") pursuant to Rule 14a-3 of the Commission, and such Note 6 is incorporated herein by reference in accordance with the provisions of Rule 12b-23 of the Commission ("Rule 12b-23"). The Unidynamics/Phoenix, Inc. acquisition necessitated the expansion of the manufacturing facilities of the Energy Dynamics Division in Chandler, AZ. Currently, the Registrant has 25,000 square feet of manufacturing space under construction. The estimated cost of construction is $3 million.
(b) and (c)(1)(i) DESCRIPTION OF BUSINESS SEGMENTS
Information regarding business segments is presented in Note 11 beginning on Page 27 of Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1993 and is incorporated herein by reference in accordance with the provisions of Rule 12b-23.
Each of Registrant's divisions is responsible for marketing its own products, generally selling through a combination of its own sales personnel, sales representatives and distributors, both in the United States and foreign countries. Additional information regarding the Company's products and markets is presented on Pages 4 through 9 in the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1993 and is incorporated herein by reference in accordance with the provisions of Rule 12b-23.
The percentages of the Company's consolidated net sales represented by its major markets for the fiscal years 1993, 1992 and 1991, respectively, were as follows:
(c)(1)(ii) MATERIAL NEW PRODUCTS OR SEGMENTS
There has been no public announcement of, nor has the Registrant made public, information about a new product or industry segment that would require the investment of a material amount of assets of the Registrant or that otherwise is material.
(c)(1)(iii) 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. During 1992, the Company developed a system capable of recovering and reprocessing Halon 1301 and also increased its storage capacity for this material.
During 1993, the Company was able to increase its supply of this agent to a level that management believes is adequate to meet future demands. The Company was able to accomplish this by recycling Halon 1301 from suppression systems used in applications less critical than aircraft (i.e. systems that protect equipment rather than human life). The Company is also investigating the viability of various non- chlorofluorocarbon suppression agents.
(c)(1)(iv) EFFECT OF PATENTS, TRADEMARKS, LICENSES, ETC.
Registrant owns numerous United States and foreign patents expiring at various dates to 2008. Registrant also owns a number of trademarks. Although these patents and trademarks have been and are expected to be of value in the opinion of the Registrant, the loss of any single such item or group of related items would not have a material effect on the conduct of the business.
(c)(1)(v)&(vi) SEASONAL AND WORKING CAPITAL REQUIREMENTS
Not applicable.
(c)(1)(vii) MAJOR CUSTOMERS
For the year ended December 31, 1993, approximately 19% of Registrant's sales were attributable to United States defense contracts, of which 5% were awarded directly by the United States government and 14% 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 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.
Additional information regarding sales to military customers is included on Page 10 in the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1993 and is incorporated herein by reference in accordance with the provisions of Rule 12b-23.
(c)(1)(viii) BACKLOG
Registrant's backlog of unfilled purchase orders believed by Registrant to be firm, amounted to $91,774,000 on December 31, 1993, compared with a backlog of $77,740,000 and $78,749,000 at year end 1992 and 1991, 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. Additional information concerning backlog is included on Page 10 in the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1993 and is incorporated herein by reference in accordance with the provisions of Rule 12b- 23.
(c)(1)(ix) GOVERNMENT CONTRACTS
See (c)(1)(vii) above. (c)(1)(x) 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
Motors and Control
The Company's five motor and control product 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 has a dominant market share. The emerging market for brushless DC motors, drives and controls has many competitors vying for market share in industrial markets, although Registrant believes it has the highest market share of any domestic supplier. The alternator and regulator product line used in aircraft and missiles has several significant domestic competitors with numerous foreign companies that would be classified as indirect competition.
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 lighting. The local and remote control market segment within the electric utilities market is highly fragmented and niche application oriented. Each product has competition from different companies with no single competitor having a product line offering similar to Registrant's.
Particle Monitoring Instrument
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.
SAFETY EQUIPMENT
Fire Detection and Suppression
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 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.
Restraints
There are at least two major competitors in the United States and two in Europe for Registrant's ballistic and inertia reels which are used, mainly in aircraft, for the safety restraint of the crews. However, Registrant has maintained a significant share of this market. There are two principal competitors for the cable tension regulator, the Registrant's principal flight control component.
Pyrotechnic
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.
(c)(1)(xi) 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 $8,584,000, $8,235,000 and $8,446,000 in 1993, 1992 and 1991, respectively.
(c)(1)(xii) ENVIRONMENTAL COMPLIANCE
In the opinion of Registrant, compliance with existing Federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, will not have a material effect on the capital expenditures, earnings or competitive position of Registrant and its subsidiaries. The Company is continuing environmental remediation at one of its former plant sites and has been designated as a potentially responsible party, along with other companies, for certain waste disposal sites. The Company establishes reserves for such costs which are probable and reasonably estimable and believes that any possible liability incurred will not have a material adverse effect on the financial position of the Company.
(c)(1)(xiii) EMPLOYEES
Registrant and its subsidiaries employ 1,597 persons, as of December 31, 1993.
(d)(1) EXPORT SALES
During the years of 1993, 1992 and 1991, Registrant did not engage in material manufacturing operations in foreign countries. Export sales by United States operations to customers in foreign countries represented approximately 18% in 1993, 17% in 1992 and 14% in 1991 of Registrant's sales.
(d)(1)(i)&(ii) RESTATEMENTS
Not applicable.
(d)(2) RISK TO FOREIGN OPERATIONS
In the opinion of Registrant, there is no significant risk attendant to its foreign operations or any dependence of its industry segments on its foreign operations.
(d)(3) INTERIM FINANCIAL STATEMENTS
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES
Registrant's properties are summarized in the following table:
As noted in Part I, Item 1 of this Annual Report on Form 10-K, the acquisition of Unidynamics/Phoenix, Inc. has necessitated the addition of approximately 25,000 square feet of manufacturing facilities in Chandler, Arizona. Upon completion of these facilities (estimated to occur in the second quarter of 1994) the lease on the facilities in Goodyear, Arizona will expire and it will not be renewed. All other 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.
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.
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 1993.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The text and tabular presentations appearing under the captions "Dividends" and "Price Range of Common Stock" on Page 28 of the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1993 are incorporated herein by reference in accordance with the provisions of Rule 12b-23. At the end of 1993, there were 1,630 stockholders of record. The total number of beneficial holders of Registrant's common stock is estimated at approximately 4,200. Registrant's common stock is traded on the New York, Midwest and Pacific Stock Exchanges.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The material appearing under the caption "Five Year Financial Summary" on Page 15 of the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1993 is incorporated herein by reference in accordance with the provisions of Rule 12b-23.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The text appearing under the caption "Management's Discussion and Analysis" appearing on Pages 10, 11, 12 and 13 of the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1993 is incorporated herein by reference in accordance with the provisions of Rule 12b-23.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements for the fiscal years ended December 31, 1993, December 25, 1992 and December 27, 1991 appearing on Pages 17 through 27; the Independent Auditors' Report appearing on Page 16; and Management's Report appearing on Page 14 of the Annual Report to Stockholders for the fiscal year ended December 31, 1993 are incorporated herein by reference in accordance with the provisions of Rule 12b- 23.
ITEM 9.
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.
PART III
ITEM 10.
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 31, 1993.
Information regarding the Company's executive officers appears below:
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 in 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.
Mr. Breitzka was promoted to Corporate Vice President and President of the HTL/Kin-Tech Division in 1992. He had been a Product Line Vice President of that division since 1988.
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 which was a part of and manufactured a product line for the HTL/Kin-Tech 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.
Mr. Knoblock was hired as President of the Electro-Kinetics Division in 1988 and was promoted to Corporate Vice President in 1989.
Mr. Nelson was hired as President of the Motor & Control Division and appointed Corporate Vice President in early 1990. He was General Manager of the Motor Division of Barber Colman Co. from 1982 to 1990.
Mr. Olsen was hired as President of the Instrument Division, now known as HIAC/ROYCO, in 1988. He was promoted to Corporate Vice President in 1989.
Mr. Ossenmacher joined Pacific Scientific in 1992 as Product Line Director for the HTL/Kin-Tech Division. He was promoted to Corporate Vice President and President of the Fisher Pierce Division in 1993. Previously, Mr. Ossenmacher was with the Parker-Hannefin Corporation where he held various management positions since 1981, the most recent being Director of Worldwide Commercial Transport Business.
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.
ITEM 11.
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 31, 1993.
ITEM 12.
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 31, 1993.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Registrant and its subsidiaries have not had any transaction or series of similar transactions nor is there any currently proposed transaction or series of transactions that would exceed $60,000 and in which any director, executive officer, security holder of more than 5% of the Company's voting securities or the immediate family of any of the foregoing persons, would have a direct or indirect material interest as defined by Item 404(a) of Regulation S-K.
There have been no business relationships, as defined by Item 404(b) of Regulation S-K, with regard to any of the Registrant's directors or nominees for director.
No director, executive officer or nominee for election as director nor any member of their immediate family has been indebted to the Registrant or its subsidiaries at any time since December 26, 1993 in an amount in excess of $60,000, as defined by Item 404(c) of Regulation S-K.
Item 404(d) of Regulation S-K does not apply to the Registrant.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1 List of Documents filed as a part of the Report:
Financial Statements:
Consolidated Financial Statements for the fiscal years ended December 31, 1993, December 25, 1992 and December 27, 1991 appearing on Pages 17 through 27; the Independent Auditors' Report appearing on Page 16; and Management's Report appearing on Page 14 of the Annual Report to Stockholders for the fiscal year ended December 31, 1993 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 Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1993 is not to be deemed filed as part of this report.
(a) 2 Included herein:
(a) 3 Exhibits
(b) Reports on Form 8-K
A Form 8-K Current Report was filed by the Registrant on August 13, 1993 and the related Form 8-K/A Amendment No. 1 was filed October 13, 1993 pursuant to the requirements of the Securities Exchange Act of 1934. Information was provided with regards to Items 2 and 7, "Acquisition of Assets" and "Financial Statements of Businesses Acquired", respectively, for the Registrant's acquisition of Powertec Industrial Corporation on July 30, 1993. The following financial statements were included in the filings:
Form 8-K:
Item 7(a) Financial Statements and Financial Information
(a) Independent Auditors' Report (b) Consolidated Balance Sheets as of December 31, 1991 and 1992 (c) Consolidated Statements of Income for the years ended December 31, 1991 and 1992 (d) Consolidated Statements of Stockholders' Equity for the years ended December 31, 1991 and 1992. (e) Consolidated Statements of Cash Flows for the years ended December 31, 1991 and 1992 (f) Notes to Consolidated Financial Statements (g) Independent Auditors' Report on Supplementary Information (h) Selling Expenses (i) General and Administrative Expenses for the years ended December 31, 1991 and 1992
Form 8-K/A:
Item 7(b) Proforma Financial Information
(a) Historical and Proforma Condensed Consolidated Statements of Income for the six months ended June 25, 1993 (unaudited) (b) Historical and Proforma Condensed Consolidated Statements of Income for the year ended December 25, 1992 (unaudited) (c) Historical and Proforma Condensed Consolidated Balance Sheets as of June 25, 1993 (unaudited) (d) Notes to Historical and Proforma Condensed Consolidated Financial Statements
Additional information regarding this acquisition is contained in Items 1(a) appearing on Page 2 of this Form 10-K.
(c) Included in 14(a) 3 above. (d) Included in 14(a) 2 above.
___________________________________________ (1) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 28, 1984.
(2) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 26, 1986.
(3) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 24, 1987.
(4) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 24, 1988.
(5) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 30, 1989.
(6) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 28, 1990.
(7) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 28, 1991.
(8) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 19, 1993.
(9) Incorporated by reference to Registrant's Form 8-K filed November 22, 1988.
(10) Incorporated by reference to Registrant's Form 8-K filed August 13, 1993.
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
March 28, 1994 By /s/ Richard V. Plat ------------------------- Richard V. Plat Senior Vice President, Finance & Administration 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.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Pacific Scientific Company:
We have audited the consolidated financial statements of Pacific Scientific Company and subsidiaries as of December 31, 1993, December 25, 1992 and December 27, 1991 and for each of the three years in the period ended December 31, 1993, and have issued our report thereon dated February 3, 1994; such financial statements and report are included in your 1993 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedules of Pacific Scientific Company, listed in Item 14(a)2. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE Costa Mesa, California February 3, 1994
PACIFIC SCIENTIFIC COMPANY AND SUBSIDIARIES
Schedule IX - Short-Term Borrowings
Years Ended December 31, 1993, December 25, 1992 and December 27, 1991
Notes payable represent obligations payable under several credit agreements to various banks and financial institutions.
The average amount outstanding was computed by averaging the weekly balances during the year. The weighted average interest rate was computed by dividing the interest expense by the average amount outstanding.
PACIFIC SCIENTIFIC COMPANY AND SUBSIDIARIES
Schedule X - Supplementary Income Statement Information
Years Ended December 31, 1993, December 25, 1992 and December 27, 1991
INDEX TO EXHIBITS
__________________________________________________________________
(1) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 28, 1984.
(2) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 26, 1986.
(3) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 24, 1987.
(4) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 24, 1988.
(5) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 30, 1989.
(6) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 28, 1990.
(7) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 28, 1991.
(8) Incorporated by reference to Registrant's Annual Report on Form 10-K filed March 19, 1993.
(9) Incorporated by reference to Registrant's Form 8-K filed November 22, 1988.
(10) Incorporated by reference to Registrant's Form 8-K filed August 13, 1993.