1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OF 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report
(Date of earliest event reported): January 29, 1996
------------------------------
PACIFIC SCIENTIFIC COMPANY
--------------------------------------------------
(Exact name of registrant as specified in charter)
California 1-7744 94-0744970
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS employer
of incorporation) file no.) identification no.)
620 Newport Center Drive, Suite 700, Newport Beach, CA 92660
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 720-1714
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2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to an Agreement and Plan of Merger between Pacific Scientific
Company (the "Company") and the shareholders of Met One, Inc. ("Met One")
which was executed on December 29, 1995 and placed into escrow, a wholly-owned
subsidiary of the Company merged with and into Met One on January 29, 1996.
The merger resulted in the exchange of 983,092 shares of the Company's common
stock for all of the outstanding shares of Met One together with certain real
property utilized by Met One as its company headquarters. Pursuant to a
Registration Rights Agreement, the Company agreed to use its best efforts to
file before March 15, 1996 a registration statement covering the shares of
common stock issued in the transaction.
Met One is a manufacturer of instruments to detect, calculate and
measure contaminate particles, primarily in air. The Company will use the
pooling-of-interests method to account for this transaction and will report the
Company's results of operations for 1995 and prior periods as if the merger
took place at the beginning of such periods.
As a condition of obtaining clearance of the transaction under the
Federal Hart-Scott-Rodino and Clayton Acts, the Company agreed to divest its
drinking water quality monitoring assets to another company. During 1995, the
Company's sales of monitors for drinking water quality represented less than
one-half of one percent of the Company's 1995 annual sales. Until such
drinking water quality monitoring assets have been divested, the Company is
required to operate Met One as a separate and distinct business.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
Financial Statements of Met One, Inc. for the fiscal years
ended June 30, 1995, 1994, and 1993, together with the related independent
auditors' report thereon appear on pages F-1 through F-15 attached hereto and
are incorporated herein by reference.
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(b) Pro Forma Financial Information.
The registrant intends to file its Annual Report on Form 10-K
not later than 60 days after this Current Report on Form 8-K must be filed with
the Securities and Exchange Commission and the registrant's financial
statements included in the Form 10-K will be restated for all periods to give
effect to the acquisition disclosed in this report. Accordingly, no pro forma
financial information will be filed as an amendment to this Form 8-K.
(c) Exhibits.
The following exhibits are filed with this report:
2.1 Agreement and Plan of Merger
2.2 Registration Rights Agreement
23 Consent of Independent Accountants
SIGNATURES
Pursuant to the requirements 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,
a California corporation
Dated: February 12, 1996 By: /s/ Richard V. Plat
--------------------------------
Richard V. Plat
Executive Vice President,
Chief Financial Officer and
Secretary
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MET ONE, INC.
Financial Statements
June 30, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
F-1
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[KPMG LETTERHEAD]
Independent Auditors' Report
The Board of Directors
Met One, Inc.:
We have audited the accompanying balance sheets of Met One, Inc. as of June 30,
1995, 1994 and 1993, and the related statements of income, stockholders'
equity, and cash flows for the 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Met One, Inc. as of June 30,
1995, 1994, and 1993, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
September 19, 1995
Portland, Oregon
F-2
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MET ONE, INC.
Balance Sheets
June 30, 1995, 1994 and 1993
Assets 1995 1994 1993
------ ---- ---- ----
Current assets:
Cash $ - - -
Trade accounts receivable, less allowance for
doubtful accounts of $30,000 in 1995, $11,000
in 1994, and $18,000 in 1993 2,281,044 1,914,605 1,741,754
Notes receivable - 26,602 24,184
Other receivables 30,000 28,599 209,010
Inventory 2,412,381 1,509,565 1,291,258
Prepaid expenses 76,510 82,831 152,728
Deferred income taxes 432,164 462,456 445,356
---------- --------- ---------
Total current assets 5,232,099 4,024,658 3,864,290
---------- --------- ---------
Property, plant and equipment:
Land 45,900 259,160 259,160
Plant and equipment 2,728,731 2,566,280 2,513,239
---------- --------- ---------
2,774,631 2,825,440 2,772,399
Less accumulated depreciation 1,676,362 1,665,760 1,505,281
---------- --------- ---------
Property, plant and equipment, net 1,098,269 1,159,680 1,267,118
---------- --------- ---------
Other assets 59,141 41,001 46,156
Deferred income taxes 13,895 18,712 18,271
---------- --------- ---------
$6,403,404 5,244,051 5,195,835
========== ========= =========
See accompanying notes to financial statements.
F-3
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Liabilities and Stockholders' Equity 1995 1994 1993
------------------------------------ ---- ---- ----
Current liabilities:
Trade accounts payable $ 506,420 266,010 208,481
Cash overdraft 598,095 591,946 637,660
Line of credit 1,636,190 1,753,906 1,636,470
Current portion of long-term debt 589,361 165,274 189,356
Notes payable to shareholder - - 190,000
Accrued expenses 1,379,413 1,023,724 849,855
---------- --------- ---------
Total current liabilities 4,709,479 3,800,860 3,711,822
Long-term debt, less current portion 63,918 773,333 915,875
---------- --------- ---------
Total liabilities 4,773,397 4,574,193 4,627,697
---------- --------- ---------
Stockholders' equity:
Common stock; $1 par value, 75,000 shares
authorized and issued; 500 shares outstanding 500 500 500
Additional paid-in capital 124,950 124,950 124,950
Notes receivable from shareholders (125,000) (125,000) (125,000)
Retained earnings 1,629,557 669,408 567,688
---------- --------- ---------
Total stockholders' equity 1,630,007 669,858 568,138
Commitments
---------- --------- ---------
$6,403,404 5,244,051 5,195,835
========== ========= =========
F-4
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MET ONE, INC.
Statements of Income
Years ended June 30, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Net sales $15,190,380 11,803,350 10,813,544
Cost of sales 6,624,996 5,471,398 5,048,278
----------- ---------- ----------
Gross profit 8,565,384 6,331,952 5,765,266
Selling, general and administrative expenses 5,745,150 4,783,405 4,835,493
Research and development expense 970,599 878,424 882,747
----------- ---------- ----------
Income from operations 1,849,635 670,123 47,026
----------- ---------- ----------
Other income (expense):
Interest income 10,677 - 15,564
Interest expense (251,882) (251,659) (246,695)
Other, net 93,953 (153,518) (43,805)
----------- ---------- ----------
Income (loss) before income taxes 1,702,383 264,946 (227,910)
Income tax expense (benefit) 742,234 163,226 (38,046)
----------- ---------- ----------
Net income (loss) $ 960,149 101,720 (189,864)
=========== ========== ==========
See accompanying notes to financial statements.
F-5
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MET ONE, INC.
Statements of Stockholders' Equity
Years ended June 30, 1995, 1994 and 1993
Common stock Additional Notes
------------------ paid-in receivable from Retained Total
Shares Amount capital shareholders earnings equity
------ ------ ------- ------------ -------- ------
Balance at June 30, 1992 450 $450 - - 757,552 758,002
Net loss - - - - (189,864) (189,864)
Issuance of stock 50 50 124,950 (125,000) - -
--- ---- ------- -------- --------- ---------
Balance at June 30, 1993 500 500 124,950 (125,000) 567,688 568,138
Net income - - - - 101,720 101,720
--- ---- ------- -------- --------- ---------
Balance at June 30, 1994 500 500 124,950 (125,000) 669,408 669,858
Net income - - - - 960,149 960,149
--- ---- ------- -------- --------- ---------
Balance at June 30, 1995 500 $500 124,950 (125,000) 1,629,557 1,630,007
=== ==== ======= ======== ========= =========
See accompanying notes to financial statements
F-6
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MET ONE, INC.
Statements of Cash Flow
Years ended June 30, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 960,149 101,720 (189,864)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 128,188 171,230 216,367
(Gain) loss on asset disposition (93,189) 6,680 3,396
Deferred income tax expense (benefit) 35,109 (17,541) (62,123)
Changes in operating assets and liabilities:
Trade accounts and other receivables (357,840) 17,560 (548,993)
Inventory (902,816) (218,307) (140,218)
Prepaid expenses 6,321 69,897 (84,470)
Other assets (18,140) 5,155 (2,416)
Trade accounts payable 240,410 57,529 (59,337)
Accrued expenses 355,689 173,869 195,271
--------- -------- --------
Net cash provided (used) by operating
activities 353,881 367,792 (672,387)
--------- -------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment (269,415) (70,472) (123,231)
Proceeds from asset disposition 295,827 - -
--------- -------- --------
Net cash provided (used) by investing activities 26,412 (70,472) (123,231)
--------- -------- --------
Cash flows from financing activities:
Payments on long-term debt (311,328) (187,729) (5,047)
Proceeds from issuance of long-term debt 26,000 21,105 42,737
Net change in line of credit (117,716) 117,436 209,894
Payments on notes payable to shareholders - (190,000) -
Proceeds from issuance of notes payable to shareholder - - 160,000
Net change in cash overdraft 6,149 (45,714) 373,850
Net change in notes receivable 16,602 (12,418) 14,184
--------- -------- --------
Net cash provided (used) by financing
activities (380,293) (297,320) 795,618
--------- -------- --------
Net change in cash $ - - -
========= ======== ========
Supplemental disclosure of cash flow information:
Federal and state income taxes paid $ 544,943 157,881 70,670
Interest paid 251,882 251,659 246,659
Supplemental disclosure of noncash transactions:
Notes receivable issued in exchange for
common stock $ - - 125,000
========= ======== ========
See accompanying notes to financial statements
F-7
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MET ONE, INC.
Notes to Financial Statements
June 30, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
Accounting policies and methods of their application that significantly
affect the determination of financial position, cash flows and results of
operations are as follows:
(a) Business Description
Met One, Inc. (the Company) manufactures particle counters which are used
in various manufacturing processes. When the Company was founded, its
main emphasis was on manufacturing meteorological and weather
instruments. Particle counters were also produced. During the late
1980's, particle counters became the focus of the Company and the
meteorological instrument line was sold in 1989. The Company has since
concentrated on manufacturing of particle counters for air, water, and
hydraulic systems.
Sales are made to both domestic and foreign customers. During the years
ended June 30, 1995, 1994 and 1993, sales to Japan comprised
approximately 12.5%, 7.2%, and 8.7%, respectively, of total sales.
(b) Basis for Reporting
The Company maintains its records on the accrual basis of accounting.
(c) Inventories
Inventories are valued at the lower of cost or market using the first-in,
first-out (FIFO) method for raw material and production costs.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation on plant
and equipment is provided using the declining balance and straight-line
methods over the estimated useful lives of the assets. Maintenance and
repairs are expensed in the year incurred; major renewals and betterments
of equipment are capitalized and depreciated over the remaining life of
the asset.
(e) Research and Development
Expenditures for research and development are charged to operations as
incurred.
(Continued)
F-8
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MET ONE, INC.
Notes to Financial Statements
(f) Income Taxes
The Company uses the asset and liability method of accounting for income
taxes (Statement 109). Under the asset and liability method, deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(g) Warranty Obligations
The Company provides the customer with a 12-month warranty from the date
of purchase. Estimated warranty costs are provided at the time of sale.
(2) Notes Receivable
During 1989, the Company sold its meteorology division, which was engaged
primarily in the sale of meteorological instruments. The sale was financed
by the Company through a long-term note, bearing interest at 10% per year.
The balance of the note was received during the fiscal year ended June 30,
1995.
(3) Other Receivables
At June 30, 1993, other receivables consisted primarily of a sales tax
refund of $181,000. The amount was paid in 1994.
(4) Inventory
Inventory consists of the following:
1995 1994 1993
---- ---- ----
Raw material $1,411,747 821,388 777,893
Work in process 397,585 188,556 63,124
Finished goods 182,489 150,435 62,682
Demonstration and other 565,560 489,186 507,559
Reserve for slow moving inventory (145,000) (140,000) (120,000)
--------- --------- ---------
$2,412,381 1,509,565 1,291,258
========== ========= =========
(Continued)
F-9
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MET ONE, INC.
Notes to Financial Statements
(5) Accrued Expenses
Accrued expenses consist of the following:
1995 1994 1993
---- ---- ----
Accrued payroll and payroll taxes $ 261,000 217,500 221,193
Accrued vacation 224,000 333,100 297,100
Accrued warranty obligations 250,000 100,000 50,000
Accrued sales and use taxes 405,458 297,932 281,562
Accrued income taxes 190,585 28,979 -
Miscellaneous 48,370 46,213 -
---------- --------- -------
$1,379,413 1,023,724 849,855
========== ========= =======
(6) Line of Credit
At June 30, 1995, the Company has an inventory and accounts receivable
financing line of credit with Western Bank which is unsecured and expires
on November 30, 1995. Generally, the revolving line of credit permits
borrowing of up to the lesser of 80% of eligible accounts receivable plus
40% of eligible inventory or $3,000,000. Interest is payable monthly at
the bank's prime rate plus 1%, 10% at June 30, 1995, with a minimum rate of
8% per annum and a maximum rate of 16% per annum.
The line of credit agreement contains restrictive covenants. At June 30,
1995, the Company was not in compliance with certain of these restrictive
covenants. The bank has granted a waiver as of that date for these events
of default.
(Continued)
F-10
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MET ONE, INC.
Notes to Financial Statements
(7) Long-term Debt
Long-term debt consists of the following:
1995 1994 1993
---- ---- ----
General Motors Acceptance Corporation,
various interest rates ranging from 9.5%
to 13%, requiring monthly principal and
interest payments with maturities ranging
from 1995 to 1998, secured by vehicles $ 51,451 58,538 91,948
Equipment notes payable to the Company's
principal interest requiring monthly
payments of principal plus interest at prime
(9% at June 30, 1995) plus 1.5%. Mature
in 1996. Secured by equipment 85,129 190,495 295,433
Mortgage payable to Josephine County,
requiring semi-annual payments of principal
and interest at 12%, maturing in 2002.
Secured by land 33,015 34,976 36,721
Mortgage payable to West One Bank,
requiring monthly payments of principal
and interest at 7.75%. Paid in 1995.
Secured by real property - 142,996 145,664
Mortgage payable to First Interstate Bank,
requiring monthly payments of principal
and interest at 11.35%, maturing in 1995.
Secured by real property 483,684 511,602 535,465
-------- ------- ---------
Total long-term debt 653,279 938,607 1,105,231
Less current portion 589,361 165,274 189,356
-------- ------- ---------
Long-term debt, less current portion $ 63,918 773,333 915,875
======== ======= =========
(Continued)
F-11
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MET ONE, INC.
Notes to Financial Statements
Future maturities of long-term debt are as follows:
Year ending June 30,
1996 $589,361
1997 26,697
1998 11,672
1999 3,128
2000 3,514
Thereafter 18,907
--------
Total $653,279
========
(8) Related Party Transactions
(a) Notes Receivable from Shareholders
On July 1, 1992, the Company issued 25 shares of common stock to each of
two employees in exchange for notes receivable. The stock issued is
pledged as security on the notes. The notes are due July 1, 1996 and
bear interest at 8% per year.
Pursuant to a stock redemption agreement, the Company has reserved the
right to purchase the shares issued to these employees if they terminate
employment with the Company before July 1, 1996 or if they have not paid
the outstanding notes related to the stock issuance after that date.
(b) Notes Payable to Shareholder
As of June 30, 1993, the Company's President and majority shareholder had
loaned the Company an aggregate of $190,000 in exchange for notes bearing
interest at 10% per year. The notes were repaid by the Company during
the year ended June 30, 1994.
(c) Leases from Shareholder
The Company has entered into several operating lease arrangements with
the Company's President and majority shareholder for facilities and
vehicles.
The vehicle lease arrangements are month-to-month and are terminable on
one months' notice.
(Continued)
F-12
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MET ONE, INC.
Notes to Financial Statements
A portion of the Company's primary manufacturing facility is leased to
the Company under a ten year operating lease expiring on July 1, 2003.
The lease agreement requires the Company to pay all executory costs such
as insurance, property taxes, and maintenance, and provides that all
leasehold improvements will revert to the lessor upon expiration of the
lease. The required monthly rental payments are adjusted annually based
on the Consumer Price Index for the Portland, Oregon metropolitan area.
Future minimum lease payments required by the facility lease are as
follows:
Year ending June 30,
1996 $ 281,220
1997 281,220
1998 281,220
1999 281,220
2000 281,220
Thereafter 843,660
----------
Total $2,249,760
==========
(d) Lease to Shareholder
During 1993, the Company leased rental property to its President and
majority shareholder for use as his principal residence. Rental income
for 1993 was approximately $12,000. The house was unoccupied during 1994
and was sold during 1995.
(9) Income Taxes
The components of income tax expense (benefit) are as follows:
1995 1994 1993
---- ---- ----
Current:
Federal $513,637 115,711 8,686
State 193,488 65,056 15,391
-------- ------- -------
Total current 707,125 180,767 24,077
Deferred 35,109 (17,541) (62,123)
-------- ------- -------
Income tax expense (benefit) $742,234 163,226 (38,046)
======== ======= =======
(Continued)
F-13
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MET ONE, INC.
Notes to Financial Statements
The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory federal tax rate (34%)
as follows:
1995 1994 1993
---- ---- ----
Computed tax expense (benefit) at the
federal statutory rate $578,810 90,081 (77,489)
State taxes, net of federal tax benefit 127,702 42,937 10,158
Other 35,722 30,208 29,285
-------- ------- -------
Income tax expense (benefit) $742,234 163,226 (38,046)
======== ======= =======
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. These temporary differences are
determined in accordance with Statement 109 and are more inclusive in
nature than "timing differences" as determined under previously applicable
accounting principles.
The tax effect of temporary differences and carryforwards which give rise
to significant portions of deferred tax assets and deferred tax liabilities
at June 30, 1995, 1994 and 1993, are as follows:
1995 1994 1993
---- ---- ----
Deferred tax assets:
Accounts receivable, due to allowance
for doubtful accounts $ 11,278 4,129 6,840
Inventory, due to additional costs
inventoried for tax purposes and
reserve for slow moving inventory 138,766 99,714 80,156
Accrued vacation pay 85,120 126,578 112,898
Warranty and other accrued liabilities 247,000 150,480 98,040
Tax credit carryforwards - 131,555 197,422
Other 21,495 22,512 18,271
-------- ------- -------
Total gross deferred tax assets 503,659 534,968 513,627
-------- ------- -------
Less valuation allowance (50,000) (50,000) (50,000)
-------- ------- -------
Net deferred tax assets 453,659 484,968 463,627
Deferred tax liabilities:
Other 7,600 3,800 -
-------- ------- -------
Total gross deferred tax liabilities 7,600 3,800 -
-------- ------- -------
Net deferred tax asset $446,059 481,168 463,627
======== ======= =======
(Continued)
F-14
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MET ONE, INC.
Notes to Financial Statements
There has been no change in the valuation allowance for deferred tax assets
since June 30, 1992. The Company has determined that it is not necessary
to establish a valuation allowance for deferred tax assets of $453,659 at
June 30, 1995, since it is more likely than not that such amount will be
realized through carryback to taxable income in prior years and through
anticipated future taxable income.
(10) Operating Leases
The Company has several noncancelable operating leases, primarily for
office space, transportation equipment, and computer equipment. Rental
expense related to operating lease agreements was $103,733, $65,757, and
$39,148 in 1995, 1994, and 1993, respectively.
Future minimum lease payments under noncancellable operating leases are as
follows:
Year ending June 30,
1996 $132,407
1997 97,844
1998 38,701
1999 19,918
2000 6,639
--------
$295,509
========
(11) Subsequent Event
On September 7, 1995, the Company's majority shareholder signed a letter of
intent to sell 100% of the common stock of the Company.
F-15
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EXHIBIT INDEX
NO. EXHIBIT
2.1 Agreement and Plan of Merger
2.2 Registration Rights Agreement
23 Consent of Independent Accountants