==========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended January 2, 1999
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________
to _____________.
Commission file number 0-22799
B E I T E C H N O L O G I E S, I N C.
(Exact name of Registrant as specified in its charter)
Delaware 94-3274498
- ------------------------------- ----------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
One Post Street, Suite 2500
San Francisco, California 94104
----------------------------------------
(Address of principal executive offices)
(415) 956-4477
----------------------------------------
(Registrant's telephone number)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: $.001 Par Value, 7,395,629 shares as of February 4, 1999
<PAGE>
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--January 2, 1999
and October 3, 1998
Condensed Consolidated Statements of Operations--Quarter
ended January 2, 1999 and December 27, 1997
Condensed Consolidated Statements of Cash Flows--Quarter
ended January 2, 1999 and December 27, 1997
Notes to Condensed Consolidated Financial Statements--
January 2, 1999
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 2, October 3,
1999 1998
----------- ------------
(Unaudited) (See note
below)
(dollars in thousands)
- ------------------------------------------------------- ----------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................. $4,293 $3,557
Investments........................................... 5,605 5,419
Trade receivables, net................................ 25,643 23,475
Inventories, net -- Note 2............................ 29,687 29,623
Other current assets.................................. 7,113 5,835
----------- ------------
Total current assets.............................. 72,341 67,909
Property, plant and equipment, net...................... 29,896 30,619
Acquired technology..................................... 4,776 5,015
Goodwill................................................ 1,842 1,876
Other assets, net....................................... 3,570 4,096
----------- ------------
$112,425 $109,515
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable................................ $10,496 $13,014
Accrued expenses and other liabilities................ 12,925 13,125
Deferred compensation liability....................... 5,605 5,419
Current portion of long-term debt..................... 109 227
----------- ------------
Total current liabilities......................... 29,135 31,785
Long-term debt, less current portion.................... 40,805 37,157
Other liabilities....................................... 1,582 379
Stockholders' equity.................................... 40,903 40,194
----------- ------------
$112,425 $109,515
=========== ============
<FN>
See notes to condensed consolidated financial statements.
Note: The balance sheet at October 3, 1998 has been derived from the
audited consolidated balance sheet at that date.
</FN>
</TABLE>
<PAGE>
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
----------------------
January 2, December 27,
1999 1997
(dollars in thousands except per share amounts)
- ---------------------------------------------- ----------
<S> <C> <C>
Net sales.......................... $36,743 $28,256
Cost of sales...................... 25,280 18,634
---------- ----------
11,463 9,622
Selling, general and
administrative expenses......... 7,463 6,118
Research, development and
related expenses................ 1,496 1,396
---------- ----------
Income from operations............. 2,504 2,108
Interest expense................... (778) (641)
Other income....................... 59 82
---------- ----------
Income from continuing
operations before income taxes.. 1,785 1,549
Provision for
income taxes.................... 731 671
---------- ----------
Income from continuing
operations...................... 1,054 878
Income from discontinued
operations, net of income taxes. -- 81
---------- ----------
Income before extraordinary item 1,054 959
Extraordinary item, net of
income taxes (326) --
---------- ----------
Net income $728 $959
========== ==========
Earnings per Common Share -- Note 4
Basic Earnings per Common Share
Income from continuing
operations..................... $0.15 $0.13
Income from discontinued
operations, net of income taxes -- 0.01
---------- ----------
Income before extraordinary item.. $0.15 $0.14
Loss from extraordinary item,
net of income taxes............ ($0.05) --
---------- ----------
Net income per common share....... $0.10 $0.14
========== ==========
Diluted Earnings per Common and Common Equivalent Share
Income from continuing
operations..................... $0.14 $0.12
Income from discontinued
operations, net of income taxes -- 0.01
---------- ----------
Income before extraordinary item.. $0.14 $0.13
Loss from extraordinary item,
net of income taxes............ (0.04) --
---------- ----------
Net income per common and common
equivalent share............... $0.10 $0.13
========== ==========
Dividends per common share........ $0.02 $0.02
========== ==========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
----------------------
January 2, December 27,
1999 1997
(dollars in thousands)
- ------------------------------------------------- ---------- ----------
<S> <C> <C>
Net cash provided(used) by operating activities. ($2,152) $2,733
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment... (544) (995)
Decrease in other assets..................... (239) 6
---------- ----------
Net cash used in investing activities............ (783) (989)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt..... 39,223 4,000
Payments on long-term debt................... (35,509) (5,605)
Proceeds from issuance of common stock....... -- 20
Payment of cash dividends.................... (149) (144)
Other........................................ 106 --
---------- ----------
Net cash provided(used) by financing activities.. 3,671 (1,729)
---------- ----------
Net increase in cash and cash equivalents........ 736 15
Cash and cash equivalents at beginning of period. 3,557 5,034
---------- ----------
Cash and cash equivalents at end of period....... $4,293 $5,049
========== ==========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
January 2, 1999
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the year ending
October 2, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto in the Company's annual report on Form 10-K
for the year ended October 3, 1998.
BEI Technologies, Inc. ("Technologies") was incorporated on June 30, 1997 in
the State of Delaware, as a wholly owned subsidiary of BEI Electronics, Inc.,
subsequently renamed BEI Medical Systems Company, 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. The operations of Defense Systems were discontinued during
the third quarter of fiscal year 1998. The financial position and results of
operations of Sensors & Systems are presented as continuing operations and those
of Defense Systems are presented as discontinued operations in the applicable
periods of the condensed consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
NOTE 2 -- INVENTORIES
January 2, October 3,
1999 1998
------------ ------------
(dollars in thousands)
Finished products......................... $1,379 $1,460
Work in process........................... 10,447 10,183
Materials................................. 17,854 16,051
Costs incurred under long-term contracts,
including U.S. Government contracts.... 7 1,929
------------ ------------
Net inventories........................... $29,687 $29,623
============ ============
NOTE 3 -- 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 prior to the final disposition of the segment in the
third quarter of fiscal 1998.
NOTE 4 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
common share from continuing operations before extraordinary item:
<TABLE>
<CAPTION>
Quarter Ended
----------------------
January 2, December 27,
1999 1997
---------- ----------
(in thousands except per share amounts)
<S> <C> <C>
Numerator
Income from continuing operations
before extraordinary item $1,054 $878
========== ==========
Denominator
Denominator for basic earnings
per share --
Weighted average shares, net
of unvested contingently
issuable shares (FY 1999 -- 266
shares; FY 1998 -- 268 shares) 7,130 6,923
Weighted average contingently
issuable shares granted........ 29 29
Effect of dilutive securities:
Contingently issuable shares.... 62 9
Employee stock options.......... 75 168
---------- ----------
Denominator for diluted
earnings per share............. 7,296 7,129
========== ==========
Basic earnings per share from
continuing operations before
extraordinary item............. $0.15 $0.14
========== ==========
Diluted earnings per share from
continuing operations before
extraordinary item............ $0.14 $0.13
========== ==========
</TABLE>
NOTE 5--CONTINGENCIES AND LITIGATION
The Company has pending various legal actions arising in the normal course of
business. None of these legal actions is expected to have a material effect on
the Company's operating results or financial condition.
<PAGE>
Item 2. 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 here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section, and those discussed in the
Company's Form 10-K for the year ended October 3, 1998.
The following table sets forth, for the fiscal periods indicated, the percentage
of net sales represented by certain items in the Company's Condensed
Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Quarter Ended
----------------------
January 2, December 27,
1999 1997
---------- ----------
<S> <C> <C>
Net sales.......................... 100.0% 100.0%
Cost of sales...................... 68.8 65.9
---------- ----------
Gross margin....................... 31.2 34.1
Operating expenses:
Selling, general and
administrative expenses......... 20.3 21.7
Research, development and
related expenses................ 4.1 4.9
---------- ----------
Income from operations............. 6.8 7.5
Interest expense................... 2.1 2.3
Other income....................... 0.2 0.3
---------- ----------
Income from continuing
operations before income taxes.. 4.9 5.5
Provision for
income taxes.................... 2.0 2.4
---------- ----------
Income from continuing
operations...................... 2.9 3.1
Income from discontinued
operations, net of income taxes. -- 0.3
---------- ----------
Income before extraordinary item 2.9 3.4
Extraordinary item, net of
income taxes.................... (0.9) --
---------- ----------
Net income 2.0% 3.4%
========== ==========
</TABLE>
Quarters ended January 2, 1999 and December 27, 1997
Net sales for the first quarter of fiscal 1999, ended January 2, 1999, increased
$8.5 million to $36.7 million or 30.0% from $28.3 million during the same
period in fiscal 1998.
Sales volume increased primarily in commercial sales to the industrial and
automotive markets. The increase was primarily due to greater sales of emerging
automotive products, increased international sales of traditional motion control
products from a company acquired during the fourth quarter of fiscal 1998, and
sales related to completion of government contracts for space satellite programs
initially scheduled for completion in the prior fiscal year. The sales increase
was offset, in part, by declines in both domestic commercial and government
sales of traditional motion control products.
Cost of sales as a percentage of net sales in the first quarter of fiscal 1999
increased 2.9 percentage points to 68.8% from 65.9% in the comparable period of
fiscal 1998, due to the impact of lower margin automotive GyroChip sensor
sales. Cost of sales as a percentage of net sales for automotive sensors was
slightly lower than the same quarter of the prior year, but is higher than the
average percentage cost of sales for the Company. Sales of automotive products
increased from 13% in the first quarter of fiscal 1998 to 32% of net sales in
the most recent quarter. Accordingly, the total cost of sales percentage was
negatively impacted. The Company expects gross profit as a percentage of net
sales will continue to decline as automotive sensors become a larger portion
of the Company's product mix.
Selling, general and administrative expenses as a percentage of net sales
decreased in the first quarter of fiscal 1999 versus the comparable period of
fiscal 1998 due to higher sales volume. Total selling, general and
administrative expenses increased due primarily to the new international
operation and spending to support automotive product sales. These increases
were partially offset by reduced spending at domestic operations selling
traditional motion control products.
Research, development and related expenses as a percentage of net sales for the
first quarter of fiscal 1999 decreased slightly from the comparable period of
fiscal 1998 due to higher sales volume combined with only a slight increase in
actual research, development and related expenses.
Liquidity and Capital Resources
During the first quarter of fiscal 1999, total cash used by operations was $2.2
million. Cash provided by operations included net income of $0.7 million,
adjusted for the positive impact of non-cash charges to income from depreciation
and amortization of $1.3 million and $0.5 million, respectively, and increases
to other liabilities and income taxes payable of $1.9 million. Offsetting
these items were an increase in accounts receivables of $2.2 million and in
other current assets of $0.8, and a decrease in customer advances of $0.1
million. Cash used by operations also included payments of accrued expenses
and trade payables of $3.4 million.
Cash used in investing activities consisted of equipment purchases of $0.5
million and purchases of other assets of $0.2 million.
Cash provided from financing activities consisted primarily of proceeds from a
new senior note issuance of $35.0 million and proceeds from long-term
borrowing of $4.2 million. The proceeds from the new senior note issuance
plus an additional $0.5 million were used to retire existing long-term debt
$35.5 million. Dividend payments used $0.1 million in cash.
While the Company believes that its existing cash balances, together with cash
derived from operating revenues, will be sufficient to meet the Company's
capital requirements for the next twelve months, the Company may need to raise
additional funds through public or private financing or other arrangements.
There can be no assurance that the Company will not require additional funding,
or that such additional funding, if needed, will be available on terms
attractive to the Company, or at all. Any additional equity financing may be
dilutive to the stockholders, and debt financing, if available, may involve
restrictive covenants.
The Company had no material capital commitments at January 2, 1999.
Year 2000 Compliance: Modification of Management Information Systems
The Company is evaluating the potential impact of what is commonly referred to
as the "Year 2000" issue, concerning the possible inability of certain
information systems to properly recognize and process dates containing Year 2000
and beyond. If not corrected, these systems could fail or create erroneous
results. The Company has completed an assessment of its products and, at this
time, does not believe its products present any Year 2000 issues.
The Company's management information systems primarily use software products
purchased from commercial sources without significant modification or
customization. Updates to these products are routinely installed by the Company
to upgrade its systems and correct known faults in the software. All major
systems were reviewed during the fourth quarter of fiscal 1998 for Year 2000
issues by an outside consultant and a report was issued to the Board. Where
necessary, the requirements for upgraded hardware and software are in the
process of implementation by all operating units and completion is expected by
June 1999. One operating unit is in the process of converting its existing
manufacturing and financial systems, including hardware, and expects to be
finished in September 1999. Approximately $100,000 was incurred for the study
and no other significant incremental costs were identified with non-routine
updates that specifically addressed only Year 2000 compliance. Based on
currently available information, management does not believe the Year 2000
matters discussed above related to internal systems or products sold to
customers will have a material adverse impact on the Company's financial
condition or operations; however, it is uncertain to what extent the Company may
be affected by such matters. In addition, there can be no assurance that the
failure to insure Year 2000 capability by a supplier or another third party
would not have a material adverse effect on the Company.
Effects of Inflation
Management believes that, for the periods presented, inflation has not had a
material effect on the Company's operations.
<PAGE>
BEI TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended January 2, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized on February 16, 1999.
BEI Technologies, Inc.
By: /s/ Robert R. Corr
Robert R. Corr
Secretary, Treasurer and
Controller
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE PERIOD ENDED JANUARY 2, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> OCT-04-1998
<PERIOD-END> JAN-02-1999
<CASH> 4,293
<SECURITIES> 0
<RECEIVABLES> 5,605
<ALLOWANCES> 0
<INVENTORY> 25,643
<CURRENT-ASSETS> 72,341
<PP&E> 29,896
<DEPRECIATION> 0
<TOTAL-ASSETS> 112,425
<CURRENT-LIABILITIES> 29,135
<BONDS> 40,805
0
0
<COMMON> 7
<OTHER-SE> 40,896
<TOTAL-LIABILITY-AND-EQUITY> 112,425
<SALES> 36,743
<TOTAL-REVENUES> 36,802
<CGS> 25,280
<TOTAL-COSTS> 25,280
<OTHER-EXPENSES> 8,959
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 778
<INCOME-PRETAX> 1,785
<INCOME-TAX> 731
<INCOME-CONTINUING> 1,054
<DISCONTINUED> 0
<EXTRAORDINARY> (326)
<CHANGES> 0
<NET-INCOME> 728
<EPS-PRIMARY> $0.10
<EPS-DILUTED> $0.10
</TABLE>
