UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 27, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-22799
BEI TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-3274498
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Post Street, Suite 2500
San Francisco, California 94104
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(Address of principal executive offices) (Zip code)
(415) 956-4477
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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 proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
The approximate aggregate market value of the voting stock held by
non-affiliates of the Registrant as of November 24, 1997 was $66,654,900 (A). As
of November 24, 1997, 7,112,479 shares of Registrant's Common Stock were
outstanding.
(A) Based upon the closing sale price of the Common Stock on November 24, 1997
as reported on the NASDAQ National Market System. Excludes 1,557,904 shares of
Common Stock held by directors, executive officers and stockholders whose
ownership exceeds ten percent of Common Stock outstanding on November 24, 1997.
Exclusion of shares held by any person should not be construed to indicate that
such person possesses the power, direct or indirect, to direct or cause the
direction of the management or policies of Registrant, or that such person is
controlled by or under common control with Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Proxy Statement with respect to its 1998 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission is
incorporated by reference into Part III, Form 10 "General Form for Registration
of Securities," as amended (File No. 0-22799)(the "Form 10") is incorporated by
reference into Part IV.
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TABLE OF CONTENTS
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PART I
Item 1. Business....................................................................... 3
Item 2. Properties..................................................................... 15
Item 3. Legal Proceedings.............................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............................ 16
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.................................................... 16
Item 6. Selected Financial Data........................................................ 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................. 18
Item 8. Financial Statements and Supplementary Data.................................... 21
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure......................................... 40
PART III
Item 10. Directors and Executive Officers
of the Registrant.............................................................. 40
Item 11. Executive Compensation......................................................... 40
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................................................... 40
Item 13. Certain Relationships and Related Transactions................................. 40
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K........................................................ 41
Signatures ............................................................................... 45
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Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in Item 1, "Business" as well as Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PART I
ITEM 1. BUSINESS
Introduction
BEI Technologies ("Technologies" or the "Company") was incorporated in
Delaware in June 1997 and became publicly held on September 27, 1997 as a result
of the tax-free distribution of all of the outstanding common stock of
Technologies to the holders of record of BEI Electronics, Inc. (now named BEI
Medical Systems Company, Inc.) ("Electronics") common stock on September 24,
1997, on a basis of one share of Technologies common stock for every one share
of Electronics common stock outstanding on that date (the "Distribution".) For
further information including copies of the agreements governing ongoing
relationships between Technologies and Electronics, see the Form 10.
The principal business and continuing operations of Technologies are carried
out by its 100% owned subsidiary, BEI Sensors & Systems Company, Inc. ("Sensors
& Systems") which designs, manufactures and sells electronic devices that
provide vital sensory input for the control systems of advanced machinery and
automation systems. These sensors, most of which are concerned with physical
motion, provide information that is essential to logical, safe and efficient
operation of sophisticated machinery. Technologies' discontinued operations
consist of the operations of its wholly owned subsidiary, Defense Systems
Company ("Defense Systems").
The Company's long-term strategy is to provide, on a global basis, selected
advanced intelligent sensors based on proprietary technology. Technologies'
management believes that intelligent sensory input to machine control systems
and computers will be increasingly crucial to the productive functioning of a
modern economy. Accordingly, Sensors & Systems' goal is to maintain, develop and
acquire a diverse offering of advanced sensor products, and manufacture and sell
these with certain complimentary products. Finally, the Company will target
proprietary, high margin niche markets for subsystems and end products in which
its traditional sensors, micromachined sensors and complementary products play
an enabling role. The Company's near term initiatives include: (a) broad
commercialization of the "yaw" quartz rate sensor for the automotive industry
(as described below); (b) development and commercialization of other internally
developed technologies that have broad applications and that management believes
to be promising; and (c) expansion of the product line through acquisitions of
complementary technologies.
A key feature of the Company's strategy is to be widely recognized as the
most capable source for the sensor categories it has selected. Its traditional
emphasis is on highly engineered motion sensing components and assemblies. The
Company believes it differentiates itself by offering (a) appropriate technology
to solve a customer problem (including innovative proprietary technology); (b)
quality service; and (c) engineering assistance in recommending and prescribing
technical solutions for its customers' applications. Sensors' products are not
sold as commodities. Its strategy is to provide technical advice and customer
service that, together with the products themselves, create value and give the
customer confidence that the product has been expertly prescribed and applied.
By way of more specific examples, the Company's engineers regularly address
the following illustrative machine control requirements of customers:
(1) A pick and place robot needs to know how far its elbow and wrist joints
have moved in order to control the speed and position of its "hand."
(2) After a power outage, an elevator system needs to know exactly where
each car is before permitting motion to resume. (Is the car between floors or
not? Are the doors open or closed?) In both the foregoing examples, the
Company's encoders could measure speed, distance, or exact location.
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(3) An antenna on a moving ship needs to be actively stabilized so that the
antenna will continuously point at a satellite or another ship's pencil beam
laser signal. For such an application the Company might provide its proprietary
GyroChip(R) quartz rate sensor. It might also provide motor-encoders and
actuators to drive the compensating action of such a system.
(4) Some luxury automobiles now have computer-controlled stability
enhancement systems to assist drivers in maintaining control of the vehicle in
slippery conditions. In some of these systems one of the Company's sensors tells
the computer system the present direction and angle of the steering wheels,
while another of the Company's sensors instantly measures and reports the
presence of "yaw" forces which--if not corrected--could cause the vehicle to
spin out or "fishtail". The automation system in this case relies on sensors to
compare the driver's indicated directions and the actual result. The system can
then take corrective action automatically. Here the Company provides special
GyroChip quartz sensors as well as encoder and potentiometer combinations.
(5) Advanced engine control systems in tractors, trucks, and materials
handling and construction equipment need to know throttle position data in order
to assure efficient and clean combustion and safe and reliable gear changes and
other automated functions. The Company's potentiometers provide the necessary
throttle position data.
(6) Semiconductor production equipment requires extremely fast yet accurate
control of start-move-stop action on x-y positioners and tools. The Company's
magnetic actuators provide the energizing force for such tasks and its linear
encoders can measure travel and location.
(7) Process automation systems and various medical systems such as those
for cryosurgery and respiration therapy require compact, high reliability
pressure measurement and fast acting valves, which are accommodated by the
Company's silicon pressure sensors and/or magnetic actuators.
Customers and Markets
The foregoing examples illustrate a few of the thousands of machine control
situations for which the products of the Company are used. Customers who buy the
Company's products are makers and users of many different kinds of machinery and
systems used in diverse markets and industries. Important market categories
include factory automation, process automation, transportation (including cars,
trucks, mass transit, construction and farm equipment), health care and
scientific equipment, and military, space and telecommunications applications.
The Company considers its large number of customers and the vast scope of
existing and potential applications for its products to be a source of the
Company's existing business strength and an opportunity for substantial long
term growth.
The Company's brands have been well established in North America for many
years and were distributed during the past fiscal year through Sensors &
Systems' direct sales force to more than 8,200 different commercial customers,
principally in the United States. These customers included both end users and
original equipment manufacturers. The value of individual orders from commercial
customers--which account for more than two thirds of total sales--is typically
less than $100,000.
Sales from continuing operations to the U.S. Government (or prime
contractors who manage government funded projects) represented approximately 22%
of the Company's sales in fiscal 1997, 27% in fiscal 1996 and 32% in fiscal
1995. No commercial customer accounted for more than 10% of sales in fiscal year
1997, 1996 or 1995. The Company sold approximately 12% of its products in
international markets. The Company has initiated actions which it believes will
increase its penetration of international markets in fiscal year 1997.
The Company also seeks to use its proprietary sensor capabilities to create
value-added subsystems or products. The goal is to make such high margin
products, enabled by the Company's proprietary technology, a growing part of the
Company's business. For example, the Company's success in providing components
for pointing and stabilizing
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telecommunications antennae has led to it exploring the market for a proprietary
stabilized platform for optical systems that the Company may offer as a product.
Products and Proprietary Systems
The Company's main product groups may be categorized as follows:
1. Traditional sensors and complementary products,
2. Micromachined sensors, and
3. Engineered Subsystems (such as inertial measurement units, electronic
servo control systems, cryocoolers, scanner assemblies and trackballs)
A more detailed description of the products and systems designed,
manufactured and sold by the Company follows below:
Traditional Sensors and Complementary Products:
Shaft Encoders. Shaft encoders translate the motion of rotating shafts
directly into digitally coded electronic signals. These digitally coded signals
facilitate interpretation of the sensed motion by microcomputer processors that
are used to control the operation of machinery and equipment. Sensors & Systems
offers a wide array of encoders to serve a variety of applications. The most
common applications are for factory automation, office automation, and
transportation equipment, but specialized versions are also used for military
and space hardware. Value-added assemblies which employ shaft encoders include
servo motors and servo drive electronic control systems.
Brushless DC Motors. Brushless DC Motors give high performance and
efficiency in compact, lightweight packages and ease of interface with
microprocessors. The motors, which feature high energy magnets, are
characterized by long life and low acoustic and electrical noise. They are well
suited to high speed, high reliability applications, such as in respiration
therapy equipment where the risk of dust from a brush motor could be troublesome
or where electrical noise could disrupt computers or computer-controlled
equipment.
Precision Potentiometers. Similar in basic function to encoders,
potentiometers measure motion by analog (not digital) changes in electrical
potential. These changes may sometimes be subsequently translated into digital
code. Potentiometers are used as economical motion or position-sensing devices
for throttle, steering, suspension, and seat and mirror position controls in
automobiles and in some heavy equipment, such as earth movers, and construction
and farm machinery. They are also used as position sensors in such applications
as actuators on molding presses, saw mills and numerous other types of
industrial equipment and in oil well logging calipers. Incorporating Sensors &
Systems' potentiometer technology with its proprietary shaft encoder technology
has resulted in a highly engineered steering wheel position sensor used for
intelligent stability control systems for automobiles and potentially for other
vehicles in the future.
Magnetic Actuators. Magnetic actuators are used in place of cams or
solenoids to achieve precise control of short stroke linear or limited rotary
motion. Actuators using very high energy magnets are also produced for
specialized applications requiring intense force, torque or acceleration
relative to the size of the device.
Accelerometers. Accelerometers and rate sensors using traditional
mechanical technology (e.g., a moving mass suspended by a pivot and jewel
mechanism) rely on the movement of complex machined metallic parts to measure
motion.
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Linear Encoders. Linear encoders give very high accuracy, scale-based
optical measurement of linear travel over distances ranging from a few
millimeters to tens of meters. The Company has recently commenced exclusive
marketing in North America of linear encoders developed by the well known German
optical company, Carl Zeiss.
Micromachined Sensors:
Rate Sensors and Accelerometers. These products provide precise and
reliable measurement of minute linear and angular motion for control, guidance
and instrumentation. In general, these devices operate without need for direct
linkage to the driving mechanisms. Such measurements are required for heading
and attitude reference instruments in aircraft and missiles, stabilization of
satellites, pointing and control of antennae on aircraft, ships and other moving
platforms, navigation of oil well drill bit assemblies, and for intelligent
vehicle stability and navigation systems in the automotive industry. In
contrast, Sensors & Systems' miniature, solid state accelerometers and rate
sensors are based on innovative and proprietary chemical micro-machining of a
single element from crystalline quartz using photolithographic methods similar
to those used in the manufacture of silicon semiconductor chips. The advantages
of quartz rate sensors and accelerometers over traditional mechanical units are
increased reliability, reduced size, and lower production and life cycle costs.
BEI GyroChip(R) Sensors. The Company's family of GyroChip quartz rate
sensors, developed primarily to accommodate the need for reliable and high
precision yet economical gyros, have found use in such varied requirements as
navigation of autonomous (robotic) guided vehicles, ocean buoy and sea-state
monitoring, and stabilization of pointing systems for antennas and optical
systems. The most frequent use of GyroChip units is as yaw sensors in stability
control or spin-out prevention systems for automobiles. GyroChip sensors provide
performance suitable for commercial applications while offering ruggedness,
longer life and smaller size at a lower cost than military versions of quartz
rates sensors.
Pressure Sensors. Pressure sensors measure absolute or differential
pressure from vacuum to 10,000 psi. Various sensing technologies are used
including silicon micromachined structures used for commercial and industrial
markets. The Company provides standard products as well as application specific
solutions to pressure measurement requirements.
Micro-Electromechanical Structures (MEMS). MEMS are a new category of ultra
small devices, usually micro-machined from crystalline materials such as quartz
or silicon. The GyroChip sensors and other quartz devices discussed above are
examples of MEMS currently being sold by Electronics. Management expects the
Company's MEMS research and development programs to lead to new devices for
sensing motion, pressure and other physical parameters.
Engineered Subsystems:
Inertial Measurement Units (IMU's). These subsystems are a fundamental
element of virtually all inertial navigation and position or attitude reporting
systems. Even systems that rely on the Global Positioning Satellite (GPS)
network frequently must have an IMU built in to assure a back-up in case the GPS
signal is interrupted. Technologies' quartz rate sensors have made new
breakthroughs in size, reliability and cost for the proprietary IMU subsystems
it sells.
Cryocoolers. The Company's proprietary, compact and lightweight stirling
cycle refrigerators are designed for cooling advanced electronic vision sensors
to liquid nitrogen temperatures. These cryocoolers are utilized in infrared
cameras used in surveillance, night vision pilotage systems and superconducting
applications.
Scanner Assemblies. Scanner assemblies are an integral subsystem of the
optics in military night vision systems that guide the infrared image to the
focal plane sensor array. These subsystems consist of spinning or reciprocating
mirrors, a motor and an encoder in a precision servo loop. The Company's motion
control know-how helps assure that the scanner delivers jitter-free,
well-resolved images.
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Servo Systems. Servo Systems are closed-loop electronic systems that
control the position or velocity of rotating shafts or other moving parts by
noting a desired rate of movement or position (usually input from computers or
keyboards), monitoring the actual position or rate of movement (using an
appropriate encoder or other sensor) and constantly providing feedback that
indicates whether further action is required to achieve or maintain the desired
performance has been achieved.
Trackballs. BEI's trackballs have flexible and rugged designs that allow
them to be an integral part of a keyboard as well as stand-alone cursor
positioners. They are used in ultra-sound scanning machines, factory automation
and defense applications. The flexibility is provided by the interface
electronics design that accommodates various standard and customized interfaces
and rugged performance is provided by a proprietary ball sealing technique that
allows operation in harsh environments.
Backlog
Backlog of the Company's continuing business, Sensors & Systems, at
September 27, 1997 and at September 28, 1996, was $46,696,000 and $39,832,000,
respectively.
The Company's commercial operations typically ship standard products within
30 to 90 days after receipt of a purchase authorization. Management of the
Company believes that its competitive position depends in part on minimizing the
time that elapses between receipt and shipment of an order. Products that
require special analysis, design or testing, such as those produced for
customers in the aviation, defense or space technology markets, are generally
shipped from six to eighteen months after receipt of the purchase authorization.
Backlog includes aggregate contract revenues remaining to be earned by the
Company principally over the next twelve months of scheduled deliveries under
existing contracts. Some contracts undertaken by Sensors & Systems extend beyond
one year. Accordingly, portions of certain contracts are carried forward from
one year to the next as part of backlog. Approximately 88% of the backlog as of
September 27, 1997 is scheduled for shipment during fiscal 1998; all of the
remainder of the backlog is scheduled for shipment during fiscal 1999.
In the case of U.S. Government contracts, backlog includes only the
applicable portion of contracts that are fully funded by a procuring Government
agency. All U.S. Government contracts and subcontracts are subject to
termination by the U.S. Government for convenience. There can be no assurance
that all existing contract backlog will eventually result in revenue and,
accordingly, the amount of backlog at any date is not necessarily a reliable
indicator of future revenue or profitability trends.
Competition
Competitors for various products offered by the Company are found among
certain divisions or product lines of large, diversified companies such as
Allied-Signal, Boeing, Danaher Corp., Honeywell, Litton and Panasonic. There are
smaller or product-specific companies, some of whose products compete include
Axsys Technologies, CTS Corp., Dynamics Research Corp., Heidenhain, Kollmorgen,
Kulite Semiconductor, Pacific Scientific, and Servo Magnetics Corp.
In its principal markets, the Company believes that competition is based
primarily on design, performance, reliability, price, delivery, service and
support. The Company believes that it competes favorably with respect to these
factors.
Manufacturing
The Company's manufacturing operations provide a mix of standard catalog
products and products designed to meet the specialized requirements of a
particular customer. The Company's products, whether standard or "custom", are
normally manufactured in response to customers' orders and are in general not
held as finished goods. Most are assembled from parts or subassemblies that are
proprietary to the Company.
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A special code pattern generator designed by and proprietary to the Company
is used to produce shaft encoder parts. Special quartz micromachining equipment
is used for the production of QRS units. Special high throughput automated or
semi-automated equipment is used for the production of QRS assemblies, brushless
motors and potentiometers. Some parts are fabricated under clean room
conditions.
The Company's production of automotive yaw sensors requires scaling-up its
normal production to the quantities required by the automobile market. The
Company has initiated production engineering measures to support the
fabrication, assembly, and testing of new sensors in the appropriate quantities.
Research and Development
The major research and development focus has been to improve performance
and yield of existing products, with special emphasis on the quartz sensors used
in high accuracy IMU's and high volume yaw rate sensors for the automotive
industry. Substantial effort has also been devoted to the development of
manufacturing methods necessary to deliver competitive prices and quality in the
automotive market. Other development has focused on expanding applications of
existing sensors and utilizing the Company's various complimentary products to
create the capability to electronically stabilize platforms.
The Company has also produced prototypes of future products incorporating
silicon micro-electromechanical structures (MEMS) geared towards next generation
requirements for automotive, medical, industrial and aerospace markets.
Management of the Company believes that its future success will depend in
part on its ability to continue to enhance its existing products, and to develop
and introduce new products that maintain technological leadership, meet a wider
range of customer needs and achieve market acceptance. Accordingly, the
Company's internally funded research, development and related engineering
expenditures were approximately $4.9 million, $3.6 million and $4.0 million in
fiscal 1997, 1996, and 1995, respectively. In addition, customer funded research
and development expenditures charged to cost of sales were $1.1 million, $3.0
million and $6.3 million, respectively, for the same periods. Development of the
quartz rate sensor comprised most of prior years' customer funded research and
development expenditures. As these sensors have gone from development to
production, there has been a corresponding decrease in customer funded research
and development expenditures.
Employees
As of September 27, 1997, the units comprising Technologies had 977
employees, including 122 in research, development and engineering, 77 in
administration, 72 in marketing and sales, and 706 in operations. The Company
believes that its continued success depends on its ability to attract and retain
highly qualified personnel. The Company's employees are not covered by
collective bargaining agreements. The Company has not experienced any work
stoppages and considers its relationship with its employees to be good.
Intellectual Property
The Company relies primarily upon trade secrets and know-how to develop and
maintain its competitive position. In addition the Company and its subsidiaries
own 79 U.S. patents and 45 foreign patents with expiration dates ranging from
December 1997 to October 2014. Because many of these patents relate to
technology that is important to certain of the Company's products, the Company
considers these patents to be significant to its business.
While management believes that the Company's intellectual property rights
are important, management also believes that because of the rapid pace of
technological change in the industries in which the Company competes, factors
such as innovative skills, technical expertise, the ability to adapt quickly to
technological change and evolving customer requirements, product support and
customer relations are of equal competitive significance.
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Environmental Matters
The Company uses certain controlled or hazardous materials in its research
and manufacturing operations and, as a result, is subject to federal, state and
local regulations governing the storage, use and disposal of such materials.
Management of the Company believes that it is currently in compliance with such
laws and regulations.
Government Regulation
The Company is subject to significant regulation by the U.S. Government
with respect to a variety of matters affecting its business, including the
matters set forth below and as discussed in the "Risk Factors--Contracting with
the U.S. Government" below.
Facility Security Clearance
The Company has several facility security clearances from the U.S.
Government. A portion of the Company's net sales in fiscal 1997, 1996 and 1995
was derived from work for which this clearance was required. Continuation of
this clearance requires that the Company remain free from foreign ownership,
control or influence (FOCI). In addition, the Company is required to comply with
the regulations promulgated by the Defense Investigative Service (DIS), which
relate, in large part, to the Company's control of classified documents and
other information. Management does not believe that there is presently any
substantial risk of FOCI or DIS noncompliance that would cause any of its
security clearances to be revoked.
Regulation of Foreign Sales
Certain of Sensors and Systems' exports are subject to restrictions
contained in the U.S. Department of State's International Traffic in Arms
Regulations and require export licenses in order to be sold abroad. Non-defense
related foreign sales are generally governed by the Bureau of Export
Administration of the U.S. Commerce Department which also frequently requires
export licenses. The Company's net sales from continuing operations to foreign
customers constituted approximately 11.8%, 11.3% and 11.0% of revenues for
fiscal 1997, 1996 and 1995, respectively. To date, the Company has not
experienced any significant difficulties in obtaining the requisite licenses. In
addition, the Company is subject to the Foreign Corrupt Practices Act, which
prohibits payments or offers of payments to foreign officials for the purpose of
influencing an act or decision by a foreign government, politician or political
party in order to assist in obtaining, retaining or directing business to any
person.
RISK FACTORS
Competition
Competitors for various products offered by Technologies are noted above
under "Business--Competition". In addition, the Company also may compete with
manufacturers of competing technologies, such as resolvers, inductosyns, laser
and fiber optic gyros and magnetic encoders. Many of the Company's existing
competitors in each market, and also a number of potential entrants into these
markets, have significantly greater financial resources and manufacturing
capabilities, are more established, have larger marketing and sales
organizations and larger technical staffs. There can be no assurance that other
companies will not develop more sophisticated, more cost-effective or otherwise
superior products which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Limited Manufacturing Experience; Scale-Up Risk; Product Recall Risk
Technologies is in the process of scaling up production of its automotive
yaw sensors for the quantities required by the automobile market. The Company
has relatively limited experience in large-scale manufacturing. The Company
currently manufactures moderate quantities of its automotive yaw sensor in the
Concord, California facility and its
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steering sensor in the Tustin, California facility. Manufacturers sometimes
encounter difficulties in scaling up production of new products, including
problems involving production yields, quality control and assurance, component
supply and shortages of qualified personnel. If such difficulties were
encountered by the Company in manufacturing scale-up, they could have a material
adverse effect on its business, financial condition and results of operations.
There can be no assurance that future manufacturing difficulties or product
recalls, either of which could have a material adverse effect on the Company's
business, financial condition and results of operations, will not occur.
Research and Development
The Company depends in part on its research and development initiatives to
provide new products and product improvements which will maintain the Company's
favorable reputation in its various markets. There can be no assurance that the
outcome of its research and development activity will yield the desired results.
Manufacturing Processes and Equipment
The Company manufactures certain products such as quartz rate sensors and
some shaft encoders using highly complex proprietary processes and equipment.
The possibility exists that equipment could be damaged or that process
disciplines and controls could be temporarily lost. Such events could disrupt
production, which could have a material adverse effect on the Company's business
and results of operations.
Dependence Upon Key Personnel
The Company is dependent upon a number of key management and technical
personnel. The loss of the services of one or more key employees could have a
material adverse effect on the Company. The Company's success will also depend
on its ability to attract and retain additional highly qualified management and
technical personnel. The Company faces intense competition for qualified
personnel, many of whom are often subject to offers from competing employers.
There can be no assurance that the Company will be able to retain its key
employees, or that it will be able to attract or retain additional skilled
personnel as required. The Company does not currently maintain key person
insurance on any employee. See "Business--Employees" and "Business--Directors
and Executive Officers of the Company."
Dependence Upon Key Suppliers
Although the majority of the components used in Company products are
available from multiple sources, several components are built or provided to
Technologies' specifications. Such components include quartz, supplied by Sawyer
Research Products, Inc.; scanner motors, supplied by Litton Industries, Inc.;
three types of ASIC's, supplied by National Semiconductor Corporation, Honeywell
Inc. and Semtech Corp.; and two types of LED's, supplied by Optek Technology,
Inc. and Opto Diode Corp. While the Company currently relies on single suppliers
for these components, in each instance, the Company is aware of alternative
suppliers and believes the components could be manufactured by these alternative
suppliers with minimal supply reduction should the need arise to change vendors.
To date, the Company has not experienced any significant interruptions in the
supply of these components, but there can be no assurance that there will not be
a significant disruption in the supply of such components in the future, or in
the event of such disruption, that the Company will be able to locate
alternative suppliers of the components with the same quality at an acceptable
price. An interruption in the supply of components used in the manufacture of
the Company's products, particularly as the Company scales up its manufacturing
activities in support of commercial sales, could have a material adverse effect
on the Company's business, financial condition and results of operations.
Contracting with the U.S. Government
Approximately 22%, 27% and 32% of the net sales of units comprising the
continuing operations of Technologies in fiscal 1997, 1996 and 1995,
respectively, were derived from contracts with the U.S. Government or under
subcontract to other prime contractors to the Government. Because a significant
portion of Technologies' business is derived from contracts with the Department
of Defense or other agencies of the Government, the Company's business is
sensitive to changes in Government spending policies, which can have significant
variations from year to year. At various times,
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the Company's results have been adversely affected by contract cutbacks and
there can be no assurance that the Company's results of operations will not in
the future be materially and adversely affected by changes in Government
procurement policies or reductions in Government expenditures for products
furnished by the Company.
Under applicable regulations, various audit agencies of the Government
conduct regular audits of contractors' compliance with a variety of Government
regulations. The Government also has the right to review retroactively the cost
records under most Government contracts. Contract prices may be adjusted in the
event the Government determines that the Company submits incomplete, inaccurate
or obsolete cost or pricing data. Government contracts and subcontracts
generally provide for either a fixed price, negotiated fixed price or
cost-plus-fixed-fee basis for remuneration. The majority of the contracts with
the Government are competitive fixed price or negotiated fixed price contracts,
although cost-plus-fixed-fee contracts were approximately 3% of the Company's
net sales from continuing operations in fiscal 1997. For fixed price contracts,
the Company bears the risk of cost overruns and derives the benefits from cost
savings. As a result, greater risks are involved under fixed price contracts
than under cost-plus contracts because failure to anticipate technical problems,
estimate costs accurately or control costs during contract performance may
reduce or eliminate the contemplated profit or may result in a loss.
All Government contracts contain termination clauses that allow the
contract to be terminated either for contractor default or for the convenience
of the Government. In the event of termination for the convenience of the
Government, the clause typically provides that the contractor will receive
payment for work-in-progress, including profit. To date, termination of Sensors
& Systems' contracts by the Government has not had any significant effect on the
Company's financial results. However, no assurance can be given that such
terminations will not have a materially adverse effect on the Company's results
of operations in the future.
Portions of the Company's government business are sometimes classified. As
a result, the Company may be prohibited from disclosing the substance or status
of such business.
11
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company and their ages as of
December 1, 1997 are as follows:
Name Age Position
Charles Crocker.................. 58 President, Chief Executive Officer
and Chairman of the Board of
Directors
Gary D. Wrench................... 64 Senior Vice President, Chief
Financial Officer and Director
Dr. Asad Madni................... 50 Vice President and Director
Richard M. Brooks(1)(2).......... 69 Director
George S. Brown(2)............... 76 Director
C. Joseph Giroir, Jr.(1)(2)...... 58 Director
Dr. William G. Howard, Jr.(1).... 56 Director
Dr. Robert Mehrabian(1).......... 56 Director
Dr. Lawrence A. Wan.............. 59 Vice President, Chief Technical
Officer
Robert R. Corr................... 51 Secretary, Treasurer & Controller
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Directors
Mr. Crocker began serving as a Director in June 1997 prior to the
Distribution and spin-off of the Company from Electronics in September 1997. He
was a founder of Electronics and has served as Chairman of the Board of
Directors of Electronics since October 1974, and Chairman of the Board of
Directors of Technologies since October 1997. Mr. Crocker assumed the positions
of President and Chief Executive Officer of Technologies, effective October 1,
1997, after resigning as President and CEO of Electronics as a result of the
Distribution. Mr. Crocker served as President of Crocker Capital Corporation, a
Small Business Investment Company, from 1970 to 1985, and as General Partner of
Crocker Associates, a venture capital investment partnership, from 1970 to 1990.
He currently serves as a director of Fiduciary Trust Company International, Pope
& Talbot, Inc. and KeraVision. Mr. Crocker holds a B.S. from Stanford University
and an M.B.A. from the University of California, Berkeley.
Mr. Wrench began serving as a Director in June 1997 prior to the
Distribution and spin-off of the Company from Electronics in September 1997. He
was Senior Vice President and Chief Financial Officer of Electronics from July
1993 until his resignation as a result of the Distribution. He currently holds
these same positions with Technologies. He served as a Director of Electronics
since February 1986, and continues to serve as a director of both Electronics
and Technologies. From April 1985 to July 1993, he served as Vice President of
Electronics and President and Chief Executive Officer of BEI Motion Systems
Company, Inc., then a wholly owned subsidiary of Electronics that is now a part
of Sensors & Systems. Other experience includes twenty years with Hughes
Aircraft Company including an assignment as President of Spectrolab, Inc., a
Hughes subsidiary. Mr. Wrench holds a B.A. from Pomona College and an M.B.A.
from the University of California, Los Angeles.
Dr. Madni began serving as a Director and as a Vice President of the
Company in June 1997 prior to the Distribution and spin-off of the Company from
Electronics in September 1997. Dr. Madni was appointed President of Sensors &
Systems in October 1993, which was formed by the consolidation of BEI Motion
Systems Company and the BEI Sensors and Controls Group, of which Dr. Madni was
President since October 1992. Prior to joining BEI in 1992, he served for 17
years in various executive and technical management positions with Systron
Donner Corporation, a manufacturer of avionics and aerospace sensors and
subsystems. He was most recently Chairman, President and CEO
12
<PAGE>
of Systron Donner Corporation, a subsidiary of Thorn/EMI. Dr. Madni's degrees
include a Bachelor of Science and Master of Science in Engineering from the
University of California, Los Angeles and a Ph.D. in Engineering from California
Coast University. He is a fellow of the Institute of Electrical and Electronics
Engineers.
Mr. Brooks is currently an independent financial consultant. He began
serving as a Director in June 1997 prior to the Distribution and spin-off of the
Company from Electronics in September 1997. From 1987 until his resignation as a
result of the Distribution, he served as a director of Electronics. From 1987 to
1990, he served as President of SFA Management Corporation, the managing general
partner of St. Francis Associates, an investment partnership. He currently
serves as a director of Longs Drug Store Corporation, Granite Construction
Incorporated and the Western Farm Credit Bank, a private company. Mr. Brooks
holds a B.S. from Yale University and an M.B.A. from the University of
California, Berkeley.
Mr. Brown began serving as a Director in June 1997 prior to the
Distribution and spin-off of the Company from Electronics in September 1997. He
served as a director of Electronics from October 1974 until his resignation as a
result of the Distribution. Mr. Brown served as President and Chief Executive
Officer of Electronics from October 1974 until July 1990. Mr. Brown served from
1971 until 1974 as Executive Vice President and General Manager of Baldwin
Electronics, Inc., a subsidiary of D.H. Baldwin Company and the predecessor of
Electronics. Mr. Brown holds a B.S.E.E. from the University of Oklahoma.
Mr. Giroir began serving as a Director in June 1997 prior to the
Distribution and spin-off of the Company from Electronics in September 1997. He
was a director of Electronics from 1978 until his resignation as a result of the
Distribution. He served as the Secretary of Electronics from 1974 to early 1995.
He is currently a member of the law firm of Giroir, Gregory, Holmes & Hoover,
plc. From 1965 to 1988, Mr. Giroir was a member of Rose Law Firm, a Professional
Association. Mr. Giroir holds a B.A. and an L.L.B. from the University of
Arkansas and an L.L.M. from Georgetown University.
Dr. Howard began serving as a Director in June 1997 prior to the
Distribution and spin-off of the Company from Electronics in September 1997. He
was a director of Electronics from December 1992 until his resignation as a
result of the Distribution. He is currently an independent consulting engineer
in microelectronics and technology-based business planning. From 1987 to 1990,
Dr. Howard served as Senior Fellow of the National Academy of Engineering and,
prior to that time, held various technical and management positions with
Motorola, Inc., most recently as Senior Vice President and Director of Research
and Development. He currently serves as a director of Credence Systems, Inc.,
RAMTRON International Corp., VLSI Technologies, Inc., and Xilinx, Inc. Dr.
Howard holds a B.E.E. and an M.S. from Cornell University and a Ph.D. in
electrical engineering and computer sciences from the University of California,
Berkeley.
Dr. Mehrabian began serving as a Director in June 1997 prior to the
Distribution and spin-off of the Company from Electronics in September 1997. He
was a director of Electronics from June 1997 until his resignation as a result
of the Distribution. He is Senior Vice President and Executive in charge of
Aeronautics and Electronic segment of Allegheny Teledyne, Inc. From 1990 through
June 1997, he was president of Carnegie Mellon University. He is an
internationally recognized materials scientist, with numerous awards including
membership in the National Academy of Engineering. He serves on the boards of
directors of Allegheny Teledyne, Inc., Mellon Bank Corporation, Mellon Bank,
N.A., and PPG Industries. Dr. Mehrabian holds B.S. and Sc.D. degrees from
Massachusetts Institute of Technology (MIT).
Classified Board of Directors
The Company has a classified Board of Directors, which may have the effect
of deterring hostile takeovers or delaying changes in control of management of
the Company. For purposes of determining their term of office, directors are
divided into three classes, with the term of office of the first class to expire
at the 1998 annual meeting of stockholders, and the term of office of the second
class to expire at the 1999 annual meeting of stockholders and the term of
office of the third class to expire at the 2000 annual meeting of stockholders.
Class I consists of Mr. Brown and Mr. Crocker; Class II consists of Mr. Giroir,
Dr. Madni and Mr. Wrench; and Class III consists of Mr. Brooks, Dr.
13
<PAGE>
Howard and Dr. Mehrabian. Directors elected to succeed those directors whose
terms expire will be elected to a three year term of office. All directors hold
office until the next annual meeting of stockholders at which their terms expire
and until their successors have been duly elected and qualified. Executive
officers serve at the discretion of the Board. There are no family relationships
between any of the officers and directors.
Executive Officers
In addition to Messrs. Crocker and Wrench and Dr. Madni, whose positions
with Technologies, experience and educational background are described under
"Directors" above, the following persons are also Executive Officers of
Technologies:
Dr. Wan is Vice President of Engineering for Sensors & Systems and is
President of Sensors & Systems' subsidiary, SiTek Inc. Dr. Wan served as Vice
President, Corporate Technology for Electronics since April 1991 until the
Distribution in September 1997. Dr. Wan resigned from his current position with
Electronics immediately prior to the Distribution and is now Vice President, and
Chief Technical Officer for Technologies and a director of Electronics. From
1984 until 1990, Dr. Wan served as Vice President, Engineering for Systron
Donner Corporation. Between 1979 and 1984, he held various technical and general
management positions with Systron Donner Corporation. From 1968 to 1979, he
served as Chief Executive Officer for Sycom, Inc. a commercial electronics
company which he founded. From 1964 to 1968, he worked for Hughes Aircraft
Company, where he headed the Radar Systems Section of the Hughes Ground Systems
Group. In 1962, Dr. Wan and two other professors established an Engineering
School at University of California, Santa Barbara, where he also taught
Engineering. Dr. Wan holds B.S., M.S. and Ph.D. degrees in Engineering and
Applied Sciences from Yale University.
Mr. Corr became Secretary, Treasurer and Controller of Technologies in
September 1997 and held these same positions with Electronics prior to the
Distribution in September 1997. Mr. Corr resigned from his positions with
Electronics immediately prior to the Distribution. Mr. Corr was named Secretary
of Electronics in February 1995 and served as Controller from November 1989 and
as Treasurer from November 1987 until the Distribution. From 1978 to 1987, he
was employed by AMPEX Corporation, an electronics and magnetic media company, in
various financial positions. From 1975 to 1978, he was an auditor with Arthur
Andersen LLP. Mr. Corr received a B.B.A. from Loyola University and is a
Certified Public Accountant in the State of California.
14
<PAGE>
ITEM 2. PROPERTIES
The Company's principal executive offices are located in leased office space in
San Francisco, California, under a lease which expires in 1998. The Company owns
or operates eight other facilities that relate to the business and maintains
office space in various locations throughout the United States for sales and
technical support. None of the owned principal properties is subject to any
encumbrance material to the consolidated operations of the Company. In addition
to its executive offices, the Company's principal facilities are as follows:
Location Description of Facility
- --------------------------------------------------------------------------------
Maumelle, Arkansas Owned 50,000 square foot manufacturing,
engineering, administrative and research and
development facility.
Concord, California Owned 101,000 square foot manufacturing,
engineering and administrative facilities.
Tustin, California Leased 80,000 square foot manufacturing,
engineering and administrative facility.
Goleta, California Owned 22,000 square foot manufacturing,
engineering and administrative facility.
Campbell, California Subleased 5,000 square foot manufacturing,
administrative and research and development
facility.
San Marcos, California Leased 35,000 square foot manufacturing,
engineering and administrative facilities.
Sylmar, California Subleased 83,000 square foot manufacturing,
engineering and administrative facility.
Euless, Texas Owned 72,000 square foot manufacturing,
engineering and administrative facility and
subleased 2,000 square foot warehouse, used
primarily for record storage.
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company has pending various legal actions arising in the normal course of
business. Management believes that none of these legal actions, individually or
in the aggregate, will have a material impact on the Company's business,
financial condition, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On September 26, 1997, Technologies issued and sold 7,114,803 shares of common
stock to Electronics in exchange for those assets of Electronics which were not
related to Electronics' medical device business, and on September 27, 1997,
pursuant to Division of Corporation Finance Staff Legal Bulletin No. 4 dated
September 16, 1997, all of the outstanding common stock of Technologies was
distributed by Electronics to its stockholders, on the basis of one share of
Technologies common stock received for each share of Electronics common stock
held on that date. For further discussion of this transaction see the Form 10.
The Company's common stock commenced regular way trading on the NASDAQ National
Market System under the symbol "BEIQ" on October 8, 1997. The closing stock
price on November 24, 1997 was $12.00 per share.
As of November 24, 1997, there were approximately 1,300 holders of record of the
Company's common stock. The Board of Directors has declared a dividend for the
first quarter of fiscal 1998 of $.02 per share of common stock payable to
stockholders of record at December 8, 1997, on December 23, 1997. Payment of
dividends is within the discretion of the Company's Board of Directors, will be
subject to periodic review and will depend, among other factors, upon the
earnings, capital requirements, operating results and financial condition of the
Company from time to time. There are no restrictions on the Company's ability to
pay dividends provided the covenants set forth in its bank credit agreement and
Senior Note Agreement are met (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
and Note 5 to the Consolidated Financial Statements). The covenants primarily
concern certain operating ratios and minimum balances of tangible net worth.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
The selected financial data for the five fiscal years presented below is derived
from the audited Consolidated Financial Statements of the Company. The data
should be read in conjunction with the Consolidated Financial Statements and
their related Notes, and the other financial information included therein.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended
-----------------------------------------------------------------------------
September 27, September 28, September 30, October 1, October 2,
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales $101,539 $ 96,746 $ 90,475 $ 82,361 $ 89,391
Net income(loss) from
continuing operations 2,997 2,873 (964) 321 599
Earnings(loss) from continuing
operations per common and
common equivalent share 0.42 0.40 (0.14) 0.05 0.09
Weighted average shares
outstanding 7,203 7,108 6,759 6,807 6,783
Balance Sheet Data:
Working capital $ 26,967 $ 27,775 $ 29,774 $ 39,179 $ 35,052
Total assets 89,409 92,171 92,418 97,852 92,361
Long-term debt (excluding
current portion) 27,508 24,137 29,765 29,860 18,779
Stockholders' equity 36,617 33,246 28,863 30,928 41,318
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in this section and "Business."
<TABLE>
The following table sets forth, for the fiscal periods indicated, the
percentage of net sales represented by certain items in the Company's
Consolidated Statements of Operations. The table and the accompanying analysis
covers periods in which the businesses now carried on by Technologies were
operated by Electronics. However, the table and analysis have been prepared as
if the Company and its businesses were a separate entity for all periods
discussed.
<CAPTION>
Year Ended
----------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net sales ..................................................... 100.0% 100.0% 100.0%
Cost of sales ................................................. 64.3 62.5 62.8
----- ----- -----
Gross profit .................................................. 35.7 37.5 37.2
Operating expenses:
Selling, general and administrative expenses ............. 24.6 27.0 28.3
Provision for royalty and related expenses ............... -- -- 3.9
Research, development and related expenses ............... 4.8 3.7 4.4
----- ----- -----
Operating income .............................................. 6.3 6.8 0.6
Other income .................................................. 0.3 0.2 0.2
Interest expense .............................................. (1.9) (2.5) (2.5)
----- ----- -----
Income (loss) before income taxes from continuing operations .. 4.7 4.5 (1.7)
Income taxes (benefit) ........................................ 1.8 1.5 (0.7)
----- ----- -----
Income (loss) from continuing operations ...................... 2.9 3.0 (1.0)
Income (loss) from discontinued operations, net of income taxes 1.6 1.7 (1.3)
----- ----- -----
Net Income (loss) ............................................. 4.5% 4.7% (2.3)%
===== ===== =====
</TABLE>
Continuing Operations
Net Sales
In fiscal 1997, net sales from continuing operations increased 5.0% to
$101.5 million from $96.7 million in fiscal 1996, primarily reflecting the
continued growth in sales to commercial customers, including those for
industrial, automotive and medical markets, offset by decreased sales for
government programs.
In fiscal 1996, net sales from continuing operations increased 6.9% to
$96.7 million from $90.5 million in fiscal 1995. This increase reflects the
continued growth in sales to commercial customers, including those for
industrial, automotive and medical markets.
The Company's sales to international customers were approximately 11.8%,
11.3%, and 11.0% of the Company's net sales from continuing operations for
fiscal 1997, 1996 and 1995, respectively.
18
<PAGE>
Cost of Sales and Gross Profit
In fiscal 1997, cost of sales as a percentage of net sales increased 1.8%
due primarily to costs associated with the startup of production for new
automotive sensors and cryocoolers, as well as changes in product mix.
During fiscal 1996, the cost of sales as a percentage of sales from
continuing operations remained relatively flat, decreasing 0.3% to 62.5% from
62.8% in fiscal 1995.
Downward pressure on gross profit margins continues for both commercial and
government contracts. Management continues to implement measures intended to
reduce costs and improve average margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of net sales
from continuing operations were 24.6%, 27.0%, and 28.3% in fiscal 1997, 1996 and
1995, respectively.
Fiscal 1997 selling, general and administrative expenses decreased $1.2
million from $26.2 million in fiscal 1996 to $25.0 million in fiscal 1997 due
primarily to increased effort to control corporate costs.
Fiscal 1996 selling, general and administrative expenses increased $0.6
million from $25.6 million in fiscal 1995 to $26.2 million. Selling, general and
administrative expenses increased to support sales to commercial customers, with
a portion of the increase offset by declines in expenses related to sales for
government programs.
Research, Development and Related Expenses
The Company's internally funded research, development and related expenses
as a percentage of net sales from continuing operations were 4.8%, 3.7%, and
4.4% for fiscal 1997, 1996 and 1995 respectively.
Research and development expenses in fiscal 1997 increased 34.9% reflecting
the Company's continued emphasis on developing new products for commercial
markets. Product programs included work on silicon micro-electromechanical
structures (MEMS), stabilized platforms, and sensors for stability control
systems.
Research and development expenses declined slightly in fiscal 1996 from
fiscal 1995 as engineering effort was shifted to manufacturing support as
production of new automotive sensors began to ramp up.
The Company believes that the continued timely development of new products
and enhancements to its existing products is essential to maintaining its
competitive position. Accordingly, the Company anticipates that such expenses
will increase in absolute amount, but may fluctuate as a percentage of sales
depending on the Company's success in acquiring customers or, in some cases,
U.S. Government funding.
Interest Expense and Other Income
Interest expense was $1.9 million , $2.4 million and $2.3 million in fiscal
1997, 1996 and 1995 respectively. Interest expense primarily relates to the
Senior Note debt which was assumed by Technologies from Electronics in the
Distribution. New term debt of $9.0 million was issued by BEI Sensors & Systems
Company immediately prior to fiscal year end to pay a portion of intercompany
balances due to Electronics prior to the Distribution (see Note 5 to the
Consolidated Financial Statements.)
Other income in fiscal 1997, 1996, and 1995 is comprised of royalty income
and interest income earned on highly liquid investments. Other income as a
percentage of sales was approximately 0.3% in fiscal 1997 and has remained flat
since fiscal 1995.
19
<PAGE>
Income Taxes
The Company's effective tax (benefit) rate was 37.4%, 33.0% and (38.4%),
for fiscal 1997, 1996 and 1995, respectively. The effective tax rate reflects
the statutory federal tax rate and the weighted average tax rate of the states
in which the Company conducts business. The fiscal 1996 tax rate reflects
realization of additional federal and state tax credits for research and
development.
Deferred Income Taxes
At September 27, 1997, the Company had net current deferred income tax
assets of $4.6 million. Realization of the net deferred tax assets is dependent
upon the Company generating sufficient taxable income in future years to obtain
benefit from the reversal of the underlying temporary differences.
Discontinued Operations
Income (loss) for Defense Systems was $1.6 million, $1.7 million and $(1.1)
million in fiscal 1997, 1996 and 1995, respectively. The fiscal 1997 income
reflects follow-on orders for electronics products to support customers'
requirements. The fiscal 1996 income reflects the receipt of a $3.6 million
pre-tax settlement for a prior year H 70 contract (see Note 2 to the
Consolidated Financial Statements.) The $(1.1) million loss in 1995 was due
primarily to additional contract completion costs of $1.5 million associated
with the wind up of the rocket related business.
Liquidity and Capital Resources
In connection with the Distribution, the Company assumed existing
indebtedness of Electronics consisting of $22.4 million of Senior Notes. In
order to support its initial funding needs, Sensors & Systems borrowed $9.0
million from a bank. Sensors & Systems transferred $9.0 million to Electronics
prior to the Distribution to repay a portion of amounts payable to Electronics.
Subsequent to the fiscal year end and the Distribution, Technologies established
a $25.0 million line of credit with the same bank under which it borrowed $13.0
million to repay the $9.0 million borrowed by Sensors & Systems and to make a
scheduled payment on the Senior Notes. The new line of credit expires in
September 2000 (see Note 5 to the Consolidated Financial Statements).
During fiscal 1997, operations provided $5.7 million in cash, including
cash provided by discontinued operations of $3.5 million. Net income of $4.6
million plus non-cash charges for depreciation and amortization of $4.3 million
and $1.6 million, respectively, were partially offset by an increase in deferred
tax assets of $2.7 million, inventory purchases of $3.5 million, and net
payments of accounts payable, accrued expenses and other liabilities of $1.7
million.
Investing activities in fiscal 1997 consisted primarily of the purchase of
$6.8 million in capital equipment to support new commercial product production,
primarily for automotive sensors.
Fiscal 1997 financing activities consisted mainly of $9.0 million in cash
received by Sensors & Systems from borrowings on a bank line of credit prior to
the Distribution. Technologies reduced its payable to BEI Electronics, Inc. by
$11.1 million during the fiscal year. The reduction was funded by borrowings and
other recurring intercompany activity (see Note 15 to the Consolidated Financial
Statements).
The Company anticipates that its existing capital resources, including cash
provided by operating activities and available bank borrowings, will be adequate
to fund the Company's operations for at least the next twelve months.
Effects of Inflation
Management believes that, for the periods presented, inflation has not had
a material effect on the Company's operations.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
BEI Technologies, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
September 27, September 28,
dollars in thousands except share amounts 1997 1996
- --------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 5,034 $ 8,201
Trade receivables:
Commercial customers, less allowance for doubtful
accounts (1997--$363; 1996--$607) 12,917 11,537
United States Government 4,324 5,175
------- -------
17,241 16,712
Inventories--Note 3 22,656 19,201
Deferred income taxes--Note 6 4,579 2,564
Other current assets 1,039 2,313
Current assets of discontinued operations--Note 2 1,418 6,508
------- -------
Total current assets 51,967 55,499
Property, plant and equipment--Notes 5 and 10
Land 4,093 4,093
Structures 8,936 7,409
Equipment 41,611 35,947
Leasehold improvements 1,036 1,284
------- -------
55,676 48,733
Less allowances for depreciation and amortization 30,315 26,542
------- -------
25,361 22,191
Other assets
Tradenames, patents and related assets, less
amortization (1997--$2,521; 1996--$2,335) 1,753 1,939
Technology acquired under license agreements,
less amortization (1997--$4,231; 1996--$3,269)--Note 11 5,977 6,939
Goodwill, less amortization (1997--$393; 1996--$340) 654 707
Non-current assets of discontinued operations--Note 2 1,625 1,962
Other 2,072 2,934
------- -------
12,081 14,481
------- -------
$89,409 $92,171
======= =======
See notes to consolidated financial statements.
21
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
BEI Technologies, Inc. and Subsidiaries
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
September 27, September 28,
dollars in thousands except share amounts 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 6,317 $ 5,025
Accrued expenses and other liabilities--Note 4 10,497 12,602
Current portion of long-term debt--Note 5 5,628 5,625
Current liabilities of discontinued operations--Note 2 2,558 4,472
-------- --------
Total current liabilities 25,000 27,724
Long-term debt, less current portion--Note 5 27,508 24,137
Deferred income taxes--Note 6 -- 712
Payable to BEI Electronics, Inc.--Note 15 -- 6,062
Other liabilities 284 290
Commitments and contingencies--Notes 2, 9, 10 and 11
Stockholders' equity--Notes 7 and 8
Preferred stock
($.001 par value; authorized 2,000,000 shares; none issued) -- --
Common stock
($.001 par value; authorized 20,000,000 shares; issued
and outstanding; 1997--7,114,813; 1996--Note 7) 7 --
Retained earnings 38,003 34,164
-------- --------
38,010 34,164
Less: Unearned restricted stock--Note 8 (1,393) (918)
-------- --------
33,246
Total stockholders' equity 36,617
-------- --------
$ 89,409 $ 92,171
======== ========
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
22
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
BEI Technologies, Inc. and Subsidiaries
<CAPTION>
Year Ended
-----------------------------------------------------
September 27, September 28, September 30,
dollars in thousands except per share amounts 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales -- Note 2 $ 101,539 $ 96,746 $ 90,475
Cost of sales -- Note 2 65,291 60,494 56,841
----------- ----------- -----------
Gross profit 36,248 36,252 33,634
----------- ----------- -----------
Selling, general and administrative expenses 24,959 26,157 25,641
Provision for royalty and related expenses -- Note 11 -- -- 3,500
Research, development and related expenses 4,866 3,608 3,964
----------- ----------- -----------
29,825 29,765 33,105
----------- ----------- -----------
Income from operations 6,423 6,487 529
Other income 304 242 210
Interest expense (1,942) (2,444) (2,303)
----------- ----------- -----------
Income (loss) before income taxes 4,785 4,285 (1,564)
Income taxes (benefit) -- Note 6 1,788 1,412 (600)
----------- ----------- -----------
Income (loss) from continuing operations 2,997 2,873 (964)
Income (loss) from discontinued operations, net of
income taxes -- Note 2 1,586 1,698 (1,077)
----------- ----------- -----------
Net income (loss) $ 4,583 $ 4,571 $ (2,041)
=========== =========== ===========
Earnings (loss) from continuing operations per
common and common equivalent share -- Note 7 $ 0.42 $ 0.40 $ (0.14)
Earnings (loss) from discontinued operations per
common and common equivalent share -- Note 7 0.22 0.24 (0.16)
----------- ----------- -----------
Earnings (loss) per common and common equivalent
share -- Note 7 $ 0.64 $ 0.64 $ (0.30)
=========== =========== ===========
Weighted average shares outstanding -- Note 7 7,203,448 7,107,818 6,758,745
=========== =========== ===========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
23
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BEI Technologies, Inc. and Subsidiaries
<CAPTION>
Year Ended
--------------------------------------------
September 27, September 28, September 30,
dollars in thousands 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,583 $ 4,571 $ (2,041)
Adjustments to reconcile net income to net cash provided
by operating activities:
Discontinued operations 3,513 5,954 7,617
Depreciation 4,304 4,204 4,456
Amortization 1,636 1,711 1,457
Deferred income taxes (2,727) 675 (2,630)
Other (672) (121) (483)
Changes in operating assets and liabilities:
Trade receivables (604) (835) (2,541)
Inventories (3,455) (2,229) (882)
Other current assets 886 80 175
Trade accounts payable, accrued expenses and other liabilities (1,744) (479) 4,444
-------- -------- --------
Net cash provided by operating activities 5,720 13,531 9,572
Cash flows from investing activities:
Purchase of property, plant and equipment (6,761) (3,624) (2,573)
Other 28 44 35
-------- -------- --------
Net cash used by investing activities (6,733) (3,580) (2,538)
Cash flows from financing activities:
Borrowings on short-term debt 9,000 -- --
Principal payments on long-term debt and other liabilities (26) (75) (138)
Decrease in payable to BEI Electronics, Inc. (11,128) (4,342) (7,323)
-------- -------- --------
Net cash used by financing activities (2,154) (4,417) (7,461)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (3,167) 5,534 (427)
Cash and cash equivalents at beginning of year 8,201 2,667 3,094
-------- -------- --------
Cash and cash equivalents at end of year $ 5,034 $ 8,201 $ 2,667
======== ======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
24
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BEI Technologies, Inc. and Subsidiaries
<CAPTION>
Common Retained Unearned
dollars in thousands stock earnings restricted stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at October 1, 1994 $ -- $ 31,634 $ (706) $ 30,928
Net loss for 1995 (2,041) (2,041)
Restricted Stock Plan--Note 8 (24) (24)
-------- -------- -------- --------
Balances at September 30, 1995 -- 29,593 (730) 28,863
Net income for 1996 4,571 4,571
Restricted Stock Plan--Note 8 (188) (188)
-------- -------- -------- --------
Balances at September 28, 1996 -- 34,164 (918) 33,246
Net income for 1997 4,583 4,583
Restricted Stock Plan--Note 8 (475) (475)
Common stock issued in connection with
the Distribution 7 (7) -- --
Net equity transactions with BEI
Electronics, Inc--Note 15 -- (737) -- (737)
-------- -------- -------- --------
Balances at September 27, 1997 $ 7 $ 38,003 $ (1,393) $ 36,617
======== ======== ======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
25
<PAGE>
Notes to Consolidated Financial Statements
BEI Technologies, Inc. and Subsidiaries
September 27, 1997
Note 1--Summary of Significant Accounting Policies
Basis of Presentation: BEI Technologies, Inc. (Technologies) was
incorporated on June 30, 1997 in the State of Delaware, as a wholly owned
subsidiary of BEI Electronics, Inc. (Electronics). On September 27, 1997,
Electronics distributed to holders of Electronics common stock one share of
common stock of the Company for each share of Electronics common stock held on
September 24, 1997 (the "Distribution"). In connection with the Distribution,
Electronics transferred to Technologies all of the assets, liabilities and
operations of its BEI Sensors & Systems Company, Inc. (Sensors & Systems) and
Defense Systems Company, Inc. (Defense Systems) business segments. As further
described in Note 2, on June 30, 1997, the Board of Directors of Electronics
also approved a formal plan to discontinue the operations of its Defense Systems
segment.
The accompanying consolidated financial statements of Technologies present
the consolidated financial position and results of operations of Sensors &
Systems and Defense Systems, former subsidiaries of Electronics and predecessor
entities to the Company, on a combined basis for all dates and periods prior to
the Distribution. All intercompany accounts and transactions have been
eliminated. The financial position and results of operations of the Sensors &
Systems business segment are presented as continuing operations and those of the
Defense Systems business segment are presented as discontinued operations.
Intercompany accounts and transactions between Technologies and Electronics are
summarized in Note 15.
The Sensors & Systems business provides sensors, engineered subsystems and
associated components which are used for controlled precision machinery and
equipment in industrial, medical, automotive, aerospace and military
applications.
Fiscal Year: The Company's fiscal year ends on the Saturday nearest
September 30. Fiscal years 1997, 1996 and 1995 each contained 52 weeks.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from these
estimates.
Cash and Cash Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
Concentration of Credit Risk: The Company's products are primarily sold to
commercial customers throughout the United States and in various foreign
countries and to the United States government. Substantially all foreign sales
are denominated in U.S. dollars. The Company performs ongoing credit evaluations
of its commercial customers and generally does not require collateral. The
Company maintains reserves for potential credit losses. Historically, such
losses have been within the expectations of management.
Revenue Recognition: Revenue is recognized generally as units are shipped.
Inventories: Inventories are carried principally at the lower of cost
(first-in, first-out method) or fair value and do not exceed net realizable
value.
Depreciation and Amortization: Property, plant and equipment are recorded
at cost. Depreciation and amortization are provided in amounts sufficient to
amortize the cost of such assets over their estimated useful lives, which range
from 3 to 30 years, using the straight-line method for structures and the
accelerated or straight-line methods for equipment.
Leasehold improvements are amortized over the shorter of the lease term or
their estimated useful life.
26
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other Assets: Tradenames, patents and related assets are being
amortized over their remaining lives at the date of acquisition up to a period
of seventeen years.
Technology acquired under license agreements consists primarily of the
cost of exclusive rights to make, use and sell products utilizing quartz rate
sensing technology. Technology acquired is being amortized over thirteen years,
which approximates its estimated useful life from the date of acquisition.
Goodwill consists of the excess of cost over fair value of net tangible
assets acquired in purchase acquisitions. Goodwill is amortized by the
straight-line method over 20 years.
Long Lived Assets: The Company accounts for any impairment of its
long-lived assets using Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121 ("FAS No. 121") "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of". The
Company recognizes impairment losses on long-lived assets, including property,
plant and equipment and other assets, when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the carrying amounts of the assets.
Research and Development: Costs to develop the Company's products are
expensed as incurred in accordance with Statement of Financial Accounting
Standards No. 2 "Accounting for Research and Development Costs", which
establishes accounting and reporting standards for research and development.
Recent Accounting Pronouncements: Statement of Financial Accounting
Standards No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation,"
established a fair-value based method of accounting for stock-based compensation
plans and requires additional disclosures for those companies who elect not to
adopt the new method of accounting. The Company has adopted the disclosure-only
alternative as described in FAS 123 in fiscal year 1997. The Company accounts
for employee stock awards using the intrinsic value method in accordance with
APB Opinion No. 25.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per
Share", which is required to be adopted for the quarter ending December 27,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate earnings (loss) per share for
all prior periods. Had the Statement been implemented for fiscal years 1997 and
1996, the impact on the calculation of earnings (loss) per share would not have
been material.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130 "Reporting Comprehensive Income," ("FAS 130"), and Statement No. 131
"Disclosure about Segments of an Enterprise and Related Information" ("FAS
131"). The Company is required to adopt these Statements in fiscal year 1999.
FAS 130 establishes new standards for reporting and displaying comprehensive
income and its components. FAS 131 requires disclosure of certain information
regarding operating segments, products and services, geographic areas of
operation and major customers. Adoption of these Statements is expected to have
no impact on the Company's consolidated financial position, results of
operations or cash flows.
Earnings (loss) Per Share: For periods prior to the Distribution,
earnings (loss) per share is based on the weighted average number of shares of
outstanding Electronics common stock and dilutive equivalent shares from stock
options (using the treasury stock method) based on the distribution of one share
of Technologies common stock for each share of Electronics common stock. For
periods subsequent to the Distribution, earnings per share will be based on the
weighted average number of shares of outstanding Technologies common stock and
dilutive equivalent shares from stock options (after giving effect to the
conversion of such stock options - see Note 8).
27
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2--Discontinued Operations
On June 30, 1997, the Board of Directors of Electronics announced a formal
plan to discontinue the operations of the Defense Systems segment. Accordingly,
the results of operations of the segment have been presented as discontinued
operations for all periods presented and the assets and liabilities of the
segment have been segregated in the consolidated balance sheets. The remaining
assets are stated at cost, which management believes approximates net realizable
value, and management does not expect any material loss from the on-going
operations or abandonment of the Defense Systems segment. Previously, in
September 1995, Electronics had reached a decision to exit the HYDRA 70 (H 70)
rocket manufacturing line of business which made up a substantial portion of the
Defense Systems segment. Additional products of the segment included weapons
management systems and sales under a cost-plus fee advanced rocket development
contract.
As result of the decision to exit the rocket line of business, the Company
has incurred costs relating to employee severance and the closure and withdrawal
from the leased facility in Camden, Arkansas and similar costs related to its
owned facility in Euless, Texas. The Company recorded costs of sales of
$1,250,000 as exit costs at September 30, 1995 consisting of employee severance
of $750,000, leasehold abandonment of $250,000 and owned facility costs of
$250,000. During fiscal year 1996, the Company incurred $726,000 of costs for
employee severance and leasehold and facility costs of $350,000. Additional
amounts were accrued during fiscal year 1996 for severance costs of $350,000 and
facility costs of $350,000. During fiscal year 1996, the Company recorded net
losses of $640,000 on disposal of assets of the rocket business. At September
28, 1996, an additional charge of $313,000 was recorded to reflect management's
estimate of the fair value of the Euless facility based on current market
conditions. At the end of fiscal year 1996, the balance in the reserve account
consisted of $374,000 and $500,000 for employee severance and facility closure
costs, respectively. During fiscal year 1997, the Company accrued an additional
$33,000 for employee severance costs. Costs incurred during the period for
severance and facilities closure of $362,000 and $362,000, respectively, were
charged against the reserve. The balance in the reserve at the end of fiscal
1997 consisted of $45,000 for employee severance and $138,000 for facilities
closure costs. Management believes at this time the reserve is adequate to cover
future shutdown costs. At September 27, 1997, substantially all inventory and
equipment assets of the rocket business had been written off or disposed of. The
remaining assets of Defense Systems are classified as assets of discontinued
operations on the balance sheet. Management expects to complete the disposition
of these assets during fiscal 1998.
Net sales of the Defense Systems segment were as follows:
Year Ended
---------------------------------------------
September 27, September 28, September 30,
1997 1996 1995
------- ------- -------
(dollars in thousands)
---------------------------------------
Sales--HYDRA 70 ................ $ 2,160 $37,927 $38,517
Other .......................... 6,889 4,708 7,064
------- ------- -------
$ 9,059 $42,635 $45,581
======= ======= =======
28
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3--Inventories
September 27, September 28,
1997 1996
------- -------
(dollars in thousands)
----------------------
Finished products ...................................... $ 557 $ 289
Work in process ........................................ 7,412 6,622
Materials .............................................. 12,302 10,873
Costs incurred under long-term contracts, including
U.S. Government contracts ........................... 2,385 1,417
------- -------
Inventories ............................................ $22,656 $19,201
======= =======
Note 4--Accrued Expenses and Other Liabilities
September 27, September 28,
1997 1996
------- -------
(dollars in thousands)
---------------------
Employee compensation .............................. $ 1,923 $ 1,623
Vacation ........................................... 1,648 1,621
Accrued taxes ...................................... 1,166 343
Royalties and related costs ........................ 806 3,951
Accrued professional fees .......................... 784 501
Insurance .......................................... 690 812
Contract costs ..................................... 578 790
Commissions ........................................ 700 484
Other .............................................. 2,202 2,477
------- -------
Accrued Expenses and Other Liabilities ............. $10,497 $12,602
======= =======
29
<PAGE>
<TABLE>
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5--Long-Term Debt
<CAPTION>
September 27, September 28,
1997 1996
------- -------
(dollars in thousands)
<S> <C> <C>
6.73% Series A Senior Notes; due in annual installments of $3,360 from
October 1, 1996 through October 1, 2000 ......................................................... $13,440 $16,800
6.73% Series B Senior Notes; due in annual installments of $2,240 from
November 15, 1996 through November 15, 2000 ..................................................... 8,960 11,200
Borrowings under bank line of credit ............................................................... 9,000 --
Mortgage note payable with interest at 7.96%; due in monthly installments of
principal and interest of $14 until 1999 when the remaining balance of
approximately $1,700 is due; collateralized by certain real property ............................ 1,736 1,762
------- -------
33,136 29,762
Less current portion ............................................................................... 5,628 5,625
------- -------
$27,508 $24,137
======= =======
</TABLE>
The Senior Notes, which were obligations of Electronics, were assumed by
Technologies in connection with the Distribution at an interest rate of 7.23%
for years subsequent to fiscal year 1997. The interest expense associated with
the Senior Notes was allocated to Technologies and is included in the
consolidated results of operations for fiscal years 1996 and 1997. The Senior
Note Agreement contains covenants concerning certain financial ratios, dividend
payments and minimum balances of net worth. At September 27, 1997, Technologies
was in compliance with these covenants.
At September 27, 1997, Sensors & Systems had a $15.0 million unsecured
credit line with a bank that expired October 31, 1997. At the end of fiscal year
1997, $9.0 million was outstanding. The $9.0 million was used to partially repay
the intercompany payable from Sensors & Systems to Electronics prior to the
Distribution. Interest on the borrowings is based upon the bank's prime rate of
8.5% at September 1997.
The credit facility also allowed for letters of credit up to certain
limits. At September 27, 1997, the Company had one letter of credit in the
amount of $0.4 million outstanding.
The credit line contained covenants which require the Company to meet
certain financial ratios and net worth balances. At September 27, 1997, the
Company was in compliance with these covenants.
On September 28, 1997, Technologies entered into an agreement with the same
bank for a $25.0 million unsecured line of credit which expires in September
2000. On September 29, 1997, the Company borrowed $13.0 million under the new
line of credit and used the funds to repay the $9.0 million of outstanding
borrowings and accrued interest on the prior Sensors & Systems' line of credit
and to make a scheduled principal payment on the Senior Note obligations.
Accordingly, the borrowings under the bank line of credit at September 27, 1997
in the amount of $9.0 million have been classified as a non-current liability in
the accompanying consolidated financial statements.
30
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The new agreement also provides that up to $3.0 million of the line of
credit may be used to fund letters of credit issued on behalf of the Company.
The agreement contains covenants which require the Company to meet certain
financial ratios and minimum net worth balances.
Maturities of long-term debt are as follows: 1998--$5,628,000;
1999--$10,668,000; 2000--$14,600,000; 2001--$2,240,000.
Interest of approximately $1,942,000, $2,202,000 and $2,308,000 was paid
during fiscal years 1997, 1996 and 1995, respectively.
Note 6--Income Taxes
Technologies was included in the consolidated federal income tax returns of
Electronics for fiscal years 1997 and prior, in accordance with the tax
allocation arrangement between the companies. Income taxes were accrued at
estimated tax rates by each of the former subsidiaries of Electronics and
settlement of fiscal year 1997 tax liabilities was estimated using these tax
rates. Subsequent to fiscal year 1997, Technologies will no longer be part of
Electronics' consolidated group.
Deferred tax assets and liabilities are determined based on the differences
between financial reporting and the tax basis of assets and liabilities and are
measured using the enacted tax rates and laws known at this time and that will
be in effect when the differences are expected to reverse.
31
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
The provision for income tax expense consists of the following (in
thousands):
<CAPTION>
Year Ended
----------------------------------------------
September 27, September 28, September 30,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current
Federal ..................................................................... $ 4,688 $ 1,716 $ 1,306
State ....................................................................... 799 47 46
------- ------- -------
Total Current .......................................................... 5,487 1,763 1,352
Deferred
Federal ..................................................................... (2,330) 408 (2,303)
State ....................................................................... (397) 267 (327)
------- ------- -------
Total Deferred ......................................................... (2,727) 675 (2,630)
Total income tax provision (benefit) ............................................. $ 2,760 $ 2,438 $(1,278)
======= ======= =======
Income tax expense (benefit) attributable to continuing operations ............... $ 1,788 $ 1,412 $ (600)
Income tax expense (benefit) attributable to discontinued operations ............. 972 1,026 (678)
------- ------- -------
Total income tax provision (benefit) ............................................. $ 2,760 $ 2,438 $(1,278)
======= ======= =======
</TABLE>
Significant components of the Company's net deferred tax assets are as
follows (in thousands):
September 27, September 28,
1997 1996
Deferred tax assets ------ ------
Accrued expenses ................................... $3,930 $3,675
Inventory valuation ................................ 1,862 80
Contract reserves .................................. 124 420
Other .............................................. 820 964
------ ------
Total deferred tax assets .................. $6,736 $5,139
====== ======
Deferred tax liabilities
Depreciation and property basis difference ......... 1,694 2,309
Prepaid expenses ................................... -- 131
Accrued expenses ................................... 223 252
Other .............................................. 240 595
------ ------
Total deferred tax liabilities ................ 2,157 3,287
------ ------
Net deferred tax assets ....................... $4,579 $1,852
====== ======
32
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
The provision for income taxes differs from the income tax determined by
applying the applicable U.S. statutory federal income tax rate as a result of
the following differences (in thousands):
<CAPTION>
Year Ended
-----------------------------------------------------
September 27, September 28, September 30,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income tax (credit) at the statutory rate of 34% ....................... $ 2,497 $ 2,383 $(1,128)
Federal income tax effect of state income taxes ........................ (137) (106) 96
Goodwill amortization .................................................. 18 19 18
Research and development and related credits ........................... -- (246) --
Other .................................................................. (20) 74 17
------- ------- -------
Federal income taxes (credit) ..................................... 2,358 2,124 (997)
State income taxes (credit) ....................................... 402 314 (281)
------- ------- -------
Provision (credit) for income taxes .................................... $ 2,760 $ 2,438 $(1,278)
======= ======= =======
</TABLE>
Pursuant to the tax sharing agreement with Electronics, the Company's
income taxes have been paid by Electronics and credited to payable to BEI
Electronics, Inc. (see Note 15 to the Consolidated Financial Statements).
The Internal Revenue Services (IRS) audited Electronics' income tax returns
for the fiscal years 1993 through 1995. In fiscal year 1997, Electronics reached
a settlement with the IRS for all issues raised for those years, resulting in
the payment of $1.7 million in additional taxes for those years, of which
approximately $1.0 million relates to Technologies. The settlement related
primarily to the timing of deductions resulting from acquisitions. The payment
of these additional taxes resulted in an increase in Technologies deferred tax
assets and did not affect the provision for income taxes in fiscal year 1997.
Realization of the net deferred tax assets is dependent upon the Company
generating sufficient taxable income in future years to obtain benefit from the
reversal of the underlying temporary differences.
Note 7--Stockholders' Equity
The authorized capital stock of Technologies consists of 2,000,000 shares
of preferred stock ($.001 par value) and 20,000,000 shares of common stock
($.001 par value). In connection with the Distribution, 7,114,813 shares of
Technologies common stock were issued to holders of Electronics common stock.
Prior to the incorporation of Technologies and the Distribution, all of the
capital stock of Sensors & Systems and Defense Systems was held by Electronics.
Note 8--Equity Incentive Plan
The Technologies 1997 Equity Incentive Plan (the "Incentive Plan") was
adopted by the Board of Directors in September 1997. The Incentive Plan provides
for the granting of incentive stock options to employees and nonstatutory stock
options, restricted stock purchase awards, and stock bonuses (collectively,
"Stock Awards") to consultants, employees and directors. Technologies has
reserved 1,139,445 shares of common stock for issuance under the Incentive Plan,
including shares for substitute options granted to the option holders of
Electronics in connection with the Distribution.
33
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under the terms of Distribution, holders of vested stock options to
purchase Electronics common stock were entitled to exercise such options prior
to the Distribution and receive an equivalent number of shares of Technologies
common stock in the Distribution. Unexercised vested and unvested Electronics
stock options were converted to options to purchase Technologies common stock
under the Incentive Plan based on a conversion formula that retained the same
intrinsic value of the options and the same ratio of exercise price per option
to market value per share of common stock as prior to the Distribution, without
any additional benefits to the holders.
<TABLE>
Option activity under the Electronics' 1987 Incentive Stock Option Plan
prior to the Distribution and the adjustment for the conversion to Technologies
options in connection with the Distribution are summarized below:
<CAPTION>
Weighted average
Number of exercise price
common shares per share
------------- ---------
<S> <C> <C> <C>
Options outstanding at October 1, 1994 ..................... 667,465 $ 5.88
Granted ..................................... 31,000 $ 5.00
Exercised ................................... (16,814) $ 3.85
Terminated .................................. (71,256) $ 7.41
-------- --------
Options outstanding at September 30, 1995 .................. 610,395 $ 5.71
Granted ..................................... 11,000 $ 6.42
Exercised ................................... (115,922) $ 6.27
Terminated .................................. (48,511) $ 7.80
-------- --------
Options outstanding at September 28, 1996 .................. 456,962 $ 5.36
Exercised ................................... (137,200) $ 5.33
Terminated .................................. (3,500) $ 7.95
-------- --------
Options outstanding at September 27, 1997
prior to the Distribution .............................. 316,262 $ 5.35
Distribution adjustment .................................... 23,183 --
-------- --------
Adjusted options outstanding at September 27, 1997 ......... 339,445 $ 4.98
======== ========
</TABLE>
<TABLE>
<CAPTION>
Weighted Average Weighted
Number Remaining Contractual Average Exercise
Exercise Prices Outstanding Life (Years) Price Per Share
- --------------- ----------- ------------ ---------------
<S> <C> <C> <C>
$2.68 ................................................... 59,295 2.2 $2.68
$4.08 ................................................... 142,450 1.7 $4.08
$4.66 ................................................... 19,316 7.2 $4.66
$5.00 ................................................... 666 5.7 $5.00
$5.59 ................................................... 5,368 6.3 $5.59
$5.71 ................................................... 1,073 6.5 $5.71
$5.94 ................................................... 19,928 5.7 $5.94
$6.75 ................................................... 23,619 5.1 $6.75
$7.92 ................................................... 52,702 3.7 $7.92
$8.50 ................................................... 15,028 4.7 $8.50
- ----- ------- ------ -----
$2.68 - $8.50 ........................................... 339,445 3.1 $4.98
============= ======= ====== =====
</TABLE>
34
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of September 27, 1997, options for 330,537 shares were vested and
exercisable.
Under the 1992 Restricted Stock Plan of Electronics, 700,000 shares of
Electronics common stock were authorized to be issued to certain key individuals
who have become employees of Technologies, subject to forfeiture if employment
terminated prior to the end of prescribed vesting periods. The market value at
the date of grant of shares is recorded as unearned restricted stock. The market
value of shares granted is amortized to compensation expense over the vesting
periods. As of September 27, 1997, 419,926 shares had been granted, of which
352,350 shares are outstanding, and 145,316 shares have fully vested.
Compensation expense of $274,000, $406,000 and $236,000 was recorded in fiscal
years 1997, 1996 and 1995, respectively.
The impact on the calculation of proforma results of operations and earnings
(loss) per share required by FAS 123 was determined to be immaterial for fiscal
years 1997 and 1996.
Note 9--Employee Benefit Plan
Technologies has a defined contribution retirement plan for the benefit of
all eligible employees. Non-discretionary contributions are based on a fixed
percentage of eligible payroll plus a formula-based matching of employee
contributions. Contributions to the plan by Technologies for the benefit of its
employees for fiscal years 1997, 1996 and 1995 were approximately $626,000,
$622,000 and $684,000 respectively.
Note 10--Lease Commitments
Operating leases consist principally of leases for real properties and
land. Certain of the operating leases contain various options for renewal and/or
purchase of the related assets for amounts approximating their fair market value
at the date of exercise of the option. The future minimum payments for operating
leases consisted of the following at September 27, 1997 (in thousands):
Fiscal Year
1998 ................................................. $1,312
1999 ................................................. 692
2000 ................................................. 481
2001 ................................................. 464
2002 ................................................. 423
Thereafter ........................................... 800
------
Total minimum lease payments ..................... $4,172
======
35
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total rental expense amounted to approximately $1,616,000, $1,530,000 and
$2,238,000 for fiscal years 1997, 1996 and 1995, respectively.
Note 11--Contingencies and Litigation
BEI Systron Donner Company vs. General Precision Industries, Inc., et al.
In January 1997, BEI Systron Donner Company, a division of the Company, and
the former shareholders of General Precision Industries, Inc. (GPI) reached a
confidential settlement of the last remaining issues of the dispute that had
been in arbitration since 1992. Following the November 1996 ruling by the
arbitration panel that GPI may be due costs and expenses, the parties agreed in
their January 1997 settlement on a final payment to fully resolve the dispute.
The impact of the settlement and related legal expenses in the first quarter of
1997 was an after tax charge of approximately $1.1 million. The settlement and
all remaining amounts accrued for GPI under prior rulings by the panel,
including royalties for 1993 through 1996, were paid in the second quarter of
fiscal 1997.
Claim against U.S. Government
In August, 1995, Defense Systems filed a claim against the U.S. Government
relative to the fuze technical data problems experienced on previous contracts.
The amount of the claim was approximately $5 million. This claim was settled
with the Government in September 1996 for $3.6 million. The settlement was
effected through a contract modification to increase the selling price of the
related rockets by $3.6 million and was recorded as additional sales in
September 1996. Defense Systems also believes it has rights for additional
claims against the Government arising out of the H 70 contract and a substantial
claim was filed in 1996. Due to the uncertainties inherent in the formal claims
process, the Company has not recorded any recoveries for unresolved claims in
the accompanying financial statements.
Other
The Company has pending various legal actions arising in the normal course
of business. Management believes that none of these legal actions will have a
material impact on the Company's financial condition or operating results.
Note 12--Sales
Net sales from continuing operations to customers in foreign countries
amounted to $11,998,000, $10,938,000 and $9,680,000 in fiscal years 1997, 1996
and 1995, respectively. In fiscal years 1997, 1996 and 1995, foreign sales did
not exceed 10% of consolidated net sales in any individual geographic area.
Net sales to the U.S. Government for the Sensors and Systems segment's
products amounted to $22,479,000, $25,986,000 and $28,930,000 in fiscal years
1997, 1996 and 1995, respectively. Net sales to the U.S. Government for the
discontinued Defense Systems segment were $8,323,000, $41,219,000 and $44,012,00
for fiscal years 1997, 1996 and 1995, respectively.
36
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 13--Quarterly Results of Operations (Unaudited)
<TABLE>
The tables below present unaudited quarterly financial information for
fiscal years 1997 and 1996:
<CAPTION>
Continuing Operations
Three months ended
------------------------------------------------------
December 28, March 29, June 28, September 27,
1996 1997 1997 1997
---- ---- ---- ----
(dollars in thousands except per share amounts)
------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ................................................................ $ 22,903 $24,710 $26,824 $27,102
Gross profit ............................................................. 7,767 8,810 9,477 10,194
Income (loss) from continuing operations ................................. (359) 957 1,196 1,202
Income from discontinued operations ...................................... 394 495 500 198
Net income ............................................................... 35 1,452 1,696 1,400
Earnings (loss) from continuing operations per common and common
equivalent share ..................................................... $ (0.05) $ 0.13 $ 0.17 $ 0.17
Earnings from discontinued operations per common and common
equivalent share ..................................................... $ 0.05 $ 0.07 $ 0.07 $ 0.03
Earnings per common and common equivalent share .......................... $ 0.00 $ 0.20 $ 0.24 $ 0.19
December 30, March 30, June 29, September 28,
1996 1997 1997 1997
---- ---- ---- ----
Net sales ................................................................ $ 22,354 $24,708 $24,336 $25,348
Gross profit ............................................................. 8,183 9,405 9,420 9,244
Income (loss) from continuing operations ................................. 649 767 1,019 438
Income from discontinued operations ...................................... 239 335 574 550
Net income ............................................................... 888 1,102 1,593 988
Earnings from continuing operations per common and common
equivalent share ..................................................... $ 0.09 $ 0.11 $ 0.14 $ 0.06
Earnings from discontinued operations per common and common
equivalent share ..................................................... $ 0.03 $ 0.05 $ 0.08 $ 0.08
Earnings per common and common equivalent share .......................... $ 0.12 $ 0.16 $ 0.22 $ 0.13
</TABLE>
Note 14--Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("Statement 107"),
"Disclosures about Fair Value of Financial Instruments," requires disclosure of
fair value information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate that value. Whenever
possible, quoted market prices were used to develop fair values. In cases where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets, and, in many cases, could
not be realized in immediate settlement of the instrument. Statement 107
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not represent
37
<PAGE>
BEI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the underlying value of the Company. The following methods and assumptions were
used by the Company in estimate its fair value disclosures for financial
instruments as of September 27, 1997, and as of September 28, 1996.
Cash and Cash Equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values.
Long-Term Debt: The fair value of these liabilities has been estimated
based upon the discounted future cash flows. The discount rate used included a
risk free rate derived from the Treasury yield curve plus a risk weighting
commensurate with the Company's borrowing position. The fair value of long-term
debt is approximately $27,570,000, and $23,648,000 compared with the carrying
amounts of $27,508,000 and $24,137,000 at September 27, 1997 and September 28,
1996, respectively.
Note 15--Intercompany Transactions
Amounts payable to Electronics included in the consolidated balance sheets
represent net balances as the result of various transactions between Electronics
and Technologies. There were no terms of settlement associated with the account
balance. The balance resulted primarily from of the Company's participation in
Electronics' central cash management program, wherein the Company's cash
receipts were remitted to Electronics and cash disbursements were funded by
Electronics. Other transactions include the Company's share of the current
portion of Electronics consolidated federal and state income tax liabilities,
administrative and other expenses incurred by Electronics on behalf of
Technologies, and interest charges on a portion of the outstanding balances.
<TABLE>
Intercompany transactions are summarized follows:
<CAPTION>
Year Ended
----------------------------------------
September 27, September 28, September 30,
1997 1996 1995
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Balance payable to Electronics at beginning of year ................................ $ 6,062 $ 10,404 $ 17,727
Net cash remitted to Electronics ................................................... (31,304) (22,537) (26,277)
Net transfers of assets and liabilities ............................................ 5,553 1,648 (2,086)
Allocations of Electronics' current federal and state tax liabilities .............. 3,034 1,891 2,161
Administrative expenses and other intercompany activity ............................ 16,655 14,656 18,879
-------- -------- --------
Balance payable to Electronics at end of year ...................................... $ -- $ 6,062 $ 10,404
======== ======== ========
Average balance during year ........................................................ $ 4,418 $ 9,897 $ 14,418
======== ======== ========
</TABLE>
Net equity transactions with Electronics included in the consolidated
statement of stockholders' equity for fiscal year 1997 consists of intercompany
liabilities of Electronics and costs of the Distribution, both of which were
assumed by Technologies in connection with the Distribution, partially offset by
payments made during the year by Electronics on Senior Notes payable.
38
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
BEI Technologies, Inc.
We have audited the accompanying consolidated balance sheets of BEI
Technologies, Inc. as of September 27, 1997 and September 28, 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 27, 1997. 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 BEI Technologies, Inc. at
September 27, 1997 and September 28, 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 27, 1997 in conformity with generally accepted accounting principles.
Ernst & Young LLP
San Francisco, California
November 12, 1997
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information with respect to directors and executive
officers is set forth in Part I of this Report. Additional
information required by this Item is incorporated herein by
reference to the section entitled "Compliance with Section
16(a) of the Securities and Exchange Act of 1934" of the Proxy
Statement related to the Company's 1998 Annual Meeting of
Stockholders to be filed by the Company with the Securities
and Exchange Commission (the "Definitive Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein
by reference to the sections entitled "Executive Compensation"
and "Certain Transactions" of the Company's Definitive Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein
by reference to the section entitled "Security Ownership of
Certain Beneficial Owners and Management" of the Company's
Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein
by reference to the sections entitled "Certain Transactions"
and "Compensation Committee Interlocks and Insider
Participation" of the Definitive Proxy Statement.
40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
<TABLE>
The following documents are filed as part of this Form 10-K.
<CAPTION>
Form
10-K Page
(a)(1) Index to Consolidated Financial Statements. Number
------------------------------------------- ------
<S> <C>
The following Consolidated Financial Statements of BEI Technologies, Inc. and its
subsidiaries are filed as part of this Form 10-K:
Report of Ernst & Young LLP, Independent Auditors 39
Consolidated Balance Sheets -
September 27, 1997 and September 28, 1996 21
Consolidated Statements of Operations -
Years ended September 27, 1997, September 28, 1996
and September 30, 1995 23
Consolidated Statements of Cash Flows -
Years ended September 27, 1997, September 28, 1996
and September 30, 1995 24
Consolidated Statements of Stockholders' Equity -
Years ended September 27, 1997, September 28, 1996
and September 30, 1995 25
Notes to Consolidated Financial Statements -
September 27, 1997 26
(a)(2) Index to Financial Statement Schedule.
The following Consolidated Financial Statement Schedule of BEI Technologies, Inc. for
each of the years in the period ended September 27, 1997 is filed as part of this Form
10-K:
Schedule II Valuation and Qualifying Accounts S-1
Report of Ernst & Young LLP, Independent Auditors as S-2
to Schedule
</TABLE>
Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the Consolidated Financial Statements or Notes thereto.
41
<PAGE>
<TABLE>
(a)(3) Listing of Exhibits
<CAPTION>
Exhibit Numbers Description Footnote
--------------- ----------- --------
<S> <C> <C>
2.1 Distribution Agreement between BEI Electronics, Inc. i
and BEI Technologies, Inc.
2.2 Corporate Services Agreement between BEI
Technologies, Inc. and BEI Electronics, Inc. i
2.3 Tax Allocation and Indemnity Agreement between BEI
Electronics, Inc. and BEI Technologies, Inc. i
2.4 Assumption of Liabilities and Indemnity Agreement
between BEI Electronics, Inc. and BEI Technologies,
Inc. i
2.5 Technology Transfer and License Agreement by and
between BEI Electronics, Inc. and BEI Technologies,
Inc. i
2.6 Trademark Assignment and Consent Agreement by and
between BEI Electronics, Inc. and BEI Technologies,
Inc. i
2.7 Agreement Regarding Certain Representations and
Covenants by and between BEI Electronics, Inc. and
BEI Technologies, Inc. i
3.1 Certificate of Incorporation of BEI Technologies, Inc. i
3.2 Bylaws of BEI Technologies, Inc. i
3.3 Registrant's Certificate of Designation of Series A
Junior Participating Preferred Stock (filed as Exhibit
99.3 hereto) i
4.1 Specimen Common Share Certificate i
4.2 Certificate of Incorporation of BEI Technologies, Inc.
(filed as Exhibit 3.1 hereto) i
4.3 Bylaws of BEI Technologies, Inc. (filed as Exhibit 3.2
hereto) i
4.4 Registrant's Certificate of Designation of Series A
Junior Participating Preferred Stock (filed as Exhibit
99.3 hereto) i
4.5 Form of Rights Certificate (filed as Exhibit 99.4 hereto) i
10.1 Registrant's 1997 Equity Incentive Plan and forms of
related agreements i
42
<PAGE>
10.2 * Executive Change in Control Benefits Agreement
between BEI Technologies, Inc. and Certain Named
Executive Officers i
10.3 Assumption Agreement--Series A and Series B Senior
Notes dated September 15, 1997 by and between BEI i
Technologies, Inc., Principal Mutual Life Insurance
Company, Berkshire Life Insurance Company and
TMG Life Insurance Company
10.4 Credit Agreement dated as of September 27, 1997 i
among BEI Technologies, Inc., BEI Sensors & Systems
Company, Inc., Defense Systems Company, Inc., CIBC,
Inc., Canadian Imperial Bank of Commerce and CIBC
Wood Gundy Securities Corp.
11.1 Statement regarding Computation of Per Share
Earnings
23.1 Consent of Ernst &Young LLP, Independent Auditors
24.1 Power of Attorney
27.1 Financial Data Schedule
99.1 BEI Technologies, Inc. Information Statement dated
September 24, 1997 i
99.2 Rights Agreement dated as of September 11, 1997
among BEI Technologies, Inc. and ChaseMellon
Shareholder Services, L.L.C. i
99.3 Registrant's Certificate of Designation of Series A
Junior Participating Preferred Stock i
99.4 Form of Rights Certificate i
<FN>
(i) Incorporated by reference. Previously filed as an exhibit to the
Registrant's Information Statement on Form 10 (File No. 0-22799) as
filed on September 22, 1997.
* Items which are management contracts or compensatory plans or
arrangements required to be filed as an exhibit pursuant to Item 14(c)
of Form 10-K.
</FN>
</TABLE>
(b) No reports on Form 8-K were filed by the Company during the quarter
ended September 27, 1997.
43
<PAGE>
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.
BEI TECHNOLOGIES, INC.
By: /S/ Robert R. Corr
-----------------------------------
Robert R. Corr
Secretary, Treasurer and Controller
(Principal Accounting Officer)
December 5, 1997
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles Crocker and Gary D. Wrench, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments to this Report and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
44
<PAGE>
<TABLE>
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.
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Charles Crocker President, Chief Executive December 5, 1997
- -------------------------------------- Officer and Chairman of the Board of
(Charles Crocker) Directors (Principal Executive Officer)
/s/ Richard M. Brooks Director December 5, 1997
- --------------------------------------
(Richard M. Brooks)
/s/ George S. Brown Director December 5, 1997
- --------------------------------------
(George S. Brown)
/s/ C. Joseph Giroir, Jr. Director December 5, 1997
- --------------------------------------
(C. Joseph Giroir, Jr.)
/s/ William G. Howard, Jr. Director December 5, 1997
- --------------------------------------
(William G. Howard, Jr.)
/s/ Asad M. Madni Director December 5, 1997
- --------------------------------------
(Asad M. Madni)
/s/ Robert Mehrabian Director December 5, 1997
- --------------------------------------
(Robert Mehrabian)
/s/ Gary D. Wrench Senior Vice President, Chief December 5, 1997
- -------------------------------------- Financial Officer and Director
(Gary D. Wrench)
</TABLE>
45
<PAGE>
<TABLE>
SCHEDULE II
BEI TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other Accounts Deductions End of
Description of Period Expenses Describe Describe Period
(in thousands)
<S> <C> <C> <C> <C> <C>
Year ended September 27, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts ................................... $607 $ 75 $ -- $319(C) $363
Valuation allowance for deferred tax
assets ......................................................... 94 -- (94)(B) -- --
---- ---- --------- ------ ----
Total ........................................................ $701 $ $ -- $ $
==== ==== ========= ====== ====
Year ended September 28, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts ................................... $395 $282 $ -- $ 70(A) $607
---- ---- --------- ------ ----
Valuation allowance for deferred tax
assets ......................................................... 143 -- (49)(B) -- 94
---- ---- --------- ------ ----
Total ........................................................ $538 $282 $ (49) $ 70 $701
==== ==== ========= ====== ====
Year ended September 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts ................................... $315 $119 $ -- $ 39(A) $395
---- ---- --------- ------ ----
Valuation allowance for deferred tax
assets ......................................................... -- 143(B) -- -- 143
---- ---- --------- ------ ----
Total ........................................................ $315 $262 -- $ 39 $538
==== ==== ========= ====== ====
<FN>
(A) Miscellaneous adjustments to the allowance
(B) Adjustment based on the evaluation of uncertainties in the realization of
state net operating loss carryovers
(C) Write-offs of uncollectible accounts
</FN>
</TABLE>
S-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS, AS TO SCHEDULE
The Board of Directors and Shareholders
BEI Technologies, Inc.
We have audited the consolidated financial statements of BEI Technologies, Inc.
as of September 27, 1997 and September 28, 1996, and for each of the three years
in the period ended September 27, 1997, and have issued our report thereon dated
November 12, 1997. Our audits also included the financial statement schedule
listed in Item 14(a) of this Form 10-K. This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects, the information set forth
therein.
Ernst & Young LLP
San Francisco, California
November 12, 1997
S-2
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
11.1 Statement regarding computation of per share earnings
23.1 Consent of Ernst & Young LLP Independent Auditors
24.1 Power of Attorney
27.1 Financial Data Schedule
<TABLE>
EXHIBIT 11.1
<CAPTION>
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
YEAR ENDED
September 27, September 28, September 30,
(in thousands except per share amounts) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average shares outstanding 7,033 6,926 6,759
Net effect of dilutive stock options
based on the treasury stock
method using fair market value 170 182 --
--------------------------------------------
Total weighted average shares outstanding 7,203 7,108 6,759
============================================
Net income $4,583 $4,571 $(2,041)
--------------------------------------------
Earnings per common share and common
equivalent share $ 0.64 $ 0.64 $ (0.30)
============================================
</TABLE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-38643), as amended, pertaining to the 1997 Equity Incentive Plan of
BEI Technologies, Inc., of our reports dated November 14, 1997, with respect to
the consolidated financial statements and schedule of BEI Technologies, Inc.,
included in the Annual Report (Form 10-K) for the year ended September 27, 1997.
Ernst & Young LLP
San Francisco, California
December 5, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 27, 1997
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> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> SEP-27-1997
<CASH> 5,034
<SECURITIES> 0
<RECEIVABLES> 12,917
<ALLOWANCES> 0
<INVENTORY> 22,656
<CURRENT-ASSETS> 51,967
<PP&E> 25,361
<DEPRECIATION> 0
<TOTAL-ASSETS> 89,409
<CURRENT-LIABILITIES> 25,000
<BONDS> 27,508
0
0
<COMMON> 7
<OTHER-SE> 36,610
<TOTAL-LIABILITY-AND-EQUITY> 89,409
<SALES> 101,539
<TOTAL-REVENUES> 101,843
<CGS> 65,291
<TOTAL-COSTS> 65,291
<OTHER-EXPENSES> 29,825
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,942
<INCOME-PRETAX> 4,785
<INCOME-TAX> 1,788
<INCOME-CONTINUING> 2,997
<DISCONTINUED> 1,586
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,583
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
</TABLE>
